Turnarounds mostly fail. It is not surprising that they do because the reason for them failing is that there was something fundamentally wrong with the organization to need a turnaround in the first place. To avoid turnarounds, more effort should be put in keeping organizations attuned to the market rather than freezing them into routines and processes with a view to short-optimization.
Organizations rise in response to the needs and they should evolve in response to changing needs. Yet many fall into generating needs, occasionally even maliciously so, as when throttling older smartphones to lead purchases of newer models. Yet, poor sales are early signs that an organization is facing a wall and it should consider changing gears, identifying new needs and serving them.
However, well-established corporations frequently perceive new customer needs as a nuisance. New needs require a different frame of mind, different resources, and the short-term risk is high. All too frequently, large organizations are not managed to serve new needs, but to sell more of almost the same. Newer, nimbler organizations, step in to serve new needs, diverting purchases from older organizations, making matters worse for them until a turnaround is in on the call, frequently too late. That is why so many turnarounds fail, they take place too late.
Think of Kodak. Film camera sales had peaked in 1997 when Kodak shares were priced at around $90. Digital photography turned up in the new century. Only four years later, film sales had already dropped by half and Kodak’s share price to one-third. Kodak then appointed Antonio Pérez as President. This gentleman had spent 25 years at Hewlett Packard, but it was too late. During Mr. Perez’s tenure, Kodak share prices dropped to under $1 dollar each in 2012, by then Kodak filed for bankruptcy protection. All this happened to Kodak, the company where Steven Sasson had invented the digital camera in 1975.
Why did this happen? Caught in its time warp, Kodak was laden with its own legacy assets and attempted to extend their life latching them on to the new digital technologies whose customers had shifted to new distribution channels: electronics rather than optical ones.
By the time Kodak realized it was in trouble, the company went only half-way; it hired Pérez, a manager with experience in the computer world but framed on the traditional toolkit. Then as now, the standard approach to turnaround issues is caught in a 1940’s physicist’s time-warp. As if management were a block of ice, the toolkit literally recommends unfreezing routines and procedures, to update them and to freeze them again.
The physicist’s ice-block metaphor makes sense if the mismatch between what the market wants and what the corporation offers was caught in time. However, the melt-freeze-again approach does not address the need for a continuous responsiveness to customer needs, except through hiccups. The obsessive pursuit to optimize controls and routines can blindfold managers to the swift market undercurrents and distract them from what the organization was meant to deliver: products and services at prices customers can afford.
Had Kodak based its strategy on customers and not its legacy products, it could have reacted sooner and perhaps even saved itself.
I cannot see Kodak having disappeared the way it did had rock-band U2 manager Paul McGuinness been at Kodak’s helm. This may sound like sacrilege to many, but managers with the entertainment industry have a knack of keeping an ear to the rail to avoid being mowed down by an oncoming train, and U2 is turning forty.
On the other hand, managers with both ears obsessively focused on the production line may only hear the optimizing call of the sirens that will wreck their ship; by then there is little to be done. Kodak filed for bankruptcy after over 130 years on stage and its turnaround CEO Mr. Pérez is frequently referred to as the worst CEO in American history. Mr. Pérez came in too late, as so many turnarounds sorcerers do, and that is why so many turnarounds fail.