Incremental Change

Nov 03, 2003

Turning around an A/E or environmental company that is not doing as well as it should be doing takes an artful leader (or bunch of leaders). If you take a closer look at these transformations, there is, in many cases, a pattern that emerges. The basic theme is one of incremental change. It’s incremental change all leading to a logical conclusion— a more successful company. Here is some of what we often see: A clear idea of the desired end-state. This is essential if the changes made are going to be consistent with creating a certain type of firm— and they need to be. For example, if revenue growth is essential, then the firm will have to devote more resources to marketing. That means more people in the marketing department, more time from the technical and professional staff, more training dollars for marketing-related training, and more money flowing into brand-building activities. There are many other examples of where the end-state determines appropriate actions along the way. Knowledge that there is no end. The firms that can turn things around for the long haul realize that it is not just one cost-cutting exercise that is going to get them to the Promised Land. There is a certain discipline that has to be applied to everyday living in the firm that includes watching costs but that also includes so much more. More investment, more time spent on developing systems that solve recurring problems once and for all, more time spent on management and mentoring staff. These things— in addition to the need to continually invest in marketing and many other disciplined requirements of the business— will never go away. A clear sense of priorities. No one can make all the changes that a failing firm requires at once. There is only so much time and money to go around. So that takes a real sense of priorities. For example, protecting or improving cash flow is always at the top of the priority list. This has to be dealt with as a first-order issue if the firm is going to be able to survive long enough to begin to fulfill its real potential. There may be other priorities that have to be dealt with first— distasteful matters such as cost cutting— before longer-term turnarounds can occur. The company’s leaders need to understand what the priorities are and work on those things first— as well as communicate with the staff about what those priorities are and what they are doing to maintain their credibility in the firm along the way. A willingness to deal with the ugly personnel situations carefully. There are always people who need to go. The longer the firm has been around, the more of these there are (this is one of the reasons I get frustrated with HR people who measure their effectiveness by the firm’s turnover rate— sometimes turnover is essential!). The wise transformation artists figure out who needs to be changed first and deal with it in an intelligent, sensitive manner, addressing the highest priorities first. Usually this means a principal or principals need to go. Attention to the bottom line. Cost cutting, being frugal, watching expenses that don’t generate revenues, getting accurate revenue and billing forecasting systems in place, and then sending out lots of signals that the bottom line is important are all ingredients of the firm that is going to turn things around and keep it that way. Attention to the balance sheet. The balance sheet, too, is important for long-term turnaround. If you want to know if a firm’s turnaround efforts are going to be successful, take a look at what they are doing to collect old money and pay down debt. Are they retaining more capital in the form of retained earnings? Are they selling more stock every time they buy some back and then some? Any firm that is going to make it happen for the long haul sees incremental, positive changes in its balance sheet. Careful addition of new talent. The right people added to key spots is critical, too. You just can’t put a price on what it is worth to have some positive, motivated people in every job. And many times these are the new employees. They haven’t gotten discouraged yet and are still trying to make their mark. This spirit is invaluable! Market sector orientation. The long-term turnarounds that we see often involve a new organization structure designed around markets. Beyond the obvious benefits of making business planning easier and getting people to cooperate across organizational lines, the firm tends to become more aligned with specific client needs that vary from market to market and, over time, adjust its offerings to each client group. Visible signs of the transformation in the work environment itself. This means a new office or offices, sprucing up the existing office, a new name, a new branding exercise, and more. Anything that shows the world— particularly the world of employees— that it is not business as usual and that they are working for a “new ABC & Associates” is helpful to shaking people out of their dysfunctional behavior patterns. Hard-working leaders who are willing to make sacrifices. The leaders must demonstrate at all levels that the pursuit of the turnaround is a worthwhile thing. Unfortunately, the translation of this demonstration requires long hours and more office face time for those who are probably the busiest people already in the firm. Acquisitions. This may seem contradictory to get into acquisitions when the house is in disarray, but often these extra cylinders bring badly needed revenue, talent, and positive attitudes to firms that may not be doing as well as they would like to be. Long-term successful approaches to acquisitions seem to often revolve around a strategy of doing small acquisitions first so the firm can learn from them. The goal of any transformation should be long-term, not short, if it is going to be successful. Artful firm leaders guide this incremental change much the way a personal trainer takes a middle-aged person who is flabby and out of shape and makes them into a picture of health. Originally published 11/03/2003

About Zweig Group

Zweig Group, a four-time Inc. 500/5000 honoree, is the premiere authority in AEC management consulting, the go-to source for industry research, and the leading provider of customized learning and training. Zweig Group specializes in four core consulting areas: Talent, Performance, Growth, and Transition, including innovative solutions in mergers and acquisitions, strategic planning, financial management, ownership transition, executive search, business development, valuation, and more. Zweig Group exists to help AEC firms succeed in a competitive marketplace. The firm has offices in Dallas and Fayetteville, Arkansas.