On Management

Dec. 21, 2004
Can 'cutters' be rebuilders, too?

On several occasions during my business career, I faced the need to achieve turnarounds. As I diagnosed the actions required, I realized that some of them would be terribly painful -- even for the survivors. The first shock they encounter is the loss of friends whose jobs are eliminated. Then there is the stress of the added workload imposed on the sharply reduced organization. Finally, and most debilitating of all, is the lingering fear and anxiety about whether the cuts are really over or whether there are more to come. All of these issues weigh heavily on the minds and the collective spirit of the people left in a company. For management, a major issue is whether the "cutter" who imposes the harsh measures to make the turnaround company leaner and more tightly focused also can succeed as the "builder" who subsequently must restore its vitality. I think the answer is "no." The emotional bank accounts (EBAs) of the survivors are so badly overdrawn by the cuts, no matter how justified and necessary, that they become alienated from the leadership that makes those cuts. A builder must accumulate a positive balance in EBAs to draw upon when times get tough again -- as they inevitably will. It's hard to build any kind of positive EBA balance while closing facilities and terminating people. The latest case in point is Sunbeam Corp. CEO "Chainsaw Al" Dunlap. I have never met him, but from the accounts of those who have, I am led to believe that he is a smart, tough, decisive manager and leader. I suspect that he is not as bad as he is often portrayed, but neither is he likely to have the ability to make the transition from turnaround expert or cutter to inspiring, motivational leader -- a builder. Recent reports of Sunbeam missing earnings projections and incurring an operating loss after its rapid turnaround are not surprising to experienced executives. Many of the previous quarter's positive results were obtained by selling ahead and offering special terms and deals -- in other words, mortgaging the future to hit the short-term goals. This kind of activity catches up with a company and its leader. It did in the following quarter at Sunbeam. As a mentor once told me, to turn a company around, "You simply raise prices and lower head count." This is why many successful turnaround artists come in, make cuts, temporarily increase profits and the stock price, take their money, and then move on. Building a business back to sustainable vitality after such a wrenching experience takes a whole different mind-set and skill set. It's not that the turnaround artist doesn't know how to do it. It's that none of the survivors will trust him or her enough to let it happen. The fear among remaining Sunbeam employees is almost palpable, and they are bailing out as fast as Dunlap can throw them out. There are numerous self-proclaimed and often highly regarded business turnaround experts. Often their formula harkens back to the old days of battlefield medicine when the solution for a badly wounded limb was amputation rather than reconstructive surgery. The victim is unlikely to walk or run again but the surgeon gets credit for saving a life. It provides an ironic metaphor for modern companies' behavior. The cutter is prepared only to cut. In contrast, the builder struggles to take the hard steps necessary to revitalize the dead or decaying organization. Each has his place in the recovery process of a sick and failing business. Sadly, neither is well suited to do both jobs. The problem I have with all of this is that the cutter seems to get a disproportionate amount of the attention and credit, while only the builder creates an enduring entity. Whereas major layoffs become the headline news, little notice is given to increases in employment after the revitalization. I guess the old clich "If it bleeds, it leads" is true for business news, too. As a prospective employee or an investor, I would be wary of companies where the cutter still reigns after the cuts are made -- or where the builder must execute the turnaround. Each seems to think he has only a hammer -- so every problem looks like a nail. John Mariotti, a former manufacturing CEO, is president of The Enterprise Group, a consulting business. He lives in Knoxville. His e-mail address is [email protected].

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