THE TURNAROUND LEADE RSHIP

Emerging Market Dynamics

ZAFAR AZIZ OSMANI

March 1, 2010
1 THE TURNAROUND LEADERSHIP
THE TURNAROUND LEADE RSHIP
EM ER GI N G M AR K ET D Y N A M IC S
Turning around large institutions is
challenge of a different dimension and
magnitude than leading an ongoing or even
growing organization. Such situations
generally arise when government owned,
public sector or even poorly managed big
private sector institutions become inefficient,
financially unviable or come close to
bankruptcy. Once taken for a restructuring,
they can be called the “Turnaround
Organizations”.
Success in turnaround organizations require
very different set of leadership competencies.
Unlike the normal organization operations, in
an institutional transformation situation, the
success is heavily dependent on the Top
Management’s leadership, vision fully aligned
with the shareholders perspective, ability to
capture and focus on the big picture, deep
understanding of the leadership team
strengths, a high degree of trust and
empowerment topped up with an extra
ordinary capability of building a cohesive and
integrated game plan at the top level.
One could argue this as common leadership
attributes for success in any organization. How
these common leadership competencies
acquire different magnitude in a turnaround
situation requires a closer look and deeper
understanding of the uniqueness in
institutional reform process and organization
restructuring situations. Some of the key
factors to look closely would be:
1. The shareholder’s perspective
2. Leadership team integration
3. Engaging & leveraging current HR
4. Legacy organization structure
5. Conventional business & HR processes
6. Labor and union factor
7. Perception management
The Shareholders Perspective:
a
Making investment in an inefficient and loss
making organization requires a different
mindset on part of the shareholders. The
perspective of capital deployment and ROI
creating business justification here is
substantially at variance in comparison to
making investment in a normally operating
profit making venture. Ongoing review and
comparison of opportunity cost is therefore a
norm in such situations.
Investment in turnaround business ventures is
normally made based on the business
justification linked to value creation through
financing in systems, processes, technology
and people. The successful turnaround leads
to the improvement in the share price value
which provides opportunity for a meaningful
capital gain as well as ROI. In many cases
investors have an identified timeframe, with a
defined exit strategy. This is a different
approach from a conventional capital
investment perspective where the case is built
around long term financing justifying low risk
sustained ROI and dividend income base.
While it is true that with the globalization and
access to the world class products and
services in all markets, very few organizations
can claim to have the luxury of time for
change management, the pressures of sense
of urgency comes with an elevated
magnitude on the leadership in the
turnaround organizations.
March 1, 2010
Operating under a higher risk investment
environment, the shareholders accordingly
have higher reward expectations in context
alternate investment options within a
foreseeable timeframe which normally can
generate unusual pressures for a faster
response time and visible positive changes in
1 THE TURNAROUND LEADERSHIP
all dimensions of business. Of particular
significance are the financial turnaround
results, which are linked to virtually all aspects
of business creating a broad based challenge
for all the members of the leadership team
and the management where the CEO is
particularly the focal point. These pressures
are not seen with similar intensity in normal
business organizations.
Leadership team integration:
When the turnaround decision is taken, or the
management is taken over by new investors,
the first thing that is needed is to build a team
of new leadership. It makes business sense to
get subject experts from successful
organizations with a reasonable command on
the best practices in their respective fields
with demonstrated track record of success.
These may be expensive resources for the loss
making organizations but they are essential for
the value addition needed during turnaround.
This breed of leaders is normally not available
within the other turnaround organizations
because the best of the talents there have
limitations of operating within legacy
organization with limited exposure to the
modern business knowledge and practices.
Another limitation with such managers is that
over period they become strongly status quo
oriented with little flexibility to drive change.
The new leadership team in most cases is a
combination of professionals from best in class
organizations with diverse corporate cultures
and orientation in divergent successful
business practices. Many of such leaders carry
loyalty to their organization’s way of doing
things, which to them is better than others. In
their own experience they may have good
reasons for their views but it becomes a big
challenge for the CEO to align everyone into
one right way of doing business for the new
organization. The leadership team integration
becomes a bigger challenge if the CEO
believes that his previous organization
approach better than others. In these
situations the organization finds itself with an
outstanding combination of professionals
without an integrated team. It is like several
stallions ready to gallop in different directions
in full force leaving the carriage behind. The
turnaround organization leadership therefore
requires an open mind, very high degree of
composure and ability to command respect
within the leadership team members
complimented with ability to integrate
individuals into one powerful team.
Engaging and Leveraging Current HR:
It has to be realized that the new leadership
team, no matter how brilliant, will not be able
to bring about a successful turnaround unless
there is a strong support from within the
existing human resource base at all levels.
There is a general fallacy in perception about
these people. Mistake of branding the entire
or a predominant lot of these people as
inefficient and useless proves very costly to
the organization in transition.
Leaders generally fail to understand that
within them there is a critical mass of
employees who have the invaluable
understanding and knowledge of the
organization, systems, processes and people.
There can be no success without an in depth
understanding, partnership and effective
utilization of these resources.
Existing employees are nevertheless generally
perceptive about the change in ownership or
management. Their biggest fear is about their
job security and the way new management
will treat them. They can be easily engaged
in a positive way through active consultation
and communication, by providing a sense of
security and very importantly, by treating
every one with respect and dignity.
March 1, 2010
This is exactly where most new leaderships miss
out and they lose the opportunity of
establishing powerful internal partnership to
the advantage of the organization. The
significance and power of effectively
leveraging the strengths within the existing
employees has to be recognized and they
should not be branded as inefficient lot .
It requires a careful and intelligent review and
understanding of people, their attitude and
behavior and learning potential. This comes
with a longer interaction and patient
observation. Turnaround success can be
better achieved in partnership with the
positive elements within them even if it means
staying a bit longer with the ones who may
not carry long term viability in the
organization.
Having said the above, there has to be a zero
tolerance in all cases of established
indiscipline and deviations from company
policies and staff rules.
Legacy organization structure:
Having been integrated into a team and
building a strong internal partnership, the
leaders need to have the ability to revamp
the organization structure, purely driven by
the business needs and requirements.
The challenge here is to manage the battle of
turf within the new leadership team. It is a
common observation that individual leaders
define their role and significance in the
hierarchy by their span of control and number
of people reporting to them. The challenge at
the top level at this stage is to review the new
organization structures proposed for all the
functions. Normally a number of new positions
are created, backed by identified individuals
(generally from the previous organization
teams) at pre-agreed “prices” who are
suggested as “must” for delivery of results.
Normally seen as an “empire building” effort
in any organization, these are more acute
occurrences in turnaround situations.
The top leadership with inadequate
competency to manage such transitions
could find itself it difficult to handle such
proposals as it brings a direct confrontation
within the key players on whom organization is
relying for results and success. Here the most
controversial is the HR head who is supposed
to advocate logic and rationality. A tactful
handling is needed to effectively manage this
stage in organization transition.
Conventional Business & HR processes:
Speedy response to address the conventional
business and HR process is critical for early
visible results for the shareholders. The
uniqueness of the challenge here is to
harmonize the divergent practices and
processes bought on the table by the diverse
leadership. The point that there may be more
than one way of managing a process is taken
over by the differences in views sometimes
making the whole process counterproductive.
Normal organizations do not have to face this
challenge as there are established good
practices which keep changing and evolving
with time.
Labor and union factor:
Labor and union factor is normally a
challenge of a much bigger magnitude in
turnaround organizations. While normal
organizations managed effectively all along,
rarely see large numbers of unionized
employees, the turnaround organizations
have generally been impacted by poor
governance and at times, political influences.
Accordingly, the numbers of unionized
employees assumes a disproportionate ratio
over the period. At times the headcount of
workmen is much higher than the
management employees who are more
involved in core business activities.
The unionized employees, on the other hand
THE TURNAROUND LEADERSHIP | 3/1/2010
being mostly involved in manual activities of
non core business nature, are generally not
very critical to business needs or success in the
turnaround process.
Effective management of this class of
employees is sensitive matter as often any
negative reaction from them has political
implications. Governments for their own
reasons have to provide visible support to the
union cause in return of their support for
political leadership, the common public and
the media.
2
3 THE TURNAROUND LEADERSHIP
No organization turnaround can be successful
over a longer period until the ratio between
management and unionized employees is
brought to an appropriate level relevant to
the business needs and the surplus employees
are either separated or redeployed in
ventures independent of the turnaround
organization structure.
Perception management:
Perception management is one of the critical
requirements during the transition and
turnaround of the organization.
The period of transition is when all eyes are on
the new leadership team. It is a reality that
perceptions do have a powerful impact on
the morale of the leadership team as well as
entire organization. The shareholders are
strongly impacted by the perception the
organization is carrying and the way it is
affecting the potential investors and stock
market. There are vested interest groups within
and outside the organization which play a
critical role in building negative perceptions
about the changing organizations which
actually suits their purposes.
The regulatory authorities and the
governments are keenly interested in
watching the developments. The changing
perception of the organization at times
support or negates the validity of their
decisions which needs to be guarded in their
interest. The public and media mood in
developing economies is generally not
supportive of the privatizations and
institutional transformations. They are always
on the lookout for opportunities for criticism
and questioning the credibility of the
transformation process and the leadership.
Employees within the organization are used to
the old systems and processes and the way of
doing business. They feel insecure with the
change process and actually deep within
their hearts look forward to the failure of the
new management. Any value they can add
towards complimenting negative perceptions
will always be a welcomed proposition for the
vested interest groups.
There is a need for a very special handling of
this aspect of business. The leaders normally
take this as a less significant task within their
overall priorities. The challenge of perception
management therefore needs to be handled
with the highest level of professionalism using
top quality resources with full commitment.
Conclusion:
Quality of leadership is critical to the success
of any business proposition. However, the
leadership competence required for turning
around an organization are far more
demanding in terms of understanding of
uniqueness of business challenges during the
transition, openness of minds to the extent of
unlearning and re-learning if needed, very
high degree of composure and maturity,
ability to comprehend and connect with the
new realities without reference to past
learning’s, trusting the team, ability to give in
and let go of turf for broader need of
organization and above all, living with a
selfless paradigm deriving sense of
accomplishment from teams success. Much
depends on top leadership’s ability to fully
leverage all the resources for effectively
meeting the shareholders expectations.
Zafar Aziz Osmani
The author is a management consultant with over 38 years of
experience in diverse organizations within the government,
public and private sector organizations including multinationals
like Exxon, American Express and Gulf International Bank.
His has worked within Pakistan, Middle East and Singapore
markets.
Zafar has been involved in key institutional transformations like
Federal Board of Revenue of Government of Pakistan in
association of the World Bank and IMF.
March 1, 2010
He has played key role in post privatization restructuring and
transformation of HBL the largest private Bank in Pakistan.
He has also been part of the leadership team involved in
turnaround of the Karachi Electric Supply Company as Chief
Operating Officer – Organization Management.
zafarosmani@gmail.com