When Good Companies Go Bad – Part 3, the Killer B’s
By Charles Van Duzer
Change, make that constant change, is the way of the world. A double edged sword, change provides opportunity on one edge and creates outdated services, products, processes, marketing and manufacturing methods with the other. Companies slow to embrace change and adapt as conditions shift ultimately face a crises of financial viability and survival.
Whenever a company is in decline/distress, among the usual suspects one can find: declining profits, trouble complying with loan covenants, customer complaints on the rise, customer defections, talent loss- high turnover, absence of short and long term planning, supplier problems, failure to adapt to new technologies, reduced working capital, and changing accounting principles; just to name a few. The number and mix of problems will vary from company to company.
So, several of the more common trouble signs have emerged and your business is in trouble. Surely as summer follows spring the killer B’s are not far behind.
Who are these killer B’s? They are yet another scourge affecting good companies when things turn bad. Their names are: bureaucracy, backstabbers and bookkeepers*. (*Accountants would have spoiled the alliteration and killer B’s theme.)
Once a successful business reaches eighty to one hundred employees a bureaucracy evolves. Slowly at first, usually the first outbreak is in H.R. Under the guise of managing growth it extends it’s tendrils into accounting, operations, sales and finally the whole organization.
So long as the enterprise is growing and financially healthy the bureaucracy is akin to a benign tumor: everything circulates through it, but no real harm is done. The friction it causes is outweighed by the semblance of order it tries to maintain. Besides, success is the order of the day and the ‘crats are powerless in its glow.
Comes the downturn, perhaps sales slip a little or a new competitor takes the stage; literally any change is a signal for the ‘crats to act. In their sense of the company, things are wrong and they simply know that there is nothing wrong with any policy, ergo the problem must be the failure of people to strictly adhere to all policies.
Now, every company starts with a simple set of policies and guidelines and then someone does something stunningly stupid. A policy or policies are written and implemented to prevent any variation of this stupidity from recurring. On the other end of the behavior spectrum someone tries a new tactic in sales, operations or accounting and it does not produce the desired results (in more ways than one.) Not only is the experiment a failure in some aspect, it engenders new policies designed to prevent a recurrence. These in fact operate to stifle innovation. Like barnacles on a cruise liner, policies accumulate day after day and act as an increasing drag on performance.
The ‘crats, freed by the downturn, begin to inflict policies with a vengeance. Overlay this with the external problems the enterprise is facing and positive actions slow dramatically.
Fear of layoffs is tangible. Few are willing to act decisively, let alone aggressively in the face of the troubles for fear of being singled out for the next round of cuts. At this stage the backstabbers ply their trade in an effort to eliminate the competent.
Key players and contributors quickly find even the most sagacious actions are second guessed and become grist for the rumor mill. Positive activity slows to a snails pace as people go into holding patterns waiting for someone else to be laid off.
As if this internal mix was not bad enough, the bookkeepers make a grab for control. Cash is tight and they ‘control’ the cash. Mind you they are not responsible for the activities that actually produce cash; but, they are the guardians of the check books.
Since the problem is financial, the bookkeepers posit that they are the only constituency able to grasp its complexity. When the only tool you have is a hammer everything begins to look like a nail. The tools available to the bookkeepers are financial, not operational or any of the other necessary disciplines that make the enterprise run. The lack of cash creating the financial crisis is a serious problem, but it is also a symptom of underlying problems in other areas of expertise.
Suddenly there are layoffs, cutbacks on travel and other expenses. Now, each expense needs the blessing of the bookkeepers. The few positive initiatives now face additional scrutiny and delay. While the financial folks are a necessary part of any successful restructuring/turnaround they are ill suited to lead the effort. All constituencies, inside and outside the company, will need timely, accurate financial reports upon which to base decisions vital to the enterprises future. They will also need timely, appropriate action in all disciplines to complete a successful turnaround.
In a turnaround situation the killer B’s are precisely that- company killers. In a survival threatening crisis it is not unusual for the most seasoned manager to freeze up. A survival threatening crisis is significantly different from years of running the business in good times and bad. Immediate action is needed, focusing on stabilizing defined situations threatening the immediate survival of the company (e.g. calling bank loans, negative cash flow, death of the CEO,) and in the event management is temporarily unable or unwilling to function under the current stress.
At this stage a Turnaround Specialist is needed to provide the interim management necessary to stabilize the situation. The killer B’s will be redirected, either to providing positive actions for the company or to the nearest exit. The three initial stages of a turnaround involve:
2. Ability to stabilize the chaos
3. Action in the form of developing a Recovery Action Plan
The Turnaround Specialist brings an outside, objective view of the company’s performance and identifies problem areas affecting results. Lack of cash flow/profits is often the immediate problem that precipitates the Specialists retention, but as troublesome as these problems are, they are also symptoms of other underlying problems which have to be quickly identified and redressed.
Charles Van Duzer is a successful Crisis manager specializing in the turn around of underperforming organizations and bringing start ups to full potential. My expertise is in P&L management, operations, strategic planning and tactical implementation. My specialties are leading cross functional teams, building profitable relationships with customers, lenders and vendors, and developing and executing innovative action plans that improve the top and bottom lines. Cbvand@sbcglobal.net