Several months ago I attended a panel discussion at London Business School hosted by the UK Turnaround Management Association. On the panel were experts from the various professions brought in to deal with distressed companies – legal, operational, financial, advisory, banking and the CRO (Chief Restructuring Officer). While I am, as I have said repeatedly, a great fan of turnaround professionals, to me there was a glaring ingredient missing. No one was focusing on management or the employees!
Some of you out there are already rolling your eyes and muttering – “It was management that got the company into trouble in the first place! The best thing to do is restructure the mess and replace the old management team with people who can get the job done.”
A little harshly worded on my part, perhaps, but a point of view that seems to be widely held. In fact, when I asked the question: “How do you evaluate and value the management team when you are brought in to execute a turnaround?” the reply I got was very similar. It went something like this: “If you’ve been in this business long enough you develop a nose for good talent, and bad talent.”
Doesn’t it seem odd that we business professionals have numerous sophisticated analytical risk models and various spreadsheet templates for evaluating cash flows, use of capital, debt and risk models, sales projections, company value formulas, and sophisticated measures like EBITDA, EVA, and weighted cost of capital, but when it comes to evaluating the management team we have to resort to “the nose”?
Yes, it is more difficult to accurately evaluate people and teams than to evaluate risk ratios and cash flows, and maybe we shouldn’t really try. What I mean is maybe the solution to a successful, sustainable business is not just about how good or bad management is but also about the “management processes” (or lack of them) in place.
“If you can’t codify what you are doing as a business process, you don’t know what you’re doing. – W. Edwards Deming
What if the poor behaviour and dismal results of the management team was in large part a result of poor management processes? What if improving the management processes (and by this I mean common and frequent processes such as meetings, product planning, budgeting, hiring, induction, promotions, performance reviews) helped the management team focus on more productive business activities? As I’ve said many times, systems and process drive behaviour, which in turn creates culture. If you have a company with poor performance and a dysfunctional culture, look at the leadership/management processes and you will probably find a major cause of poor business performance.
First we shape our institutions, then they shape us. – Winston Churchill
Some of you are now probably saying: “But isn’t it the job of executives to develop and implement effective management processes?” Yes, and here lies the problem: most executives don’t know how to evaluate the effectiveness of their own management processes. Let me ask a question, how many of you have worked in a company where you thought the management processes and systems were world-class? Not many I suspect.
I am convinced one of the reasons Ford is powering ahead of the other US auto manufacturers is because of the world-class business and management process that Alan Mulally, the CEO brought in from Boeing, has put in place; replacing the old Ford systems of micro-management and cost cutting.
There have been very few studies on what I call leadership processes. Each executive and CEO seems to have their own favourite process for getting things done; how to run a meeting, how to review people, how to establish budgets, etc. And to be honest, most of them are crap (that’s a technical term). How do I know? Ask their customers – middle management. They will tell you what they have to put up with in terms of unproductive meetings, redundant requirements, reports that take additional manpower to prepare and are not even reviewed. The list goes on and on.
If we would spend just a little effort on gathering and evaluating world-class leadership processes we could easily come up with several best practices that when implemented with consistency, would allow good, solid executives to lead and run effective organizations. After all, not everyone is a superstar, a born natural leader with the DNA of Jack Welch or Carlos Gosen. We need to develop leadership processes and management systems for the rest of us who want to run a good business, provide jobs for the nation and deliver real value to customers.
See the review of LEVERAGE in The Economist (January 9, 2014).
John also writes thriller novels: novels.johnrchildress.com