How Three CEOs Achieved Fast Turnarounds
JOANN S. LUBLIN
Jul. 21, 1995
Hours after he took over as chief executive officer of Scott Paper Co. in April 1994, Albert J. Dunlap offered three former associates top jobs.
On his second day, he disbanded the ruling management committee. On his third day, he fired nine of the 11 highest-ranking executives. On his fourth day, he threw out four bookshelves crammed with his predecessors' strategic plans.
Mr. Dunlap's blitzkrieg didn't stop there. In a year, he engineered one of the fastest turnarounds in corporate history _ an effort capped this week by Kimberly-Clark Corp.'s $7.36 billion offer for Scott.
Many chief executives spend years struggling to fix a sick company; some executives get the job done fast. The speedy ones have a clear vision, a willingness to clean house, a supportive board and the ability to tackle many problems at once.
People who can turn companies around fast are in hot demand these days because increasingly impatient boards and stockholders are demanding swift results. ``The window that a new CEO has in a turnaround is shrinking,'' says David A. Nadler, chairman of Delta Consulting Group Inc. in New York. ``You used to have a couple of years,'' he says. Now more boards want to see a revival within 18 months.
But the difficulty of turning a company around at all, let alone fast, shouldn't be underestimated. In January, turnaround specialist C. Robert Kidder became the fourth chief of Borden Inc. since 1986. Four months later, he unveiled a ``realignment'' _ the fifth restructuring in six years for the Columbus, Ohio, food and chemical conglomerate. When will Borden finally turn around? ``We're working on it,'' a spokesman says.
A look at three rapid turnarounds _ at Scott, Compaq Computer Corp. and National Car Rental System Inc., a former General Motors Corp. unit _ offers some lessons about fast turnarounds.
In each case, a corporate crisis compelled a new leader to move swiftly. Scott lost $277 million in 1993. Compaq posted its first quarterly loss ever in fall 1991, ousted its founder and promoted Eckhard Pfeiffer to CEO. GM took a $744 million fourth-quarter charge in 1992 due to its National losses; it hired turnaround expert Jay Alix in January 1993.
Messrs. Dunlap, Pfeiffer and Alix revived their enterprises with the following:
1. They showed clear vision, charisma and decisive leadership.
Compaq's Mr. Pfeiffer, 53 years old, says he exhorted people ``to compete for market share across the entire spectrum'' of the PC market instead of focusing on high-priced products. ``That was a simple change,'' he recalls. But such a strategic shift is so radical that ``you have to communicate it a hundred times or more. It doesn't sink in the first few times.''
At Scott, Mr. Dunlap came up with a short list of priorities, and ``they became his mantra,'' says Richard Lochridge, a management consultant and outside board member. In a turnaround, he notes, ``there has to be childlike clarity to move fast.''
2. They changed the old guard, the old culture _ or both.
Six senior Compaq executives quit soon after Mr. Pfeiffer became CEO. He trimmed nearly 20 percent of Compaq's work force during his first year.
A recent McKinsey & Co. study of 85 big companies found that two-thirds of the senior managers had been replaced by the time the businesses were revived.
Mr. Alix says he shook up National managers' timid, ``wait-and-see'' outlook by making it clear that GM might liquidate the car-rental business. ``The sense that this is an emergency tends to motivate people and change the culture quickly,'' says Mr. Alix, president of a Southfield, Mich., turnaround firm that bears his name.
3. They tackled many problems at the same time.
``You have to move on all fronts concurrently,'' says Mr. Dunlap. He says he simultaneously cut costs, built a new management team, bolstered the balance sheet, sold assets and plotted strategy. ``If you don't do all of that, it isn't a turnaround,'' says Mr. Dunlap.
During the first year after he assumed Compaq's No. 1 job, Mr. Pfeiffer unveiled a new line of bargain-priced machines and also mounted an assault on the small-business and home-PC markets. In addition, he overhauled the manufacturing process and expanded abroad.
But a sick company can't absorb too many changes at once, cautions Mr. Nadler, the consultant. A CEO committed to a turnaround ``can probably undertake three major initiatives,'' he suggests. ``Beyond that, the place gets overwhelmed.''
4. They changed how the companies' employees were judged and rewarded.
Mr. Alix altered the performance standards of reservation agents: Instead of rating agents on the time they spent per call, he graded them on the number of sales made.
With management, ``we tied everybody's compensation to the goals of the turnaround,'' Mr. Alix recalls. Previously, managers' bonuses depended on whether they met corporate budgets.
5. Their directors fully backed their plans and held them accountable.
Board support ``is absolutely essential'' in a turnaround because ``you don't have a guarantee that it is going to be a winner,'' Mr. Pfeiffer notes. ``We have seen many attempts that didn't work out.''
At Scott, ``there was some wincing about some of his decisions,'' says Mr. Lochridge, the board member. ``But I don't remember anybody objecting to the substance of any decision he proposed.''
A quick fix isn't right for every struggling business, some say. ``Not everybody does a Dunlap,'' says corporate-governance expert Ira Millstein, a senior partner at Weil, Gotshal & Manges in New York. ``Nor is a Dunlap right for every company,'' he adds.