In recent years, I have been inside more than 20 corporate turnarounds,
where new leaders were bringing distressed companies back from
the brink of failure. In every case, the need for smart financial
and strategic decision-making was clear. But along the way,
I also noted another equally vital but largely unnoticed aspect
of this leadership task: each of these executives restored their
people's confidence in themselves and in one another.
The leaders inspired and empowered their people to take new
actions that could renew profitability. In short, each had to
lead a psychological turnaround.
Organizational pathologies — secrecy, blame, isolation, avoidance
and feelings of helplessness — arise during a difficult time
for the company and reinforce one another so that the organization
enters a kind of death spiral. Reversing that downward trend
requires deliberate efforts to address each of the pathologies.
Reversing the cycle
The only way to reverse a corporate decline is to change the
momentum and empower people, replacing secrecy and denial with
dialogue, blame and scorn with respect, avoidance and turf protection
with collaboration, and passivity and helplessness with initiative.
Let's look at each of these interventions in turn:
 Promoting
dialogue: Companies compound their financial and strategic
woes when they keep information secret. And problem-solving
is impossible if people do not have all the facts. So the first
task of turnaround leaders is to open channels of communication
— starting at the top.
Engendering respect: Open dialogue exposes facts and
tells the truth, but a successful corporate turnaround depends
on relationships as well as information. It is tempting for
a new regime to exact revenge and punish those responsible for
past mistakes. But that would only guarantee that the blame
culture would continue. Turnaround leaders must move people
towards respect; when colleagues respect one another's abilities,
they are more likely to collaborate in shaping a better future.
It is hard to play politics if everything is discussed openly.
Sparking
collaboration: Turnaround leaders know that problem-solving
requires collaboration across departments — and not just
because innovations often come from these joint projects. Changing
the company's dynamics requires collective commitments to new
courses of action lest local decisions taken in isolation undermine
that change. New strategies are possible when new kinds of conversations
are held about combining organizational assets in new ways.
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Inspiring
initiative: Once turnaround managers set up the structures
that allow people to collaborate, they need to empower their
staff to initiate actions that will improve the company's position.
Energy for change
Despite the common psychological dynamics in all the turnaround
situations I have seen, leading a corporate turnaround is
not a one-size-fits-all process.
Yet despite differences in strategies and tactics, all turnaround
leaders share the overarching task of restoring confidence
through empowerment. Each leader must create a winner's attitude
in people, even before the victories.
And that means performing a series of balancing acts. Troubled
companies are generally in financial distress, and cutting
expenses is a characteristic turnaround move. But how this
is done has a big impact on whether the turnaround is a temporary
fix or a path to sustainability. Effective turnaround leaders
consider the kinds of cuts they are making as well as the
number of cuts, stressing reductions in bureaucracy that kills
initiative.
One conclusion is unmistakable: turnarounds are when leadership
matters most. Managers can stem losses with a few bold strokes
— like slashing budgets — but putting a company on
the path towards success also requires that leaders energize
their workforce.
The small wins that newly empowered people create are the
first signs that a turnaround is on track. And this is the
true test of leadership - whether those being led out of the
defeatism of decline gain the confidence that produces victories.
Rosabeth Moss Kanter is the Ernest L. Arbuckle professor of
business administration at the Harvard Business School. This
article originally appeared Feb. 24, 2004 in the Sydney Morning
Herald. |
