Turnaround Leadership Skills Required to be Successful
 
 
12 Steps: Executive Overview
Step 1: Why Businesses Fail
Step 2: How to Know if Your Business is in Trouble
Step 3: Are You Prepared for the Task
Step 4: Turnaround Leadership
Step 5: Organizing Your Turnaround Team
Step 6: Stop the Bleeding (Cash)
Step 7: Problem  Diagnostics
Step 8: Marketing During the Turnaround
Step 9: Developing the Turnaround Plan
Step 10: Down-Sizing Staff
Step 11: Dealing with Creditors
Step 12: Financing During the Turnaround
Disclaimer-Please Read
 

   

Critical Care for Companies

Turnaround Step 4: Crisis Leadership


Why you should read this section

  • Leadership during a turnaround is very different from "business as usual" leadership, find out how if differs

  • If you are not comfortable with this "best practices" leadership style, then you must find someone who is

  • This leadership style works but can lead to confusion and resentment, find out why


"Turnarounds are akin to war. The results of failure, if not bankruptcy and death, are grievous wounds. During the periods of greatest risk, the military organization model is the most effective"

---John O. Whitney---

  Crisis leadership style during a turnaround

John O. Whitney in his "Taking Charge-Management Guide to Troubled Companies and Turnarounds" is perhaps the most articulate spokesperson I have discovered in my research advocating the necessary leadership style for a successful turnaround. I have quoted a number of his principles in the box below. After his statements, I will unpack his comments into a checklist of leadership characteristics and action steps.

"Let's clear up this mess and get going!!"

The successful leader will control as many activities as possible. Key functions and key business units will receive his careful, frequent, personal scrutiny. Stringent controls will be placed on operating expenditures. Previously approved capital spending will be canceled unless it has been specifically re-approved in writing by the new leader. Capital projects under way will be reviewed, then canceled or delayed if such action is feasible or necessary. In large organizations, the leader will sign purchase orders greater than an appropriate threshold; in smaller organizations, he will sign them all. He will install inspection routines to prevent circumvention of the purchase order system. Salaries will be frozen. Hiring- full time, part time and temporary, will require his specific, written approval. Meetings will start with breakfast and end will after dinner. Days off will be Sunday afternoons. He will meddle, ask hundreds of questions, and, in general, violate every rule of "good' management practice, creating resentment and confusion. Why...Because he possesses all the right answers? Hardly! Because of the need to develop useful information, the need to communicate change, and the need to rebuild the organization.

There will be changes in both the organization's structure and its processes. Structure is exemplified by the organization chart: who reports to whom? Process deals with interactions: Who is invited to meetings? What authority is given? During the 1st few months he will usually not be ready to determine what structural changes are appropriate for the long term. By first centralizing the management process, the new leader preserves his options. Structural changes announced in haste may have to be changed as new information is developed. 

The initial outcome of centralizing the management process without changing the organization chart will be a highly disorganized mess. A horror story both to traditional organizations theorists and to the managers involved. On the one hand, senior and middle executives will be holding the job titles they held before the new leader arrived, but on the other hand, they will be told to do nothing new without approval from him.

Reporting relationships will be altered, not only on the organization chart, but also by virtue of the new leader's frequent violations of organization's protocol as he skips over management layers, involving himself in decisions that others have made previously.

This process of management by fiat and chaos will create additional stress for an already tortured organization, but the new leader should persevere, abandoning this style only when he gains the information he feels he needs in order to make further judgments about the business and its people.

Before I unpack those ideas on turnaround leadership, I want to add one more quote. This is for the benefit of those who will be leading the turnaround but were in a leadership position when the business went into declineand not being hired from the outside as a turnaround specialist. 

This is from Kevin Muir and his publication "The Insider Secrets to Saving Your Business". 

Act like a turnaround leader 

As you read the business press, you will notice Boards of Directors often fire their CEOs once their firms are in trouble. They fire their CEO because they see him or her being the wrong leader at the wrong time to turnaround the business. You should do everything that you can to prevent others viewing you as being the wrong leader.

 

To save yourself and your company, you have to become a new leader. You must show your organization, your board, your banker, your creditors, your investors and the investment community that you can change your style. You must also manage your image if you run a family owned company as well. Everyone needs to know that you can become a hands-on turnaround leader making the tough calls. Even if your position is not at risk, it still is important to change your leadership style before beginning the planning process. This change will set the tone that you are serious about saving your business, your employees' jobs and your shareholder's investment.

Here then, are the key qualities and actions necessary to be a successful turnaround leader: 

  Demand that all temporary help be terminated immediately and redeploy existing staff to fill gaps

  Require CEO approval before any action is taken on the recruitment of any personnel

  Require CEO approval of all capital expenditure requests above a defined minimum limit

  Have all redundant inventory identified and, if possible, disposed of at whatever price can be obtained

  Cut back sharply on the replacement of office equipment

  Check expense accounts to ensure that any entertaining of clients is not overly lavish

  Turnarounds are intensive management exercises that focus a bright, glaring light on an otherwise normal business activity, question and challenge everything

  Aggressively clean out the deadwood employees and cast out the rebels

  Quickly develop a challenging but achievable business plan that will assure the survival of the firm

  Established a productive relationship with important customers, key vendors, investors, and lenders

  Define a clear sense of mission

  You must trim your organizationno fat is allowed

  Develop an exciting marketing program and strive to make at least 2-3 big sales

  Do any activities or push for any results that demonstrate positive and dramatic change

  Meet frequently with your employees. Keep them abreast of developments and try to learn from them. Communicate constantly and honestly

  Demonstrate strong, optimistic leadership

  Establish clear goals and strong incentives

  Eliminate organizational politics and roadblocks

  Above all, take charge, make decisions, get things moving, listen, and communicate often. 

Remember, the turnaround leader is the hope, the magic potion, the superman. Because the expectations are so great, the criteria for success are especially demanding.

 

 

 

 

   

 

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