Dr. Philip Grothe: The four most important factors for a successful turnaround

Everybody, every society, every company goes through crises – if you believe the economic researchers, over a period of ten years, this will be true for 80 percent of all companies. Often it also hits companies that are extremely well-positioned in the market and have a strong brand. But why does one company make the turnaround, while many others unfortunately disappear from the market?

In the public domain, the term turnaround management is often associated primarily with terms such as restructuring, shrinkage, or austerity programs – measures that focus primarily on short-term goals. It gets forgotten that turnaround management primarily means sustainably setting up a troubled company for the future and, long-term, bringing it back into the zone of success.

From my own experience as a consultant and CEO of a medium-sized company, there are four key factors that determine success or failure:

Factor 1: Simultaneous consideration of the market side and the cost side

“You can’t shrink to greatness”! Pure cost-cutting will not take you to your goal; above all, you have to examine the market aspect intensively and ask yourself, as management, which segments the company can serve, and wishes to serve, in the future. Defining a strategy also means knowing exactly what you will not do in the future. Every company has limited resources: In the case of alimex, for example – founder Helmut Geller did pioneering work – this meant focusing more strongly on those segments that demand a high level of quality, i.e. industries requiring aluminium products for high-precision applications. Of course, that did not mean neglecting the bread-and-butter side of the business. Rather, it was about concentrating efforts on those areas where the company brings the greatest sustainable benefits to its customers.

At the same time, of course, all costs and processes were scrutinised with the aim of reducing the contribution of operating costs to the total output figure. For example, the introduction of “predictive maintenance” has resulted in significant savings in material costs.

Factor 2: True leadership

I am firmly convinced that good leadership means giving employees responsibility and opportunities for development. However, at the beginning of a turnaround phase, it is important to be more focused and to make it very clear that we look closely at how good market cultivations is and how close we are to the customer, how each individual cost centre spends money, and how high efficiency is. Work is therefore carried out with maximum transparency and an awareness of why cost control is needed was created.

However: Just working in the company’s machine room, cutting costs and optimising processes does not get you to the top of an industry. At some point you have to loosen the metaphorical leash again. And that leads me to the role of the employees, because without the support of committed executives and large parts of the workforce, no turnaround can work.

Factor 3: The human being

As is so often the case in life, it’s best to start with yourself first: Anyone who, as CEO, does not show courage or confidence in a crisis situation will not be able to motivate anyone else.

Often, good employees maintain loyalty to family businesses even in relatively difficult times. This also means working for many years virtually without any real sense of achievement and under high pressure, which can be very frustrating. First of all, it is important to give this achievement the recognition it deserves.

The most important step after that: Showing confidence! Show that you are serious and want to lead the company to long-term and sustainable success. This is often a lengthy process lasting two to three years – not a short-distance sprint, but a challenge requiring endurance.

It is not unusual for a CEO to face cultural hurdles in the initial phase – for example, when, as in my case, you come to a very down-to-earth and family-run company as a management consultant. Here it is important to adjust to one’s counterpart and actively ask questions.

It is up to the new CEO to integrate into the culture of the company without completely changing it. There are no “stupid questions”. Questions only become stupid if one fails to ask the right questions at the beginning and then fails to listen.

Factor 4: The team

No CEO manages the turnaround on his own; it can only work in a team. Key factors for entrepreneurial success are a circle of shareholders which thinks long term, a management team whose members trust each other and communicate closely, and which also has clear responsibilities and structures. People have to be suited to each other and want to achieve something together.

In the beginning, it is important to identify the key players who make up the heart of the company. It depends on knowledge of human nature, but also on communication that demands results and shares successes.

Making unpleasant decisions based on a well-founded discussion within the leadership team requires a lot of leadership and costs significantly more time and energy than just letting things run themselves.

Once the numbers are right again and the company is doing better, it’s not just down to the new CEO, but also the entire management team and all employees!

Dr Philip Grothe joined alimex, a provider of high-precision aluminium solutions, as CEO in 2014. The medium-sized family business based in Willich near Düsseldorf was founded in 1970 and has 190 employees worldwide. Before that, Dr Grothe worked 14 years as a consultant, for five years of which he was a partner and shareholder of Simon Kucher & Partners.

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