Deadly Turnaround Mistake: Failure to Communicate

Typically, as companies decline, less and less information gets communicated, often out of fear that key people will jump ship. As a result, however, cynicism and morale plummet. Often an “us vs. them” situation develops, along with internal fingerpointing and blame games.

The key here is to orchestrate a quantum leap in terms of open communication about the situation, and to motivate the employees for the challenging times ahead. You have to decide what to communicate, how to communicate it, and when.

An important priority is to prevent good people from leaving, and to identify any critical gaps in talent that need to be filled. That’s why most turnaround professionals recommend conducting a quick audit of management skills early on. Part of this effort aims to identify those key individuals who “get” what you are trying to accomplish, show a willingness to change and will commit to helping.

Communication to the outside world is also critical. For instance, the CFO might be the best choice to contact lenders or credit managers at large suppliers. Support from downstream supply-chain vendors and other trade creditors can be critical to the success of a turnaround effort. Suppliers have to believe that it is in their best interest to continue to supply the business and to leave credit lines in place.

Dealing with suppliers can be time consuming. One approach is to rank them according to importance and manage the relationship accordingly, investing time as necessary to engage suppliers at a senior level. This can pay handsome dividends, as suppliers may be a source of investment capital.

As the life blood of any business, customers are essential, and reassuring them needs to have a high priority. In many turnarounds, the company may already have good relations with customers, so that continuous reassurance from the current customer-facing personnel is all that is required to keep them in place.  In other situations – especially involving major accounts – it may be best for a turnaround leader to take an active role in key account management.

Preserve employee morale

Employee morale can drop precipitously during a corporate restructuring. Anxious employees are less productive and the impact on the bottom line can make a bad financial situation even worse. If layoffs are necessary it’s important to make one time cuts rather than doing it in phases. Once cuts are made, make it clear that no more layoff s are anticipated. Nothing crushes morale quicker than employees left waiting for the next shoe to drop.

Make the severances packages as reasonable as possible. This not only helps those who have lost their jobs, it also sends a signal to the survivors and lessens their resentment and concern for lost friends and co-workers.

Consider the value of experts

Even though your bottom line is being squeezed, don’t dismiss the opportunity to bring in people who specialize in corporate restructuring. Decisions made during a turnaround situation are complex and will have lasting consequences. It takes time and expertise to assess the problems, to consider as many alternatives as possible and draw viable conclusions. There is too much at stake to leave to chance or haphazard planning.

Seeking professional assistance may be the best investment a company ever makes.


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