INTRODUCTION
The mere thought of a turnaround strategy is enough to strike fear in the heart of even the most experienced entrepreneur. “Turnaround Strategy” and “failure” is, to many minds, similar in meaning. Failure is a word that most entrepreneurs wish would not exist in their dictionaries. Yet, failure is inevitable and the wise entrepreneur understands that his or her business is in constant need of review against failure. In many senses, businesses cannot avoid turnaround interventions. The difference between turnaround strategies between two similar businesses can mostly be found in the time delay between the time a need for a turnaround was identified, and the time an actual turnaround intervention takes place.
This paper is the first in a series about turnaround strategies and its implications for SMME’s. Here, the concept of failure and goal setting will be discussed.
I. GOAL SETTING – A LOST ART FOR THE ENTREPRENEUR
It strikes the authors of this paper how often SMME’s are managed without a clear set of goals. In the majority of turnaround interventions we do, we often have to discuss the difference between tangible goals and results based on some hope. One often hears statements that sound like goals that the organization wants to achieve. As an example:
v “As soon as we have that big contract, our cash flow will correct itself”;
v “As soon as our products are more attractive, we will be able to capture the market”.
v “Once we are able to sell our goods to the ACME Company, things will look much better”;
v “We hope profits will increase by 10% this year”;
v “We plan to cut unnecessary spending by 15% this year”
A goal can be defined as “the object of a person’s ambition or effort; an aim or desired result” – Oxford Dictionary. Since this article is about turnaround strategies, and since turnaround strategies form part of a greater discipline of Strategic Management. Within Strategic Management, in which turnaround strategies is a sub-discipline, the words “Strategic Goals” are often encountered.
Rossouw et al (2007: 83) described strategic goals as follow:
“...strategic goals are used to give substance to the vision and mission. They provide measurable end-results that the organization can use to evaluate its performance. They are the means the organization can use to evaluate whether the vision and the mission of the organization have been realised”
Thompson et al (2005: 18) speak about the setting of objectives, and make it clear that such objectives could be short-term or long-term in nature (Thompson et al 2005: 28). Last, many associated goals or strategic objectives with pure financial goals. Such a view is extremely myopic because there are a whole set of goals that exist in support of the organization’s financial goals.
Rossouw et al (2007: 84 – 86) identify a range of strategic goals:
v Profitability goals;
v Productivity goals;
v Goals to improve the organization’s competitive position;
v Goals to develop employees;
v Goals to improve employee relations;
v Goals to achieve technological leadership; and
v Goals associated with public responsibility (greening, social investment, etc.).
On the other hand, Nieman et al (2009: 310 – 311) simply the issue of strategic goals by three main groupings that typically apply to the entrepreneur:
v Personal goals, such as income that the entrepreneur would like to generate for himself/herself;
v Financial goals to make the enterprise more profitable; and
v Strategic goals that have to do with:
Ø Identifying and exploiting opportunities;
Ø Identifying and neutralising threats;
Ø Identifying and building strengths; and
All goals or strategic objectives are future-oriented, thus a significant of uncertainty surrounds all objectives set by the SMME. But the mere statement of a goal does not mean that such goal(s) would ever be achieved by the SMME. At the very least goals need to meet a set of criteria before it could function as goals (Rossouw et al 2007: 87 to 88):
v First, goals refer to some degree of measurability. The so-called Whitman Rule of “if it cannot be measured, it cannot be managed” holds true for the goals that the SMME wants to achieve the goals it sets for itself. As an example a goal stating simply “find more customers” means nothing, whereas a goal such as “find 20 new customer in three months” obviously become more measurable that the former;
v Second, goals need to be acceptable by employer and employee alike. In addition, goals need to be acceptable to those within the organization as well as those outside the organization. The latter group represents customers, investors, social stakeholders, other enterprises or people that take some interest in the organization. An organization that does not seem to have clearly focused goals may be regarded as stochastic or indifferent. Such view could negatively influence the organization’s profitability because it may not attract sales or suppliers may deem the organization a risk and cut relationships with it.
v Third, goals cannot be “cast in stone” but should remain flexible to adjust along with the situations in which the organization finds itself. SMME’s (and some large corporations) remain remarkably fixated on existing goals, whilst others announce new sets of goals as often as a Hollywood movie star announces another spouse. Rigorous adherence to a goal despite an obvious change in situation that make the goal unachievable, borders on corporate stupidity. As and example, to defend a goal of a 35% profit increase during an economic downturn may not be appropriate. Such single-mindedness does not translate into the organization being decisive and goal oriented. On the other hand, new goals announced often whilst the previous goals are discarded could be similar to the proverbial desperate cat making desperate moves.
v Fourth, goals that are not motivating the organization actually doom the organization. Many organizations set goals that are simply too high to achieve. They falsely believe in the concept of “stretch targets”, not understanding that even a stretched target is still achievable. An organization that decides to increase profits by 39% despite evidence that their average growth over the last ten years were only 10% is asking for trouble. Consider, on the other hand, big organizations that have a policy stating that growth would never be double-digit growth. Instead, the aim would be to achieve and sustain single digit growth for a very long time. In the case of the former, achieving 38.99% could be seen a failure. Indeed, some organizations loose billions when investors panic because such aggressive targets have been missed by a fraction. Additionally, a bandwagon effect spreads news about missing a target by .01% and the same bandwagon effect then declares that an organization is bankrupt, that the economy is ruined, etc. Goals, therefore, that promote consistent growth and not erratic growth seem to be the Golden Path that organizations should choose. Such goals are achievable and sustainable, whilst erratic achievement of goals could be compared to giving one’s last penny to a whimsical slot machine.
v Fifth, goals should be suitable to the organization. In other words, goals must be there to help the organization’s core functions grow. As an example, a manufacturer may have a goal to achieve zero defects, whereas a services organization may have a goal to achieve total customer satisfaction[2].
v Sixth, understandable goals are better achieved than goals that are hard to understand. Too often, goals are written and spoken about in HMS (High Management Speak) that cause confusion and misunderstanding in the minds of the underlings that are told about the organization’s goals. Clearly stated goals in simple, everyday language have a greater chance of success than those goals written or communicated in HMS. A wise consultant known to the authors often says “If you cannot explain an apple to the Martians, then you are not good at explaining anything”. Consider “we are focused to strengthen our core within the next five years[3]” in contrast to “within five years, we have to do things better than we do now”. Simply put, the greater the ox that stands on the organizational tongue[4], the greater the misunderstanding of organizational goals, thus leading to failure of the organization.
II. FAILURE IS AN OPTION
“Failure is not an option” Gene Kranz, NASA Flight Director.
The Oxford Dictionary defines failure as “1 lack of success; 2 the neglect or omission of expected or required action; 3 the action or state of not functioning”.
Failure is not a word that any organization wants to utter. It seems to be completely defeatist to use this word, and any organization does its very best to avoid the word at all cost. Even after the failure of Operation Market Garden during the Second World War, General Montgomery asserted a 90% success instead of admitting failure (Ryan 1974: 532). The same sentiments were observed in famous and not so famous corporate bankruptcies such as[5]:
v Enron;
v WorldCom;
v Delta Airlines;
v Delphi;
v Lehman Brothers;
Many of these organizations kept on denying that they are in trouble until it was far too late to do anything about turning them around. It is understandable that organizations would deny that they are in trouble because the last thing they want to do is to create panic amongst investors and customers alike. But when investors and customers sense that there is trouble, a chain reaction starts – normally in the form of a hasty rush to withdraw monies that were invested or a panicked stampede to rescue assets entrusted to the dying organization.
All of these companies waited until it was too late to turn around. As an example, Conseco Finance hoped until the last three weeks before the bankruptcy was announced that they could turn the corner by investing in aggressive Six Sigma engagements.
No organization deserves to fail. Recognising the signs that lead to failure and doing something about those signs is a compelling an imperative fiduciary duty that any business organization must take up. Although the failed SMME may never reach the headlines in the same sensational way than do the large corporates that failed, the effect is exactly the same.
Failure destroys the livelihood of people who may have nowhere else to go.
III. STRATEGIC MANAGEMENT AND THE SMME
The authors of this paper often encounter SMME’s who firmly believe that strategic management is the exclusive domain of the very large corporations. Next, they hold, there is simply not time to worry about strategic management because SMME’s are far too busy to focus on sales, cash flow and administrative aspects of the organization. This view cannot be further from the truth.
Developing a strategy is all about planning for the future. A number of important questions need answers:
v Where did the organization come from?
v Where is the organization today?
v Where does the organization want to be at some point in the future?
v How will the organization get there?
Strategic management is about the process to take an organization from a point in the present to a better position at some future date. It requires careful planning, organization, implementation and monitoring to measure the rate of progress towards that future position.
Unwittingly, entrepreneurs have been confronted with Strategic Management the day they decided to start a business. Those very first ideas that the entrepreneur uttered echo the four questions that are listed in an earlier paragraph. Quick is the lesson to learn that the business plan is not only a document that is being put together to obtain finance. It is actually a complete blueprint of where the entrepreneur wants to go with his/her fledging organization.
In truth, the concept of Strategic Management is foremost in the mind of the entrepreneur. Every time a question is asked about where to get cash to pay for a consignment of goods, the entrepreneur is busy with some form of strategic management. Every time the entrepreneur utters “I wish I had more sales”, Strategic Management coquettishly reminds the entrepreneur that he or she is making a plan about the future.
Therefore, Strategic Management is extremely relevant to the entrepreneur. Those who respond to its faint echo find prosperity but those who decide that more noise is not needed, are forced to turn around and face the potential for failure head on.
[1] Astute readers will immediately recognise the hackneyed “SWOT analysis” that are so often do and so frequently misunderstood or hardly ever used.
[2] More about the myth of total customer satisfaction in a later paper.
[3] Found in a strategic planning document of an organization that no longer exists.
[4] Apology to Aeschylus in Watson 2003: v)
[6] The authors experienced personal losses with this bankruptcy. The story of Conseco and its subsidiary, Conseco Finance, is an excellent case study on how to drive a company into the ground without realising it in time.
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