A big cash influx helped fuel Alan Mulally's turnaround at Ford (F). When he took over in 2006, he immediately raised over $23 billion. That bought him time, but the most compelling part of Mulally's strategy was that people could watch it work, step by step. Mulally said he would produce cars that customers want at better profit margins. To do that, Ford closed down under-performing plants, but also began to design affordable, fuel-efficient cars, and discontinued brands that were losing money, including Jaguar and Land Rover.
In some ways, Mulally had an advantage over CEOs in other industries in that it's fairly easy to follow the profit progression of a automaker. Ford sells a tangible product and investors can track changes in production costs.
A CEO in Armstrong's situation has a much tougher row to hoe -- success for a digital media company is often measured in ad revenue, which comes from viewers and clicks, but the formula for achieving that goal is unclear. Not only does Armstrong have to clean up AOL's financials, he also has to switch from the dead dial-up industry to digital media, an industry with a very uncertain revenue model. And his metrics for success, like more eyeballs on a website, are somewhat wishy-washy.
The key to a solid strategy is not to just meet metrics, whatever those may be, but also to communicate why meeting those even matters. A CEO that announces that he or she is going to reorganize the company's sales force and then follows through will win a certain amount of credibility. But shareholders are more likely to trust a CEO that can explain, with real data, how that action will help the business gain an edge over competitors.
Red flags
In fact, any true turnaround strategy must go beyond the statistics. A strictly revenue-based turnaround strategy is often a red flag. In his book Reversing the Slide, published this year, Shein describes how a company called Electronic Data Systems struggled to match pace with the booming tech industry in the 90s. With flagging financials, the CEO made a last-ditch effort to please investors by winning a $6.9 billion project with the Navy in 2000. But impressive top-line numbers didn't translate into a profitable business. The CEO was ousted to make way for one that might actually fix the company.
Blaming outside sources for your company's problems is another common turnaround pitfall. "Every retailer in the world will blame the weather for sales," says Lisa Poulin, chairperson at the Turnaround Management Association and partner at management firm CRG partners. "That's pretty classic, but at some point, you've got to get beyond that and see what the real issues are."
Then, little by little, CEOs need to fix those issues. The faster they can, especially these days, the better.
