In earlier articles we have looked at issues confronting early stage and middle market companies as they traverse,“ no man’s land", that area where companies are too big to be small and too small to be big. We examined specific companies as they came across market, model, money and now finally management issues. I have saved management issues to the end as they confront the Founder/ CEO with some of the most intractable problems to solve.
Fortunately, we have a few management navigational rules. The first is that the Founder/CEO must hire at the top first, not the middle to successfully navigate through No Man’s Land. The second is that as we professionalize management and by the very nature of the appointments push for change, we have to be extremely careful and mindful of the culture of the company.
Now let us take a look at an industrial company I joined following a Founder losing control to Private Equity. The Private Equity Group fired the CEO, CFO, VP Operations and VP of Development. In the chaos that unfolded the marketplace for the company contracted and new product development ground to a halt. There were definite factions in the company and a lot of strife.
Ultimately the CEO and the VP of Development were returned to the company after a protracted period of time. Bankruptcy was averted by a new infusion of funds and the company went on to substantial profit levels and was sold generating a hefty return for the investors.
What do we get from this case study? Well hiring at the top was a necessary, but not a sufficient requirement. Wholesale changes to the management team without any reference to the culture of the company was unhelpful to say the least. Bringing back some of the terminations, suggests at the very least, past errors in communicating management change.
The second case study involves another loss maker which was an industrial company with 10 operating plants. I joined as CFO and became ultimately the EVP. Again a transition to higher levels of profitability was required. The CEO and Head of Operations were replaced, but the $200 million plus business was managed by division heads at the transaction level. These business heads were the face of the businesses to customers and employees. They were re-targeted with now a focus on profitable sales and marketing with procurement and manufacturing segments to a sourcing group. The culture of the company was changed, but the change was executed by key personnel who represented the original organization. There was little of the factions evident in the first case study above as the business was being transacted by long time players steeped in the culture of the organization, but now directed to manage in a different way.
So have we found the “magic rule” for success in changing management to achieve a transition to higher profit levels? I don’t think so, I think what we have determined are the pitfalls to avoid such as not being mindful of culture, or not changing at the top first. What we next need to be careful about is after professionalizing management that we take the time and effort to align the group. If the team doesn’t know the strategic framework within which to make the numerous day to day decisions, the unlocking of sales, margins and earning potential of the company will not be achieved.
There are a number of organizations including my own that can very quickly measure the various misalignments of an organization. After conducting 600 plus evaluations, I can tell you that there is substantial misalignment in most companies we have visited and it is hindering the successful transition to full earning potential. Managing personnel change may be necessary, but it definitely is not totally sufficient to achieve higher and lasting profitability. The team has to work together in a strong form of alignment.
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