The Second Step In Corporate Turnaround – Early Diagnosis

A sick person down with flu may manifest early symptoms of cough, runny nose, fever and body aches. Likewise, there are usually ample warning signs for a company. Prescription without diagnosis is malpractice, and thus carrying out corporate restructuring without knowing the ailments is disastrous. The key is early diagnosis as it increases the chances of curing most diseases.

Principle 1: An annual health check is fundamental

Many companies have annual medical examinations and health screening for their employees, but are negligent when it comes to their own check-ups. Poor management and financial information systems typically get blamed for management’s inability to ‘see it coming’. Usually, there are ample warning signs or symptoms of impending trouble. However, these warning signals are often ignored or suppressed; hence the onset of a crisis comes as a surprise.

It is also tragic that many companies fail, not solely due to the irrevocable downward spiral of their financial health, but because of management’s inability or unwillingness to face those serious problems squarely and take appropriate timely action. Sometimes, top executives fall into the denial trap as acknowledging a problem is tantamount to an admission of failure, exposing them to criticism by the company’s shareholders.

It is important to pre-empt any problems from arising by looking out for warning signals. Therefore, a proverb that says: “The superior doctor prevents sickness. The mediocre doctor attends to impending sickness. The inferior doctor treats the actual sickness.”

Principle 2: To understand the disease, learn to be the patient

There is an old Spanish saying: “To be a bullfighter, you must first learn to be like a bull.” In business, a manager needs to be on the ground to talk and interact with the various people: staff, suppliers, customers, business partners and even competitors. Through these channels, the manager is able to acquire a better knowledge of the industry and feel of the market, and be better equipped to make sound decisions and take timely action as he does not operate in a vacuum. This will not only check or halt declining trends, but also hopefully improve them in the near future. This is why the worst place for a manager to be in is his air-conditioned room, where he is cut off from the marketplace.

Lou Gertsner, the turnaround CEO of IBM, became IBM’s most hardworking salesperson – logging thousands of miles to visit key customers and prospects. His approach sent an unmistakable message to every employee to be hands-on and gave IBM a new image. By staying in contact with the market, Gertsner was able to make the right decision to turn troubled IBM around. Sun Tzu, in the art of war also advocated ‘staying on the ground’ policy. “Generally, in the case of armies you wish to strike, cities you wish to attack, and people you wish to assassinate, you must know the names of the garrison commander, staff officers, ushers, gatekeepers and bodyguards. You must instruct your agents to inquire into these matters in minute detail.”

Principle 3: Do not block the flow of internal energy

In traditional Chinese medicine, ill health is often associated with the blockage of one’s internal energy, qi. If one is ill, such clearance will result in the normalisation and re-establishment of the optimal functioning of one’s body and most diseases should disappear, if one is not ill, the free flow of qi will further enhance the existing sense of wellness and well-being.

In the corporate context, qi is the human spirit, drive, passion and energy. It is the same qi that keeps you awake when you are watching the world Cup matches or your favourite television programme. It is also the same qi that impelled wait Disney to risk his reputation by creating Disneyland and Epcot Centre without any market data on their viability, it is the same passion and drive that saw Bill Gates give up his Harvard university studies in pursuit of his dream of establishing Microsoft.

You do not create Disneyland or build personal computers because the outside environment demands it. These things arose out of an inner urge for progress: the drive to go further, to do better, to create new possibilities without any external justification. Jack Welch, the former chairman of General Electric US recognised the power of energy in his later years, in early 1980, when he first took over the helm, his emphasis was on maximising market share, a directive for all GE’s affiliates to be Number 1 or 2. Subsequently, it was a case of maximising market-value through productivity programmes such as ‘workout’, ‘6 sigma’. in the later years, Welch indicated that he would hire people with the two energies: those with energy and the ability to energise others.

To compete effectively in the future, companies need to maximise the energy of their staff, as well as exploit and tap the energy of their customers.

Principle 4: Knowing the type of viruses is half the cure

The troubled company usually gets attacked by two types of problems – internal and external viruses. Many of the internal viruses are generated by the company and are actually within the company’s control. They are usually associated with weak management and a poor financial system. The onslaught of this form of viral attack can lead to bad or untimely business decisions, poor financial control and other related problems. The medical analogy for eliminating internal viruses may merit the use of surgery such as downsizing, restructuring or change of management. External viruses being macro in nature are often beyond the company’s control.

The entire industry or marketplace or even the whole country may be stricken by the same type of external viruses. The attacks can be silent, swift and often appear non-threatening at the beginning. Examples of external viruses can include economic recession, changes in consumer behaviour, natural disasters, political turmoil and terrorist attacks. Such external viruses are harder to eliminate and predict. Sometimes, even having a strong management team is inadequate to cope with external viruses because the corporate culture is not able to manage change.

The remedy is to foster a strong and healthy corporate culture, which is the immune system of the company. The immune system produces antibodies to get rid of viruses, which is even better than taking drugs, as drugs sometimes create negative side effects. Similarly, a strong and healthy corporate culture can help to respond quickly to changes and shocks in the marketplace. The best prescription is to know the viruses, predict and eradicate them before they attack your system.

Principle 5: Just as heart ailment is a major killer, competition is the major cause of corporate failures

The management mantra in the 1970s and 1980s was product quality, and activities involving Quality control (QC circles, Total Quality Management (TQM and ISO 9000 were the order of the day. Back then, consumers were willing to spend enormous sums for quality products. However, product quality has improved and today, having a good quality product is a mandatory requirement for any company to participate effectively and survive in the marketplace. Subsequently, the management slogan in the 1980s and 1990s embraced technology as the cure-all, companies then tried to distinguish themselves from their competitors through the use of technology to offer better and more sophisticated features, and the use of the internet and other communication systems. Huge sums were channeled into technology to build a better mousetrap with more superior state-of-the-art features.

Today, the world does not beat down the door of the better mousetrap developer. The collapse of the high-tech stocks on Nasdaq in the early part of 2001 shows that technology is not foolproof. The thrust in the new millennium is competition, competition intensifies with the emergence of a better range of products that are often of more superior quality with even more attractive pricing. in such a scenario, many products become marginalised, and like commodities, pricing becomes a key determinant in a shrinking market.

Competition is a silent and sudden killer like a heart attack which creeps up on you. It is however also a highly preventable disease for the individual through a healthy lifestyle, and for the company, to be always alert and have strategies to combat competition. When you are faced with increasing competition, you may still survive, prosper and succeed, but it cannot be business as usual.

Principle 6: Past business assumptions may be the anaesthetic that dulls business sense

For a troubled company, it is prudent to challenge all ‘sacred cows’ or sacrosanct and old business assumptions, it is probable that some of these old ‘sacred cows’,which were based on some erroneous perceptions and assumptions, got the company into trouble. Traditions and past business assumptions underlying the old ways of doing business, especially those that have become irrelevant and obsolete, may be the root cause of the disease afflicting the ailing company.

In times of rapid change, a strategic failure is often caused by an incorrect or false perception, we console ourselves by telling ourselves that we have gone through the present problem before, or falsely assuming that this change is temporary, or the impact would be limited and hence could be ignored.

Many of these old and obsolete assumptions happen in large and well-known companies whose traditional cash cow businesses have become sacred cows that end up as sacrificial cows or mad cows when market forces overwhelm them.

Time and again, some wrong business assumptions and perceptions by experts have led many companies astray. For example, Ken Olson, president of Digital Equipment, said in 1977: “There is no reason anyone would want a computer in his or her home.” Because of these erroneous assumptions and perceptions, it is no wonder Digital Equipment was late in entering the personal computer market.

To ensure the effective and successful implementation of its business assumptions, a troubled company must critically re-examine and re-visit every single one.

Mike Teng–early-diagnosis-85328.html

Originally posted 2010-06-26 06:48:29.