Comebacks for troubled businesses need not be complicated – get facts right first off

The ‘troubled’ XYZ company…

Management of the ‘embattled’ ABC firm…

‘Structural changes necessary in the fraud-hit XYZ company…’

Companies that appear in the media under such headlines have an uphill struggle ahead of them to get back into serious reckoning. Nevertheless, such news also has its good side. The crisis-stricken company is trying to undertake a transformational journey into ‘change management’.

Even the most iconic brands and successful companies experience their share of hardship. Whether it’s a scandal, a messy bankruptcy, or even a sustained money-losing rut, plenty of big-name corporations have had to claw their way out. Names like Apple, Delta, GM, and Marvel have all gone through such experiences, only to come back stronger.

I believe the earlier a company admits to a crisis, the greater the chances of a successful transformation. The journey can be initiated either internally or externally. Internal initiators may be the executives or the supervisory bodies. The basis for this is that the instruments required for detecting a crisis at an earlier stage are in their visibility. At the same time, the external initiators of restructuring are consultants and lenders. Because of provisions in loan agreements and regulations relating to risk exposure, banks only reach positive loan decisions if the borrower has proof of turnaround and the management has transformational capabilities.

Let us look at what it means in practice. Just as in medicine, there are two approaches – you can combat the short-term symptoms or eliminate the causes of the illness over a long period. Intervention from outside is a financial reorganisation.

This involves contributions from creditors and equity capital providers to support operational capabilities, including funding payrolls. This can include postponement of payments, forfeiture of claims by creditors, and conversion of liabilities to shares.

Completely different instruments are used in transformational change management and turnaround, which entails having a fresh look at the entire enterprise internally. This means identifying core businesses and geographies while hiving off the ones that are not, reorganising departments such as purchasing and operations, reorienting the company’s strategy putting the crisis period behind, and charting a sustainable growth trajectory.

Such efforts can only bear fruit after transformational change management takes effect, new processes launched, and updated protocols and controls established. Yet, it is not possible to do so in an enterprise of a large size comprehensively within a quarter of a year. The impact of it based on structural criteria is only noticeable in the following quarters.

Therefore, the ability to implement efficiently is crucial to the success of such a turnaround program.

Transformation is a beautiful journey, and while it has been for a long time that ‘people-centricity’ is at the focal point across industries, the turnaround efforts call for even more people-centricity as a critical component in the journey.

It is, therefore, a matter of giving the management team and workforce not only technological competencies to find their way back but also practising transparency in every communication all along the transformation.