Turnarounds can begin only after management of the business accepts that there is a problem with both the business and their leadership.
That acceptance does not come easy. Talk to any banker or professional experienced at advising troubled businesses and they will tell you it is all too common for management teams to be resistant to change, dismissive of criticism and to embrace victimhood. “That big deal is going to close any day now and that will fix all of our problems” or “my CFO is out of his depth and as soon as I replace him, we will get on the right track” are phrases that I have heard so many times in my career, I wouldn’t dare to try to count. The business leaders making such arguments never seem able to see the obvious, which is that the big deal has been coming any day now for over a year or that this is the third CFO of the business in the last eighteen months.
Leading business change is a difficult and risky adventure for all concerned. It requires the turnaround leader to confront confirmation bias and to accept the objective idea that the organization’s culture, strategies and/or routines have failed, or at least resulted in an undesirable outcome. It requires the leader to define and to try to execute on a new culture, new strategies, new routines and to have the self-confidence to try new ideas and to think big, while at the same time to be in touch with day to day realities and to be willing and able to adjust in real time. And, it requires the leader to have persuasive capabilities sufficient to gain the buy-in of all of the stakeholders of the business, such as employees, customers, suppliers, lenders and shareholders, that are required to support and implement the new plan.
Indeed, turnarounds are extraordinarily difficult and therefore, not unexpectedly, they often fail. When a turnaround fails, the consequences might be and often are severe, including loss of employment, failure to pay creditors, dragged out litigation, calling of personal guarantees, emotional stress and depression, substance abuse and family distress. And when the business fails and these severe consequences arise, who is to blame but the turnaround leader, the very person who put themselves out there to try to undertake the difficult and risky challenge?
In fact, the risk to the turnaround leader is worse than that. What happens to the reputation and career of the turnaround leader if they succeed, within the context of their own objectives, but are deemed a failure by other stakeholders or casual observers? This happens all the time because, when it comes to business change, success and failure are completely subjective. What does “fail” mean in the turnaround of a business and who is the judge of success or failure?
No wonder management teams avoid the daunting challenge of fixing a troubled business. Better, and certainly easier, to not take ownership of the problem and to believe that the world has temporarily conspired against them, that success is just around the corner and that the most important value in business is to “not give up”. One of my favorite business cartoons is a single frame of several people sitting a meeting table, with revenue and profit charts in the background, all pointing negative. One of the meeting participants is saying: “What if we don’t change at all… and something magical just happens?” Exactly.
The first step to a turnaround is to accept the need to change.