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Turning around large institutions is a challenge of a different dimension and magnitude than leading an ongoing or even growing organization. Such situations generally arise when government owned, public sector or even poorly managed big private sector institutions become inefficient, financially unviable or come close to bankruptcy. Once taken for a restructuring, they can be called the “Turnaround Organizations”.
Success in turnaround organizations require very different set of leadership competencies. Unlike the normal organization operations, in an institutional transformation situation, the success is heavily dependent on the Top Management’s leadership, vision fully aligned with the shareholders perspective, ability to capture and focus on the big picture, deep understanding of the leadership team strengths, a high degree of trust and empowerment topped up with an extra ordinary capability of building a cohesive and integrated game plan at the top level.
One could argue these as common leadership attributes for success in any organization. How these common leadership competencies acquire different magnitude in a turnaround situation requires a closer look and deeper understanding of the uniqueness in institutional reform process and organization restructuring situations. Some of the key factors to look closely would be:
- The shareholder’s perspective
- Leadership team integration
- Engaging & leveraging current HR
- Legacy organization structure
- Conventional business & HR processes
- Labor and union factor
- Perception management
The Shareholders Perspective:
Making investment in an inefficient and loss making organization requires a different mindset on part of the shareholders. The perspective of capital deployment and ROI creating business justification here is substantially at variance in comparison to making investment in a normally operating profit making venture. Ongoing review and comparison of opportunity cost is therefore a norm in such situations.
Investment in turnaround business ventures is normally made based on the business justification linked to value creation through financing in systems, processes, technology and people. The successful turnaround leads to the improvement in the share price value which provides opportunity for a meaningful capital gain as well as ROI. In many cases investors have an identified timeframe, with a defined exit strategy. This is a different approach from a conventional capital investment perspective where the case is built around long term financing justifying low risk sustained ROI and dividend income base.
While it is true that with the globalization and access to the world class products and services in all markets, very few organizations can claim to have the luxury of time for change management, the pressures of sense of urgency comes with an elevated magnitude on the leadership in the turnaround organizations.
Operating under a higher risk investment environment, the shareholders accordingly have higher reward expectations in context alternate investment options within a foreseeable timeframe which normally can generate unusual pressures for a faster response time and visible positive changes in all dimensions of business. Of particular significance are the financial turnaround results, which are linked to virtually all aspects of business creating a broad based challenge for all the members of the leadership team and the management where the CEO is particularly the focal point. These pressures are not seen with similar intensity in normal business organizations.
Leadership team integration:
When the turnaround decision is taken, or the management is taken over by new investors, the first thing that is needed is to build a team of new leadership. It makes business sense to get subject experts from successful organizations with a reasonable command on the best practices in their respective fields with demonstrated track record of success. These may be expensive resources for the loss making organizations but they are essential for the value addition needed during turnaround.
This breed of leaders is normally not available within the other turnaround organizations because the best of the talents there have limitations of operating within legacy organization with limited exposure to the modern business knowledge and practices. Another limitation with such managers is that over period they become strongly status quo oriented with little flexibility to drive change.
The new leadership team in most cases is a combination of professionals from best in class organizations with diverse corporate cultures and orientation in divergent successful business practices. Many of such leaders carry loyalty to their organization’s way of doing things, which to them is better than others. In their own experience they may have good reasons for their views but it becomes a big challenge for the CEO to align everyone into one right way of doing business for the new organization. The leadership team integration becomes a bigger challenge if the CEO believes that his previous organization approach better than others. In these situations the organization finds itself with an outstanding combination of professionals without an integrated team. It is like several stallions ready to gallop in different directions in full force leaving the carriage behind. The turnaround organization leadership therefore requires an open mind, very high degree of composure and ability to command respect within the leadership team members complimented with ability to integrate individuals into one powerful team.
Engaging and Leveraging Current HR:
It has to be realized that the new leadership team, no matter how brilliant, will not be able to bring about a successful turnaround unless there is a strong support from within the existing human resource base at all levels.
There is a general fallacy in perception about these people. Mistake of branding the entire or a predominant lot of these people as inefficient and useless proves very costly to the organization in transition.
Leaders generally fail to understand that within them there is a critical mass of employees who have the invaluable understanding and knowledge of the organization, systems, processes and people. There can be no success without an in depth understanding, partnership and effective utilization of these resources.
Existing employees are nevertheless generally perceptive about the change in ownership or management. Their biggest fear is about their job security and the way new management will treat them. They can be easily engaged in a positive way through active consultation and communication, by providing a sense of security and very importantly, by treating every one with respect and dignity.
This is exactly where most new leaderships miss out and they lose the opportunity of establishing powerful internal partnership to the advantage of the organization. The significance and power of effectively leveraging the strengths within the existing employees has to be recognized and they should not be branded as inefficient lot .
It requires a careful and intelligent review and understanding of people, their attitude and behavior and learning potential. This comes with a longer interaction and patient observation. Turnaround success can be better achieved in partnership with the positive elements within them even if it means staying a bit longer with the ones who may not carry long term viability in the organization.
Having said the above, there has to be a zero tolerance in all cases of established indiscipline and deviations from company policies and staff rules.
Legacy organization structure:
Having been integrated into a team and building a strong internal partnership, the leaders need to have the ability to revamp the organization structure, purely driven by the business needs and requirements.
The challenge here is to manage the battle of turf within the new leadership team. It is a common observation that individual leaders define their role and significance in the hierarchy by their span of control and number of people reporting to them. The challenge at the top level at this stage is to review the new organization structures proposed for all the functions. Normally a number of new positions are created, backed by identified individuals (generally from the previous organization teams) at pre-agreed “prices” who are suggested as “must” for delivery of results. Normally seen as an “empire building” effort in any organization, these are more acute occurrences in turnaround situations.
The top leadership with inadequate competency to manage such transitions could find itself it difficult to handle such proposals as it brings a direct confrontation within the key players on whom organization is relying for results and success. Here the most controversial is the HR head who is supposed to advocate logic and rationality. A tactful handling is needed to effectively manage this stage in organization transition.
Conventional Business & HR processes:
Speedy response to address the conventional business and HR process is critical for early visible results for the shareholders. The uniqueness of the challenge here is to harmonize the divergent practices and processes bought on the table by the diverse leadership. The point that there may be more than one way of managing a process is taken over by the differences in views sometimes making the whole process counterproductive.
Normal organizations do not have to face this challenge as there are established good practices which keep changing and evolving with time.
Labor and union factor:
Labor and union factor is normally a challenge of a much bigger magnitude in turnaround organizations. While normal organizations managed effectively all along, rarely see large numbers of unionized employees, the turnaround organizations have generally been impacted by poor governance and at times, political influences. Accordingly, the numbers of unionized employees assumes a disproportionate ratio over the period. At times the headcount of workmen is much higher than the management employees who are more involved in core business activities.
The unionized employees, on the other hand being mostly involved in manual activities of non core business nature, are generally not very critical to business needs or success in the turnaround process.
Effective management of this class of employees is sensitive matter as often any negative reaction from them has political implications. Governments for their own reasons have to provide visible support to the union cause in return of their support for political leadership, the common public and the media.
No organization turnaround can be successful over a longer period until the ratio between management and unionized employees is brought to an appropriate level relevant to the business needs and the surplus employees are either separated or redeployed in ventures independent of the turnaround organization structure.
Perception management:
Perception management is one of the critical requirements during the transition and turnaround of the organization.
The period of transition is when all eyes are on the new leadership team. It is a reality that perceptions do have a powerful impact on the morale of the leadership team as well as entire organization. The shareholders are strongly impacted by the perception the organization is carrying and the way it is affecting the potential investors and stock market. There are vested interest groups within and outside the organization which play a critical role in building negative perceptions about the changing organizations which actually suits their purposes.
The regulatory authorities and the governments are keenly interested in watching the developments. The changing perception of the organization at times support or negates the validity of their decisions which needs to be guarded in their interest. The public and media mood in developing economies is generally not supportive of the privatizations and institutional transformations. They are always on the lookout for opportunities for criticism and questioning the credibility of the transformation process and the leadership.
Employees within the organization are used to the old systems and processes and the way of doing business. They feel insecure with the change process and actually deep within their hearts look forward to the failure of the new management. Any value they can add towards complimenting negative perceptions will always be a welcomed proposition for the vested interest groups.
There is a need for a very special handling of this aspect of business. The leaders normally take this as a less significant task within their overall priorities. The challenge of perception management therefore needs to be handled with the highest level of professionalism using top quality resources with full commitment.
Conclusion:
Quality of leadership is critical to the success of any business proposition. However, the leadership competence required for turning around an organization are far more demanding in terms of understanding of uniqueness of business challenges during the transition, openness of minds to the extent of unlearning and re-learning if needed, very high degree of composure and maturity, ability to comprehend and connect with the new realities without reference to past learning’s, trusting the team, ability to give in and let go of turf for broader need of organization and above all, living with a selfless paradigm deriving sense of accomplishment from teams success. Much depends on top leadership’s ability to fully leverage all the resources for effectively meeting the shareholders expectations.
Zafar Aziz Osmani
The author is a management professional with over 38 years of learning’s gained while working in diverse organizations in government, public and private sector organizations including multinationals like Exxon, American Express and Gulf International Bank.
His work experience includes assignments with in Pakistan, Middle East and Singapore markets.
Zafar has been involved in key institutional transformations like Federal Board of Revenue of Government of Pakistan in association of the World Bank and IMF.
He has played key role in post privatization restructuring and transformation of HBL the largest private Bank in Pakistan.
Currently he is part of the leadership team involved in turnaround of the Karachi Electric Supply Company as Chief Operating Officer – Organization Management.
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