Managing turnarounds

Managing turnarounds (May 31, 2005)

Ben Teehankee

Managing For Society column, The Manila Times

Crisis can hit an organization when it is least prepared and where it is most vulnerable. The papers are full of stories of a couple of pre-need companies’ difficulties in meeting obligations to plan holders. In the US, the vaunted Toyota Corporation recently announced a recall of nearly a million of its pick-up trucks and SUVs because of safety concerns. And then there’s the fiscal crisis -- which exists or does not depending on who’s talking -- faced by the Philippine government, which is the country’s biggest organization of all.

Managers of organizations in crises are faced with the challenge of achieving a turnaround. Harvard management sociologist Rosabeth Moss Kanter has studied corporate turnarounds, both successful and unsuccessful, in great detail and her findings can give some useful insights to today’s crisis-challenged managers, whether in corporations or in government.

Kanter observed that troubled companies who are unable to deal with crises go through a predictable sequence of stages. She emphasizes that the company’s decline does not come from one factor alone but is aggravated by several organizational practices reinforcing each other to become cause a cycle of decline. She explains that these practices “arise and reinforce one another in such a way that the company enters a kind of death spiral.”

The first stage of the death spiral is “secrecy and denial”. Managers of troubled companies deal with bad news by sweeping it under the rug or discounting it. They think to themselves: “This is not happening. We’re too good for this.” People in the know avoid discussing the problem with each other – almost hoping that the problem will go away if they do this long enough. Sadly, the truth of the matter eventually confronts the managers in the face.

Kanter calls the second stage as “blame and scorn”. As the facts of the problem begin to loom so large making denial impossible, the finger-pointing begins. Since each manager is convinced that he or she has done his or her part well, the problem must have been caused by the negligence of other people.

The priority of managers in this stage is to save political face and to shift the heat on others. The result, expectedly, is that communication lines and the level of trust between those who can solve the problem are strained and even damaged – often beyond repair.

The next stage is “avoidance and turf protection”. The beleaguered managers, having fired salvos of blame at each other or at third parties, begin to close ranks and become uncommunicative. Division and department meetings become griping and defensiveness sessions. “This was not our fault and they’re not pinning this on us”, so the thinking goes.

The final stage which completes the death spiral is “passivity and helplessness”. At this stage, all energy and will to collaborate have been drained from the organization and its managers. The goodwill within the organization has hit rock bottom and the organization simply waits to “die” as its members leave in droves to join the competition or just avoid the painful, final reckoning. The company’s printers and email systems go into overdrive as resumes are sent out to friends and contacts for quick exits.

Kanter’s research, however, shows that the crisis death spiral is not inevitable. Competent managers can achieve turnarounds and reverse a seemingly hopeless situation through four key practices. The first practice is dialogue. Generating possible solutions to serious organizational problems can only be achieved through forthright communication. Anger and sentimentalism need to give way to solid fact-finding and the calm sharing of perspectives.

Kanter calls the second practice as “engendering respect”. Turnaround managers know that relationships have to be preserved and improved if creative and collaborative solutions are to be identified and carried out. This builds a sense of hope among the members of management, their subordinates and the various stakeholders. The level of genuine listening, for example, is a good way of building the respectful communication vitally important to any good turnaround.

“Sparking collaboration” enables members to concretize candidate solutions and to plan their respective contributions. This practice emphasizes to everyone involved that a solution will not come from any one sector alone.

The final effective turnaround practice is “inspiring initiative”. An organization in crisis is like a man who has fallen into quicksand. Unless the organization’s members act, it will slowly but surely sink. Effective turnaround managers use strength of character, collaborative communication and competent analysis to sway everyone to throw in their lot with others in reversing the situation. Once this is achieved, a workable solution is often not far off.

The choice facing managers of troubled organizations is whether to allow the organization to go into a death spiral or to achieve a turnaround. Kanter’s research shows that a turnaround can be extremely difficult because it calls on managers to defy their natural tendency to deny, blame and protect turf. But for a manager who can achieve it, a turnaround can be one’s finest hour.