Sustaining New Directions

 A sequel to a Balancing Act about how to implement and sustain a balanced scorecard.

By Howard Rohm & Larry Halbach

https://tinyurl.com/3yd7dkyb

Six Steps To Create a Simple Framework for a Complex Business Turnaround

 

By Tony Uphoff

Regardless of the age or size of your company, your model, or the market you serve, at some point, you will be faced with the need to execute a turnaround. While the need for business turnarounds is common, they are remarkably challenging to do successfully. Boston Consulting Group research shows that only 20% of business turnarounds are successful today, down from 30% in the year 2000.

Having helped lead the transformation and successful turnarounds of several businesses, I can personally attest that turning around a declining business is incredibly difficult. Reducing it to a simple checklist runs the risk of over-simplifying a complex, challenging endeavor. At the same time, there are frameworks to help you focus on the main drivers of a successful turnaround. One last upfront point: Turning around a declining company is not for the faint of heart. It takes remarkable energy, fortitude, and emotional resilience. Ok…now on to the framework

1) Demand, Capability, and Margin

A primary reason that business turnarounds have such a low success rate is that some businesses are beyond saving. I always start with three core questions:

1. Is there a clear demand for the product or service the company offers?
2. Does the company have sustainable differentiation?
3. Can the company do so at a reasonable margin?

In my experience, you have to be able to answer yes to two out of three of these questions or a turnaround simply isn’t possible. It’s also my experience that if the answer to the first question is no, then there really isn’t a business to turn around.

2) Resources

Do a deep dive into how the current resources of the business are being allocated. Inevitably, struggling businesses have a disproportionate amount of resources tied up in the declining, unprofitable parts of the business, which starves potential growth areas. Certainly, understanding access to capital is a critical assessment to be made in a business turnaround. Access to capital can be a detriment in a turnaround, however, allowing managers to ignore the underlying problems.

Most successful business turnarounds involve the reallocation of resources, not the addition of new ones. Start by determining where you can shift resources and redeploy them for a better return as opposed to trying to add resources to an existing business that is failing.

3) People

Simply put, your job as a business leader is to recruit, retain, and develop the best people you can and continually put them in the best positions for success. Do a careful review of the organization.

Does the business have the right people, in the right positions, with the proper systems to enable them to be successful? Where are the talent gaps? Is the business organized properly? In many struggling businesses, organizational planning has been forgotten, resulting in a dysfunctional structure that is sub-optimal.

4) Product

A core reason businesses fail is a poor or nonexistent product strategy. Buyer personas and simplistic buyer journey models no longer work. Today, a more rigorous understanding of your buyers’ “jobs-to-be-done” is required. This process, pioneered by Harvard Professor and author Clayton Christensen, is now being used extensively in product design and development. By starting with your customers’ jobs-to-be-done, you will develop a deeper understanding of the problems they’re trying to solve that will serve as a guide for delivering a product that meets their needs.

5) Process

In knowledge work, creating, refining, and managing process is the key to generating scale. In analyzing failed companies, poor or sub-scale processes are often one of the main reasons for failure. The process can be tricky to isolate and analyze, too.

Process management needs to be a core competency in any successful turnaround. The best way to analyze process improvement is to look at your customer’s experience from interest-to-invoice. As you do so, you will find bottlenecks, duplicative processes, inefficiencies, and processes that can be eliminated, automated, or improved. Companies that have been in a sustained state of decline become slaves to a series of internal processes that have become irrelevant to customer value.

Let me restate this to be clear: Any internal process that doesn’t ultimately benefit customers should be re-examined and cut out if possible. You will find that in turnaround situations, it is in the process details where culture may rear its head. You may hear: “This is the way we’ve always done it” or “Our customers expect us to do it this way.” One of my personal favorites is: “We tried doing it differently but it didn’t work.”

In my experience, one of the quickest paths to business performance improvement is through process improvement.

6) Performance

Performance is a trailing indicator of the success of your people, product, and process efforts. Measure your success in these areas first. Then, measure and manage your performance.

One of the biggest challenges in declining businesses is that management gets caught up in the painfully obvious. The business is declining as opposed to focusing on the leading indicators that will help answer the question of why and what can be done about it. Set clear, measurable, and achievable performance metrics.

Many business turnarounds fail before they start based on management setting unrealistic performance metrics that the team doesn’t buy into. My recommendation is to organize your turnaround performance metrics around three key measurements:

1. Performance against budget
2. Performance against the previous year
3. Performance against a goal, if relevant

Beware of getting caught up in vanity metrics. In struggling companies, in an effort to find something to celebrate, managers can get caught up in tracking metrics that really don’t matter. Focus myopically and only on metrics that matter, set them realistically, communicate them openly, and celebrate success milestones along the way.

Final Thoughts

Over the course of my career, I’ve been fortunate to have been involved in four successful turnarounds and learned some valuable lessons along the way. Most of them, I learned the hard way! Helping to lead a successful turnaround is an invaluable career experience and one that every C-level executive has had or will have to go through.

https://tinyurl.com/bpa9z5za

Turnaround in business. Part 1

 

turnaround

/ˈtəːnəraʊnd/

noun

1. 1.

   an abrupt or unexpected change, especially one that results in a more favourable situation.

   "it was a remarkable turnaround in his fortunes"
2. 2.

   the process of completing or the time needed to complete a task, especially one involving receiving something, processing it, and sending it out again.

   "a seven-day turnaround"

Business Turnaround Definition

There have been many attempts to place a definition on ‘Business Turnaround‘. However, these are quickly becoming ‘out-of-date’ as the restructuring and turnaround profession advances in our modern disruptive world.

At TurnAbout AU, we have thought long and hard on the topic. The most accurate Business Turnaround definition we have arrived at is:

The immediate intervention and implementation of short timeframe strategies for the purpose of achieving the sustainable recovery of an underperforming, yet potentially viable, business model.

It wouldn’t be right for us not to try and incorporate ‘restructuring’ when attempting a business turnaround definition. The restructuring process is where a business converts a period of loss into one of profitability and success whilst stabilising its future. Therefore, when providing a definition for ‘business restructuring and turnaround’, we believe it is important to include the following:

Whether scenario planning or instigating measurable changes, the overarching principle with restructuring is to preserve, to the greatest extent possible, a company’s enterprise value whilst attempting to maximise returns to key creditors and minimise risks to all other stakeholders over a predetermined period of time.

The above takes into account ‘going concern’ value, protection of intellectual property and employee skillsets (talent) as they might be linked to other tangible or intangible assets – such that the viable business model is saved holistically. The concept being that the ‘whole’ is greater in value than the sum of it’s various parts and components.

Obviously, when utilising ‘restructuring and turnaround’ practices, we need to avoid rescuing business models that are not viable (for example, lacking in technological innovation for longer term survival). Such businesses are often described as ‘zombie’ companies and do not contribute to the economy. With the recent crises that have drastically impacted human behaviour and our economy (COVID-19, fires, floods, drought…), it is logical that this urgent need for businesses to be adaptive and agile will result in turnaround and restructuring becoming the new norm. Disruption has been suddenly and forcibly thrust upon the business community.

Corporate Turnaround has been defined as:

‘The implementation of a set of actions required to save an organisation from business failure and return it to operational normality and financial solvency. Turnaround requires leadership and can include corporate restructuring and redundancies, an investigation of the root causes of failure, and long term plans to revitalise the organisation.’

BNET Business Dictionary

However, we much prefer our modernised definitions as they can be applied to sole traderships, as well as small and family businesses. Our definitions also fit closely with the fundamental concept and intended purpose of the ‘insolvency safe harbour‘ protection for directors from insolvent trading personal liability (s588GA – see our ‘safe harbour definition‘) – which provides breathing space for leaders (debtor in possession style) to take charge of the restructuring and turnaround strategies provided it results in a ‘better outcome’ for the company (creditors and/or shareholders).

Get in touch to learn more or discuss in further detail. Our objective is to rescue the value in small and family businesses.

Eddie Griffith https://tinyurl.com/3dctfnt8

Why Turnaround?

If your company or business unit is underperforming consistently and losing money, you likely need a turnaround project. That situation erodes cash flow and damage return on capital importantly. If this bad situation continues during the time, the company moves to insolvency. So urgent action must be taken. Turnaround project must be launched.

Corporate life cycle

Time for Turnaround

In economy we can talk about recession when continued decline in economic activity for two or more consecutive quarters. In the micro-economy world, I mean in the companies’ world the timing used to be different. Usually the review process in companies is yearly, and because management teams used to have a second opportunity, two years with losses could be considered a decline that needs a turnaround. Obviously if the losses are important, time is reducing.

Ideally, the turnaround process must start not too late in the decline phase in order not to allow deteriorating too much the situation. Although in many cases that decision is delayed until many quarters of losses, what will likely erode importantly the cash situation of the firm.

Someone could ask how we know that we are not to late in the decline phase. Well, this question does not have an easy answer. In reality the committee in charge of the turnaround decision must use their experience and intuition to realize soon that the firm needs a crisis management, and that those problems are not going to be solved for the current management team at least without the support of a turnaround team.

It is important to highlight that a turnaround project could take between one and two years. So we must not delay too much the turnaround decision, or it could be too late to recover the situation.

Many times CEOs used to protect their management responsibility delaying turnaround with different “strategies”:

Arguing that is a conjectural stage

Arguing that is a marketplace situation

Using “accounting engineering” to cover the problem during some while

Recognizing that a company has important problems is complex because that means that we have to realize that we are doing business in the wrong marketplace and/or time, or we have the wrong people managing that market. So there is a responsible, that took the decision to entry in that market or that choose the current management team. Many decision makers do not want to recognize the problem because means recognizing the responsibility. So they used to wait some time with the hope that “something” is going to happen that change the current bad performance. We have mention that “something is going to happen” because people that create problems do not use to know how to solve those problems.

In many companies bad performance in some quarters is not so “significant”, and they wait until the end of the year in order to review the situation. Be aware that in many cases companies offer a second opportunity to the current management team. This means that because the review process is a yearly basis rather than a semester or quarterly basis that situation could be deteriorated even more, if the current managing team is not able to recover the situation.

Where Should We Start in Turnaround? The “Bunker” Concept

We could simplify the causes of decline to three: poor management, inadequate financial control, and incorrect sales approach. If the decline cause is clearly restricted to finance or sales, we must start in turnaround for that area. Although we must be aware that sometimes the initial decline cause identified is incorrect, because we would realize that there are more than one cause of decline (many times turnaround situations are much worse than expected initially). However, the commonest cause of decline is poor management, in that situation is more complex to decide where we should start.

Turnaround in poor management situations could be approached trying to solve problems in many areas of the firm at the same time, or we could much more focus on one main area creating a “bunker department” as Keith Wiedersheim called. A “bunker department” is a company department that we are restructuring faster because we are allocating more turnaround resources  (oversizing) than in other areas of the company to prioritize turnaround speed of that area. The idea of creating a “bunker department” is eliminating the poor management practices in that department, and this one must influence positively to the rest of the organization. That area would act as a change management catalyst into the firm.

One of the first things to do with the chosen “bunker department” facing poor management practices must be to review processes. Because processes are cross functional, the “bunker department” processes are connecting with other areas of the firm which are going to be reviewed indirectly. So the concept is starting the turnaround from one main department and using the connections of processes with other areas to expand turnaround activities to the rest of the company.

Turnaround "Bunker Department" Approach

So if we agree to use the “bunker approach,” we must decide what it is the department in which we are creating the “bunker.” I suggest using supply chain or finance as a “bunker department” because those areas have strong links with the rest parts of the firm. Furthermore, those departments have the financial and operational control of the firm. Thus, any poor management practice in the company is likely being detected for those areas. However, turnaround people use to create bunkers in their areas of expertise. E.g. people with financial background create the “bunker” in the financial department.

A Framework to Asses and Monitor Turnaround Processes

There are two frameworks focus on the theory that a company to perform properly need to be aligned in some important hard and soft elements.

The “Star Model” was created by Jay Galbraith in the 1960s. This framework remains important to create the foundation for companies design choices. Thus, this model identified five main design choices: strategy, structure, process, reward and people. The model is based on that design will affect employees’ behavior that will finally influence in the company culture and performance.

The “Mckinsey 7S Framework” was developed by Robert H. Waterman and Tom Perters in the 1970s. This quite similar and still actual framework has 3 hard elements (strategy, structure, and systems) and 4 soft elements (shared values, skills, style, and staff).

The utility of “Star Model” and “7S Framework” for turnaround

Those frameworks help us not to forget any important element in the firm.

In restructuring any time we are conscientious affecting some of those elements, and the model is going to remember us that any change in one of the elements must be aligned with the rest of the elements.

Turnaround process use change management initiatives continuously and these models consider soft factor too.

So our recommendation is using the best of both models, we mean using all the factors suggested for both models. So “Star Model” compared with the “7S Framework” incorporates the reward factor and performance. On the other hand, “7S Framework” incorporates shared values, separate people in two factors (staff and skills), and shows systems (culture) like a new factor rather than a consequence of the factors.

The turnaround framework

Adapted from "Star Model" (Jay Galbraith) and "7S Framework" (Robert H. Waterman and Tom Perters)

• Strategy: What is the formula for success? How do we differentiate ourselves from our competitors? What are the organizational drivers?

• Structure: How are we organized? What are the key roles? How is the work managed? Who has power and authority?

• System/Processes: How are decisions made? How does work flow between roles? What are the mechanisms for collaboration?

• Performance: How are we doing? Why?

• Rewards: How is behavior shaped by the goals? How do we assess progress?

• Share values: What types of issues do the receive the least and most of the management attention?

• Style/Culture: How does top management make decisions? How do managers spend their time?

• Staff: How do we recruit and develop our talent?

• Skills: What is the company or team known for doing well?

Prerequisites for Change and Success

I am sure that many people have any time questioned themselves “Why do we fail in a project?” With the simple but powerful framework regarding the prerequisite for Change (elaborated by HP), you can easily answer that question. Moreover, even you can plan in advance any project in order to know if the prerequisites to success are in play or not. For example, a project without enough resources is going to produce frustration, and likely fail. So before getting fully on board on that project we should be sure that enough resources are going to be provided.

Source: HP way, Barry Newland “The four prerequisites for change”

System thinking teaches us that focusing on a few leverages points, we are able to create a big impact in our organization faster. The different between leverage points and other improvement initiatives is that leverage points attack problem root causes rather than problem symptoms.

Turnaround need to attack urgently the main problems and that means finding the leverage points quickly. But many managers fail to identify the right leverage points because they use a silo functional view (sales, manufacturing, etc.,) of the problems rather than a system/company view. For example, it is very common finding companies in which the sales department is focusing on maintain some overstock to satisfy “unpredictable” sales demand; manufacturing is creating overproduction in order to optimize production resources; and so on when other system solutions like lean manufacturing could improve much more the company results without overusing stock strategy.

Company Improvement Phases: How Do We Accelerate Improvements?

There is a classification about the improvement phases in a firm according to the degree of development of internal and external processes.

The Improvements Phases in a Firm

This classification has been widely used (Gartner, PRTM, SCOR, APICS, and so on) but most of the time the improvements have been related to the IT status of the organization, and now we are trying to briefly analyze that classification from turnaround, supply chain, and change management perspective using meetings tool to optimize communication, planning, synchronization, and execution.

Turnaround: The commonest cause of turnaround is poor management, so in this post we are focusing just in that particular cause. Multiple dysfunctions phase shows the poor management situation in which the company uses a very optimistic forecast; it has a huge overstock “just in case”; processes are not properly supported by IT systems and many activities are performed manually; staff is poorly trained and supported by managers/directors; purchases do not always follow the approval process; nobody (no sales neither finance department) is in charge of receivables accounts; etc. Therefore, we have mentioned many problems that turnaround teams can approach in the Weekly Improvement Functional Meetings.

Supply Chain integration: When we are talking about integration, we are talking about creating high performance teams. For that integration we suggest to build an ecosystem of teams (for example one team for each business unit) with cross-functional members that have weekly meetings to share integrated goals, responsibilities, and philosophy (lean approach, make-to-order, and so on) in order to get a successful and modern supply chain (lean, responsive, profitable and high quality). Moreover, we should not forget that nowadays “no business is an island” so the extended enterprise concept is the external integration priority.

Change Management: We are accelerating the improvements of the four phases almost simultaneously, creating four levels of meetings that work in parallel to identify improvement initiatives. Meetings are helping to share objectives and information, synchronize activities, and generate common action plan. It is important to highlight a couple of things regarding meetings. First, we are talking about productive meetings. I mean those meetings must be as short as possible (aprox. 30 minutes), with a well-defined agenda, and results must be monitored. Second, in order to produce turnaround results quickly, the periodicity of meetings must be weekly in most cases. Otherwise, we are losing several months just to align the teams or to execute the initiatives. Those meetings used to have the following results: staff ideas are listen by the company; communication and synchronization issues are managed; people proud of his job raise; people commitment with the organization rise too; and so on.

https://strategok.com/

Delta Model Strategy: New Strategic Inside to Define Our Company Direction and Improve Our Performance

 

Javier González Montané

I remember to trying sharing with a CEO and an academic person the advantages of using the Delta Model Strategy (Hax, Arnoldo C. and Wilde II, Deal L. “The Delta Model – a New Framework of Strategy.” Journal of Strategic Management Education, 2003) but it was very disappointed that those well-prepared people were not able to realize the contributions of this model to the strategy field and firms’ performance. Therefore, it is likely a good idea to summarize the Delta Model, and review a few pros and cons of this model.

Adapted from Arnoldo C. Hax and Deal L. Wilde II “The Delta Model – a New Framework of Strategy.” and Jay R. Galbraith "The Star Model"

Delta model strategy pros

• Although the authors do not mention the Star Model of Jay R. Galbraith, we can see that the general framework that they called “The Delta Model’s Winning Formula” fits “almost exactly” in the well-known Star Model. This is a good point because the “simplicity” of this model make much easier the complex task of strategy communication and execution.
• The approach to integrate Porter’s Competitive Position Model (focus on industry and the external environment) and Gary Hamel and and C.K. Prahalad Resource-Based View of the Firm (focus on the firm, internal approach), which can be complementary models although it does not fit 100%.
• Most of the strategic models assume the importance of Mr. Customer. However, the Delta Model explicit mention that everything starts with Mr. Customer. This explicit mention makes a huge different, because many firms forget the importance of Customers in many decisions. Furthermore, this explicit mention of Mr. Customer is probably one of the most important steps to walk in the direction of creating a real Customer Centric Organization.
• The model approach three of the main business issues in the last years. The commodization of products and services, the scarcity of demand (Customer Targeting), and the misalignment between strategy formulation and strategy execution.
• There was a couple of very well developed positioning models (Treacy, Michael and Wiersema, Fred. “Customer Intimacy and Other Value Disciplines.” Harvard Business Review, January-February 1993. – Hagel III, John and Singer, Marc. “Unbundling the Corporation.” Harvard Business Review, March-April 1999.) However, the Delta Model expands and improves the previous models.
• Many organizations assume that the main focus to grow on the Total Customer Solution strategic option is focusing on large accounts. Nevertheless, the Delta Model says something different from traditional wisdom, this model mentions that many of the large companies think that they are self-sufficient and therefore they do not need us except for access to products. If this is the case in your industry (e.g. logistics service providers), the focus should move on medium firms. At least, that could be an opportunity for medium firms trying to compete profitably with large multinational focus on large accounts.
• This model shows the Lock-in System strategy. That strategy is not just used for IT firms like Apple. There are other large firms in different industries that try to pursuit that strategy via acquisitions, creating economies of scale, and building a strategic position of “one stop shop” that offers a complete product/service portfolio in all the geographies.

Delta model strategy cons

• The model promotes correctly from my personal point of view the networked firm, I mean nowadays “no business is an island” but at the same time the model promotes the System Lock-In positioning that isolates the company. For instance, Apple lock-in strategy does not leave any space for other hardware and software firms.
• The delta model is based on cooperation rather than on competition and rivalry. Nevertheless, the most desirable positioning is System Lock-In and my question would be: what can create more competition and rivalry that trying to Lock-In the System.
• They suggest that the most desirable strategy is Lock-in the system, and they focus on the advantages of this strategy but they do not cover “properly” the so high risks of following that strategy. We have just to see the consequence of following a Locking-In strategy in companies like Nokia or Blackberry trying to lock-in the system rather than cooperating with other players like Google (using Android system). Additionally, we should wonder ourselves the following questions: are customers happier with firms Lock-in the system? That strategy means that customers cannot change the supplier easy, and they are going to pay an over price because their exit barriers are very high. So the next question would be: can a lock-in system strategy create a SUSTAINABLE competitive advantage if this strategy is much more focus on our company than on Mr. Customer?
• The model begins very well segmenting the customer, but at the same time it “suggests” that large firms attract customers in all the positions. As Michael Porter would say try to be everything to all customers used to create confusion in the employees and customers even for many of the large firms.  Segmentation is so important because is the base to create trade-offs, and strategy is about trade-offs.
• The only element of the Star Model that is omitted in the Delta Model is: People. But people are an essential element in a model that try to approach strategy not just from the formulation perspective rather than from formulation and execution point of view. Moreover, the Delta Model shows the importance of Balance Scorecard tools, therefore they should remark like this tool that the Innovation and Learning Perspective that it is very much focus on people issues are the rock stone of the tool. Finally, a strategic model that one of the main contributions is the focus on Mr. Customer and Customer Loyalty, it should likely approach people because as professor Luis Maria Huete stress to get Customer Loyalty, we need to develop Employee Loyalty.

At this point, someone could think that the model has many pros and cons. However, I would like to clarify that the contributions of the model are many and so important. The cons in reality are just personal suggestions that could expand and improve the extraordinary contribution to the strategy field of this breakthrough model.

https://tinyurl.com/3azsb87h

Product Strategy Framework

 

https://youexec.com/