Myths in Transformation and Turnaround

By: Mike Teng
Submitted: 2007-01-17 15:05:17
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Welcome to the real business world where troubled businesses abound. Distressed business owners and executives need to understand turnarounds and transformations in order to face the challenges in this competitive global market. Corporate turnarounds and transformations are no longer ad hoc. Instead they have become an integral part of daily corporate life with dynamic changes in the economic, political and technological arenas. Business turbulence is here to stay. Yet, there are many myths pertaining to turnaround and transformation.

Myth 1: One common myth held by companies is that they are not vulnerable to financial crisis: “My company is doing well. It will not fall sick.” Akin to getting AIDS, some patients previously adopted the attitude: “This will not happen to me.” But when it does happen, be prepared to hear this from the doctor. “Sorry, we cannot help you.” Many companies have annual medical examinations and health screenings for their employees but are negligent when it comes to their own check-ups. Companies should go for regular health check-up. The key to successful turnaround is early intervention and understand the early warning signs of a sick company.

Myth 2: Management of troubled companies often goes into a state of self-denial. “We have seen this before. This is a little hiccup in the economy and our business is seasonal. Nothing has gone wrong.” This is a myth. The situation frequently gets worse before it gets better. Such denial is insidious, resulting in delays in the necessary remedial actions during the early stage of under-performance. This is why oftentimes by the time the companies’ woes are publicly known, they are already basket cases. Proper treatment can only be administered after the acknowledgement that there is pain.

Myth 3: “Our creditors and banks are chasing for payments, we have a credit squeeze and firing of our staff must continue till cash flow improves.” Yes, troubled companies need to cut cost to the bones without injuring the muscles and the vital organs. However, it is a myth that the primary role of a turnaround manager is merely to be ruthless and fire people in order to reduce overheads. Downsizing is like amputation which has negative side effects and can further worsen the staff morale.

Myth 4: You may be the lucky one as your company is not in the critical life-and-death situation but merely seeking market expansion. “China, India and SE Asia are high-growth markets and they appear a safe bet for us to expand and invest the business there.” For instance, many companies in the West face intense competition and shrinking domestic market and surmise that a way to turn around their fortunes is to venture into high growth regions in Asia. It is a myth that it is a safe route to success doing business in Asia. Though the business opportunities are great, there are many pitfalls and differences in business practices that these companies ought to be mindful about in venturing into high growth Asia.

Myth 5: Yet, it is unfortunate that business schools today rarely teach the subject of “Corporate Turnaround”. Many of these business graduates eventually work for troubled companies and are inadequate to handle the real-life corporate situations. It is a myth that textbook knowledge will suffice in helping these executives manage a corporate turnaround situation which is much more esoteric and complicated. The turnaround executive has to be a dictator, crisis manager, visionary, entrepreneur, coach, spiritual leader all roll into one.

Myth 6: “Firing shall continue till morale improves” The media have fuelled this myth by portraying the turnaround manager as Rambo, the macho man in the movies of the same name, who destroyed everything blocking his way. For example, the media nicknamed turnaround leaders like Jack Welch, the former chairman of General Electric (GE) as Neutron Jack; Al Dunlap, the former chairman of Sunbeam Corporation, the Chainsaw Al; and Magaret Thatcher, the former Prime Minister of United Kingdom, the Iron Lady. Both Welch and Dunlap fired thousands of employees in their turnaround endeavours. Magaret Thatcher privatized Britain Inc, the state-owned enterprise, resulting in loss of thousands of jobs.

Myth 7: The theories on change management are fairly straightforward and a lot of common sense. Yes, it is true that turnaround and transformation go back to basic principles. However, sometimes common sense is not too common. If it is, there will not be so many business failures today. Be mindful that in a turnaround environment, often times, the manager is put into a difficult position and he has little time to think clearly or refer to business books for guidance. Making the right timely decision and executing the decision are what matter.

Successful change management using transformation and turnaround should be holistic and based on addressing both strategic and operational issues in the short and long term. Comprehensive turnaround plans should seek not only to cut costs but to grow revenues and change the corporate well-being in order to facilitate and manage changes.

Also, there is no single right style of leadership in a change management environment. Turnaround executives have to be benevolent dictators, crisis managers, visionaries, entrepreneurs, coaches, spiritual leaders all roll into one. With so many hats to wear, a turnaround executive may appear schizophrenic exhibiting multiple and at times contradictory qualities. In some tough turnaround situations, the turnaround executives may even need to possess the supernatural skills such as selling a stethoscope to a tree surgeon or resurrecting the dead. As a result, business schools are often relegated to producing textbook executives who are unable to cope with the realities in the marketplace where many sick and troubled companies abound.

Article source: Expert Articles