Businesses have their cycles. There are times when a business is prosperous and has everything going its way and there are other times when it experiences a downturn. Although some businesses are always on the go and continuously and consistently do well, these are the exceptions rather than the rule.
Downturn in businesses are caused by a number of factors; onslaught of competitive products, neglecting the trend and producing what the market has left behind, poor processes, poor marketing plans, wrong customer service, poor leadership and paucity of resources, among others. Whatever the cause is and no matter how far gone a company may be, it can always stage a comeback if the right measures are employed.
Lego’s rise, fall and rebound
Lego, the famous toy producing company, rose steadily to become the strongest toy maker in the world with as many as a million brands of toys. At least three generations have used the toys produced by the company because its products are loved by children as well as their parents. Then in the late 1990s and early 2000s, the toy market was flooded with electronic toys, which ate into Lego’s market share. This coincided with the veering of the company into the production of kid’s television show with the production of Galidor: Defenders of the Outer Dimension. But unfortunately, the 30-minute show, which ran on Fox Television network in the United States of America, did not fly and had to be rested after two seasons. This misadventure, coupled with the erosion of its market share by electronic toys and new designs that did not jell with the market, left Lego with almost $1 billion debt. Bankruptcy stared the company in the face but it did not file for bankruptcy, rather, it tinkered with its people and process and the narrative changed.
What Lego management did was to look inward. First, it cut off all the non-essentials. It resolved that it had always been a toy company and wanted to remain so. With that vision being clear, the journey to rebound started. Then, the management admitted that despite the invasion of the market by electronic toys, regular toys were still in demand though its own were not being picked. It therefore narrowed down the problem to that of design. What hitherto had been the practice was that the designers (creative people) were given the liberty to come up with whatever designs caught their fancy and the management would go ahead to produce. But with the situation, in which it found itself, the space was opened up, the creative people still had to come up with their designs but other categories of staff had to buy into them. The rationale was simple; toys had to be engaging to appeal to the buyers. The decision of which toys would be engaging or not could not just be left to the designers because each designer would believe that his creations were the best. When this approach was employed, the market’s response began to change and Lego toys gradually regained the top spots. It started with Lego City and has now spread to all the toys.
Getting set for rebound
Though it is not a tea party, getting back to profitability can be achieved by any company that is on the slide provided the leadership is determined to do what is necessary for as long as it is required.
Brutal honesty about the situation
According to psychologists, the first stage in mourning and grief is denial. Everyone that experiences grief wants to deny it, they will themselves against it and for as long as possible hold on to the belief that what is happening is not real and would soon disappear. This is followed by a feeling of anger; ‘Why should this happen to me?’ The next stage is that of regret or what some experts call bargaining; ‘If only we had done this or that.’ Then comes the depression stage, the victim is overcome and overwhelmed by the weight of what is happening. The final stage is that of acceptance, coming to terms with the stark reality that what happened indeed happened.
The same thing happens to organisations. Coming to terms with the reality that the company may be on the road to bankruptcy is too bitter a pill for many leaders to swallow and, as a result, rather than accepting the reality as it is, they fight it and blame its occurrence on external factors. They keep hoping against hope that the company is approaching a bend and not the end. But until the leadership of the organisation snaps out of the delusion and accepts the fact on ground, nothing changes. That helped the management of Lego.
Lego management was honest enough to admit that if other toys were selling and Lego toys were not, the problem was beyond the market being invaded by electronic toys. This helped the company to look inward until it got to the root of its problems.
Business leaders are wont to evade answering the critical question of what is wrong with their organisations; they like to blame others for their woes. For as long as this is done, though it may make the management feel good, it will leave the company prostrate.
When company leaders are honest enough to look at the problem the way it really is, they will be dispassionate enough to come up with the right solution that will set the company on recovery path.
Change of strategy
In driving a change, the leader must not lose sight of the fact that if all was right about the company, it would not have found itself where it is. Therefore, the process has to be tinkered with. To satisfy the expectations of the market, the company must always find a better way of carrying out its activities. Companies that are run on the maxim that there is always a better way to do anything always outperform peers.
In 1994, Continental Airlines, which had filed for bankruptcy protection on two occasions, posted a $600 million loss. That put it at the verge of another bankruptcy and probable liquidation. But there was a leadership change in 1995 with the appointment of Gordon Bethune, and the fortune of the company changed as it reported a $225 million profit at the end of the year.
What Bethune did was to tinker with the company’s process and that brought about the change in the airline’s fortune.
On assumption of office, Bethune came up with a strategy known as the Go Forward Plan. The plan was hinged on four plinths. The first was Fly to Win, the marketing plan. With this plan, the company opted to focus on the routes that gave it the highest returns. So, it chose Houston, Newark, Cleveland and a few other highly lucrative routes. The second was Fund the Future, the financial plan. The company restructured its balance sheet, sold off non-strategic assets and vigilantly tracked its money. The third was Make Reliability a Reality, this was the product plan. Continental Airlines delivered on its promise by ensuring that flights were on schedule. Lastly, there was Working Together, the people plan. The leadership changed the way it was relating with the workforce and made working at Continental Airlines a pleasantly unforgettable experience for the workers.
With this, the employees became energised, more productive and more creative in service delivery; the company’s reputation got better, old and new customers flocked to the company; resources were better managed, revenue soared and the bottom line skyrocketed.
Consequently, Continental Airline was transformed from being the worst among the biggest airlines in the United States of America to being ranked among the best in just four years. The ranking was consistent until the company eventually merged with United Airlines in 2012.
It was also a change of strategy that salvaged Lego.
After identifying the problem, Lego was able to provide the right answers to the questions, ‘What is wrong with our products?’ and ‘Why are our products not selling?’ With the right answers, the company came to the realisation that it was producing toys that suited its designers but not necessarily the market. Every manufacturing organisation should produce for the market, not its staff. So, the choice of the market must be the determining factor at all times. That is why the customer is king to whom the manufacturer must kowtow.
With this realisation, Lego changed its strategy and took the control of what goes to the market away from its creative people and threw it open. The response from the market justified the decision of the management.
When strategy changes, result also changes.
Tinker with the people
Productivity declines when people become static. When an employee has performed the same task over a long period of time, the probability of getting better at it becomes very high. But there is also the possibility of the law of diminishing returns coming into play as a consequence of monotony. This is what is often responsible for the stalling of creativity and sliding of productivity.
Oftentimes, moving people is inevitable as part of change management. This is because every good leader knows that positive change will be a mirage without good people. So, some staff may have to be moved from their comfort zone, which has become a blind spot of sorts, to other places where their services could be optimised. If the new arrangement cannot accommodate some people, they will have to be eased out.
A company is only as good as its people. It is for this reason that the right people should be hired to drive the desired change. A leader who does not want to micromanage must be wise enough to get his recruitment right.
Work on workers’ attitude
Businesses exist essentially to satisfy customers, not to make profit. If the order is not right, and the company chooses to focus on the bottom line instead of customer satisfaction because of the need to get out of the tight corner it has found itself, the business will sink deeper into trouble. The attitude of all employees from the CEO to the delivery staff must be to make customers happy. Once this is accomplished, the market would respond positively.
Many companies never get out of bad times because they are so much in a hurry to get out of the bad times that they neglect the fundamentals of putting customers first.
Last line
The wisdom to know what to do, the humility to take wise input from others and the will to do what is known are the key to corporate turnaround.
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