Top Reasons Turnarounds Fail

Back in the late 1990s, Apple was on the brink of bankruptcy. Enter one Steve Jobs, who had been fired in a boardroom dispute, and he was able to transform the company into a worldwide success story. It’s likely the most effective turnaround in business history.

Sadly, all don’t have such happy endings. In some cases, help isn’t brought in soon enough. Every day, week, or month that goes by without action, or recognizing when outside expertise is necessary, results in a worsening situation.

In other instances, a turnaround professional is engaged to restructure and reposition a company as a viable,  competitive entity, but  something goes awry during the process. More often than not, it comes down to a failure of execution of one or two simple keys, including the following:

•    Failure to change. Executives or the board are not willing to make necessary and substantial changes. They will alter course at the periphery, but not at the core level, where it’s truly necessary. However, when a company is in distress, it is clear that the team of the past cannot successfully address the current challenges and those coming down the pike.

•    Failure to estimate the working capital necessary to succeed. In a turnaround, cash is a priceless commodity. Unfortunately,   many   executives    underestimate    just how much capital requirement is necessary to get their companies back on solid financial footing.

•    Failure to innovate. Products, especially in today’s technological environment, can become outdated or no longer perceived as essential. As a result, new strategies for innovation are required. Turnarounds are not all about cost cutting. To succeed, it’s critical that a company aim to grow organically and increase revenue, while at the same time trimming expenses.

•    Failure to learn from others and evaluate culture. It’s strongly  recommended  that  every  executive and board member visit at least four different organizations per month. In doing so, they can view and learn from the good, bad and ugly of the marketplace. Just by walking into a facility and assessing the landscaping, the reception area, and the attitude and attire of employees, they can predict with a very high degree of precision the success for that organization.

•    Failure  to  communicate  to  stakeholders. This  includes employees, suppliers, wholesalers, customers, shareholders, and the press. Communication should never be a secondary consideration. In fact, next to cash, it’s one of the most important ingredients of a successful turnaround.

•    Failure to share bad news. No one wants to share bad news. However, letting employees read about plant closings in the paper is a mistake. They should be told first and foremost what is happening and what to expect in the future. They will be far more likely to remain loyal when they know the facts.

•    Failure to share the pain. Turnarounds are painful, plain and simple. That’s why it’s critical that executives lead by example. That means getting rid of the club memberships, first class air tickets and limo rides. Remember, in a turnover, every expense must be examined and none is too sacred to touch.

When it comes to turnarounds, there are never any guarantees for success, even when proper actions are taken. However, by avoiding the missteps above – and approaching the situation with a sense of urgency – a company can change course for the better, achieving profitability and realizing the next level

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