Decline has been named. The instinct is to act immediately and visibly, and the direction that instinct points is usually the third stage of a four-stage sequence.
The order matters because each stage produces something the next one requires. Taken out of sequence, the same actions that would have worked destroy the organization’s ability to recover.
One. Stabilise
Buy time. Nothing else is possible without it, and the amount required is usually more than people estimate.
This means cash and it means confidence. On cash: understand the actual position weekly rather than monthly, stop discretionary outflow, and talk to the bank, the funder, or the major creditor before you have to. Every one of those parties has instruments available early and almost none late, which is the argument made throughout this Library for early disclosure.
On confidence: the people whose departure would end the recovery need to hear from you directly, and soon. Not reassurance, which they will not believe and which will prove false. An honest account, and a specific statement of what you want from them and for how long.
Stabilisation is not improvement and should not be described as it. It is the purchase of a period in which the real work can be done.
Two. Diagnose
The stage that gets skipped, and skipping it is what produces the cuts that make things worse.
The question is narrow: which activities produce the organization’s actual value, and which consume without producing? That is frequently not obvious, and the intuitive answer is frequently wrong, because the visible cost centres are not necessarily the unproductive ones.
Two errors are common. Cutting what is measurable rather than what is unproductive, because the measurable things present themselves. And accepting the internal account of why things are difficult, which is available from everybody and is shaped by what each person needs to be true.
Diagnosis takes weeks rather than months and it is worth the weeks. A leader under pressure to act will experience this period as dangerous inaction, and it is the highest-value time available in the whole sequence.
Three. Cut
Once, deeply enough, and with the reasoning stated. The next entry deals with this at length because it is where most turnarounds are lost.
The essential point here is sequential: cutting before diagnosis means cutting on intuition, and intuition under financial pressure reliably removes the things whose value is not currently visible. Which is to say the future.
Four. Rebuild
The stage organizations never reach, because the sequence stalls at three and stays there.
Cutting alone produces a smaller version of a declining organization. Something has to be invested in, and the investment has to be visible, because an organization that has only experienced subtraction concludes that subtraction is the strategy and behaves accordingly.
The rebuild is usually modest and should be specific: one capability restored, one thing hired for, one deferred item finally addressed. Its function is partly operational and substantially demonstrative — it is the evidence that the organization is being repaired rather than merely reduced.
What each inversion costs
Cutting before stabilising produces cuts that do not save enough, followed by a second round. Two rounds are considerably worse than one of the same total size, because the second establishes that there will be a third and everybody capable of leaving starts looking.
Cutting before diagnosing removes capacity the recovery needs. The training budget, the maintenance, the person whose contribution is indirect. All highly cuttable and all frequently load-bearing.
Rebuilding before cutting is the version that ends organizations. Investing in growth while the underlying loss continues consumes the remaining reserves, and the reserves were the only thing that made the turnaround possible.
The honest timeline
Stabilisation in weeks. Diagnosis in weeks. Cutting in one action. Rebuilding across years.
Which means the visible dramatic part is a small fraction of the work, and the part that determines the outcome extends well past the point where the board has stopped asking about it and a new leader has been credited with the recovery.
State that timeline at the start. A board told the recovery is a two-year matter will judge month eight against a two-year expectation. One that was allowed to expect a rapid return will conclude at month eight that the turnaround has failed, and will act on that conclusion.
Whether it is recoverable
Not everything is, and the sequence assumes a judgment that should be made explicitly rather than by default.
Recovery requires three things: enough time to act, meaning cash or forbearance; a core activity that still works and that somebody wants; and enough capable people remaining to do the rebuilding. Where all three exist, the sequence applies.
Where one is genuinely absent, the honest work is different, and it is covered in the final entries of this subchapter. Attempting a turnaround without the conditions for one consumes the remaining resources and leaves less for whatever comes next, including for the people who depend on the organization.
Edited by Patrick J. Wolf, PhD