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Turnaround Mistakes CEOs Make

A successful restructuring may turn a business around and put it back on the road to health.  If companies detect problems early on, they can start making major adjustments to their operations, their finances and their whole approach to doing business.

But the restructuring process can be fraught with perils if not managed properly because decisions get made under extreme duress. The ability to keep a cool head can mean the difference between a smooth transition and complete chaos.  How the executives approach and manage the task is critical to the outcome.

I’ve spent the better part of a twenty-year career in financial management at major corporations and have been called upon to oversee complex restructuring plans and to guide companies through successful turnarounds.  

This article highlights some of the mistakes I’ve seen CEOs make and the steps they took, or should have taken, to avoid them.

Mistake #1: The Head in the Sand Approach

The time to start the process of a business and operational restructure is at the first sign of trouble, not when a major default occurs. When companies are riding high, inefficiencies can get swept under the rug.  Red flags might get ignored rather than taken as signals to start cutting costs or making other corrective measures. At the first signs of weakness, actions should be taken before the business starts unraveling.

Mistake #2: Over-reacting or under-reacting

When management first realizes that the company is in deep trouble, the tendency is to overreact and lay off massive numbers of employees. They rush ahead with major changes without weighing the impact on their overall business model.

On the other hand, this is not a time to sit back and wait for the economy to rebound.  It’s time to challenge old business assumptions, create some new scenarios, weigh the options and play the “what if” game by considering the consequences from a variety of viewpoints.

Mistake #3: Failing to Identify the Problems

Working out solutions can’t begin until the problems are clearly identified and understood. One of the first steps in any restructuring process is to make a thorough assessment of the situation. This puts things into perspective within the larger context and provides a background and structure from which to work. Without this first basic step, businesses run the risk of veering off in the wrong direction and wasting valuable resources. Once the preliminary assessment has been completed, those responsible can gather intelligence and draw conclusions from a more informed position.

Mistake #4:  Fear of Innovative Exploration

Don’t be afraid to consider all the options on the table no matter how far-fetched they may seem at first glance. The situation may call for a complete break from the old way of doing business. This is no time to protect sacred cows, whether they be procedures or people.

Creating a decision tree and ranking the alternatives by applying a value and probability to each outcome is a practical tool for overcoming emotional attachments.  It sheds light on biased opinions and overconfidence in the old way of doing things.  Just because a company survived a downturn in the past, is no guarantee that it will do so again.

Mistake #5: Going it Alone

When corporate decision makers are about to unleash plans for restructuring, it’s important for them to remember that the most valuable assets a company has are its employees—from the top executives down to the support staff.

The keys to a successful restructure includes getting support from senior executives, devising a plan that’s in sync with the corporate culture and the company’s overall goals, and getting agreement and buy-in from the employees.  Remember that this “buy-in” is a gradual thing. Studies show that about 20 percent of managers and employees will “get it” right away, and about 60 percent will eventually “go along to get along.”  The rest will probably be lost in the shuffle.

Next time we’ll discuss the critical importance of communication and and how to get stakeholders on board. 
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 the company ever makes.

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