The Fragile Turnaround
Organizations may reach a desired state through a turnaround, but a more comprehensive business transformation is often needed to sustain momentum.
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“Yesterday I was clever, so I wanted to change the world. Today I am wise, so I am changing myself.”
- Rumi
Overview
When I was first introduced to the field of turnaround and restructuring, I instantly fell in love. The thought of being welcomed into an organization as a much-needed change agent was intoxicating. I envisioned long strategy sessions with company leadership, rewriting strategic plans with an eye towards a truly executable path to value creation (no pretty, over-written plans that look wonderful but offer nothing to the leaders tasked with actually executing the plan). Visions of revamped dashboards showcasing well-defined KPIs beckoned. I saw the promise of upskilling each organization I worked with, a strange latter-day Johnny Appleseed spreading 13-week cash flow forecasts, financial projection models, and more important than both, the wherewithal to interpret their outputs. It seemed to me that turnarounds offered the opportunity to experience and foster organizational change on a broader scale. All of that is true, but it is not the full story, which is to say that my youthful enthusiasm missed some importance nuances.
Very often a turnaround effort will achieve its stated aims, and things immediately begin to go wrong. Victory is declared. The advisors go home. And shortly thereafter an organization that until recently had been a study in success becomes another grim example of the fragility of turnarounds as it backslides into its worst tendencies and underperformance returns.
The truth about a turnaround is that, while implementing one successfully is hard, the greater difficulty by far is not in the execution of the turnaround itself, but in the establishment and maintenance of a new status quo that will support and extend the changes that made the turnaround possible (i.e. business transformation). Put even more simply, the hardest thing about a turnaround is ensuring that the organization does not backslide into the very disfunction from which the turnaround effort aimed to rescue it.
A turnaround is the act of repositioning an organization financially, operationally, and strategically. A business transformation is the act of achieving that repositioning in a manner that is self-sustaining.
A turnaround is an impressive feat in the world of business. To successfully execute a turnaround is to shift an entity from a state of decline or stagnation to a state of renewal, growth, profitability, and value creation. However, the journey from one point of equilibrium to another is best thought of as a step change rather than a gradual, linear progression. The fragility of turnarounds lies in the fact that there are few off-ramps in a turnaround, and often “better” can become the enemy of “fixed”.
Organizations in need of a turnaround and their leadership should proactively aim for a more comprehensive business transformation instead, placing value not only on how much forward progress and organization can show from its performance trough, but also on the stability of those performance gains, and the ability of the organization to continue improving.
Resistance to Change
A business transformation can be viewed as a turnaround the roots of which are embedded in an organization. If a turnaround is the forward progress an organization can achieve (financial, operational, strategic, etc.) from a point of severe underperformance, a business transformation can be seen as the same, but with the added element of that positive change being sustainable. The answer to the risk of backsliding inherent in a turnaround is to foster comprehensive organizational change (i.e., a business transformation) such that the likelihood or even possibility of backsliding is significantly diminished.
During periods of intense change, whether classified as a turnaround or a business transformation, the organization is in flux. Changes in strategy, structure, and culture are implemented at a rapid-fire pace due to the urgency of the situation. These changes, though necessary, create points of vulnerability. Change, even objectively positive change, rarely has unanimous support in an organization, and any current or aspiring change agent understands that building support and enthusiasm for any change initiative is an important part of the job.
Another significant challenge is the resistance from constituencies that favor the prior way of doing things. Every organization has its own culture, traditions, and practices that have been ingrained over time. When a turnaround is initiated, it often disrupts these established norms. There are always factions within the organization that are comfortable with the status quo and are resistant to change. These constituencies can encompass any of the key stakeholder constituencies of an organization, though in practice they are limited to those who have a vested interest in maintaining the status quo. When these parties perceive change efforts as a threat to their job security, power, or influence they will resist, and that resistance can manifest in forms ranging from passive non-compliance to active opposition.
The following are common elements resistant to organizational change:
Customers. Not all customers are created equally, and often with small and midsized organizations, savvy though unscrupulous customers will take advantage of companies with poor internal controls, fostering business relationships that are strongly one-sided. These types of customers rightly feel threatened by organizational change initiatives that threaten their status quo relationship.
Key Complaint: The new leadership “does not understand our history”.
Employees (Staff). Organizational change presents a wonderful opportunity to strengthen the leadership and management ranks, but it also creates a group of disgruntled employees who long for the old way of doing things.
Key Complaint:New processes and procedures are unfamiliar and restrict freedom of action.
Employees (Leaders). As organizational structures are rationalized, carefully built fiefdoms collapse, disrupting leaders whose commitment to the organization is subordinated by their commitment to their own power and influence.
Key Complaint: Feel their power and authority diminishing and extrapolate that to the overall health of the organization.
Conclusion
The fragility of a turnaround and the advisability of aiming for a business transformation instead is a testament to the complex and dynamic nature of organizational change. The journey from one point of equilibrium to another is fraught with instability, resistance, and intense pressure on leadership. The success of any change effort depends on the organization’s ability to navigate these challenges, gain the support of key constituencies, overcome opposition, and resist the urge to prematurely declare victory.
About the Author
David Johnson is the founder and managing partner of Abraxas Group, a boutique advisory firm focused on providing leadership and support services to companies in need of transformational change. He is an accomplished thought leader with multiple articles and speaking engagements on the topics of business transformation, change management, performance improvement, restructuring, turnaround, and value creation to his credit. David can be reached at: david@abraxasgp.com.