Brandt On Leadership -- Three Turnaround Travails

Dec. 21, 2004
It's not easy to stop shooting yourself in the foot, but it's a start.

One of the things I do for a living is the art of the turnaround; I fix broken companies. This usually occasions great interest (OK, some interest) at cocktail parties, as people who've just met me assume that this means I am a guru of some sort (OK, a guy in a decent blazer), with some mysterious methodology for resurrecting dead business models. "How do you do it?" they whisper over a wine or martini. What's the secret? Tempted though I am to embellish (First, find a dead chicken, a bat's wing, eye of newt. . .), I usually tell the truth about turnarounds, which is this: They're about the easiest management job you can get. Why? Because rather than applying a secret ritual or doing smart new things, most turnarounds simply involve getting a company to stop doing stupid things. Instead of shooting yourself in the foot, I metaphorically ask clients, why not try shooting at the competition? The answer, believe it or not, is usually some version of this: But we've always shot ourselves in the feet. That's what we do here. To which I say: I know it's scary, but let's just try not shooting ourselves in the feet for a few days and see if we can't walk any better. After all, if we really miss the pain of the same bullet in the same metatarsal day after day, we can always shoot ourselves in the feet again later. Oh, they say. Well, if you put it that way. . . We then work on the most common bullets, which are: Fixed Expense Stupidity: A turnaround is like trying to survive a crash on Mars, with cash as your oxygen. Anything that breathes it other than people and processes who both A) serve customers and B) create margin deserves to die. Every leader should be asking him- or herself this question at least once a year: If I had to cut my break-even costs in half, what would I do? At the same time, managers often err not by cutting too little, but too much in the things that make work more pleasant -- and workers happier. Is the $20 per month you save on coffee in the lunchroom really worth the feeling of panic it engenders among your staff? Marginal Ignorance: Nearly every turnaround has one or more major products that actually costs the company money with each sale. If you haven't calculated your real margin -- including not just raw materials but machine time, distribution costs, order processing charges -- you don't know whether a given product is profitable or not. Even more dangerous is that many managers fall into the trap of believing that product price has something to do with product cost. It doesn't -- but price has everything to do with perceived value. At one company, I doubled the price of an item with a negative margin. Much to the managers' surprise, we sold twice as many. It's not what you know it's worth, but rather what the customer thinks it's worth. Customer Service Prevention: Show me a company in need of turnaround, and I'll show you a management team that doesn't listen to customers. Worse yet, these same customer-free leaders insist on rigid rules and procedures for how other employees can interact with customers. Turnaround guys like me will tell you to go sit with one of your most irritated customers (or ex-customers) and experience first-hand the sales/ordering/fulfillment process from their perspective. Chances are you'll instantly understand why they don't buy more from you -- and how you can fix it. On the other hand, you could buy more bullets. . . John R. Brandt, formerly editor-in-chief of IndustryWeek, is CEO of the Manufacturing Performance Institute, a research and consulting firm.

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