The First Five Steps Every Executive Should Take When Taking Charge

At the end of 1995 a friend of mine, I'll call him Bill, was given the job of leading and turning around a $2.4 billion business made up of divisions that were being spun off of a much larger business. Most would jump at such an offer, but Bill knew it wasn't going to be a rose garden. The units were being let go because they were a drag on the parent company. Still, my friend was the kind of guy who didn't mind taking a calculated risk every now and then. Plus, he had been successful in previous turnaround situations, so he took the job. In short order, however, it was apparent he had a bona fide bucking bronco on his hands.

To bring costs in line, Bill knew the company would have to take a big restructuring charge. Before long it became apparent the company was in debt to the tune of $450 million. To make matters worse, some of the divisions were in markets moving rapidly from analog to digital with the smaller margins that typically accompany the digital version of many formerly analog products. To illustrate how things were, on Christmas Eve, 1997, members of Bill's financial team came to his door and shuffled into his office. They pushed an appointed spokesperson to the front of the group.

"Bill," the spokesperson said, "it looks as though we're not going to make payroll in January."

Bill felt his brow furrow. "And a Merry Christmas to you, too," he thought. Then he said, "We will make payroll. We will not run a company that misses payroll and doesn't take care of its employees."

As it turned out, the company had considerably more cash available than the financial people had thought. Even so, the jolt Bill received that Christmas Eve brought home the importance of a cash mentality in a company or business, particularly during a turnaround.

Bill said if he had it to do over again, he would repeat many actions he took back then, but he'd also do a lot of things differently. What follows is a check list Bill thinks will be helpful to anyone who faces a similar situation:

Conduct an immediate strategic analysis

You need to determine right away what the business's core competencies are vis a vis the competition, and which way the markets you're in are headed. If you're in more than one market, should you be? Studies have shown the most successful companies concentrate on what they do well and do not stray from this. Silver bullets typically aren't going to save a company that isn't fundamentally sound, so you need to force fundamentals and question everything rather than simply look for an easy fix. Most managers are optimistic and will project annual sales increases even when there may be no justification so insist on zero-based budgeting. Everything must make sense financially.

Under promise and over deliver

Projecting optimism is healthy, and enthusiasm is essential to success, but both should be tempered with realism. If you paint too rosy a picture and don't clearly acknowledge obstacles that must be overcome, you will lose credibility with your employees and your investors as soon as something doesn't go according to your optimistic predictions. Credibility is hard to recapture, and without it, progress may be impeded or come to a halt.

Rely on employees you already have on board if at all possible

People who have been with the company are known entities, but you can never be sure what you are getting when you hire from the outside. Plus people who have been with the company a while are likely to know and understand the business you're in, which means no learning curve will be required. When you look outside, focus on functional skills and experience you may be missing such as finance and legal.

Communicate, communicate, communicate

It's a fact of life. If the message is getting boring to you, it's probably just starting to get through to everyone else. You have to keep pounding key messages in a clear and logical way until you are sick of them. Then pound them some more.

Cut the cord from the mother company fast

When a business is spun out from another as ours was, we learned it's best to separate physically from the mother ship as quickly as possible. Don't share space unless there is no alternative because it will be virtually impossible to create a new corporate culture. In countries where Bill's business separated completely and did not cohabit with the former parent, it became a separate, independent, aggressive and self-sufficient entity much faster than in places where it shared space.

YOU MAY BE wondering how things turned out after that fateful Christmas Eve. Bill sold businesses operating in markets in which the company had no chance to be a leader, and he focused on industries he believed had a big future and in which the company had considerable expertise. The result was that by spring 2004, the company was not only profitable, it had $475 million in cash, no debt, and had repurchased almost $200 million of its stock. That's a billion dollar swing from being $450 million in the hole--a pretty impressive turnaround.

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