Businesses in trouble will find they need to make some harsh decisions. Point is not to hold on for too long. Image Credit: Shutterstock

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.

Quicker to admit shortfalls

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.

Letting go of non-core

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.

Accordingly, my five lessons on transformational business are:

  1. Whether in a turnaround situation or not, developing and executing your plan with the right person for the right role in your company’s transformation is critical.
  2. Be confident yet realistic when facing any business challenge. It would help if you think, ‘We have what it takes. We were successful in building this business. We know how to do it, we can do it again’.
  3. The more transparent you are about your situation with stakeholders, the better. It’s hard in a turnaround situation to share information because you think it might work against you if people understand the serious problem. From my own experience, I can tell you it only works in your favour to communicate the situation precisely, honestly and as often as possible.
  4. The only way to keep your business is to ‘let go’ of it. Whether it’s an identified non-core line of business or geography or certain employees, you must find a way to get in the ‘nothing is sacred’ mindset no matter how difficult it is. If you try to keep everything, you’ll end up saving nothing.
  5. To achieve sustainable success, people must be kept at the center. People-centricity involves not just customers, but all stakeholders, including employees and suppliers. Leaders and organisations, in general, should be putting the interpersonal and human components at the center of everything they do as we continue to transition into the digital age across multiple industries.

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.