4 Different Approaches to a Turnaround

As companies pull themselves out from the recession, many are turning their businesses around. For some, the turns are mere adjustments in course. But for others, such as auto makers and banks, they are faced with challenges critical to their survival. How they approach these challenges now will be the difference between success and failure down the road.

The chart to the left and the accompanying descriptions illustrate four different approaches to how some companies tried (and often failed) to rebuild their businesses.

  1. Signal for help—”call in the consultants.” In this approach, companies look outside for help from experts. Think of Circuit City calling-in Goldman Sachs to explore “strategic alternatives” as it did last year. A “signal for help” is often a big sign of trouble.
  2. Retrench—the “retrench” approach values what management knows about the business. Often this approach manages the bottom line without accounting for top-line growth. Coming out of a recession in 1975, Sears was managing the company for profit, claiming the retail category was mature with little room for expansion. The same year Walmart operated just 125 stores… today that number is 7,900 stores worldwide. Accepting conventional wisdom is another way of asking to be beaten by the competition.
  3. Analyze—the “analyze” approach values what the organization thinks it knows about its customers and competition—often relying heavily on data points as the source of value. The problem with this approach is there is a lot of data, but not a lot of insight. Polaroid, Commodore Computers, Woolworth’s, Tower Records—all once great brands with dominant market share, waited too long to capitalize on trends reshaping their industries. Even if analyzing gets you to the party, often times it’s too late.
  4. Listen—listening values what the customer values. It turns the camera around from the company to focus on the customer. During IBM’s turnaround in the early 90s, new CEO Lou Gerstner logged thousands of miles visiting customers and listening to how they valued the company’s products, services, and people. This understanding of customers was the genesis behind the transformation to “One IBM,” and led to one of the most important turnarounds in American business. Listening helps management understand the company from the customer’s point of view—an invaluable perspective given customers are the ones keeping you in or putting you out of business.

We offer these four approaches to do four things:

  1. Provide a simple way to think about how companies approach turnarounds
  2. Offer “listening” as a preferred approach
  3. Invite your reactions to these four ideas
  4. Ask you for others—how are you seeing companies approach their turnarounds?