July 25, 2017
When underperforming and distressed companies require the intervention of turnaround executives, they often need to develop and implement a new strategic plan. At the most fundamental level, the plan’s success depends on changing employee behaviors. Attaining employee adoption of a plan is commonly referred to as “buy-in.”
Obtaining and maintaining buy-in throughout the turnaround process is just as important as any fundamental change in process, strategy, or product development. Regardless of how well-designed the plan is, if the buy-in is not secured from the onset, executives will waste precious time, energy, and resources convincing employees of the merits of the plan and encouraging them to comply.
Furthermore, turnaround advisors cannot anticipate every decision or process change that employees will face in the execution of the plan. Therefore, employees must understand and believe in the plan to execute their part and help meet the plan’s objectives.
One example of a positive outcome involved a large manufacturing company with low liquidity levels that developed a plan to improve working capital. The tactical implementation involved (1) launching a campaign to collect receivables faster and (2) approaching vendors for extended terms. Leadership explained to employees that the company could run out of cash if working capital did not improve and involved employees in the process of how to improve liquidity.
During the execution period, an employee made a surprising discovery—the company was making disbursements to its largest supplier three days before the invoice due date. Because this employee bought into the plan and had a firm understanding of her role within it, she was able to seize on an opportunity that was not detailed in the tactical plan by adjusting the payment schedule to that supplier. Her efforts with that action alone allowed the team to achieve 25 percent of the goal it had set for itself.
It is human nature to resist change. Employees may not trust or believe in a new way of doing things. Or, they may feel threatened or insecure if they lack the necessary skills to perform what is being asked of them. However, the most common reason that employees do not buy into a new way of doing things is that they simply are not convinced that they need to change.
With some luck, employees will be excited that change is coming. Hopefully, they’ll view the turnaround process as a sign of future job security and increased competitive advantage. But that does not mean that leadership can launch a new plan and expect employees to immediately jump on board. Buy-in is a process.
When developing the top-down execution of a plan, five key steps must be followed to design a plan that will motivate employees to embrace change.
1. Create the Need to Change
The need for change can be obvious in turnaround situations—change or face liquidation. However, it is not always so black and white for many individuals at distressed companies. Typically, employees outside the C-suite are oblivious to the financial condition of the company (assuming the company is private).
For example, the sales department at a consumer packaged goods company was caught off guard when management introduced them to a turnaround professional. The sudden news was grim: the company was losing money and needed to sell its products at higher prices to survive. From the sales team’s perspective, the company was healthy—sales were up and had a positive gross margin of 12 percent. However, what they did not know was that in their attempt to gain market share, they were discounting their products to a level where the company’s gross profit was insufficient to cover overhead expenses and debt service. By sharing this information, the turnaround professional effectively “created the need to change.”
Leadership can communicate this message by either attempting to instill fear or hope in employees. For example, management could emphasize fear by warning the sales team in the example that taking action will prevent something bad from happening (e.g., “If you don’t start selling products at higher prices, you are all going to lose your jobs.”) The management team could also attempt to impart hope by emphasizing that taking action will cause something good to happen (e.g., Selling at higher prices will give the company a chance to regain its footing and provide future opportunities to its employees.)
Each of these methods is warranted in different circumstances and for different individuals. However, both must be delivered honestly and candidly because securing employees’ trust is critical for securing their buy-in.
2. Involve the Workforce in the Planning Process
In his landmark book How to Win Friends and Influence People, Dale Carnegie asserted that the deepest urge in human nature is “the desire to be important.” An employee inherently wants to feel valued and respected. If he does, he is much more likely to work harder to produce better results.
A seemingly obvious way to show employees that they are valued partners during the planning process is to simply listen to them. Their opinions should be sought when decisions are being made that will impact their team or department. To be clear, this does not mean reviewing the plan with employees after it has already been completed, which would be asking for acceptance, not earning their buy-in. Rather, employees should be engaged before, during, and after the planning process.
Examples of questions that demonstrate that the leadership values employee buy-in and respects their opinions include:
- We need to get costs down (or revenue up). Do you have any suggestions on how we may do that?
- I looked into what you said, and the facts suggest something else. Are we missing anything?
- I also saw that this particular area could be an opportunity. What are your thoughts?
- If we implemented this strategy, how would we measure performance?
- What would be a good motivator if we wanted this result?
Outside professionals, wanting to prove their value and justify their billing rates, may be hesitant to involve employees too much. After all, outside professionals typically see their role as needing to come up with the “answers.” Advisors and interim executives are expected to produce results — regardless of who generates the ideas. As Ronald Reagan used to remind his team, “There is no limit to what a man can do or where he can go if he doesn’t mind who gets the credit.”
There are several benefits of increasing employee engagement in the planning process that have particularly helpful consequences for turnaround professionals:
- Ownership. Employees feel like owners in the process and take on greater responsibility in making positive changes at the company.
- Elimination of excuses. When results are unfavorable, employees do not disclaim ownership of results because they were involved in each step of the way.
- Better decision making. Employees understand the plan more clearly and can make better decisions in their daily work.
- More time. Management is freed up to focus on other value-generating strategies.
Increased employee morale. With employees aligned with the same goal, there is a sense of togetherness and optimism.
After the need for change has been communicated and employees have been involved in the planning process, leadership must reflect on two questions before implementing the plan:
- Does every individual/ department know what is expected of them?
- Can their performance be measured?
The answer to both questions must be "yes" before beginning to execute the plan.
3. Track Performance, Plan Adoption
Earning employee buy-in is only half the battle. Leadership must maintain adherence or risk losing buy-in midway through implementation. The costly process of regaining employee engagement diverts time, energy, and resources away from execution, but can be largely avoided by tracking performance and taking corrective actions as necessary.
Tracking performance and results helps to maintain the momentum generated in the development of the plan. Employees can measure how their actions contribute to the overall goals of the company. To effectively measure performance, operating metrics established at the department/ individual level must be directly linked to the desired results of the overall plan.
For example, an airline company has a plan to increase profitability. Part of the plan requires reducing idle fuel costs by speeding up repair times on airplanes with maintenance issues. The maintenance technicians are the key group that will need to change their behavior for the plan to be successful.
What would be an effective method of tracking their performance? Sharing the company’s consolidated income statement with the technicians—or even the maintenance department’s income statement—would do little to inform them if they are meeting plan goals. Rather, showing them operating metrics of repair times against standards that are tied to the plan would be more effective. From that perspective, they can make any corrective actions necessary to hit and/or exceed the plan.
When analyzing a department and/ or individual’s performance, the following two questions should be asked: (1) Are results consistent with the plan that was agreed upon? and (2) Are results favorable or unfavorable? The answer to these questions will dictate the suitable course of action.
The metrics selected must be almost entirely controllable by the people being measured. For instance, a large metals company measured its plant performance based on plant operating income. However, it did not adjust operating income for commodity price fluctuations. Thus, operators were often rewarded or penalized for things outside of their control, which both demoralized management (inhibiting buy-in) and distracted them from more important tasks.
4. Reward, Recognize Outperformance
Adam Smith was perhaps the first person to document what is now business gospel: people respond to incentives. From commission-based salespeople to garment workers paid by the piece, turnaround leaders see this in practice every day. Thus, it’s no surprise that the same principle applies to employees of a distressed business. Giving employees incentives to adopt a transformation plan is thus critical to the plan’s success. A meta-analysis of incentive programs found that well-designed incentive programs increase performance by an average of 22 percent.1 Therefore, leaders must be thoughtful in the design of incentive plans and deliberate in their execution.
Three critical elements set apart well-designed incentive plans from the rank and file. First, they are tied to key performance indicators (KPIs) that are measurable, directly correlated with the desired behavior, and are under the control of the target group. These can be the same KPIs used to measure the turnaround as detailed earlier.
Second, they include both financial and non-financial components. While leaders typically focus first on dollars and cents, many employees find just as much if not more satisfaction in being recognized by their colleagues. In-person celebrations, calls from the CEO, and company-wide newsletters can all work wonders.
In one materials business, for example, turnaround leadership tasked a midlevel engineer with leading an important element of an operational improvement initiative. Under the engineer’s direction, the project was completed ahead of schedule to significantly more financial benefit than expected. Division leadership celebrated the engineer and lauded his accomplishment in front of several dozen colleagues and invited his wife and children to attend. Stories of this celebration spread throughout the division, which quickly became the best-performing in the company.
Finally, well-designed incentive plans target a broad swath of the company, not just a handful of senior executives. By going down multiple levels into the organization, incentive plans motivate employees who might not otherwise fully grasp (or be motivated by) the dire situation their company faces.
5. Remove Resistance
Individuals react differently to change. Buy-in requires not just lip service, which is easy to provide, but actual behavior change, which is harder. Thus, turnaround practitioners are likely to encounter resistance as they roll out the plan.
For example, an underperforming company developed a plan to increase gross margins by 5 percent. The entire organization participated in the planning process, and all departments/ individuals had clear goals and objectives. After a month, results showed that margins actually fell by 1 percent. After investigating the causes of underperformance, results showed that the sales department sold several large orders at very low margins, citing their need to keep sales volume up.
Does this example demonstrate that the sales department bought into the plan to increase margins? They may have nodded their heads in agreement throughout the planning process, but their actions did not demonstrate buy-in. So, how can leaders overcome resistance to turnaround plans? Considering the time-sensitive nature of turnaround management and the often serious implications of failure, decisive and swift action must be taken.
The first step in overcoming resistance is providing additional training and increased oversight. However, practitioners cannot afford to wait long. Ultimately, employees who refuse (or are unable) to buy in cannot be tolerated. Dissent can spread like cancer throughout an organization and destroy any chance of a successful turnaround.
Removing resistance speaks to the heart of Jim Collins’ theory of taking organizations from Good to Great. Leaders, he says, “start by getting the right people on the bus, the wrong people off the bus, and the right people in the right seats.” Collins’ words not only apply to good companies trying to leap to great, but also to underperforming and distressed companies striving to find success once more.
Positioning for Success
A turnaround team’s ability to successfully garner employee buy-in will make or break its chances of success. An aligned workforce is the greatest asset in implementing real change and realizing positive results. On the other hand, employees can also be a major hindrance to a plan’s success if they refuse or are unable to change.
Leaders must recognize the need to change employee behaviors while leveraging their knowledge, talents, and commitment. By communicating the need for change, involving employees in the planning process, tracking performance, rewarding those who go above and beyond, and removing resistance, leaders can secure buy-in from employees and best position the turnaround for success.
Author credits: Nick Campbell and Kyle Sturgeon, Managing Partners of MERU
Note: This article was originally published in the Turnaround Management Association's Journal for Corporate Renewal in the April 2017 issue.
1 Stololvich, Harold. “Incentives, Motivation and Workplace Performance: Research and Best Practices,” Incentive Research Foundation white paper, Accessed February 2017. theirf.org/research/incentives-motivation-and-workplace-performance-research-and-best-practices/