This article is written by Fauzi Che Rus, CEO of Ramli Capital Holdings Sdn Bhd. Fauzi has a successful background assisting CEOs in business turnaround as well as elevating organizational performance.
The turnaround of businesses is critical to a nation’s economy. A successful turnaround creates substantial value to shareholders, secures jobs for employees, while a failed turnaround can lead to much pain to the shareholders, employees and the economy.
What are the keys to a successful turnaround?
Many people, either through personal experience in business turnaround or learned it through literature, have spoken on transformation and business turnaround. I’ve been lucky to have been personally involved in the leadership team in two successful business turnarounds (one company has now gone to become the world leader in its industry with its stock price has been in the range of US$60 to US$110 in the last 2 years in Nasdaq, compared to US$3.80 in the year 2000 when the turnaround started), in which new leaders were bringing distressed organizations back from the brink of failure and setting them on a healthier course. I have also been unfortunate to have been inside one, not a successful business turnaround and misadventure. Hence, I feel that it is critical that I share my experience on these turnarounds considering many turnarounds of companies and businesses need to be done in Malaysia.
In turbulent times, turnarounds are increasingly a fact of life. Some companies need to be rescued from the brink of extinction (BlackBerry), but that’s not the only kind of turnaround. Others need a course correction while still profitable (Microsoft), or a momentum shift because of disruptive new technologies (traditional telecom companies).
Looking back from those business turnaround adventures, there seem to be common traits of a successful turnaround. As a professional involved in the storm of turnaround, it can be addictive. Especially if you have been part of a successful turnaround. Seeing an ailing and bleeding organization recovers become healthy and starts dominating is satisfaction beyond financial reward.
In every case, I saw the need for smart financial and strategic business decision making. But along the way, I also noted another very important aspect of this leadership task, an effort that seemed to go largely unnoticed and unstudied by observers but that is more vital to improving the company’s fortunes and even harder to do well. Do it right, you will have a successful and sustainable turnaround.
While the key financial and business strategies are important in turnaround, it could only be as good as it is on paper. The more important thing that matters is the people who will be executing the business strategies – how motivated, aligned and empowered are they. In a declined organization, there are often denial, secrecy, blame, scorn, avoidance and turf protection that leads to passivity and feeling of helplessness. These need to change to avoid the organization from going to a downward spiral. Let’s look at what was done in the successful turnaround companies that I have been in.
There is a need for a new leader who has experienced a successful turnaround of a company to be at the helm of a troubled company. Readiness to change and turnaround has to start with a leader with visionary leadership who has a positive unifying effect on people. Let’s briefly look at what are the traits of a turnaround leader.
Able to access the business from the customer’s perspective and passionate about the business and its products. Very attuned to the return on investment, which is always in the background of his thoughts, feelings, and actions.
By itself will not be enough, but a strong collective vision, if shared and aligned, is very strong. The leader needs to communicate the vision explicitly while being sensitive to the need of the stakeholders.
A leader needs to be able to rally the people towards the common goal of turning around the business. If the leader is not able to have this done due to his lack of ability to communicate and rally people, he better has a second person who can do this whom people know represents him. Without the people behind a turnaround effort, the effort often becomes futile or not sustainable.
Taskmaster With A Soft Heart For People
It may sound conflicting, but this attribute is important. The leaders who led the successful turnaround that I experience are aggressive on results and even “feared”, resulting in deliverables are delivered. However, many didn’t see his soft-heartedness on people which only a few key management members, of which I was lucky to be one of them, are exposed to. Many decisions are made with people in mind and with genuine care for people. People eventually understood his toughness and kindness. He’s feared but loved and remembered.
He needs to be the catalyst for the people around him to change. Always inspiring through his words and actions.
Once structures that allow people to collaborate is established, the leader needs to empower people to initiate the actions that will improve the company’s financial and strategic position. The leader role is to monitor the results on a 24/7 basis through dashboards of indicators and to clear obstacles where the line managers cannot.
Organization’s needs over personal needs. Some degree of personal risk that a turnaround leader needs to take once he decided to lead a turnaround. This is where he needs to know that a result of that assignment is either he becomes a hero or a zero. In Malaysia, in particular, many leaders who have been unsuccessful in turning around or sustaining a turnaround in a company continue to be assigned to lead another organization despite their unsuccessful or incomplete assignment in the earlier organization because he has a good rapport with his key stakeholders, leaving the organization that failed in tatter.
Entrepreneurial and risk-taker
Decisive when needed and prepared to make difficult decisions, based on facts and calculated risk, even if it may not be popular with some stakeholders. He has to be a bit of a maverick. Many decisions in turnaround organizations need to be done quickly. A delayed decision can be fatal in a market where your competitors are ready to move faster and buried you for good. While corporate governance is very important, there are occasions where the decision making process needs to be shortened and not hampered by authoritarian processes. I have experienced an unsuccessful turnaround in a GLC in Malaysia where it was focused too much on governance during turnaround that all decisions were incredibly slow. Unfortunately, when there’s time to put and practice proper governance when the business was good earlier, the organization was run like an entrepreneurial business where the MD was calling almost all the shots. Unfortunately, during the turnaround period, focused was too much put on governance and on some trivial matters that moving forward was very difficult. In some MNCs, the turnaround leaders are given almost full authority to plan and execute.
In one of the successful turnaround companies I was in, the Chairman and the CEO positions were held by the same person during the turnaround period. This leader is fully accountable to the success or failure of the turnaround. He would never have an excuse that the Chairman is on his back, which many CEOs in Malaysia normally have when they failed to turnaround a business. Since this turnaround leader is fully accountable, he will be compensated immensely when he is successful in turning around the company. On the same token, he will be sacked for failure. Turnaround leadership is a very risky business and not for the faint heart individual.
Small power gap
Important for a turnaround leader not to be too status conscious. He has to be approachable and accessible to his people. A simple gesture like the leader talking to employees in a Townhall in a casual manner with no podium between him and employees, and the leader participating in employees’ activities (with little protocol as possible) are examples of what leader can do in getting rid of the perceived distance between leadership and the workforce.
The most crucial of all the attributes. The leader needs to create a trustworthy environment where his people are confident that whatever he does is for the greater good. This is a key competency for a turnaround leader. People will go to a great extent when they trust their leader and work is done much faster (crucial in a turnaround mode) in a trusting environment.
Communication, communication, communication
Financial and strategic woes often made worse by the company keeping information secret from their employees and the public. Problem-solving and aligning themselves with the cause is difficult when people do not have all the facts. Communication and dialog with employees can never be understated during bad times. When we did the turnaround in the 2 successful companies I was involved in, we had quarterly townhall where clear results, targets, what company needs to do and how every single employee can contribute to those targets were communicated. I remember as the Senior Director for Asia in this American company who is now the leader in its industry, my Managing Director spoke to all the executive employees and I would do my “selling” to the rest of about 6000 employees in three sessions – with 4 big screens clearly depicting information employees need to know to be aligned with the company. We were all very passionate about putting our faith in our own hands by working towards taking the company out of the red.
In addition, there were constant communication to employees through the intranet, small group dialogs, continuous messages at employee common area and many other communication channels. We communicated the information on the company and our aspiration whenever we got a chance. As a result, employees are all aware of the state that the company was in and what they need to do to move the company forward.
Restore confidence and collaboration
Despite differences in strategies and tactics, all turnaround leaders share the overarching task of restoring confidence through empowerment – replacing denial with dialogue, blame with respect, isolation with collaboration, and helplessness with opportunities for the initiative. Each leader must manage the tricky task of creating a winner’s attitude in people, even before the victories.
And that means performing a series of balancing acts. Troubled organizations are generally in financial distress, and cutting expenses is a characteristic turnaround move. But how this is done has a big impact on whether the turnaround is a temporary fix or a path to sustainability. To pull a company out of a death spiral, the leader needs to encourage people to take initiative and feel that they can make a difference – which is hard to achieve when an organization is in slash-and-burn mode. Effective turnaround leaders consider the kinds of cuts they’re making as well as the number, emphasizing reductions in bureaucracy that stifles initiative, thus creating conditions for change.
While there was a brutal cost-cutting exercise in the company I was in – if I remembered well, it was 10% per quarter for the first year, not per year mind you. Despite these cost-cutting measures, we only reduced a small portion of the budget on employee programs. We did not stop programs for employees. Instead, we came up with a creative way to reduce the cost of the programs and yet continue with them. In fact, a calendar of events, with 2 events per month, for employees was displayed just to get them excited about the recreational, sport and social events planned for them in the company. These events involved the leader and management whenever possible. There were a few occasions where the leader and key management served food to thousands of employees in the cafeteria.
As a result, employees’ mind was put off from the unnecessary worry about the state of the company and instead were looking forward to events involving them organized by the company and created better togetherness among them, which is important for good collaboration at work.
Once a turnaround leader establishes the structures that allow people to collaborate, they need to empower their employees to initiate the actions that will improve the company’s financial or strategic position. In one company I was in, we initiated a program called the Boards of Excellence. It is basically setting up of active committees looking at different areas of the company’s performance and employees’ well-being. Each of this committee comprises members from different workgroups and levels. The Boards of Excellence initiative was successful in coming up with ideas and programs to be implemented. Ideas and programs will not be successful if they are not well implemented. Since many of these ideas and programs came from the committee members who represented the workgroups that need to implement the initiatives, getting the support from respective workgroup to implement the ideas was easier.
Find a meaningful unifying purpose
Companies with poor performance are characterized by fragmentation – a drift into many activities that get tacked on and stay, becoming ends in themselves. Territories get hardened, and people seem to be out for themselves. It is too easy to lose sight of the larger purpose of being together. Why does this company/team/relationship matter? What is a common definition of success? For the turnaround FMCG company I was in, it was about Just in Time (JIT) delivery of products and passion of stealing the market share from the major competitor. In another successful turnaround company I was in, it was very much about delivering products with bigger capacity at half the price, on time. Everything that everyone did was with the objective of achieving the common purpose.
In conclusion, despite the common psychological dynamics at work, leading a corporate turnaround isn’t a one-size-fits-all process, but having a leader who has gone through a successful turnaround will increase the likelihood of a successful future turnaround. It’s critical that turnaround leader has the right approach in getting the people who will be executing the business strategies motivated, aligned and empowered. The people must be led to be able to accept many unpopular decisions required to be made to turnaround the company. They would only be able to accept taking the bitter pill when they are aligned and know those unpopular decisions are done for a greater good for the company and for themselves.
These lessons work in companies, communities, countries, and even sports teams. The key is to spot symptoms of decline before they accumulate, and then shift toward the actions that build positive momentum of turning around.
Turnarounds are when leadership matters most. Leaders can stem losses with a few bold actions, such as slashing budgets or selling off assets. But putting an organization on a positive path toward future success also requires that leaders energize their entire workforce. And this is the true test of leadership – the ability to take employees out of the defeatism of decline towards gaining the confidence that produces victories.