Five Turnaround Tips for Ron Johnson, JC Penney and Others
Ron Johnson's cheering section must be working overtime these days to now credit him for reinventing the definition of corporate performance.
When the Dow has been setting new records on a daily basis, JC Penney stock limps along. Major shareholder Vornado Realty Trust dumped their shares below market value, and former chief executive Allen Questrom publicly called for Penney's board to remove Johnson.
The retailer also announced they would terminate 2,200 more employees, and that they would suspend selling Martha Stewart-designed products Macy's claimed were exclusive to them. Some five months later, how does this dose of reality compare to fawning predictions about Johnson's "compelling vision" and uncanny abilities?
Turnarounds are hard for any size organization. But smaller companies — the backbone of the US economy — have even less margin for error than JC Penney does. Therefore, it is essential smaller and mid-size business leaders realize certain truths well understood by anyone who has ever participated in a successful business turnaround:
1. Company leadership has to (re)build a high performance culture by first stabilizing the organization. Introducing radical change, and expecting a beaten team to rally behind a heroic executive is no way to effect a turnaround. Successful turnarounds require company-wide efforts. And anything short of tireless efforts to fortify staff, identify and play to existing strengths while raising acceptable performance standards, will prove insufficient.
These rules apply in any business, but small/mid-sized businesses must pay extra special attention to visible leadership's impact because there are far fewer layers and buffers. Employees working for a struggling company are scared and when they work in close proximity to its leaders they are extremely sensitive to every cue, particularly the unintentional ones.
2. Successful turnarounds are engaged through intensive hand's on processes, where executive leadership must personally get involved from deep in the boiler room of the business to its most visible functions. Expecting a company to restore prosperity and profitability as a stroke-of-genius event is unrealistic to the point of immaturity. Smaller company staff will more rapidly rally around a leader who jumps into the details. And the chances for rapidly putting the business back on track are greater when the always powerful company grapevine is seeded with positive news about committed and involved leadership.
3. Fundamentals rule, representing the necessary solid foundation every turnaround must be built on. When executives try to bypass fundamentals and get right to grand strategy, trying to entice the world to buy-in to cool new features and functions, they get lost in the deep science of turning a struggling business around. As a result, staff and customers get confused, turned off, and the ensuing ball of confusion makes a bad situation worse. Johnson has provided a text book example of what not to do in this regard.
Small business executives need to see past the current state of affairs to fully learn about the company's resident strengths. Going back in history to better days and repurposing still relevant qualities is a necessary fundamental task. Small business owners must personally connect with lapsed customers to get an unfiltered understanding of why they lost business and then implement a plan that marries identified company strengths to marketplace expectations.
4. Pragmatism is a turnaround's best philosophy. Executives must harness resources around what can be achieved rather than chasing the fool's gold of what could be done. In turnarounds, time and capital are the most precious resources and they can't be squandered.
Small businesses are particularly resource challenged and will not have anywhere near the time Johnson has been afforded. Equally, through proper allocation of these vital resources a company on a successful turnaround journey will produce incremental wins, which will have significant positive impact shaping the performance culture that can ultimately lead the company to everything it could achieve.
5. Not every turnaround effort will succeed. There are reasons why a business slips into trouble mode and if a company has little to no enterprise value, does not have relevant unique strengths, even if they are as large as JC Penney, they may stay in operation but will never successfully turn around. Boards and executive leadership must summon uncommon courage to recognize, speak to, and act on the harsh realities of a business unlikely to see the light of turnaround day. Too often boards and executive leadership come up small in this area, something Questrom spoke elegantly and passionately about last week.
(Read more: Made in USA: More Consumers Buying American)
Turning around a business requires special skill, knowledge and discipline not often found in corporate America. My intimate involvement with many turnarounds shows that professionals that never before worked in a particular industry are more likely to produce better results than those with industry experience because problems are best fixed by those unfamiliar with and unencumbered by conventional wisdom. Similarly, project-oriented professionals are more likely to deliver the hard truths about ongoing viability than industry veterans are.
From the day Johnson was hired as JC Penney's chief executive, the spotlight has been on him. Professionals familiar with and expert at leading corporate turnarounds are not surprised by the retailer's results since then. Engineering a turnaround is always a function of "the we" rather than "the me." And in a smaller business environment, everyone must be fully on-board, actively participating and aligned.
Mike Berman is a turnaround expert and startup advisor. He can be found at "Berman Means Business."