Sunday, July 7, 2013

The Three R’s of a Turnaround

Every turnaround is unique, tricky, and tough. It requires both brute force and finesse to balance many variables. If there were easy solutions a turnaround would not be needed.

Even though every situation is different, there are common denominators in how to approach them for the best results.

Action is normally needed in three areas: RESTRUCTURING, RETOOLING, and REFOCUSING.  We will deal with each of these separately in describing how they were carried out in the turn-around of Scientific Atlanta.

1. RESTRUCTURING calls for actions to return to financial stability quickly- making the changes needed to get volume, margins, and costs in line to reduce losses and negative cash flow. Since poor financial performance is just a symptom of greater problems elsewhere, rebuilding profitability and cash flow is likely to require changes in the second two action areas.

 2. RETOOLING rebuilds the business’ foundations- putting the systems, processes and people in place to support success.  In most turnarounds, weaknesses in the basic systems and processes for doing business have contributed to the problems and have impeded a recovery. Poor management accounting systems, information systems, sales management systems, product development systems, manufacturing processes, human resource systems, and lack of documentation can stymie a turnaround.

 People are always critical to a turnaround, especially having the right ones in the right jobs. However, at the beginning they are usually part of the problem. Many have become discouraged by their inability to solve the problems. Others have come to accept poor performance as the norm, reducing the drive and commitment required for a recovery. So a key part of Retooling is always re-building and re-motivating the organization.

3.  REFOCUSING re-orients the business to achieve market success and profitable growth.  The long term solution in a turnaround always comes from making changes in the “where”, “how” and “with what” you compete.