I think we have all either been part of a business that was in a troubled condition, or been asked to work in a business that was in a troubled condition. Either way the objective was to improve the performance of the business so that it would no longer be considered a troubled business. Left to themselves troubled businesses will tend to continue to be troubled businesses. They won’t fix themselves. That being said, I have found that the only way to improve a troubled business is to make substantive changes. I want to take a moment here to clarify the difference between substantial changes and substantive changes. Substantial changes are big, visible changes. They attract attention and provide the illusion of progress. Substantive changes are those that change the way the business operates. They are usually not nearly as big or seemingly apparent as the substantial ones. Substantial changes tend to come in the form of reorganizations – groups are combined or divided in the hopes that the leader will be able to make substantive changes to the new combined or divided organization, executive programs – programs where new metrics or measurement methodologies for example are put in place to help better quantify the issues are put in place, or new processes and reviews – teams and meetings to help try and reduce poor business decisions or behaviors. As I have said these types of changes tend to be showy. They tend to get a lot of internal corporate “press” and extol the business virtues that are trying to be maximized. They are usually accompanied by catch phrases such as “change our corporate DNA” and “improve our customer satisfaction”. And in the longer run, it has been my experience that they usually don’t work. Substantial changes also tend to communicate to the business that you have not identified what the real issues are with your business. For example, how can your “corporate DNA” be the root cause of your issue? Certain business behaviors possibly, but I don’t think the DNA is the issue. The best business performance improvements that I have seen have been as the result of a careful analysis of what the desired business state or goal is, an understanding of what is currently being done, and even more importantly, why things are currently being done the way they are. By understanding the “why” of things you can get to the underlying reason for the improper behavior or performance. Some of examples of this phenomenon from my experience include a business performance issue where inventory was deemed to be too high for the business. This tied up cash and affected both the balance sheet and the P&L. It was decided that greater efficiencies could be gained by putting the entire inventory function in one location. There were many reorganization announcements and a great deal of senior management attention was paid to the issue, but it didn’t seem to improve the inventory levels. When a deeper analysis of the inventory was done it was found that the inventory levels were in fact at the appropriate levels for the products being supported. The real issue was that there were too many old products being supported. The issue was not really an inventory one; it was a product management one. Products were not being retired or discontinued in an appropriate or timely manner. Once that was resolved, inventory levels came down to a more acceptable level. Another example was where the profitability of the entire business, not just the individual customer projects within it was called into question. An entire new system of reports was called for to help identify where the failings occurred. The frequency of reviews and the number of attendees was increased to catch the issues before they adversely affected profitability. A significant amount of management time and effort was expended but the profitability did not improve. A deeper analysis here showed that the sales team got the same commission for the sale of an unprofitable project as they did for a profitable one. The real issue was not one of being unable to implement a project efficiently, effectively and profitably; the issue turned out to be the price for the deals that sales was quoting. They were simply reducing the price for “strategic” opportunities and making up for the reduced value of each by increasing the volume of sales. When the sales compensation plan was modified to include margin targets and incentives, the overall profitability of each deal and the business improved. It is very tempting to make big, sweeping changes to a business to try and improve its performance. They tend to make a big splash but not much progress. It is much more difficult to try and understand why business is being conducted in its current manner, and then to make the substantive, but usually subtle changes that are required to correct business performance issues. It may take a little more effort and time, but it is much better for the business.
