Contrary to common belief, a company is not an inanimate object. In fact, there are many similarities between companies and people, companies are living organisms that comprise communities of people that contribute to their distinctive personalities and attitudes. Like us, companies fall sick, due to various reasons such as economic slowdown, competition and incompetent management.
However, there are workable, preventive, diagnostic and therapeutic steps to treat and restore the health of sick companies. Similar to how we manage our health, a company needs to follow three key steps to ensure and sustain its long-term health, namely prevention, early diagnosis and proper treatment. There are 18 medical principles in corporate health associated with these three steps which will be presented in three parts. The first part is on the first six principles guiding the step on Prevention:
Step I: Prevention
Akin to people, most companies get into trouble simply by neglecting their health. However, the old saying of ‘prevention is better than cure’ applies also to companies.
Principle 1: Laughter and fun are the best medicine
Laughter and fun have been recognised for centuries to be the best medicine. The correct use of laughter and fun in the workplace facilitates learning, and changes people’s behaviour as it helps them feel less threatened by the prospect of change. Laughter and fun have been found to be the best tools for giving the corporate identity a human face.
Disney world is one of the best success stories on the use of this tool. Reputed as a fun place for kids and the ‘kid’ in all adults, Disney World has attracted millions of visitors every year. Many visitors also patronise the playground several times in their lifetime. The fact is, people do like doing business with people who are fun.
A fun working environment is also more productive than a routine one. People who enjoy their work do create more and better ideas. Fun is contagious.
Therefore, to have a really happy workforce, you got to do more than pass out bonuses and angpows. You need to make work fun. Science opens to us the book of nature, while laughter and fun open the fountain of human creativity.
Principle 2: Rest in order to rejuvenate
One of the most effective ways to improve mental and physical health is rest, in the corporate context, this means stability. Here, we are faced with a paradox whereby management needs to change and evolve in order to cope with rapid developments in a fast-changing business landscape. Yet, in the quest for growth-inducing changes, companies need rest and stability. Like a human body, a company needs rest for it to re-charge and repair itself. At the same time, it also needs to remain active in order to achieve optimal body functions and good health. Thus turnaround managers have to be masters in the art of preserving stability amid changes, and spurring changes in times of stability.
It is therefore abhorrent for companies to embrace a ‘hire-and-fire’ approach in their human resource policy. This is equivalent to bulimia, an illness in which there is a great and uncontrollable desire to eat, usually followed by induced vomiting in order not to gain weight. Such ‘corporate bulimia’ rips the fabric of corporate cohesion, self-interest replaces corporate interest as suspicions among staff increase and loyalty towards the company wanes.
Principle 3: Endorphins give a sense of well-being
Endorphins, substances produced by the brain, give a sense of well-being, and help bodies cope with stress and other ailments. In a company, training and development generate endorphins which are released when an employee with untapped potential is nurtured within the right environment. Employees are thus motivated to contribute more effectively in their respective roles that transcend their job descriptions.
Some managers view training and development as heavy expenditures as trained staff may eventually resign. However, there is a fallacy in such an argument as investing in people does pay dividends, companies that emphasise training and development are placing their best bets on the future because they bet on their people’s potential for further growth. Companies really cannot afford not to train their staff, as it may lead to ignorance, which is a higher cost to any company.
Principle 4: Change mental attitudes to build financial health
It is often said: “the difference between heaven and hell is not the altitude but the attitude.” Medical science has generally found that in psychosomatic ailments, a person’s mental attitude, mindset and psyche can have a tremendous impact on his physical health. When your mental attitude is negative, you may feel chronically depressed and hopeless, which will drive the immune system into a ‘self-destructive1 mode where viruses can easily establish a foothold.
in sick companies, employees tend to wallow in self-pity, lick their own wounds or play the game of shame and blame.
They may place blame on everything conceivable: intense competition, demanding customers, incompetent bosses and so on. Perhaps an apt description for themselves is: “We have met our greatest enemies — us.” In times of negative mental attitudes, it is always best to keep busy, to plough your staff’s energy into something positive. Small changes in the staff’s mindset can go a long way in building a healthy corporate culture. You should recognise, commend and celebrate every little success. Once people start to achieve success, it spurs them on to greater efforts. Mental attitudes are contagious.
Principle 5: Vision, feedback and action — three meals a day keep the corporate doctor away
Someone said that feedback is the breakfast of a champion. However, in today’s turbulent marketplace, breakfast alone is not enough. you need three meals to keep the doctor away.
in the corporate dietary system, you need vision for breakfast, feedback for lunch and action for dinner. Vision and feedback without action is dreaming. Action without vision and feedback is wasting time. But vision, feedback and action — the three meals a day — will serve to keep the corporate doctor away.
Some people believe that information is power. But information is useless if no one acts on it. It is similar to the treatment of a sick patient. The doctor can have ail the right information on how to cure the patient. However, if he does not take appropriate and timely action to treat the patient, the outcome for the patient remains unchanged. Conversely, action must be complemented with the correct information. Acting on the wrong information may kill the patient as the remedies may be worse than the disease. This is why all three — vision, feedback and action — are necessary,
It is the application of the correct information that unleashes power in the context of management theory it is useful to apply the best blend of Eastern and western practices. Developing Asia can learn much from the more established and intellectual western managerial professionalism in the area of clear vision, proper research and feedback. On the other hand, the west can learn from Asia’s entrepreneurs with their acumen and instincts to quickly act on the information available. Therefore to compete effectively in today’s global marketplace, it is vital to integrate the vision and feedback management system of the West with the entrepreneurial action of the East.
Principle 6: Manage self with the head, manage others with the heart
It is the head that helps to analyse and strategise, but it is the heart that fosters understanding and commitment so critical for long-term corporate success. to increase the corporate life-span and longevity, you need to manage both the ‘head’ or ‘hard1 issues, as well as the ‘heart’ or ‘soft’ issues. Strategies and hardware will come to naught if the people’s hearts are not with the company. The implementation will go wrong if your people’s support and commitment are not there, in turbulent times, one needs also to deal with the ‘soft’ or “heart issues especially those relating to people. you should be hard on performance, but soft on people.
Corporations have for centuries searched for that elusive fountain of corporate youth through all kinds of different management theories, technologies and programmes. We invest millions of dollars in the quest for corporate excellence, but we forget the basics. It is the people who make the products and the people who buy them that ultimately determine corporate longevity. Just like a human being, the corporate body needs strong cells to fight corporate ailments. Often, it is the people that fail and not the business. At the end of the day, you have to remember that all the work is done by your people. This is why an old proverb says: “If you are planning for one year, plant rice. If you are planning for 10 years, plant trees, if you are planning for 100 years, cultivate people.”
Step 2: Early diagnosis
A sick person down with flu may manifest early symptoms of cough, runny nose, fever and body aches. Likewise, there are usually ample warning signs for a company. Prescription without diagnosis is malpractice, and thus carrying out corporate restructuring without knowing the ailments is disastrous. The key is early diagnosis as it increases the chances of curing most diseases.
Principle 7: An annual health check is fundamental
Many companies have annual medical examinations and health screening for their employees, but are negligent when it comes to their own check-ups. Poor management and financial information systems typically get blamed for management’s inability to ‘see it coming’.
Usually, there are ample warning signs or symptoms of impending trouble. However, these warning signals are often ignored or suppressed; hence the onset of a crisis comes as a surprise.
It is also tragic that many companies fail, not solely due to the irrevocable downward spiral of their financial health, but because of management’s inability or unwillingness to face those serious
problems squarely and take appropriate timely action. Sometimes, top executives fall into the denial trap as acknowledging a problem is tantamount to an admission of failure, exposing them to criticism by the company’s shareholders.
It is important to pre-empt any problems from arising by looking out for warning signals. Therefore, a proverb that says: “The superior doctor prevents sickness. The mediocre doctor attends to impending sickness. The inferior doctor treats the actual sickness.”
Principle 8: To understand the disease, learn to be the patient
There is an old Spanish saying: “To be a bullfighter, you must first learn to be like a bull.” in business, a manager needs to be on the ground — to talk and interact with the various people: staff, suppliers, customers, business partners and even competitors. Through these channels, the manager is able to acquire a better knowledge of the industry and feel of the market, and be better equipped to make sound decisions and take timely action as he does not operate in a vacuum. This will not only check or halt declining trends, but also hopefully improve them in the near future. This is why the worst place for a manager to be in is his air-conditioned room, where he is cut off from the marketplace.
Lou Gertsner, the turnaround CEO of IBM, became IBM’s most hardworking salesperson — logging thousands of miles to visit key customers and prospects. His approach sent an unmistakable message to every employee to be hands-on and gave IBM a new image. By staying in contact with the market, Gertsner was able to make the right decision to turn troubled IBM around.
Sun Tzu, in the art of war also advocated a ‘staying on the ground1 policy. “Generally, in the case of armies you wish to strike, cities you wish to attack, and people you wish to assassinate, you must know the names of the garrison commander, staff officers, ushers, gatekeepers and bodyguards. You must instruct your agents to inquire into these matters in minute detail.”
Principle 9: Do not block the flow of internal energy or ‘qi’
In traditional Chinese medicine, ill health is often associated with the blockage of one’s internal energy, qi. If one is ill, such clearance will result in the normalisation and re-establishment of the optimal functioning of one’s body and most diseases should disappear, if one is not ill, the free flow of qi will further enhance the existing sense of wellness and well-being.
In the corporate context, qi is the human spirit, drive, passion and energy. It is the same qi that keeps you awake when you are watching the world Cup matches or your favourite television programme. It is also the same qi that impelled wait Disney to risk his reputation by creating Disneyland and Epcot Centre without any market data on their viability, it is the same passion and drive that saw Bill Gates give up his Harvard university studies in pursuit of his dream of establishing Microsoft.
You do not create Disneyland or build personal computers because the outside environment demands it. These things arose out of an inner urge for progress: the drive to go further, to do better, to create new possibilities without any external justification.
Jack Welch, the former chairman of General Electric US recognised the power of energy in his later years, in early 1980, when he first took over the helm, his emphasis was on maximising market share, a directive for all CE’s affiliates to be Number 1 or 2. Subsequently, it was a case of maximising market-value through productivity programmes such as ‘workout’, ’6 sigma’. in the later years, Welch indicated that he would hire people with the two energies: those with energy and the ability to energise others.
To compete effectively in the future, companies need to maximise the energy of their staff, as well as exploit and tap the energy of their customers.
Principle 1O: Knowing the type of viruses is half the cure
The troubled company usually gets attacked by two types of problems — internal and external viruses. Many of the internal viruses are generated by the company and are actually within the company’s control. They are usually associated with weak management and a poor financial system. The onslaught of this form of viral attack can lead to bad or untimely business decisions, poor financial control and other related problems. The medical analogy for eliminating internal viruses may merit the use of surgery such as downsizing, restructuring or change of management.
External viruses being macro in nature are often beyond the company’s control.
The entire industry or marketplace or even the whole country may be stricken by the same type of external viruses. The attacks can be silent, swift and often appear non-threatening at the beginning. Examples of external viruses can include economic recession, changes in consumer behaviour, natural disasters, political turmoil and terrorist attacks.
Such external viruses are harder to eliminate and predict. Sometimes, even having a strong management team is inadequate to cope with external viruses because the corporate culture is not able to manage change.
The remedy is to foster a strong and healthy corporate culture, which is the immune system of the company. The immune system produces antibodies to get rid of viruses, which is even better than taking drugs, as drugs sometimes create negative side effects. Similarly, a strong and healthy corporate culture can help to respond quickly to changes and shocks in the marketplace.
The best prescription is to know the viruses, predict and eradicate them before they attack your system.
Principle 11: Just as heart ailment is a major killer, competition is the major cause of corporate failures
The management mantra in the 1970s and 1980s was product quality, and activities involving Quality control (QC! circles, Total Quality Management (TQM! and ISO 9000 were the order of the day. Back then, consumers were willing to spend enormous sums for quality products. However, product quality has improved and today, having a good quality product is a mandatory requirement for any company to participate effectively and survive in the marketplace.
Subsequently, the management slogan in the 1980s and 1990s embraced technology as the cure-all, companies then tried to distinguish themselves from their competitors through the use of technology to offer better and more sophisticated features, and the use of the internet and other communication systems. Huge sums were channeled into technology to build a better mousetrap with more superior state-of-the-art features.
Today, the world does not beat down the door of the better mousetrap developer. The collapse of the high-tech stocks on Nasdaq in the early part of 2001 shows that technology is not foolproof.
The thrust in the new millennium is competition, competition intensifies with the emergence of a better range of products that are often of more superior quality with even more attractive pricing. in such a scenario, many products become marginalised, and like commodities, pricing becomes a key determinant in a shrinking market.
Competition is a silent and sudden killer like a heart attack which creeps up on you. It is however also a highly preventable disease — for the individual through a healthy lifestyle, and for the company, to be always alert and have strategies to combat competition. When you are faced with increasing competition, you may still survive, prosper and succeed, but it cannot be business as usual.
Principle 12: Past business assumptions may be the anaesthetic that dulls business sense
For a troubled company, it is prudent to challenge all ‘sacred cows’ or sacrosanct and old business assumptions, it is probable that some of these old ‘sacred cows,’ which were based on some erroneous perceptions and assumptions, got the company into trouble. Traditions and past business assumptions underlying the old ways of doing business, especially those that have become irrelevant and obsolete, may be the root cause of the disease afflicting the ailing company.
In times of rapid change, a strategic failure is often caused by an incorrect or false perception, we console ourselves by telling ourselves that we have gone through the present problem before, or falsely assuming that this change is temporary, or the impact would be limited and hence could be ignored.
Many of these old and obsolete assumptions happen in large and well-known companies whose traditional cash cow businesses have become sacred cows that end up as sacrificial cows or mad cows when market forces overwhelm them.
Time and again, some wrong business assumptions and perceptions by experts have led many companies astray. For example, Ken Olson, president of Digital Equipment, said in 1977: “There is no reason anyone would want a computer in his or her home.” Because of these erroneous assumptions and perceptions, it is no wonder Digital Equipment was late in entering the personal computer market.
To ensure the effective and successful implementation of its business assumptions, a troubled company must critically re-examine and re-visit every single one.
Step 3: Proper Treatment
Do you know why companies fall sick and die; that there are panaceas that can turn a critically ill organisation around into a healthy one and proper treatment is necessary as the remedies can sometimes be worse than the disease?
PRINCIPLE 13: TO TREAT THE SYMPTOMS, KNOW YOUR COMPETITORS AND CUSTOMERS. TO ELIMINATE THE ROOT CAUSE, KNOW THE MARKET
Sun Tzu, the strategist in The Art of War said: “If you know yourself and the enemy, you need not fear the result of a hundred battles.” Though it is important to know your competition, one should not do so at the expense of neglecting one’s customers. Merely knowing the competitor is equivalent to a person driving a car and constantly looking out for the competitor’s car at his side. He is so pre-occupied with the competitor that he fails to look at the road ahead and may run into hazards.
Knowing only the customer’s present needs is also merely treating the symptom and not the ailment. Today’s customers are more demanding – they want more of those things they value. If they value cheaper prices, they want even lower ones. If they value convenience or speed at the time of purchase, they want it even easier or faster. Hence, companies’ efforts may yield temporary results if they only deliver what the customers want now. These attempts may not sustain the company’s long-term growth, as they are unable to optimise on profitability, resource allocation and opportunities.
To ensure vibrant business and continued long-term growth, companies must strive to drive the market. They need to pre-empt both the customers’ and competitors’ present and future developments. 3M’s Post It notes, which nobody had asked for previously, are now one of the most commonly used office products. Microsoft’s operating software Windows came not from responding to customers’ demands or competitors’ threat, but from anticipating them. The 1980 launch of CNN by Ted Turner was ridiculed by TV veterans CBS, NEC and ABC. They failed to tap a niche that no one had yet asked for: a 24-hour news service. Other great innovations of our time including the personal computer, jetliner and Internet were created without any customers or competitors in sight. Therefore, one has to understand the market, otherwise it may destroy you.
PRINCIPLE 14: A SICK COMPANY NEEDS TO UNDERGO SURGERY, RESUSCITATION AND
There are many companies falling sick due to corporate diseases such as global economic recession, rapid changes brought about by globalisation, terror attacks and incompetent management. When a company falls sick, it needs to undergo the three phases of corporate turnaround, namely:
Surgery: To restructure the troubled organisation to face the harsh new reality and quickly improve its cash flow.
Resuscitation: To revitalise the business so as to increase its sales revenue and profits.
Nursing: To rehabilitate a strong and healthy corporate immune system or culture in order to sustain long-term growth.
For complete corporate recovery, it is important to finish the full course of antibiotics prescribed in all the three phases. Restructuring alone is not good enough. As a doctor once said: “The surgery was good, but the patient died.” Without the resuscitation and nursing phases, it is like merely upgrading a cancer-stricken patient to another ward in the hospital – it does not cure the disease. Building a strong and healthy company takes a long time — it is not a one-time inoculation. It is like taking vitamin pills every day for the rest of your life in order to build a strong corporate culture which can manage changes.
PRINCIPLE 15: RESTRUCTURING EXERCISE REQUIRES THE SURGEON’S SKILLS AND CALLS FOR THE 4Cs: COMMUNICATION, CONCENTRATION, COST CONTROL AND CASH FLOW IMPROVEMENT
Restructuring is not a slash-and-burn exercise, but one that calls for the surgeon’s skills. It does not require the use of a parang or long sword but the surgeon’s knife. During a restructuring exercise, remember the 4Cs.
Communication: The manager needs to personally communicate with the staff. Just as a doctor does not delegate to a nurse the task of briefing the patient about his ailment and treatment. You need to communicate the restructuring plans truthfully. People are not against bad news per se but they want to see quick results.
Concentration: The surgeon operates on only one patient at a time. Similarly, the sick company needs to concentrate on its core competence. In bad times, you need to concentrate even more as resources are scarce. If possible, sell away all non-core businesses.
Cost control: Cut costs to the bone without injuring the muscles and organs. If circumstances permit, amputate non-profitable businesses rather than try to bandage and apply stitches.
Cash flow improvement: Cash flow is your life blood. Slipping into losses may give you a headache, but a sudden shortfall in cash flow will cause an immediate massive migraine. Try to cut your inventory, purchases, perks, credit to customers, outstanding debts and related items without hurting the company further.
PRINCIPLE 16: JUST AS THE SURGEON OPERATES ON ONLY ONE PATIENT AT A TIME, SO A SICK COMPANY NEEDS TO CONCENTRATE ON ITS CORE COMPETENCE
During the turnaround phase when the company is on the brink of bankruptcy, there are time and resource constraints. The company needs to concentrate all its resources on doing a few major things right. You should have a laser-sharp focus just as a surgeon focuses on only one operative field during surgery. If you are a patient, you will be worried if your surgeon operates on you and another patient simultaneously.
Similarly, an ailing company needs to concentrate only on its core competence and try to rid itself of businesses that do not help the bottom line or immediately improve its cash flow. In such a critical situation, you often can succeed at a far lower cost by ensuring that you do a better job with the businesses and skills you already have.
In order to release resources for its core business, die ailing company has to divest any unprofitable or non-related businesses. Quite often, in their bid to bolster sales performance, troubled companies clinch lots of sales contracts that have poor profit margins. This is tantamount to buying sales which often turn into subsequent financial losses. Such a scenario is equivalent to having a lot of sizzle but no steak.
It is better to amputate all loss-making ventures and unprofitable sales whenever possible. According to the standard surgical procedure, if there is pus, get it out. In fact, the famous Chinese military strategist Sun Tzu believed in the principle of concentration to fight a war. He said: “The strength of an army does not depend on large forces. Do not advance relying on sheer numbers. Rather, one must concentrate one’s forces and anticipate correctly the movement of the enemy in order to capture him.”
PRINCIPLE 17: COST CONTROL IS AN IMPORTANT ANTIDOTE OR EFFECTIVE REMEDY TO ADMINISTER IN DESPERATE TURNAROUND SITUATIONS
Unnecessary cost is always your number one enemy. You must attack it, and justify and challenge every expense that you incur. Whether your company is in trouble or not, cost will kill you even if you come up with better products. If your cost to make something is your competitor’s selling price, you cannot stay in business for long.
Any first-year business student will know how to cut costs. The key here is how the costs can be cut to restore financial health in the short term without hurting the ailing company in the long term. The turnaround manager should discuss the relevant details with the respective department managers, soliciting their advice as this can improve remarkably the chances for full co-operation and success. Sometimes, staff can offer valuable suggestions to save time or money or both for the company. Remember, this is not the time to create unnecessary stress by finger pointing. The key is to foster a conducive environment for problem-solving, establish solidarity and put everybody’s self-interest to work for future gains.
Sometimes, cost reduction can be achieved through streamlining procedures and operations. Through this, duplication and inefficient methodologies can be pared down to a minimum. In some instances, similar or more superior results are achieved through outsourcing. Outsourcing provides you with the advantage of being able to focus on those areas that are vital to the company’s operations, instead of being distracted by things that have little impact on the company’s success. People-related expenses can be reduced remarkably through cross-fertilisation of multi-disciplinary skills. Productivity can be improved by deploying staff to perform high value-added duties. Remember, every cent of cost saved ot cut goes right into the bottom line.
PRINCIPLE 18: DOWNSIZING IS LIKE AMPUTATING A PART OF ONE’S BODY, CREATING SIDE EFFECTS
Downsizing is like an amputation which removes part of one’s body but creates side effects such as low staff morale and bad reputation. It is not the only remedy available to managers to improve a company’s performance. Other remedies include increasing sales revenue and other cost control measures.
There is no problem in removing the corporate fats, dysfunctional personnel or cancerous tumours in the company. The problem with one-size-fits-all downsizing is that good people also get fired in the process. In some instances, ‘corporate genocide’ or the deliberate extermination of a healthy business is often committed in the name of maximising shareholders’ returns. However, in some instances, downsizing is inevitable. But one has to carefully manage the aftermath of the downsizing exercise. As the saying goes: “Even rats will desert a sinking ship”. Haemorrhage or the exodus of good calibre staff may take place and deal quick and severe blows to the company’s vital organs. The ailing company is unable to attract good calibre staff to replace those who have left since its reputation in the marketplace is tarnished.
You must try to win over the trust of the existing staff after a downsizing exercise. Silence is not golden. Communicate to the staff the reasons for this exercise and the plans to resuscitate and turn the company around. Be humane in treating the people to be fired. The golden rule in a downsizing exercise is: “Do not do unto others what you do not want done to yourself”. For one day, you may be the person to be fired too.
About the Author:
Dr Mike Teng (DBA, MBA, BEng, FIMechE, FIEE, CEng, PEng, FCMI, FCIM, SMCS) is the author of the best-selling business book “Corporate Turnaround: Nursing a sick company back to health”, in 2002. In 2006, he authored another book entitled, “Corporate Wellness: 101 Principles in Turnaround and Transformation.” Dr Teng is widely recognized as a turnaround CEO in Asia by the news media. He has 27 years of experience in corporate responsibilities in the Asia Pacific region. Of these, he held Chief Executive Officer’s positions for 17 years in multi-national, local and publicly listed companies. He led in the successful turnaround of several troubled companies. He is currently the Managing Director of a business advisory firm, Corporate Turnaround Centre Pte Ltd, which assists companies on a fast track to financial performance. Dr Teng was the President of the Marketing Institute of Singapore (2000 – 2004), the national body representing some 5000 individual and corporate marketing professionals in Singapore