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When a company is in distress, the executives usually want to change other people. But the first step is to change themselves, or at least the plans they have been clinging to, and opt for bold reforms. Then they have to enlist the assistance of everyone around them, including the often-ignored board of directors, and dig down a few layers to find some new leaders.

That's the advice of Doug Yakola, who has led a variety of distress missions over the years, and now serves as recovery and transformation services senior partner with management consultants McKinsey & Co. in Boston. His 10 tips for handling such situations may jolt executives, since they are not commonly front of mind in such emergencies:

1. Redefine the problem

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Usually there is a public reason everybody cites for the difficulty, such as an increase in debt load. But often the problem is much broader than that – in the McKinsey Quarterly, he lists 25 possible signs of distress and suggests there are typically multiple holes in the dike. It's dangerous to think you have just one problem. "It's how they all interact," Mr. Yakola said in an interview.

2. Criticize your own plan

When you develop a recovery plan, don't assume it will work. Assume the opposite is likely, and build in trigger points at which you will review your strategy, such as in a few months' time or when cash reaches a certain level. "This is one of the hardest things for a management team to do," he said. "It's human nature that if you put together a three-year plan or a budget for a year, you believe in it." Don't.

3. Expect more from your board

Often, board meetings are viewed as an inconvenience, taking time from the big tasks ahead, but he advises you to tap the wisdom of your directors, seeing them as being on your side but with the detachment that can help you see the forest amid the trees. Welcome challenges from them, such as asking you to consider a bigger expenditure cut or to assess risks more thoroughly.

4. Focus on cash

Don't ignore the many metrics that can help you understand your situation, but focus primarily on one: cash. It's what a business is about – generating money to pay employees and stockholders, and to invest in the future. "For a turnaround to work, everyone must understand the metric for success, including front-line employees. Cash is great for that," Mr. Yakola said.

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5. Create a great change story

To get everyone on board, you need what he calls an "or else." It must be clear to everyone – not only senior management – what will happen if the company doesn't change its trajectory. Boil that outcome down to a 30-second message that you can repeat until it becomes a mantra for everyone.

6. Treat every turnaround as a crisis

This sounds obvious. But he insists it's not. Too often, executives under siege opt for an incremental approach – making modest tweaks instead of rethinking what they are doing. He cites an Australian company that was taking an incremental approach, even though there was a lot of overlap in employees' work. He told managers to reduce staff by 50 per cent and gave them a week to figure it out. The result was a 37-per-cent chop and new routines to handle the restructuring, better than the 5-per-cent cut he suspects would have been otherwise conjured.

7. Build traction with quick wins

People can't wait forever to see the results of their efforts. But the problems in turnarounds are complex and solutions can take a long time to implement, with progress not visible to all. So develop some quick wins that everyone can see.

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8. Throw out old incentive plans

One of the toughest moves will be to eliminate existing incentive plans, which usually contain a broad array of metrics to meet, and substitute one or two clear measures of what needs to be accomplished. "It's not about the money. It's about signalling what is important at this time," he said. And if the goals aren't met, don't compromise; no bonuses should be given just for working hard under pressure.

9. Replace a team member or two

You don't want scapegoats, but there are probably one or two leaders who helped create the failing plan, and who will have trouble being objective about the situation and will block change. They need to be replaced. "If you need fast change, this is one of the quickest ways to signal we're taking a different path," he said.

10. Find talented people within

You'll want some new energy and leadership, which Mr. Yakola insists can be found inside your company rather than outside. Just look two or three levels down from the top for bright people who were unhappy with the previous path and can now be unleashed. "They come out of the woodwork. They are already in your organization and they make the turnaround stick," he said.

Harvey Schachter is a Battersea, Ont.-based writer specializing in management issues. He writes Monday Morning Manager and management book reviews for the print edition of Report on Business and an online work-life column Balance. E-mail Harvey Schachter

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About the Author
Management columnist

Harvey Schachter is a Kingston, Ont.-based writer specializing in management issues. He writes Monday Morning Manager and management book reviews for the print edition of Report on Business and an online column, Power Points. More


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