Editor's note: This is the second in a new series of case studies about business turnarounds. Names and identifying details of the company used as the example have been changed.
Problem: Abdication of Leadership
A Maryland-based company that provides installations for conventions and special events around the country is about to be forced into liquidation by its bank. Meanwhile, the $30 million business, which we'll call "Shows 'R Us Inc.," is facing a leadership vacuum. The owner is in a state of denial and won't confront just how desperate his financial situation is. He also failed to provide accurate financial information to his lender, and now the bank is on the warpath. As a result, the owner is about to lose the home he mortgaged for his loan. Three decades' worth of sweat and tears are heading down the drain.
It didn't have to get to this point. For years the ownership has allowed the Shows 'R Us "team" of 30 managers around the country to run their own regional operations. These managers have not been answerable to anyone in the chain of command, because there is no chain of command. Each office acts as a separate unit, responsible for its own hiring and expenses, and with no requirement to get out there and find new clients to justify its existence. Instead they depend on a short burst of activity during the convention season and put their feet up for the rest of the year. The result has been an egregious waste of resources. There are too many people on the payroll. Roles are duplicated, and offices that handle events in one state could just as easily cover two or three states with the amount of business that's coming in.
This was fine before the recession hit, when business was steady and there was always income from regular clients to cover operational and budget leaks. Today, lousy sales are unmasking a host of problems, and it's entirely the owner's fault.
Solution: End Denial and Take Back Control
Now is the time for the owner to step up and lead. The CEO needs to conduct a major overhaul of operations and install a chain of command where every regional department head must be answerable only to him. He should take a look at where each office is located on the map, where business is coming in, and where it isn't. Decide which offices can be closed and which can be merged. Slash the workforce in half.
Leadership must call an emergency meeting of all the regional office managers, fly them to headquarters in Maryland, and communicate the plan. The owner needs to meet face to face with the people he wants to keep and let them know that it's do or die this time. They can either comply with a new system of accountability and accept compensation that is tied to performance, sales, and operating within or under a tight budget, or be out of a job in a matter of weeks when the bank shuts down the whole business.
I predict that morale will improve despite the fact that some employuees will face drastic pay cuts and layoffs. Until now, employees in the regional offices have been working without direction, with no connection to headquarters, and little sense that they're part of a larger organization. With no performance targets in place, ambitious workers have been flailing. As it is, there is zero opportunity or motivation to work hard. If Shows 'R Us survives this crisis, the star performers who remain will have a chance to make more money by bringing in more sales because their pay will be tied strictly to productivity.
The good news is that we have already bought Shows 'R Us some extra time with the bank, which will continue to work with the company as long as it sees that the business is taking serious steps to implement these changes. It won't be easy, but it sure beats losing everything.
—With Samantha Marshall
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