A “normal” turnaround environment just managing financial distress looks relatively straightforward compared to the situation many boards and executive teams are addressing as the world emerges from lockdown and economic hibernation.
With the addition of massive and accelerated disruption from the pandemic, many organisations also need to very quickly make key longer-term strategic decisions, or to say it another way …..Turnaround + Disruption means lots of very hard decisions in a short time period.
There is plenty of guidance explaining the “turnaround principles” to deal with a financial crisis but less for the current strategic circumstances where major decisions need to be made off a short runway. No one really knows the answers to these great strategic questions, but here are 5issues to keep in mind when making these important decisions which will hopefully underpin success:
1. Strategic error – major decisions taken in short timeframes and in an environment with many unknowns inherently increases the likelihood that a strategy will soon require further adjustment (or at least some tweaking).Accordingly, it is important to plan and sensitise forecasting in relation to:
a. Effecting further strategic pivots
b. Moving to option B/C/D strategy
c. Escape routes if strategy fails
d. etc
2. Financial resource preservation – given the likelihood of the requirement for further strategy changes (see point 1), the potential for missing forecasts and unexpected surprises, it is important to maintain financial buffers through “hoarding” cash, maximising available credit facilities, raising capital and extracting cash from the balance sheet (see selling lazy assets and shortening working capital cycles).
3. Internal reorganisation – this is a good area of focus because there can be more tangible benefits from changes. Further, the accelerated change of the crisis is often simply forcing organisations to make decisions they always needed to make while also readying them for the challenges ahead. Example internal reorganisation opportunities are restructuring management and staff, updating ERP systems, and consolidating sites and operations.
4. Culture – major strategic change is much more easily delivered where there is an organisational culture to support it while the current circumstances also represent an opportunity to further develop culture. Example ways to do this include better communication regarding new strategies and staff with reduced pay/conditions participating in the upside from a new strategy. Having to drag staff through a restructuring process both increases the time to complete and reduces the likelihood of success.
5. Leadership – all turnarounds and organisational changes are management led. Therefore very quickly an assessment is required of whether the team is in place to deliver a revised strategy. Further, the leadership requirements for an organisation may look different with for instance:
a. increasing use of technology and changes to workforce structures require new/expanded roles and skills for the CIO and CHRO.
b. C’suite executives who have only ever been involved in high growth environments not being the people to lead a major cost-cutting and restructuring exercises
In an ideal world, strategy updates take 6+ months with opportunities to test the veracity of new approaches, widely canvass various options, and detailed analysis available to support decisions.
However, for the great strategic challenges presented by the COVID-19 pandemic, there are shorter timeframes and only speculation and guesswork for predicting market changes. Formulating a strategy is difficult and while many commentators are fond of saying “looking through” to the end of the crisis and the new normal no one really knows what and when that will be.
Finally, an end note, denial of change is often the enemy of a successful turnaround, this is not a problem as we emerge from the lockdown – it is pretty hard to ignore and will force transformations of some businesses and markets which were better done sooner.