Turnaround Leadership

In this interview we talk to Shaun O’Callaghan, Author of ‘Turnaround Leadership’, about how leaders can spot the signs of an impending crisis, what they can do if they find themselves in a crisis situation, and the do’s and don’ts for turning an organisation in crisis around.

Turnaround leadership is about learning to lead through crisis situation but what exactly do we mean when we talk about crisis in a business context?

Shaun O’Callaghan: The definition that we use in the book is about a turning point and we are talking about a turning point where one of two things has happened, either a key stakeholder in your business, a customer, a lender or an investor or an employee, change a critical assumption about you. So it might be that a customer had assumed that your products were safe and ethically sourced or a lender assumed that you would pay them back their money or a stakeholder assumed that you would pay a dividend next year but they have all assumed something about your business and the crisis happens at the point where they change one of those critical assumptions.

The other alternative way of defining a crisis is where you as a business have made a critical promise to a stakeholder and you break that promise.

Female interviewer: Which leads us nicely on to how leaders might spot a crisis in the offing and what preventative steps you would suggest that they take?

Shaun O’Callaghan: Yes, you know, in the book we talk about both external and internal drivers of a crisis and we talk about four areas of external crisis, one being economic cycles. The thing to prevent that becoming an issue and causing a crisis is never assume the end of boom and bust.

The second external driver was when customers change their priorities which might be because of social aspects, but it might be because of economic pressures themselves and people, you know, down trading.

The third area of external drivers of a crisis is where the business model or product or technology innovation, you know, classic examples of Apple creating a closed system between the iPod and iTunes and the impact of that not only on the physical media producers but other digital music providers can cause a crisis.

And the fourth area is kind of outside intervention which might be because of change in licensing or the kind of 9/11 type of environment.

So those are the four external drivers of crisis that we discuss.

The four internal ones about broken promises, which we talked about earlier, by some sort of corporate failure or breakdown which might be a product recall or a fire or that kind of thing.

And the last two internal ones are very much about management and senior management and that’s about management optimism where we are too optimistic in our forecasting and lack of sensitivity on management’s behalf as to what is going on.

You know, if there was a core part of what we believe managers can do to kind of prevent a crisis, then we go back to this idea of stakeholders and the assumptions that they can make. And very often I will go into companies and sit down with the senior managers or the Board and the first thing that we will ask is, you know, give me a list of all your critical stakeholders, the assumptions that they are making about your business and the promises that you have made to them. And at that point we normally get a stony silence because people haven’t taken the trouble to collate actually all those key assumptions that investors have made, customers have made, regulators, employees, you know, and actually it is those assumptions that hold a business together. So if you haven’t even as a business got a list of the assumptions that stakeholders are making and the promises that you have made to them, you are flying blind. You have no ability to spot or manage whether a crisis is going to occur because somebody changes a critical assumption. So the first thing is to check the list.

The second thing is then to see what you can do about monitoring intelligence around those risks and what the likelihood or possibility or the triggers for people to change those assumptions and then manage to make sure that you deliver the promises or you manage people’s expectations in order to gently change those assumptions rather than in a kind of brutal way.

Female interviewer: You set out five key areas of leadership expertise which leaders need to master in order to help their organisations to recover from crisis situations. Can you give me a brief overview of these five aspects?

Shaun O’Callaghan: Yes, I mean what we have said is that, you know, clearly your experience today in running businesses, either growth or start up or you know mature businesses, will all be critical, it’s is there anything extra that you can do after a crisis? Is there something that you can add to your existing experience or skills and industry knowledge that will make a difference. And that’s what the five areas are about, they are trying to see whether we can add something to, you know, the reader’s skills, insights and expertise.

And the five areas are firstly making the right promises. After a crisis, that might have been caused by a broken promise, what promises do you make? The problem is there is normally a high degree of uncertainty after a crisis and in terms of uncertainty, people crave even more certainty and it might be the time when you give them less certainty. So, but you do have to make some promises and it is about balancing those between your customers and your lenders and your own people and your suppliers. So that’s the right thing, what do I promise to whom and when.

The second area that can make a difference in terms of your leadership expertise is making sure that you have got enough insight about what caused the problem and what are the opportunities to build the right recovery plan. And we call that gathering multiple viewpoints. Because if you look at a problem just through the eyes of marketing, or just through the eyes of finance, just through the eyes of your customers, I don’t think you are going to get the right result. You need to be able to take what we call a kind of 360 degree view. If you want to win a recovery plan, you need to be able to look at the business from the perspective of customers, about how the business makes those promises, you need to do what we call follow the money, you know, be able to understand how the cash flows through the business, you need to know about the cost phase, you need to understand the people aspects and you need to understand what we call new future, what business, what could this business become after the crisis. So that’s the second one, gathering multiple viewpoints.

The third area is there are some basic business recovery skills that you are going to require and those are around cash flow management, because cash flow management gives you the access to time and the more time you have, the more chance you have of a recovery. You need to know how to maintain sales after a crisis, which is a critical part of holding the business together. You need to understand about cost based management and you need to understand about your strategic choices. So you have just got to, you know, you might already have experience of some of those, but those are the real basic core business recovery skills that you need. So that’s the third area.

The fourth area is about delivering results through relationships. That’s basically there comes a point in your career when just by you working harder or you working smarter or more hours, you can no longer deliver business results. At that point in time you have to be able to deliver results through others and maybe through others through others. So it is all about delivering results through relationships.

And the last one is how you build those relationships. It is really about rebuilding trust with authentic genuine communication. And rebuilding trust is all about having a clear message for each of your stakeholders about rationally why they should support your recovery plan, what the benefits of the recovery plan are, what the costs of them are. But that’s not enough, you also need to be able to communicate with stakeholders in the right way, which is what we call business intimacy, you know, I can have the best recovery plan in the world but if I send it to the most important people I need to support by email and never speak to them, it is unlikely to get the support I require. And you also need to be able to deal with, you know, stakeholders’ perceived risks, not the actual risks, but their perceived risks of supporting your plan.

Those are the kind of five areas of leadership expertise that we say might be helpful to you in actually designing and delivering your recovery plan.

Female interviewer: Of these five, you would say then the most critical of these would be delivering results through relationships?

Shaun O’Callaghan: Finding the time to actually seek out the relationships that will drive innovation and ideas and possibilities is the most critical thing to do. It is something that people find the time not to do. They are always putting out fires, yes, and not actually taking the time to stand back to build the relationships to build a sustainable plan.

Female interviewer: And if we were speaking to senior leaders who are keen to develop the skills in this particular aspect of turnaround leadership, what sort of practical things could they do or what kind of support could they get with just developing their relationship skills?

Shaun O’Callaghan: A friend of mine does this exercise with kind of Boards and senior leaders and to start with why don’t you get a large piece of paper and write down how you spend your time. You know, write down where your key relationships are and then kind of what percentage of time you are spending on them.

If you then go back to what we talked about earlier, the list of, making a list of key stakeholders and assumptions, and I think what most people will find out is that they are not spending their time in a balanced way across the right range of stakeholders. There will be people who are making key assumptions about your business that you are not spending time with, sometimes at all.

So I would take those two pieces of paper, one the list of key stakeholders and the assumptions, the second one is you draw around on a piece of paper how you currently spend your time, and you will find a lot of senior managers spend a lot of their time with other senior managers in, you know, review meetings and planning meetings and lots of lots of meetings which is okay because that is really important about relationships, but it might be that they are not covering all of the relationships that are necessary with the right amount of time as well.

Female interviewer: How important is personal resilience in determining how well a leader copes with a crisis?

Shaun O’Callaghan: I very much think about it in the capability of still being able to be sensitive to all of the stakeholders and adaptive to a situation is absolutely essential. You can be very resilient but, what I would call pig headed as well and that is really not a helpful trait of a leader during and after a crisis. You are going to have to be very thoughtful. There is a school of thought which I call, you know, the just do it, the Nike approach, which is come let’s just get on with it. Unfortunately, people often carry on in a kind of busy fool way and they are carrying on doing things that actually got them into the crisis in the first place. So I think leaders have to be resilient enough to find time to be reflective and that can be hard after a crisis. There is such pressure to do something and a lot of them turn round and fail because people, the leaders, they feel under pressure to do something so they do something but it is the wrong thing. And actually being resilient enough to manage the stakeholders in such a way that you find enough of some time to come up with the right thing to do does require a lot of strength of character.

Female interviewer: In your experience, what is it that leaders tend to struggle with most when leading through a crisis?

Shaun O’Callaghan: Two key areas for me that leaders do tend to struggle with is that they are over optimistic and because they are over optimistic, they take action too late. So what I have seen time and time again is managers who don’t have experience, continue to be too optimistic about sales for too long and actually they are too slow to wake up and realise that there might have been a change in the market or the competitor position and actually the tough job of getting on with a recovery gets started too late and the later you leave it, the less choices that you have in terms of the actions that you do take.

So, you know, one of those areas is being over optimistic and the other one is leaders often fundamentally misunderstand other stakeholders’ positions and they make assumptions about what stakeholders will do and think and they don’t take the time and the trouble to build the relationships to go out and understand how the investors might react, the lenders might react, your own people or suppliers might react. Sometimes leaders forget or struggle to understand that they have got to look in the same shoes as all stakeholders. They just keep on focusing on the ones that they were used to focusing on during a growth or a period of financial stability.

Female interviewer: Finally, what would be your absolute do’s and don’ts for leading through a crisis?

Shaun O’Callaghan: From a don’t perspective, don’t clam up. So if you suspect you are in a crisis, you know, one of the worst things to do is to stop communicating. You know, in my experience, all of your critical stakeholders, particularly financial stakeholders, will want to speak to you earlier rather than later. And going back to what we talked about earlier, don’t assume anything, you know, find out what people’s positions are. So it is don’t clam up and don’t assume anything.

In terms of do’s, the most important thing is to buy yourself extra time. That might mean you have to buy less time through better communication or finding some cash within your business but businesses eventually fail not because they ran out of cash but because they run out of time. When they run out of time, then they run out of cash.

The second area from a business point of view, probably the most critical thing that you can do is maintain confidence to maintain sales and spending effort and time with your front line staff and your key customers are the things most likely to give you enough time to build and deliver the right recovery plan.