"If 2020 taught us anything, it is that predicting the future is an inherently risky business. If the government and an army of advisors can’t decide whether granny can come for Christmas in mid-December, what hope is there for the rest of us?"
I am going to stick my neck out though. In 2021 Turnaround will be a key theme for business leaders, and the transformational specialists who operate in this area will be very busy indeed.
Despite the dual challenges of COVID and Brexit, Turnaround wasn’t a key theme in 2020 which, superficially, is surprising. While Turnaround isn’t completely counter-cyclical – it isn’t only for struggling businesses – it is fair to say that a weak economy and distressed enterprises tend to lead to more Turnaround activity. However, the government protection and economic stimulus applied in most Western economies, allied to low interest rates, meant that corporate failures were very rare in 2020. Businesses which did go to the wall tended to be in the retail sector, and there weren’t many surprises when they did. COVID may have got them, but most had underlying health issues – a dated brand and a weak online proposition.
Although it’s likely that we’ll be living with and working around COVID for some time to come, the economic stimulus is coming to an end. Whether this is furloughs, loans or deferred tax repayments as here in the UK, or the varied methodologies applied elsewhere, the money is running out and business leaders will be expecting to be standing on their own two feet by H2 and maybe sooner.
Are they up to it?
I am often asked what it is that is so special about Turnaround specialists. Why can’t CEOs and their EXCOs do what’s needed to right their businesses?
Some can, but many can’t.
The reason for this tends to be twofold – the means to turnaround a business and the chops to do it. Turnaround specialist comes with both methodologies and a playbook that will have been developed over years, turning sub optimal performance optimal. Senior leaders tend to climb the ladder driving growth, celebrating success and staying well away from the weeds. For this reason, they often aren’t equipped to do what needs to be done. However, I have often found that is the unwillingness to do what they know needs to be done, which is the greater blocker to effective turnaround.
Take Carillion as an example. Many people in the senior leadership knew that they were selling huge amounts of unprofitable business, much of which they couldn’t deliver. They were also fully aware of how poorly they were delivering on several projects with their largest single client. However, neither of these were the real root of the problem. Hubris, allied to compensation packages focussed on top line sales and a rising share price, was the critical issue. No-one wanted to admit that the emperor had no clothes on.
Investors, shareholders and regulators have been pretty forgiving in the main during the COVID crisis. No-one wants to be the bad guy shutting businesses during such challenging times, not least because there isn’t going to be much money in the market to buy up the portions of the wreckage which remain. However, bankers and private equity investors are only prepared to be social entrepreneurs for so long, and I fully expect the phones of Turnaround specialists to start ringing hot very soon.
I am also seeing another positive trend. While Turnaround has historically been applied most often in stressed or distressed businesses, there may be increased demand for it in businesses who are fundamentally successful. As one specialist said to me recently, “If your 2021 strategy looks like your 2020 strategy, then you have got it wrong.” The realisation that things need to be done differently is sweeping through boardrooms, and for the leaders of many basically sound businesses, imported Turnaround skills can be the ‘special sauce’ which allows them to press home their competitive advantage. The resulting programme might be badged as performance acceleration, but it is Turnaround by any other name, and more businesses will experience the true value of hiring a professional specialist that ever before.
What does this feel like? For many, the arrival of a Turnaround specialist might be as welcome as a root canal. It’s going to hurt, it’s going to be done to me whether I like it or not and it’s going to cost me a load of money. While it is true that a business Turnaround can be a very intense experience, when done well it can be a very energising experience too, for the senior leadership and for the wider business.
The industry has an image problem and we need to address this. With this in mind, I am partnering with Duff & Phelps, the global provider of governance, risk and transparency solutions, to run a series of webinars which will demythologise Turnaround. The details of the first webinar, which will focus on the not so simple question ‘What is Turnaround?’, are below. We are looking forward to a lively debate between a panel on Duff & Phelps leaders and independent experts.
So, is 2021 going to be the year of the Turnaround specialist? Let’s hope so.
Click here to join our event, in partnership with Duff & Phelps