The Playbook for Turning Around a Dysfunctional Company

The Playbook for Turning Around a Dysfunctional Company

https://twitter.com/yishan/status/1593515620942815232

🪄Smart summary:

The thread describes the steps necessary to take over a dysfunctional company and turn it around. This includes replacing the CEO and senior executives, as well as the HR department. It is important to do this quickly and comprehensively. The author also advises against immediately terminating other employees, as they may have valuable insights into the company.

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If I had to bet on whether Elon will pull through and Twitter ultimately succeeds, I’d probably still bet on the success case. Social networks are surprisingly durable.

Still, there is a KNOWN playbook for how to take over a dysfunctional company and quickly turn it around.

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Plenty of hedge funds know how to do this, but it was probably most famously put into practice when Carlos Ghosn took over Nissan in 1999, executing the “Nissan Revival Plan” and returning the company to profitability within a year and reducing its debt by 50% within 3 years.

(Ghosn was so incredibly successful at this that his influence grew to encompass MULTIPLE car companies, which freaked out the Japanese, who then conspired in 2018 to have him arrested and accused of accounting irregularities...

… culminating in a dramatic escape from Japanese house arrest assisted by an ex-special-forces soldier, but that’s a story for another time)

I spent the early part of my career reading biographies and corporate turnaround stories for fun, so I’m familiar with the process. That’s what I’ll describe in this thread.

Beware, it is pretty cold-blooded, but you are taking a company that’s dying a slow death and performing a radical intervention, so extreme measures are necessary no matter what.

First, there IS a degree of immediate decapitation required.

There are two sets of people you replace right away on Day 1:

1) All of the senior execs reporting to the CEO who are known to have had a long working relationship with him, e.g. more than 1-2 years.

2) The HR department

I’ll explain both.

The first one is pretty obvious: You need to ensure loyalty. No matter how much one thinks that people can be swayed by the logic of a better plan or new future, you need deep loyalty to execute a complex and difficult plan.

Having your company taken over and your boss fired is an emotional event for even the best people, and senior staff who are (at best) conflicted or (at worst) subversive will slow you down. So you remove them immediately.

Don’t worry, people like that land on their feet. They are highly-paid execs. It’s not like closing down the factory and putting line workers who need to feed their families out on the street (which you may do later, and THAT sucks).

A couple senior-level execs might be ok to keep around if they are new, or known to be actively sympathetic to the new direction. Typically they will backchannel to you before the first day and let you know this.

Next, you need to replace almost everyone in the HR department.

Why? Because the HR department is the mechanism you employ to hire and fire, which you will need control over without having to doubt if they’re going to drag their feet or subvert you.

You need to have your new senior HR execs ready to go on the first day to take over the department, because they are the ones who process the terminations for the execs you are firing!

And, since you will be recruiting new execs to fill critical positions, you need an HR staff aligned with your recruiting priorities and culture. It’s unlikely the old one will fit that (because that’s how the company became what it was in the first place).

What you don’t do is immediately terminate swaths of other personnel, especially ones involved in key production or even support roles.

Here is why: in almost EVERY company, there is often a lot that’s known internally that’s not known externally.

In some companies, the public perception of how the company works may be totally at odds with how the company actually works. Sometimes this is even deliberate, or a fundamental consequence of the space the company operates in.

For example, during my time at Facebook, external perception was that FB cared not a whit for privacy and didn’t understand privacy concerns.

The reality was that inside the company, people understood privacy issues VERY deeply, and wrestled continuously with nearly-intractable privacy issues, trying to formulate product and policy solutions that would satisfy a very complex and contradictory universe of user needs.

In this case, it was a consequence of the space the company existed in, i.e. most people don’t really understand privacy. For more on this subtopic:

https://t.co/msrfbWEFs1

I encountered this situation again when I first took over at Reddit: upon going in, I had no clue whatsoever of the actual, real issues facing the company. I was stunned when I received my first “reading in” briefing from then-General Manager @hueypriest

External “data” about a company is often a mix of politically- and commercially-motivated opinions, deliberate PR (by the company and competitors), and pure hearsay and fabrications by stock traders. You can’t rely on it to form an accurate view of how a company works.

All you know going in are the financial results (e.g. the company isn’t making money), but you don’t know exactly why. So you don’t know who to keep and who to dump on Day 1.

The above groups MUST be immediately replaced only because they are necessary for you to act quickly and comprehensively.

So how you figure it out?

Well, it turns out that typically in a dysfunctional company, there are plenty of people who know what the company is doing wrong.

Sometimes a company isn’t performing because there’s a small cabal of powerful managers who are upholding certain decisions or policies, and they just need to be removed. You have to figure out if this is the case, or if it’s something else.

So you embark on a listening tour. You see new CEOs do this all the time. Schedule meetings with EVERY front-line team all over the company, and you just talk to them, and you ask them how the company can improve.

Front-line people are not politically-motivated actors. They’re just regular people doing their jobs, and collectively they have a pretty good view of things that’s untainted by ambition or politics.

You can meet with them as a team, with their line managers, but without any other senior/middle management present. You just listen. Bring along a couple of your own staff to help remember things, and then debrief and write down notes afterwards.

(Do NOT record the meeting. That sends the wrong message and will make people afraid)

This might take a few weeks. Your days are full of meetings. For a global multinational, it’s often a “100 day global listening tour.” You’ve seen this happen when a new CEO comes in. That’s what this is. Tell the teams that if they think of anything else to email you later too.

After you do this, you will have a very good “vector field” of where the problematic areas of the company are, which people or teams are jamming things up, and what the real challenges are that need to be surmounted.

While every team may be self-serving, there will be plenty of peer teams who make it clear whether another team is truly useless or counterproductive, or merely under-appreciated. In any case, now you have REAL intel from insiders.

If at this point there is some clearly problematic person, people, or org that needs to go, you can cut them. You are much more likely to have success in surgically targeting the cancer at this point.

Next, if there are people (like senior managers) you can’t get rid of but need to be upgraded or routed around, you do the following trick to subvert them:

You create new cross-functional teams comprised of line managers or teams underneath them, and charge them with identifying and implementing key improvements, and have them report their progress directly to you.

The “vector field” you’ve formed from your listening tour should help you shape exactly who and what departments you want to ask to contribute people to these new cross-functional teams.

Carlos Ghosn did this to great effect at Nissan, especially as Nissan had many senior executives and in Japan, seniority rules and strong traditions prevent you from just dumping useless senior executives.

The senior executives who can’t be removed aren’t very dynamic people (or they’d have led a turnaround already), so you can just stall them by doing business-as-usual process meetings and keeping them out of the way of the junior turnaround teams with rock-fetches and busywork.

Those teams, eager to prove themselves and seeing opportunities, will be motivated to work hard, so you give them the urgent timelines and hard deadlines.

Ghosn talks about how he did that here: https://t.co/eoqR7ZBLsW

Give these teams a deadline for executing a set of key improvements, then repeat. A lot can be done in a few months, and you can run this cycle multiple times a year and yield major improvements within a year’s time.

As they work, new leaders will emerge, and weak leaders will fall apart from the dynamism (some people get comfortable and when things get shaken up, they self-destruct). Now you have your new crop of internal leaders to promote.

One of the advantages of this process is that you don’t need to do things like explicitly “rewrite company culture.”

A lot of times when new management comes in, they have a culture clash with the existing company culture. This causes a lot of “organ rejection.”

By empowering the employees and line managers, you are saying to them, “Live up to the true values of this company, and make it great again!”

Most employees believe in the values of the company (or they wouldn’t be there), and the most motivated employees who take up the challenge usually do.

Of course, the truth is that it’s all about how the values are really interpreted and practiced, but that doesn’t really matter:

Motivated by the desire to do better, employees will re-interpret the values to serve the new better ways of doing things, and feel like they are upholding them, even strengthening them. They will feel like new management is MORE aligned with the “old” values.

Finally, once things are running really well and you’ve promoted a new set of internal leaders who are driving this ongoing transformation and the success is tangible, you can remove the remaining deadweight.

Now you know. Go forth, corporate raider.

And please only use this new knowledge I’ve given you for GOOD.

If you liked this thread, follow me for more spicy takes on the tech industry and REAL TALK about solving climate change like this article in TIME by Tom Crowther (@TWCrowther) about restoring forests and biodiversity!

https://t.co/pSAeJYvnou

Published by Save to Mem · 5:45 PM

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The Playbook for Turning Around a Dysfunctional Company