Strategies for Turnaround CEOs
By Tom Ryan
While new CEOs in turnaround situations need
to move quickly and decisively, they shouldn’t come off as a
“know it all” and need to make friends quickly, according to an
article in The Wall Street Journal. John Challenger, president
of Challenger Gray
& Christmas, stressed the need to “find some people you can trust
to really tell you the way things are and give you the lay of the land.”
The article offered four suggestions for
new CEOs handling the transition:
Conduct a review and consider worst-case scenarios: Thomas Lutz, a senior partner at Boston Consulting
Group’s consumer and retail practice, told the Journal that new
CEOs “must account for every penny of cash flow in today’s economy,” and
personally review monthly cash-flow statements to make sure costs are aligned
with revenues. Once the thorough review is completed, action must be taken
to cut expenses.
Set an agenda and be decisive: Jim Citrin, senior director at Spencer Stuart and co-author
of “You’re in Charge, Now What?,” recommends new CEOs identify
three distinct themes to focus on and organize efforts around for the near
future. “A new leader really needs to have some quick wins, as people
are looking for some evidence of progress,” said Mr. Citrin.
Communicate constantly: Actions and direction must be continually explained
to get employees to buy into the turnaround plan. Kimberly Till, who became
CEO of Harris Interactive, the market-research firm, last October, told
the Journal, “I keep all the employees in the loop through
weekly emails, town hall meetings and forums, video clips of big decisions
and visits to the offices.”
Be aware of personal habits: Taking over a front-row parking spot may be taken the
wrong way by rattled employees. But just the way a new CEO engages associates
in hallways helps define how employees respond to any turnaround plan.
Said Mr. Lutz, “These interactions make up how your employees feel
about you.”
Discussion Questions: What steps must a new
CEO in a turnaround situation make to help assure a smooth transition?
What common mistakes are made?
A new CEO should develop strong relationships with associates at all levels–first, foremost and forever. The best initial thing to do would be to interview as many associates as possible for the first two-three months, including and especially people at store level (or customer contact at any level). Those interviews should be thorough and bare-bones honest; “What do I need to do most?” “How can I help you?” “How could I screw things up?” “What’s right/wrong with what we’re doing?” Etc. That information can then be used to inform and build a solid strategy.
While the CEO is interviewing associates, it would also be critical to spend an inordinate amount of time in his/her own stores. Listen to customers, ring up sales, put out stock, set up displays, interview potential hires, clean tables, whatever it takes. The notion of “ruling from an ivory tower” or understanding your business by reading reports, in my humble opinion, is why retail is in the state it’s in now; an overwhelming sea of sameness with lousy service and poor merchandise choices.
As my friend Daniel Burrus says: “The greatest danger facing corporations today is that they’ll change but not transform.” Our world is demanding ‘transformation’ which means looking at possibilities beyond our current mind-sets. When a new CEO comes into an organization, the challenge is not to “correct” things, it’s to “create” something new. Don’t tinker–transform!
The other absolutely huge mistake so many organizations make in bringing in a new CEO is they don’t give due consideration to where the organization is in its life cycle. Consequently senior executives are hired based on the past and current situation instead of where the organization needs to go. A leader who can stabilize a situation is not likely to be the leader who can transform it and vice versa.
The key is “fit.” I’m involved in a situation like this and recently came across a superb resource in the UK that links the fit between individual and team profiles and where the organization is in its life cycle. If you’re involved in a leadership change check out www.human-insight.com.
CEOs are primarily hired to be decision makers. They need to step in and decisively take charge. Be sensitive to the things that are working. Take the right amount of time to analyze what is good and what is a drain on the company. Look at telltale signs on the P&L and balance sheet. Cash flow is king these days.
In our business, look at days inventory on hand, and other key metrics like operating income per employee, SG&A per employee and COGS per employee. Then compare these metrics to your own company’s historical performance and that of you industry peers. See how you measure up. See how much short-term cash flow you can generate just by getting to best in class of your peers in only one of those metrics. You will be surprised at the impact a CEO can make personally. I didn’t even touch on the culture yet, but enough good things have already been said about that in previous posts here.
Back in the “good old days” a new CEO could work slowly and methodically to connect with their new team and learn the business from their perspective. There’s no time for that in this market.
First the new CEO needs to demonstrate confidence in the employees and the future of the company. They should integrate themselves quickly and decisively into their new team and begin to drive change.
Quickly build the team and go!
This is a great topic but let me go right to the top line items that make for great new CEOs:
1. You were hired for a reason. (Could be that there are immediate problems facing the survival or longevity of the company.) If this is the case, get your current team together and take action sooner rather than later to stop any bleeding, even if such actions are temporary. Restore confidence while finding out “who” is on the team and “what” they can do, and “learn” from them. At this stage, they are closer to and more knowledgeable about the issues than you will be for a while.
2. Next, learn, learn, and learn! Learn the business, the environment, the market, the competitors, and your overall situation. Know what you don’t know!
3. Develop your strategic plan. Work on it with people you trust to give you the advice and education that you REALLY need. Don’t hire only people that will tell you what you want to hear. That’s a sure killer in the end!
4. Inform, communicate, and involve your team, and your employees, partners, and suppliers. Have a passion for communications.
5. Work your plan with constant re-evaluation and adjustment as necessary. Come out of the conference room and the office often, get on planes and go meet the market, get involved in the industry beyond your own company and duties, and make it your business to know what changes are taking place every day that might impact your business.
6. Relentlessly set the right example, be a leader not a dictator, take your job seriously but don’t take yourself too seriously, let your judgment (not your ego) be your guide, and do what’s right for the business every step of the way.
A new CEO is expected to quickly create a good battle plan and have the skill to successfully execute it. He/she, in turn, must quickly determine who will be the cohesive and productive assets among the existing employees to further that new plan.
To start the process, he parks in a random space, comes into the cafeteria and calmly introduces him/herself to everyone. He/she then goes to his/her office and immediately schedules individual meetings with each manager and solicits their input without being judgmental. Those acts give everyone an opportunity to get an early measure of him and vice versa.
From there he begins a bonding process with the people who he/she believes can help him get some quick improvements that help build the perception that he/she will turn the company around successfully.
Next comes creating a re-building plan and communicating it to his/her managers and then soliciting their support in announcing it to the entire organization in a confident but calm, no-nonsense manner. Then he/she sets timetables for achieving each improvement increment which will be vital to reach a targeted success date. After success, contributors are recognized and thanked both privately and publicly.
A new CEO should be humble, yet project an air of being in charge. He/she should be inclusive and demonstrate this by being a careful listener. Finally, he/she should be open to listening and learning from customers. Frequently someone from outside the organization can see things more clearly. By putting oneself in the shoes of the customer, one can see what is needed from the company (goals) and then can figure out how to get there.
With goals in mind, the CEO can then work with the team to craft clear priorities and then find practical solutions to complete each priority. The results of this exercise should be shared with all employees and become the mantra for moving the company forward.
I think believing incremental change is best is a flawed strategy. If the diaper is full you need to get rid of it. That’s what change means.
Taking measured, controlled steps can make the process much longer and less effective than taking stock of where you are at, finding the number reasons and plotting a course. There’s a reason for the old saying, “A new broom sweeps clean.”