Why turnarounds are so hard
Yahoo's Marissa Mayer. / Paul Zimmerman/Getty Images/TechCrunch/AOL
(MoneyWatch) My house has a leak. Unfortunately, it's an intermittent problem. Sure, it leaks when it rains, but only sometimes. It could be wind related but we're really not sure. The worst part is it's taking forever to figure out exactly where it's coming from and therefore how to fix it.
If you ask any builder he'll tell you that leaks are really tricky business. That's because water can take all sorts of paths before it finally shows itself. Sometimes it never shows itself. You don't even know it's happening until you begin to notice the effects: Nasty stuff like mold and rot that can be unhealthy and structurally dangerous.
Corporate turnarounds are exactly like leaks. They're insidious and complex. Not only that -- even if you think you've managed to figure out what's going on, you've then got to determine the best course of action.
And guess what? Chances are you either guessed wrong about the problem or chose the wrong solution. Then you've got to go back to square one -- if there's still time, that is.
When it comes to turnarounds, iterations can be costly. Companies don't have unlimited cash, the competition has a way of not sitting still and customers don't just wait around twiddling their thumbs while you try to get to the bottom of a complicated corporate mess.
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And people wonder why so few chief executives have been successful turning companies around. That, to me, is just idiotic. It's hard, folks. Really, really hard. Don't believe me? Here's a list of companies and their CEOs, either current or former. See if you can guess what they all have in common:
- Jerry Yang, Carol Bartz and Scott Thompson, Yahoo
- Mike Zafirovski, Nortel
- Scott McNealy and Jonathan Schwartz, Sun
- Carly Fiorina and Leo Apotheker, HP
- Dan Hesse, Sprint
- Antonio Perez, Kodak
- Michael Dell, Dell
- Howard Stringer, Sony
- Julian Day, Radio Shack
- Michael McNamara, Flextronics
That's right, they're all failed turnarounds. I can probably name another 10 or 20 off the top of my head and those would just be the ones you're likely to have heard of. As for turnarounds that were actually successful, you've got Lou Gerstner at IBM, Mark Hurd at HP, Steve Jobs at Apple, Howard Schultz at Starbucks, and, well, that's about it.
No, I'm just kidding. There are more, but it's a much shorter list, that's for sure.
As for Marissa Mayer at Yahoo, Meg Whitman at HP, Thorsten Heins at BlackBerry maker RIM, Stephen Elop at Nokia, Hubert Joly at Best Buy and Kazuo Hirai at Sony, it's still too early to tell. But if I had to put money on it, I'd bet against every single one of them. That's right, I would.
Let me put this another way. Replicating success from one company to the next is like lightening striking twice in the same place. Past success is no guarantee of future results. It's true of chief executives and it's doubly true when a chief executive tries his hand at a turnaround.
That underscores just how tricky this stuff is. Calling whether a given CEO is right for a given company in a given situation is like playing Russian roulette, pulling the trigger, and waiting four or five years to see if you blew your head off or not.
The truth is that companies are complex entities with lots of moving parts like highly imperfect human beings we call executives, complex global markets, competitors that don't behave the way you'd like them to, and of course, luck. The entropy factor is huge. It's a control freak's nightmare.
That's why turnarounds are so hard. It isn't a science. It isn't even an art. In reality, it's a very tricky, unpredictable, low probability event. That's all there is to it.
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