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Crisis management: First, find the root cause

The first key to any corporate turnaround plan is accurately assessing the root causes of the crisis. You must separate the symptoms from the causes — an action plan that treats symptoms only makes matters worse.  You may find a variety of issues that “need work,” but it’s critical to figure out which are at the root of the problem and which are merely symptoms. Here are just a few to think about:
• The Wrong CEO:  Some entrepreneurial CEOs are very good at building a company from startup to around $5 or $10 million dollars, but begin to flounder when the company gets larger or enters what’s called “corporate adolescence.”  Others cannot seem to manage start-ups but really hit their stride when the gross revenue moves above $50 million annually. The right CEO, in the right situation at the right time, is a good rule to follow.
• The  Wrong  Board: Often the board is populated with individuals well versed in the technology of the company but inexperienced at professional governance. Or, they may be friends of the founder/CEO and unlikely to rock the boat. Governance is the appropriate focus of the board, of course. Unless it accepts this responsibility, oversight of management will be ineffective and the company will suffer. It may be necessary to repopulate the board with new members whose experience, knowledge and range of connections are more appropriate.
• Poor Strategic Choices:  For the most part, poor choices reveal problems with the strategic planning process. In some situations, it is an indication of the lack of good judgment on the part of the senior team — particularly the CEO. In others, it surfaces because the team has relied on partial or inaccurate information in its decision making.
• Poor Execution:  Some teams are very good at planning but fail at execution of those plans.  At larger companies, the CEO and the senior execs are often addicted to “strategic speak” — and leave the actual implementation to the “worker bees.” This can create an “us vs. them” environment — a disconnect between those who work for a living and those who sit around and think up things for them to do.
• Inadequate Controls:  We’ve seen everything from shoebox accounting to SWAG (“Systematic Wild-Ass Guess”) approaches to financial forecasting, production or inventory controls. A company needs professional control systems in place.  Failure to do so puts the entire operation at risk —and that happens far too often.
• Insufficient Resources:  Companies need resources in order to grow. That  includes  personnel,  financial  and  informational resources. Companies often neglect or under-perform on one or more of these resource allocations strategies — and that can severely limit growth.
• Revenues Trend Downward:  Marketing and sales may simply not be up to the job. A company’s value proposition may have become obsolete or simply  non-competitive.  It may be a downturn caused by a weak economy. The financial statements will show the downturn — the key is to figure out why the trend is negative. Trouble is, most management teams’ diagnoses are at least partially wrong.   Current management has a stake in making itself look good — and there is the rub. That is why an independent review is essential to the process.
• Inaccurate Sales Projections: Major deviations from sales projections — either grossly negative or positive — can cause significant problems.  (Example: Your sales people tell you that they expect to do $10 million in new business next quarter. You meet with your senior team and plan the resourcing and staffing to manage the new business — all of the plans are carefully made and reviewed. Then your sales people come to you at the end of the month with the news that the number will be $20 million — or, on the negative side, only $5 million. Consider the negative impact on the company and the pressure that puts on the rest of the team. A professional sales team ought to be able to accurately project results; the inability to do so impacts the welfare of the company.
• High Operating Costs:  Sometimes it is the expense side of the income statement  that is unbalanced.  Some companies are overstocked with unproductive consultants and advisors — with no metrics measuring their performance. Other companies have chosen the most expensive alternative to meeting a particular challenge.
• Unsuccessful R&D Projects:  Some companies have spent scarce resources pushing down a blind alley and face the need to write off the entire investment. In addition taking a financial hit, this reflects poorly on the judgment and competency of senior management — and that negative reflection can make it difficult to obtain critical financial resources.
• Becoming Uncompetitive:  Sometimes a company simply loses its edge due to complacency.  Or, a company fails to see a major sea change in the market. In other situations, competitors introduce disruptive technologies that have marginalized the value proposition of a company.
• Excessive Debt Burden:  Many of the symptoms and causes discussed above can lead management to burden the company with excessive debt. These situations call for reducing the debt through aggressive negotiation with creditors and vendors.
These are tough issues for a management team or board to address, especially when strong personalities, egos — and careers — are involved.  That’s why most companies turn to an independent outside consultant for an objective analysis of the situation, and a clear-headed assessment of whether or not the company can be saved.

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