Critical Care for
Companies®
Turnaround Step 4:
Crisis Leadership
Why you should read this section
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Leadership during a
turnaround is very different from "business as usual" leadership, find
out how if differs
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If you are not comfortable with this "best practices" leadership
style, then you must find someone who is
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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 decline…and 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:
ü
Demand
that all temporary help be terminated immediately and redeploy existing
staff to fill gaps
ü
Require
CEO approval before any action is taken on the recruitment of any
personnel
ü
Require
CEO approval of all capital expenditure requests above a defined minimum
limit
ü
Have all
redundant inventory identified and, if possible, disposed of at whatever
price can be obtained
ü
Cut back
sharply on the replacement of office equipment
ü
Check
expense accounts to ensure that any entertaining of clients is not
overly lavish
ü
Turnarounds are intensive management exercises that focus a bright,
glaring light on an otherwise normal business activity, question and
challenge everything
ü
Aggressively clean out the deadwood employees and cast out the rebels
ü
Quickly
develop a challenging but achievable business plan that will assure the
survival of the firm
ü
Established a productive relationship with important customers, key
vendors, investors, and lenders
ü
Define a
clear sense of mission
ü
You must
trim your organization…no fat is allowed
ü
Develop
an exciting marketing program and strive to make at least 2-3 big sales
ü
Do any
activities or push for any results that demonstrate positive and
dramatic change
ü
Meet
frequently with your employees. Keep them abreast of developments and
try to learn from them. Communicate constantly and honestly
ü
Demonstrate strong, optimistic leadership
ü
Establish clear goals and strong incentives
ü
Eliminate organizational politics and roadblocks
ü
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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