Wednesday, September 16, 2009

Company Turnaround – Not a Children’s Story

Many of us remember the fairy tale of the Little Red Hen. This story is known not only to our USA readers but many of you around the world, who are reading these articles. Little Red Hen lived on a farm with her five chicks. On this farm, there also lived a dog, a cat and a duck, along with a number of other animals. Red found some seeds and then asked for help in planting, harvesting, grinding and baking but got the response “Not I” from all. However, all were around to eat the bread when it came out of the oven. They didn’t want to do the work but to share in the rewards.

To some extent, that is the way it used to be in business too. Many employees were focused on their own department and responsibilities and built larger and larger organizations. Teamwork and extended productivity were only a subject for meetings and discussion and not actually practiced. However, the employees were there to share in the bonuses and promotions as the business grew.

NO LONGER. Turnaround for companies isn’t a children’s’ story but the basic idea still works.

Here is how the story could go today and why bringing in an expert on turnaround is such a smart idea before it is too late and you are out of business. It is told in the form of a children’s story to make the point without setting up defensiveness in the readers.

The financial pressures on the farm (this could be any business, but for purposes of this story it is a farm) were getting more and more severe. Prices of eggs, the output of the farm, had risen but were now at a level that further increases were not possible. Demand was falling. Profitability plunged. Much of the days’ activities in all departments centered on what the farm was going to do. There were going to be severe budget cutbacks. Some would have to lose their jobs and.

The farmer, who was the CEO of the farm, had pressures from all around him. He had a lot of ideas given by the Board of Directors, the news, the executives and even his wife. All the ideas involved slashing costs in one way or another. In an attempt to meet the profit targets, which hadn’t changed despite the worsening economy, since there were shareholders and the bank and the other creditors and etc, the CEO give direction to his executives to reduce spending by 15% across the board and start laying off employees.

While this quickly cut some costs, the result wasn’t what had been expected as other costs had to increase to compensate for some of the lost activities. It also caused chaos in the company since there was no overall plan. Almost every process was affected in some way and productivity slowed dramatically.

That led to the need for further cuts in order to make the now reduced targets. The analysts on Wall Street had pulled their investments so the farm’s stock price plunged. Not only were bonuses eliminated, pay cuts were initiated. The layoffs continued and many seasoned farm employees were let go. As you would expect, revenue fell again and again. Soon cash flow dried up. Does this sound familiar as a real life story?

Since this is a fairy tale and not real life, there is a happy ending to the story. In real life, most of these companies would be put out of business.

The Little Red Hen convinced the farmer to bring in a turnaround expert. Not one of those expensive large consulting firms but one that had the expertise and a track record of success. The turnaround expert quickly analyzed the situation, pulled the CEO and the executive team together and led them in creating a business plan that was based on their core competencies and focused the remaining resources on the greatest opportunities.

Unlike in the earlier story where no one would help, here everyone had a responsibility and accountability for the results in their section. The plans were greeted with enthusiasm and soon the business had turned around and like in the children’s stories, all lived happily ever after. Well, perhaps not happily ever after since even in children’s stories there is the realism. If you don’t keep executing the right plan, you can fall back into trouble

Please do not think that turnaround work and plan was that simple to define and execute. It never is but with the right guidance and expertise your company can be turned around and you too can deliver a happier ending. The key is to get the right plan and get some help to turn the business around now. If you wait it will be too late.

If you don’t already have a turnaround expert, contact us and let us help. We have saved a number of “farms” and businesses too.



John Maver
Maver Management Group
(925) 648-7561
Maver Management

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