After working with strategy development and turnarounds as a consultant and director for more than 16 years, I have learnt that there are certain vital signs which you see again and again in companies approaching a serious situation. If measures had been taken in response to these symptoms, you could perhaps have avoided ending up in a turnaround and correcting the situation on an ongoing basis.
Where does it hurt?
If you disregard actual market decline, there are still several areas where I would recommend any CEO to react to symptoms of a declining health. In the following, I have chosen to focus on three of the critical focus areas:
- Transparency and IT
- End-to-end supply chain
- Strategy and management
It may seem self-evident to keep an eye on the condition within these areas, and yet, I see time and time again that a response was not made in time, even though more than one metaphorical red light was blinking furiously.
What are the symptoms?
If you are to highlight a couple of examples of vital signs which should trigger an immediate response, transparency and IT is an obvious place to begin, as most turnaround processes also begin by looking at the performance numbers to find out what the condition of the company is.
Most of the concerns I have encountered prior to a turnaround have among other things been caused by a lack of transparency, i.e. limited insight into turnover, profitability, forecasting and logistics at detail level. Surprisingly many companies have for example limited insight into profitability at both channel and product levels and thus have limited knowledge of earnings. Those very same companies will often have limited success in their forecasting and consequently with their information on production and supply chain. This limited insight and knowledge is very often due this very same lack of transparency as data are found in different systems in different departments in the organisation. If these systems or people do not cooperate, it can be a giant task to find the numbers you are looking for.
This leads me to the next focus area, end-to-end supply chain, in which symptoms of a failing health could be sign of an underlying condition. Prior to a turnaround, I often find that there is a lack of cohesion between market requirements, available products and customer experience. The result of this combination is often poor customer satisfaction, resulting in a high level of customer churn and lack of growth.
I have also experienced companies launching products without being on top of the underlying production and logistics. The importance of transparency permeates the entire supply chain. If there is one place that can break a budget, this is it, namely in stock-out with production of new products with immediate and expensive delivery. The opposite, i.e. large stocks, have also been known to bring several companies to their knees. The importance of transparency permeates the company’s entire supply chain.
Continuous health checks from the shop floor to the executive floor
Strategy and management is the third focus area I will touch upon in this article, and which can help decide the company’s health. Company strategy is often defined at a very high level, and a typical mistake is when management forgets to translate the strategy into daily operations to ensure anchoring throughout the organisation. When the strategy is not anchored, it is often perceived by the rest of the organisation to be an academic exercise which belongs with management and does not have any relation to the daily work of the average employee.
Strategy implementation is not made easier if the company also has a complicated structure, perhaps even with operations in silos. When this is the case, you often find closed P/Ls, resulting in limited incentive for management and employees to understand what drives profitability or the opposite in other parts of the organisation.
Another example of complicated structures are large, central support functions, which may even have been set up to ensure that the silo structure becomes better at sharing knowledge, etc. It is my experience that large staff functions, in addition to being cost intensive, have limited understanding of customer wants and needs. I also find that the organisation loses its ability to agilely adapt to the continuously changing needs of the customers.
A complicated organisational structure with heavy, central support functions can also lead to a disproportionate high number of conflicts caused by KPIs working in opposite directions or against the overall strategy. An essential parameter for employee satisfaction is a culture without too much distance between management and employees and without a gap which could cause lack of motivation among the employees. Employees must be able to see how their own role influences the success of the company directly, and how their KPIs relate directly to the overall strategy. If the gap between employees and management is too great, employees will often feel that management forces arbitrary targets on them without any real understanding of the situation on the shop floor. The result is unmotivated employees who feel no commitment to the company’s success. The greatest risk of this is in fact when this is only realised during a turnaround analysis.
These focus areas I have listed are only a few examples from a long line of symptoms of underlying conditions in the company, which could result in a turnaround or a deceleration in spend. There is nothing new in these observations, and yet I see the consequences of a lack of awareness of these potential conditions in the companies over and over again. As an executive, you can strengthen the overall health of your company by keeping a continuing focus on these symptoms before it is too late. Naturally, this is in itself not a simple operation, but awareness and recognition could be a strong first step.
What is the cure?
The best executives keep a continuous and structured overview of these areas and are not afraid to change structure or management immediately in the face of challenges. Companies who steer clear of any serious problems are able to combine a constant focus on the market/customers with a logical, non-silo-optimised structure in which the company’s supply chain has been synchronised with the customer need, and in which it is not an option to build ivory towers. You also rarely see turnaround-facing companies with strong transparency in their figures and data, which are reliable. There is basically a strong connection between healthy companies and talented CEOs who are able to work at both 30,000 feet, understand operations and are not afraid to change structure and management.
Originally published in Børsen Ledelse.