While working for different consulting companies in the corporate restructuring sector, I have heard many different terms for “restructuring a company”. In small- and medium-sized businesses, the more serious the crisis becomes, the more the term “turnaround management” is used. Certainly turnaround management suggests some urgency and pressure to change the situation causing the company to struggle. The Turnaround Management Society has quite a distinctive definition of turnaround management. …
“A turnaround transforms a company that has a general lack of resources and/or strategic disposition and/or is in an abnormal period to be profitable enough to support its own operations and to have a strategic chance to survive in its environment on a stable platform for renewed growth.”
Most noticeable about turnaround management is the fact that almost no company calls it a turnaround while it is still caught up in this process. Large corporations especially will rarely admit that they find themselves in a turnaround situation because doing so would also imply that something has gone terribly wrong in the past and somebody has to take the resulting responsibility. This, however, does not necessarily have to be true. A turnaround can also be conducted to adapt to changes on the market, even though admittedly there is usually some financial pressure involved. At the same time, there is no shame in getting into this situation as long as management is willing to admit that a turnaround, a change in strategy is necessary.
Still, the most frequently used term is “corporate restructuring”, which sounds a lot less urgent and more like “we are just adjusting to a change” on the market or in customer demands. Preferably the trigger is something external, but causes are rarely mentioned, even though they would be very important in eliminating the underlying problems. Corporate restructuring in the sense of adaptations is constantly necessary so any related announcements are less likely to cause alarm.
Recently, however, there has been a trend to soften even restructuring and to call it “transformation management”, a term that has even less meaning and an even broader definition. It sounds almost harmless as well as necessary. It is the perfect mask to describe efficiency measures as well as cost-cutting and process improvements. Don’t get me wrong, a process improvement is a transformation in a sense, but I like clear words that say and describe what is necessary. If somebody asks me if I have had any experience in transformation management, the answer is yes, I certainly have, but who has not had experience in some kind of transformation. The term has become so indecisive that no one is able to define it, nor does anyone really know what it is supposed to mean and describe.
I am declaring the need for a clear distinction between the terms. For reasons of simplification, I want to introduce first another term and then show how this helps to facilitate differentiation. I ask my readers to be patient and bear with me; there will be a happy end.
The additional term I want to coin is “evolution management”. Just like biological species, companies are subject to natural selection of the fittest and best (see Darwin’s popular thesis). In business, we call it market selection and competitive advantage. It will not surprise anyone to hear that corporations need to evolve continuously from one stage to the next to stay up to date with Porter’s constantly changing five forces (also acknowledge the growing fields of organizational learning and absorptive capacity).
New competitors may put pressure on production costs; customers may demand better quality or lower prices or simply change their preferences and taste. Internally, the company needs to stay up to date with new developments in the industry. No company can afford to rest on its laurels for more than a limited time.
So we can define enterprise evolution as the constant changes that a company undergoes to keep its competitiveness at the same level in the future, to maintain its high market position in comparison with the competition, and to evolve from the status quo of today to the status quo of tomorrow.
Managing this evolution is becoming more and more important as the competitive environment in which corporations operate changes more and quickly every year. About 120 years ago, American Bell, later At&T Long Lines, built a telephone line between New York and Chicago and continued to use this technology for more than 30 years. Today, Deutsche Telekom and every other phone company regularly replace their network technology every 3-5 years to keep up with technological evolution and the changes demanded by customers. This also means that processes, workflows, and organizational structures need to change every few years. On a micro level, this means hiring specific talent, changing job descriptions, and more and more training for employees. Many of the new positions did not exist ten years ago… Today, there are even signs in certain industries that corporate evolution is not happening at intervals anymore, but is instead a continuous process.
These changes within a company that are continuously essential to keep up with technological and environmental changes need to be handled by “evolution management” or a “corporate evolution program” consisting of a variety of projects and measures to stay competitive and to prepare for the future. These projects can lead to more effective production processes, replacement of outdated assets, new products, and training. What they all have in common is that they are a certain part of a goal-oriented program for the company to reach the next level in corporate evolution.
Let’s stick with the example of Deutsche Telekom. Measures a corporate evolution manager (or, in this case, office) might take to maintain competitiveness would include tracking changes in the industry, working with strategic management, and evaluating possible scenarios for the future so that the company is prepared to deal with them. But this office would also oversee, and in some cases even implement, needed changes such as preparing the company for the new LTE network standard that will replace UMTS and 3G networks. But it could also implement cost reduction measures to stay competitive or propose and oversee projects such as merging departments, outsourcing, or raising the level of efficiency of corporate processes.
Evolution management includes transformation projects and restructuring measures, but with the goal of maintaining competitiveness. In terms of a company’s life cycle, it starts earlier than transformation management and ends long before corporate restructuring measures conclude. The key element distinguishing it from corporate restructuring is that there is no immediate financial pressure involved in evolution management. The following graphic shows where evolution management, corporate restructuring, and turnaround management start and end in a corporate life cycle diagram. In its early stage, evolution is by nature managed by the entrepreneur. However, at some later point, the entrepreneur either leaves the company or needs to focus on running the company more than on staying competitive. At this stage, evolution management takes over, or the founder becomes a “corporate evolution manager” (CEM) and hands the business over to an experienced CEO. From the CEM position, the founder can focus on his/her strengths, evolving the company, developing ideas and overseeing their implementation, and keeping a fresh, unconventional look at businesses processes with the aim of minimizing any bureaucracy which might put the company at risk of primarily managing itself instead of its market. Corporate restructuring takes over when the company experiences a decline in core segments of the business; once a corporate crisis giving rise to the threat of insolvency becomes obvious, professional turnaround management is necessary.
Evolution management is nothing new, but I would ask that it be given more attention so that the necessity for turnaround management can be averted. After all, focusing on something specific always starts with recognition of the need and its definition. The next step is to specify actions.
About the Author:
Dr. Christoph Lymbersky is a corporate restructuring and turnaround strategies expert. He is an internationally known lecturer, author and speaker at various conferences. Currently Dr. Lymbersky serves as the Director of the Turnaround Management Society (TMS).