Eight principles of business turnarounds (A tribute to my late Guru, Mr. Rajeev Karwal)

As front line young Turks of the Indian FMCG / Electronics industry in the late 90s, we were often starved for heroes because most of the top guys used to be from the old order – defensive & conventional slow movers who preferred a politically correct status quo over disruptive exponential growth. Then we started hearing of a certain gentleman called Rajeev Karwal who was hired to lead a final attempt to establish LG Electronics in India?( a company that had failed in the country that far ). Still in his 30s, Karwal was an Outlier, to say the least. At the end of year 1 with Karwal at the helm, LG was the fastest growing brand in India. By year 2 and eventually year 3, LG had become an undisputed market leader in India. Mr. Karwal then went ahead to repeat this feat with an 80 year old hemorrhaging Philips electronics, which started showing profits within the first year under his leadership. Later, as the CEO of the struggling Electrolux, he again miraculously turned it around. He was named in the?Economic Times’ list of most powerful CEOs in 2004 and was, among other things, also featured on the cover of?Business Today?as one of the top 25 rising stars of India Inc. Over the years, Rajeev and I?have shared a very warm personal bond and I always consider him the elder brother I wish I had. And he in turn, has always reciprocated. On the professional front,?I always held him as one of my role models , especially because of the sheer spectrum of turnarounds he engineered, not an easy task by any means. Especially in a world where we see most CEOs flounder after an initial orchestrated spark.

There is something about a comeback or a turnaround that the whole world loves. And while the comeback by an individual makes for a great story, the comeback of an organization can influence the course of thousands of lives.

Statistics reveal that 50% of new businesses fail within the first year of starting out .

Half of the remaining fail within the first five years and a further half of the ones left also fail within the 10th year. With AI disrupting the world like never before, these numbers are up for a constant downward revision.

In terms of statistics, this means that out of 100 new businesses that start today, less than 15 of them are likely to be around in 2025.

Further, post the global slowdown of 2008, or other industry shakeups like the fall of Oil prices in 2014, the rate of business failures has steadily risen year on year. Quite a gloomy thought, right ?

Failure at any level is stressful, depressing, debilitating and decapitating. And when businesses fail, the ripple effects can cripple hundreds ( sometimes thousands) of innocent and hardworking stakeholders, who are often caught off-guard and abruptly asked to re-set the lives of their families.

So, what do people do when a business falls ? One option is that some of them sell the business – provided there is somebody interested to buy it . But obviously a business sold at an hour of crisis would never fetch a respectable value.

The second option is liquidation – voluntarily or by means of declared bankruptcy.

And then, there are a few who craft a turnaround or a comeback.

A turnaround is defined as a process that rescues a failing business and re-injects efficiency in it at all levels while fixing its financial core. This is obviously easier said than done. Also, not all businesses can be turned around because business failures are often a sigma of multiple factors, some of which might not be under the direct influence of the management. Also, a turnaround involves change – sometimes cold, emotionless and even ruthless change, something that the organization might not be ready for. After all, any organization is about human beings and people often find it tough to adapt to sudden re-calibration in the way they’ve been doing things for years.

But yes, the business world is testimony to the fact that turnarounds do happen, sometimes almost like a best-selling novel or a blockbuster movie. However, while we get to read and cheer a turnaround (?and the hero behind it) in hindsight , the process can be pretty daunting in itself & calling for enormous amount of far-sight, visualization, meticulous planning ,clockwork execution & of course, a string of unpopular decisions.

Like most people, I am a big fan of turnarounds and have studied turnaround stories over the past many years. Let me try to list down the common denominators I have observed that accompany any turnaround, whether it is a 10-employee branch or a 10000-employee company.

1.?Acknowledgment?- Any turnaround begins with honesty and the end of denial. Unless the leadership admits to itself that things are badly screwed up, they cannot fix the leak. I have observed many leaders, especially in large organizations, stupidly adopt the pigeon approach, that is – they close their eyes and assume that the cat won’t be able to see them. To make matters worse, some leaders are completely drunk in arrogance and refuse to accept that they are bleeding. They assume that the situation shall auto-correct itself. It never does. So, step one is ALWAYS to fetch a mirror.

2.?Internal Vs external?– A quote wrongly attributed to Einstein, though not any lesser in the wisdom it conveys, defines insanity as the act of doing the same things again and again, and expecting different results. Therefore, it’s a no-brainer that we need some change at the strategic input level if we want to change the output. Now, this could either be a change of guard (?a new leader), or appointing external help. While an external agency can provide a dispassionate, wide angle view of the situation and bring reasonable outside perspective, I always feel that an external hand lacks soul, long term accountability and also cannot mix into the in-house DNA ( plus – they cost a bomb !) . Given a choice between internal Vs external, I would put my money on a new internal leader rather than hiring an external leader unless you absolutely have no leadership pipeline in-house . Yes, the credentials of the leader are extremely important so as to send the right signals within and outside the organization. Unless he / she has a proven and exemplary report card, he / she won’t be taken seriously, especially during a crisis when employees would be waiting for a superstar savior, the board would look for a miracle man with a magic wand and the stock market would be hungry for some early signals.

3.?Stop digging?– Obviously an organization has been doing some wrong stuff ( high investment-low selling products, an inefficient secondary distribution model, a supply chain that sucks, overstaffing etc - to name a few) over the years and that has resulted in the present crunch. The first thing that needs to be done once the situation is assessed and accountability has been defined , is to stop the bleeding. No amount of positive reinforcements are going to save an organization that continues to dig into the wrong ground.

4.?Messaging?– At the outset of a turnaround, communication is of vital importance. Once you have made your intentions known to the world, every word you speak ( or publish, or convey or tweet) are being absorbed by your employees, your competition, your customers, the stock market and of course, the media. Without going overboard, a certain degree of boldness is essential at this stage to boost the morale and establish your intent. Everyone watching you (?including your competition) admires an ambitious, a daunting -yet –possible, and a compelling goal . It is like injection of fresh energy into a stagnant market space, forcing everyone to sit up and get vigilant. For the employees, a stretched goal might be temporarily unsettling , but can bring fresh hope and accountability too. A strong message always wakes up several sleeping stars within the organization who had been forced into limbo due to lack of positive inertia. It can also deter some top performers from their decision to leave the organization as they can now look forward to a new challenge. Lastly, it could also scare some of liabilities and make them ( thankfully ) jump ship.

5.?The finish line?– When a business starts failing, there is a general disillusionment all around. And somewhere in the medley, goals are forgotten. Everyone gets into a crisis management mode and people stop setting new goals or following up on old ones. Once a turnaround is initiated, goal setting becomes extremely important. Clinical, measurable, stretched, interconnected and pre-set goals for the short as well as the long haul. Obviously, given the situation, a short term (say - the next two quarters) goal needs to roll out immediately, followed by a 6 monthly and annual goal for the first year. The goals for subsequent years ( Year 2 and 3) could also be defined, but not deliberated too much at this stage .Room should be left for course correction along the way. Once the goals are announced, they should be carved in stone – linking the entire activity charter of the organization into them. Every function ( & corresponding sub-functions) needs to know their individual role in the larger picture and have the step-by-step action points signed off in a goal setting exercise right at the start ( preferably within the first 3 weeks of the new leadership starting out). Also, it is crucial to celebrate early wins and thereafter, every win. Nothing deflates the spirit of a fighting unit more than delayed celebrations when it has gone the extra mile to light the first lamps in the dark.

6.?Cut the c*ap?– A turnaround is serious business that needs a lot of horse sense. There are often a lot of fluffy PPTs that start floating around when a business or an organization is trying to lift itself back. A good leader needs to know the chalk from the cheese and minimize the jargon at the workplace. For a business to get back on its feet, we need the right products, an efficient supply chain, a robust ledger of receivables and an effective sales force. Period. Vague, feel-good and fuzzy messages need to be quickly filtered, snubbed and scrapped. It is extremely important to put up a ‘business-as-usual’ face to the market, instead of appearing as a lost outfit groping in the dark.

7.?The game changer?- While a turnaround needs to address the core without any delay ( processes, costs, controls), most admirable turnarounds came up with a paradigm changing product/ service within the first year. It could be a new model that takes sales to the next level (like in case of the automobile or the power equipment industry) , an energy efficient product line that woos consumers and regulators alike and whips up a frenzy at the retail markets, or it could be arming your channel with an unbeatable new investment plan to sell, or it could simply be a new strategic relationship / partnering that you sign with another organization that throws the market (& competition) off the regular beat and pushes the organization from a trot to a gallop.

8.?People?– I saved this point for the end since it is perhaps the heart of any turnaround. People are the strongest influencers (positive as well as negative) when a turnaround is conceptualized, planned, implemented and taken ahead. Every organization has a mix of personalities who are a combination of individuality and simultaneous collective groupthink. When an organization slows down and starts sinking, the good guys start leaving – not because they are scared, but because they are BORED. Also, this is a time when several useless people get active & get busy adding boundaries , so as to multiply bureaucracy and minimize responsibilities. Positivity is ridiculed , enthusiasm is scoffed at and looked down upon. Also, when the overall market landscape is slow, even many good guys do not find a good escape route and hence reluctantly stay on, hiding themselves behind the layers of mass incompetence. Most successful turnaround leaders recognize and respect the role of human capital in their game. They waste no time in weeding out non-performing assets , at times - some pretty well fed ones sitting on huge remunerations. These decisions need to be taken fairly, rationally and swiftly without too much of dilly-dallying. Every employee needs to understand the new rules of the game and demonstrate early signs of adapting and hopping on board. The organizational vision and goal statement should be unified. Parallel opinion (or power) centers need to be immediately crushed in order to send the right vibes right up to the last person in the value chain. This is also the time to identify and bring up the latent talent within, with a combined endeavor of line management and human resources. New roles need to be defined and older roles need to be filled / re-aligned. Hiring people into a rising trajectory is mandatory so that every player can see a personal / professional growth in the short / long run as he/she plunges in with the new leadership into a new path. This is also a time when the leadership needs to do some serious talent scouting & import into the organization – by recognizing rising expertise within the industry (and around) and wooing them with the right career moves. Individual and principle centric leadership need to be encouraged, while being absorbed into a singularity of purpose. Unless every person in the organization is completely married to the common organizational goal and feels a burning sense of personal responsibility, ownership and one-ness, it shall only lead to a half-hearted and unsustainable effort, with the unit scattering at the first signs of failure thereafter. This comes when employees are shown their value beyond the pay check, and when every employee feels and behaves like a mini-CEO with a “If it is to be, it’s up to me ! ”?mindset, truly believing that the buck stops at him / her.

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(This is an article from my 2015 blog archives . This re-post is my humble tribute to one of the Top Three Gurus in my professional career, Mr. Rajeev Karwal, who left us in May, 2021).

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