Despite best laid plans, all turnarounds are full of mistakes, they happen continually. However, there are some major common mistakes which can prove fatal to a turnaround process. Management and directors need to continually consider their strategy during a turnaround, this not only involves making decisions about how to fix business but also making sure their approach is not creating additional risks to achieving a successful turnaround.

Here are our tips for what not to do:

1. Take any stakeholder for granted.
Certain stakeholders can be easily ignored or forgotten at your peril.
Maybe the stakeholder is a key employee who has been quietly getting on with their work but has also been considering taking a role in another business with a less volatile financial environment. Perhaps the stakeholder is a creditor who some time ago threatened to commence a legal recovery action and you didn’t bother returning their telephone calls and now they have briefed a lawyer. Accordingly, directors and management need to be continually ‘touching base’ with key stakeholders to understand their position, communicate the turnaround plan and obtain their support and buy in.

2. Expect all parties to behave commercially.
Commerciality is a key motivator of parties in a turnaround, but not the only one. It is important to understand the other other factors which will drive a decision such as the stakeholder’s policy or ’emotional state’. For example:

The ATO as a matter of policy will only in extraneous circumstances, such as personal hardship, agree to a reduction in their debt, interest and penalties.
Turnarounds can be emotional situations (especially if you have lost money!). Some creditors (especially smaller/private companies) can take very personally what they perceive as a breach of trust when asked to write off a portion of their debt.

Therefore, despite a turnaround plan potentially offering a better commercial outcome it may well be rejected by parties for whom financial return is not the only issue effecting their decision.

3. Wait for perfect information to make a decision.
Unfortunately this never comes or if it does it is already too late. Often making a decision in a turnaround is necessarily a best guess based on whatever information is available and not making a decision produces a worse outcome. For instance, management may have difficulty confirming the contingent contractual costs of pulling out of a geographic market, but it may be that a ‘rough’ estimate is good enough when the trading losses in the market are significant and must be stopped lest they threaten the survival of the remainder of the business.

4. Decide market conditions is the only thing wrong with a business.
It is easy to do blame everything on a tough market. As Warren Buffet said its . “only when the tide goes out do you discover who’s been swimming naked.”
Another (less graphic) way to consider this issue is that declining market conditions will always be a key issue, but they also tend to expose other problems in a business that need to be fixed. Blaming market conditions often occurs in conjunction with ‘denialism’ about historic errors in strategy or execution or the limitations of the existing capability of management in a business.┬áTherefore turnarounds involve some mea culpa about what the real problems are in a business, why they exist and how they need to be fixed.

5. The same thing as you have been doing.
Last but definitely not least. As Einstein said “stupidity: doing the same thing over and over again and expecting different results.”
In a turnaround, there must be change, it may be uncomfortable, resisted by stakeholders and generally confronting but it simply must occur and become part of the culture of the organisation.

If you would like a no obligation, confidential discussion about turnaround management and executive solutions, please contact me at svertullo@integralfinancial.net.au.