by Pete Abilla on September 3, 2009
I’ve been part of several turnarounds and have led a few in my short career. One thing that I’ve learned is this: one cannot underestimate the people-side of a turnaround. In fact, it’s very likely that your turnaround will fail, if your people aren’t with you.
In this article, I’ll share a simple, pragmatic model that has proved effective for me in the past and, in proceeding blog posts, I’ll show several examples of how you can implement this model in your various turnaround efforts — from very small to very large.
A Crisis
Most turnaround efforts begin with a recognition that the business is in trouble. This recognition typically comes through the review of a troubled balance sheet, or struggling EBITDA numbers or losing several key customer accounts simultaneously. These are decent indicators, but they are clearly lagging indicators. Most likely, the morale of the organization — if one has the awareness and the sense to feel — is a more accurate leading indicator for the health of a company. Indeed in some cases, morale precedes financial trouble.
Creating Urgency
Once awareness of a crisis is realized, then productively channeling, communicating, and creating a sense of urgency for the entire organization is the next and ongoing step. What the organization — what each person in the organization — will need to know, feel, and remember is found below:
- How is the company doing: to be shared with complete, emotional honesty, and NOT intellectualized or sugar-coated in any way. In a crisis, the organization cares more about emotional connection, not about intellectual or detached positions from the leadership team. We’re all in this together should be the banner call.
- This is what we’re going to do about it — short-term and long-term: An appeal and a return to company values can be very powerful here. Remind the troops of what made the company great, the values that underpin the behavior of everybody, and how those values will be a guiding light in how to navigate through the crisis. Then, be very specific about the steps to be taken and milestones we expect to reach and when we expect to reach them. Doing this will give confidence to the organization and will empower them to ask themselves “How can I help?” or “What can I do?”
- Here’s what you can do – specifically: Your employees will want to know exactly how they can help navigate the organization through the crisis. They are yearning to do something meaningful and important — help them find a way to contribute in a meaningful way.
Your employees are adults and they can take bad news with dignity. Be honest. Don’t sugar-coat. Emotional connection is the key here; people will see right through any statement or behavior that isn’t authentic or sincere.
The Plan and Change Management
Your plan should be very specific, addressing the key themes and parts of your company crisis. That plan will most likely require change — it has to: if you keep doing the things you were doing before the crisis, then you’ll just extend the crisis even longer. You must do things differently — which requires change management.
If you keep doing the things you were doing before the crisis, then you’ll just extend the crisis even longer
A simple model that I’ve used in past turnaround efforts — both big and small — is the model below:
The model follows basic human development patterns of Unaware, Aware, Understand, Believe, and Act. Below is a more readable image of the behaviors in each of the human development spectrum:
In any change effort, you will probably have, in general, people that might be considered Saboteur, Fence-Sitter, and Fully-Committed. This model also explains the specific behaviors that define what it means to be Unaware, Aware, Understand, Believe, and Act.
In proceeding blog posts, I’ll explicate on each role in this change model and how to build a strategy from it.
by Pete Abilla on November 22, 2009
John Kotter makes a good case that urgency is the key ingredient in any organizational transformation. Conversely, the lower the urgency, the higher the likelihood that the firm will collapse or fail or not transform in a way that will enable it to win in a changing marketplace. Kotter does something else that is interesting: he defines True Sense of Urgency, Complacency, and False Sense of Urgency. This was very instructive.
While the Venn Diagram below is not his rendering but mine, the content and idea is from his book:
So, Kotter, argues:
- A True Sense of Urgency is “Urgent activity, action which is alert, fast moving, focused on the important issues, relentless, and continuously purging irrelevant activities, and leading other by example …”
- Complacency is “Unchanging activity, action which ignores an organization’s new opportunities or hazards, focuses inward (navel gazing – not Kotter’s term, but mine), does whatever has been the norm in the past, supports and defends the status quo, asleep-at-the-wheel quality to it …”
- A False Sense of Urgency is “Frenetic activity, meeting-meeting, writing-writing, going-going, projects-projects – and none of it is purposeful …”
The mistake most companies make is confusing False Sense of Urgency with True Sense of Urgency. I completely agree with Kotter on this point. To deconfuse this point, I created the Venn Diagram above and found it helpful in delineating between True and False Sense of Urgency – in which ways are they similar and in which ways are they different. The same goes for Complacency.
Here is what is interesting. Complacency and False Sense of Urgency are closer than we think, but Complacency and True Sense of Urgency share no attributes at all.
A True Sense of Urgency is required for ANY turnaround – a project, a division, a family, or a company.
A True Sense of Urgency is required for ANY turnaround – a project, a division, a family, or a company. Knowing the behavioral difference between True and False Sense of Urgency and Complacency is helpful for any change agent and leader who is in the service of mobilizing people to win together.
image credit
by Pete Abilla on September 28, 2009
Transformation or Change efforts sometimes fail. In fact, the numbers are staggering – most of them fail. While the root cause is wide and varied, there are general themes or characteristics that are important to keep in mind in your own transformation efforts. Think of these as symptoms also — that a failure is around the corner if you see these characteristics creeping-up or, better yet, you can course-correct if there’s still time.
The data on Transformation failures is instructive:
click to enlarge image
The main categories for why Transformations fail are :
- Employee Resistance to Change (39%)
- Management Behavior not supportive of Change (33%)
- Lack of resources (14%)
- Other (14%)
The top two reasons are instructive and actionable – the root causes for most transformation failures have to do with people: employee resistance and management behavior.
Management Behavior that is not supportive of the change and Employee Resistance are the main factors that lead to transformation failures
Typical characteristics in transformation failures are the following:
- There is no obvious connection to outcomes that the organization values
- The aspirations of the organization are not clear, concise, or communicated
- The desired behaviors are not role-modeled, trained, or reinforced
- The top team is not aligned
- The informal “how things get done” remain inconsistent with espoused values
- The change champions lose interest and move to the “next” change program
- The leaders charged with implementing the change do not possess the requisite knowledge, skills, and abilities
In the next post, we’ll discuss how to surgically address the failure characteristics above, create a transformation story that is rigorously architected along broad themes, the chapters in that story, and the key initiatives that those chapters produce, and the role of the leadership team in all of it.
Beer and Nohria (2000); Cameron and Quinn (1997); CSC Index; Caldewell (1994); Gross et al. (1993); Kotter and Heskett (1992); Hickings (1988); Conference Board report (Fortune 500 interviews); press analysis; McKinsey analysis
by Pete Abilla on June 3, 2010
Having seen and helped various businesses in various industries, I agree with Carl Icahn’s assessment on corporate waste :
I have observed first-hand the sheer amount of waste and inefficiency at a few companies that I have taken over.
For instance, when I took over a rail freight car company called ACF during the 1980s, they had 12 floors in a Manhattan office building which was filled with workers. I couldn’t figure out what they did. I really tried to find out what these people did and even went so far as to pay $500,000 to a consultant to study the issue and get back to me.
After weeks of research, even the consultant couldn’t figure it out. So I shut down the division and it had no discernible impact on the performance of the company, which I own to this day.
This experience, in my view, is emblematic of the extent of waste in corporate America. There are few companies that you can’t come in and cut 30 percent of operating costs and no one would know the difference.
I agree with his general assessment, but not with how we went about shutting down the entire division so abruptly. But, he is correct in saying that most organizations are full of waste – and, the unfortunate thing is that – they don’t even know it.
Learning to See
Learning to see waste – no matter what business you are in – is critical. Once you learn to see waste, then you can do something systematic about it. Ideally,
- prevent corporate waste
- reduce corporate waste
- eliminate corporate waste
Corporate Renewal
There are may signs of a troubled business . Each of us has a responsibility to improve those areas where we have influence. Given that, what are you going to do today to improve the business you are in? Help the people you work with? Improve the world around you?
It can be difficult, but is sometimes required to get the organization back to health. It is, of course, preferrable, to avoid turnaround situations, if the steps of a turnaround can be avoided.
But we must begin now. What are you going to do to add value?
by Pete Abilla on November 24, 2009
Often, our best moments are during times of trial. Indeed, what we remember most and what is most inspiring are not the scores of naysayers that exclaim “it’s dark, it’s dark” to describe the gloom that is all around us, but the humble, smug, and steady person that lights a candle so that others can see.
Neal Maxwell said this best:
Men’s and nations’ finest hour consist of those moments when extraordinary challenge is met by extraordinary response. Hence in those darkest hours, we must light our individual candles rather than vying with others to call attention to the enveloping darkness.
In a moment of Hansei and reflection, how are you behaving? Are you exclaiming that things are dark? Or, are you doing your part to lift others? As for me, I have much yet to learn. I’m thankful for the time allotted to me, that I might still learn and become better.
by Pete Abilla on June 8, 2010
Many might argue against my claim, but I firmly believe that Private Equity and Leveraged Buyouts add value to the world economy. More and more, acquisitions by Private Equity firms are focused on creating long-term value, rather than financial engineering. That is very healthy.
Of course not all Private Equity firms can be described as long term thinkers but those that do think more longer term and are vested in the operational improvements of their portfolio companies do add value to the world.
Kohlberg, Kravis, Roberts & Co. (KKR) is by far the leader in the Private Equity buyout world. It is not surprising that a key ingredient in their approach to creating value in the companies they acquire is the implementation of Lean Thinking in the enterprise.
100 Day Plan
For KKR, a key aspect of their value creation approach to acquired companies is what they call their 100 Day Plan, which is a Ring-Fence, or Timebox, or One-Piece approach to improving a company (as opposed to a batch approach). In their words :
One of the key components of KKR’s value creation process is the 100-Day Plan. Developed by the KKR industry professionals, KKR Capstone professionals and the management team of a new portfolio company, a 100-Day Plan details the steps necessary for the team to achieve specific strategic, financial and operational goals.
How will margins be improved? How will supply chains be shortened? What departments need more resources? Who will be accountable for what?
Line by line and business unit by business unit, the 100-Day Plan charts a path to value creation by ensuring that everyone involved in the running of a portfolio company agrees upon a plan for improvement, is committed to executing it and is held accountable to it from day one. Because they find the experience of forging and adhering to the first 100-Day Plan so valuable, KKR and portfolio company management teams often develop and implement second and third 100-Day Plans.
100-Day Plans tend to focus on identifying critical, forward-looking operating metrics, such as customer satisfaction measures, on-time delivery and sales pipelines. At times, this enables KKR portfolio management team to identify challenges facing a business before those challenges are revealed in the financial data, thus allowing teams to make difficult operational decisions as early as possible in KKR’s ownership.
In the succeeding posts on Private Equity and the implementation of Lean Thinking to improve portfolio companies, I’ll share several examples of how Lean can quickly improve companies, add value, and remain true to the Respect for People pillar.
by Pete Abilla on June 5, 2010
When a Private Equity firm considers buying a company, the role Lean Thinking plays depends on the stage of the buyout deal. But, Lean Thinking is appropriately placed at the following steps:
- Lean and Pre Acquisition Due Diligence
- Lean and Post Acquisition Short Term Improvements
- Lean and Enterprise Broad Organizational Improvements
Due Diligence
The main questions to consider at this stage are the following :
- What are the opportunities for improvement in the company?
- What degree of waste is present in the company?
- If acquired, how much waste could be eliminated and by when?
Post-Acquisition 100 day Plans
Once the company has been acquired, it is imperative that the Private Equity firm and the current management create a short-term and long-term strategy to bring the company back to health – corporate renewal is the ultimate goal. But, shorter term goals might involve cash flow opportunities .
Enterprise Improvements
Once the short-term bleeding has been stopped, then a broader and more enterprise approach to implementing Lean across the organization is appropriate. It is at this stage where a full focus on the front-lines including training and coaching on the A3 method and how to apply Plan-Do-Check-Act at the lowest levels of the company makes sense.
by Pete Abilla on November 8, 2009
We all love stories. Stories have characters that we relate to or hate, there’s drama, heroes and villains, and the best stories stir the emotion. The same goes for companies and their stories – all companies have a story. Most stories are in-process still, whereas some have ended, such as the story of Enron. What is your story? If your company is amidst a transformation or a turnaround, what does that story look like? What chapter are you in?
A Transformation is a fundamental change that penetrates the heart, mind, and soul of a company. It is not superficial, or a flavor-of-the-month change. In these tough economic times, superficial changes won’t do anymore – a fundamental change is often required to survive and, eventually, win.
More formally,
Transformation is a conscious and purposeful transition to a sustainable way of working at a significantly higher level of business performance and health, based on fundamental shifts in:
- Ambition
- Collective Self-Beliefs
- Behaviors and Culture
- Underlying Capabilities, Systems, & Processes
Conscious and Purposeful
A conscious and purposeful approach is a necessary attribute in sucessful transformations. What does this mean? In practical terms, it means the following:
- a transformation consciously and purposefully builds capability to deliver long-term performance
- a transformation consciously and purposefully builds organizational and individual skills and competencies
- a transformation is consciously and purposefully modeled by leadership – it is not “business as usual”
- a transformation consciously and purposefully reforms the cultural instincts of the organization
Creating Your Story
An effective story is simple and is most effectively executed when it is everybody’s story. Like any story, it will contain characters and chapters. Organizational stories are no different.
The proposed story approach above is one I’ve used several times with organization. It has been effective because it is so simple.
- Create your desired transformation story
- The chapters in that story should have a performance metric attached to it – a metric that describes how we are doing. Each chapter is a “theme”.
- Lastly, this chapter should lay-out the portfolio of initiatives that are aligned to a theme or chapter and, when rolled-up, will collectively make your story a reality.
The recipe above is helpful and focused on the long-term, but tactically and attacks the short-term. But the vision is toward the long-term.
Think about your story. Does the story make sense? Do the chapters fit together? Do your initiatives fit within the chapters?
by Pete Abilla on June 10, 2010
This article shows a case study of how Kohlberg, Kravis, Roberts & Co. (KKR) was able to create value in one of their portfolio companies through the implementation of Lean Thinking in the enterprise.
In 2005, Kohlberg, Kravis, Roberts & Co. (KKR) acquired ATU, an automotive aftermarket company in Germany. ATU was acquired for 27.2 Billion Euros. At the time, ATU had 536 stores. By partnering closely with ATU management, KKR and Capstone (their operational improvement in-house consultancy) achieved the following :
- Reduced the number of suppliers from 800, bought more from each, increased margins through volume and quantity discounts
- Streamlined product portfolio of 15,000 parts and 45,000 deliverable within 24 hours. Part of this was eliminating unprofitable products taking up valuable space on the shelf and in the warehouses, reducing inventory by 20%.
- The end result is a growth of EBITDA margin from 11.2% to 13.8%
What is important to remember here is this: the methods and practices that led to the results above are from Lean Thinking and that Lean Thinking is a critical part of Private Equity.
Was value unlocked and created at ATU through the implementation of Lean? Are customers happier, shareholders happier, and employees happier? It appears so.
As with all things, it starts with learning to see corporate wastes, then systematically and surgically attacking it. Applying the principles of Lean can achieve that aim fast, with an eye for the longer term creation of value.