After 15 years at Emerson Electric Co, I have spent more than 20 years as a turnaround CEO. During this time, I have discovered that companies get themselves into trouble, not because of technological advances in the marketplace, new competition, or other external factors, but because they have been mismanaged. Here are eight characteristics that separate successful businesses from those that are headed for trouble.
1. Anticipate. Perhaps the most important characteristic of a successful company is its management’s ability to anticipate – including, but not limited to – competitors’ actions, internal advantages, and changes in its industry, the economy, and other internal and external factors. Distressed, money-losing companies are static, superficial, and lack curiosity. Successful enterprises are constantly searching for answers. Hands-on and inquisitive, management is continuously involved with customers, suppliers, and the lower tiers of the organization. Their leaders develop a steady information flow to give early warning signals of any threat or opportunity. As a result, operations are rarely surprised.
2. Strategic Focus. The most obvious trait of successful companies is a management team with a disciplined focus. I define this as controlled attention to the priorities that management has decided are important for the success of the enterprise, based on a well-thought-out, researched, and complete strategic plan.
In contrast, distressed-company management often believes it has strategic plan. But in most instances, the plan is simply a description of the company – there are no strategies and tactics. Management does not have the candid situation analysis needed to assess a company’s problems, strengths, and weaknesses, nor the detailed competitive benchmarking necessary to improve the company.
There are more than 200 workdays in a year, and on any given day an officer or manager will suggest adding or deleting a priority the company is focused on completing. There are always new ideas, seemingly better priorities. Disciplined focus means not changing the established, but tightly limited number of priorities.
3. Execute the Strategic Plan One of Abraham Lincoln’s problems with the Union Generals during the Civil War was that they could plan, but they could not execute. He referred to it as the condition of “the slows”. Developing the strategic plan is relatively easy, but the hard part is to execute the plan – to effectively implement the defined priorities on schedule, within the budgeted expense and capital requirements. Successful companies seem to do it effortlessly. Why? One reason is that management writes strategic plans that are simple and easily understood by every employee. Every day employees know what needs to be accomplished. They know the vital versus the trivial matters. A member of the Board of Directors can bump into the company’s receptionist and get an answer to: “What’s the company’s strategic plan – what are its priorities?” The answer may not be in the wording from the strategic plan, it may not be complete, but it will be a reasonable facsimile.
A second reason is that winning organizations have an environment absent of politics and hubris. Management ensures there are no significant distractions from getting the job done. Everyone is focused on a defined set of tactics that will be completed on an established schedule for the company to continue to win.
4. Decisive Successful companies must have decisive management. They are not risk averse, but handle risk in a calm, deliberative manner and make difficult decisions on schedule – not after the need to take action has passed. They avoid delays that allow problems to fester. In distressed companies the decision-making process can be described as delayed with “aim, aim, aim but never pull the trigger” coupled with “hope springs eternal.”
5. Superior Culture Successful companies have a superior culture. Management does not permit arrogance and self-seeking ambition to exist. They ensure there is an absence of politics and the internal struggles of employees trying to “one up” each other. A team of people dedicated to the success of the entity exists. Attitudes are positive. This requires an almost modest, unassuming CEO who does not have a confrontational bully’s style, who treats employees with dignity and respect, is personable, and uses “random walk” to talk to employees informally. Employees want to see the CEO, touch, and talk to him or her. They want to know what is going on in the company, how it is doing, and the reasons for decisions. All of which leads to “trust” of management, an important factor that keeps employees relaxed and focused on their tasks.
6. Financial Controls Successful companies have excellent financial systems with state-of-the-art information technology operations. The systems are complete, tight, accurate, and user-friendly. This makes controlling and analyzing costs and profitability on a timely basis easy. It results in the effective management of product pricing, cash, receivables, payables, and inventories. It also contributes to effective capital investment decisions. The heart of a company is its cost accounting system. It must be 99.9% accurate and “four wall tight”. This means that all costs that are incurred and flow through any part of the company - its offices, warehouses, manufacturing plants, sales force - are captured and recorded in the accounting system. The Income Statement needs to be in enough itemized detail to make it easy to compare actual current year revenue and costs versus forecast and the same time period of the prior year. These are standard at successful, well-run companies.
7. Strong Organization Management of a successful company ensures that it is staffed with “A” level employees. Non-performing and bad attitude employees are terminated. There is a constant weeding out of non-performers. It is a healthy practice. Effective, hard-working employees are not happy when poor-performing colleagues are not removed. It is particularly galling when a poor-performing employee is given merit wage increases. I have found successful companies tend to follow Peter Drucker’s advice in his 2004 book “The Daily Drucker”:
• Define performance as a ‘batting average
\• Create an atmosphere where people are permitted to make mistakes.
• Management is about human beings.
• The work of a manager is to set objectives; organize; motivate and communicate; measure performance; and develop people.
But, Peter Drucker advised that, above all, management is responsible for producing results. Drucker was not suggesting a utopian workplace where everyone works in blissful harmony, nor where the measure of performance is to just do the best you can. He advised developing a positive culture and work atmosphere combined with metric performance measurements.
8. Constantly Seek Improvements Successful companies have a management team that constantly works to improve its operations. Failed companies stand still. The CEO works in a “maintenance mode,” lost in a “business as usual” mentality. There is no innovation, and no upgrading of product lines, the manufacturing process, or the information technology systems. This permits mistakes to increase and problems to fester into severe issues. Successful companies are never in a “maintenance mode”. Never sitting still.
Based on my experience of turning around distressed companies, I believe these essential characteristics can change an impending loss into victory and, equally important, prevent a successful company from deteriorating into a troubled operation. There are numerous factors involved in maintaining a healthy business, but these eight traits will improve the chances for success.