THE FOUNDATION FORUMWEDNESDAY 20TH SEPTEMBER 2017. WRITTEN UP WITH THE HELP OF SIMON CAULKIN
Turnarounds sound heroic from a distance…but reality is different. Lots of turnarounds don’t turn anything around. Succeeding at all isn’t easy. Then the ones that do get somewhere are painful, exhausting and fraught with uncertainty. Many are not that heroic. A business in trouble can be an opportunity for a financial magician to create the illusion of a return to health while performing a disappearing act on a large pile of money, followed smartly by themselves. BHS or Rover anyone? Then there’s a category of turnaround that’s even more tricky. These involve organisations that are deeply caredfor by a chunk of the nation. It means you’re in the public eye with a passionate following from the highly vocal and lowly business-aware. Support for the outcome is strong, support for the medicine is not, so every step gets a loud and challenging reception.
"At times we are all going to be faced with situations with similarities, so we thought we’d ask some people with direct experience of the pain and the gain in creating a turnaround that lasts to share what they’ve learned."
We heard about Jaguar Land Rover from Mike Wright, formerly Executive Director and centrally involved from the 2008 Tata takeover.
Mike has been part of the British Car Industry since 1975 so he’s seen some serious ups and downs, but nothing to match the JLR journey. Note the date – 2008 – and then remember the global financial meltdown that came almost immediately after Ford had completed the transaction. Within months the business came close to collapse. Senior managers’ salary payments were moved from the middle to the end of the most critical month, always a sign to be slightly afraid… Just three years later the Range Rover Evoque launch brought the opposite problem, with demand three times more than expected and a new kind of challenge in keeping up. The business has grown strongly, but it still faces a battle to survive with formidable German competitors operating at much larger scale.
"How does a sparky car company makes its way through the vast global automotive jungle without getting eaten or ill?"
Talking of which, we had animal survival in a more obvious guise with the challenge to conserve Gerald Durrell’s legacy, itself dedicated to conservation…
Oliver Johnson, CEO of his original organisation for an intense three years and faced with the potential demise of what is now a leading conservation charity with a zoo and sanctuary for animals that is close to the hearts of millions.
After an interesting career that took in the country’s leading wine retailer (mutually owned), a private equity backed turnaround and Mercedes cars, Oliver found himself called on to rescue an assortment of animals and their keepers on an island that guaranteed little passing trade, with accounts that were at best opaque and in need of untangling to see the true, unpalatable picture. If that wasn’t hard enough, he had the prospect of Gerald Durrell’s widow’s continued vague involvement, who one assumes might have a view on dramatic change. And outside the wildlife pressure mounts with serious conservation work to be done in protecting endangered species, the ultimate, sole purpose of the organisation. The stage was set…
Which brought us to another rather high profile stage, this time in a curiously circular building – The Roundhouse and Marcus Davey.
It is just over 50 years old as an arts venue and has been in and out of business several times over that period. Marcus became involved nearly 20 years ago, and the organisation is now enjoying its longest spell of solvency and success in that half century. It is the largest independent performance space in London, determined to bring artists with a distinctive contribution to make to audiences who will enjoy discovering and being simulated by them in ways that might otherwise not have happened. But even more importantly, the venue is just a front. The Roundhouse is in fact it’s a charity dedicated a transforming young people’s lives by introducing them to and coaching them through the creative arts. In the last 10 years 30,000 young people have been helped to progress, artistically and in life, by growing confidence and life-skills with access to world-class facilities, training, and opportunities. It has deep roots connecting it to its local and spiritual communities and is smartly run – well set up to be a turnaround that lasts…
So what’s the answer then? How to you turn around a basket case to go from sick to slick in a way that sticks? Thankfully we have Simon Caulkin summarising to inject a bit more class into our reflections, on what was a thoughtful and surprisingly emotive evening.
The discussion that followed, summed up by Simon Caulkin
Everyone likes a turnaround story. Like any genre, each turnaround is composed of stock elements and characters – a crisis, a new broom, who may turn out to be a hero or villain, a surprise, good or bad, and a satisfactorily transformative ending. But reality plays tricks with the stereotype. Success is neither assured nor definitive and in any case often sows the seeds of what will become the next turnaround (‘Success ruins everything,’ as one wag put it). The story plays out in public – sometimes with audience participation. Hence the subject’s rich elusiveness and the audience’s boundless appetite for more. All the turnaround’s uncertainties were on high-res display at the September Foundation Forum.
"Jaguar Land Rover’s seminal crisis was the result of a shock that came via Ford, its then owner, which began its own turnaround by putting its premium automotive brands, including JLR, on the block in 2006."
As in a slapstick comedy, no sooner had JLR been acquired to general surprise by the Indian Tata Motors – who? – than it was sent reeling by the financial meltdown of 2008: a double shock since it revealed just how different Tata was from JLR’s previous parent. On one hand it was as interested in stakeholders as it was in shareholders and took a long term view when it came to investment; but on the other it was instantly clear that when Tata promised empowerment, empowerment meant empowerment: as in, cash flow is your business not ours, no corporate Treasury function to lean on, and in terms of sales no sweetheart deals with Tata Steel or other Group companies... Deal with it. This was new and really quite uncomfortable for a senior team used to life in a Corporate. The other side of the empowerment coin was that the new JLR was free to act faster and more boldly than rivals. A case in point: the launch of the Land Rover Evoque in 2010, a bold expression of the company’s new intent and a calculated gamble. It paid off, and JLR was suddenly faced with a rather different problem: meeting demand running a long way ahead of expectations. Evoque helped crystallise JLR’s three-point focus on great products, ’with disproportionately higher investment in product and R&D than competitors’, putting customers first, and environmental innovation.
"With a stream of successful launches under both brands, JLR has been running full tilt ever since."
Reflecting on the story, Wright notes the crucial importance of vision from the top. ‘Everyone close to JLR will only credit one person with the vision and ultimate success, and that’s Ratan Tata,’ he insists. For Tata buying JLR was a piece of inspired opportunism, grounded in his conviction that the Group’s long-term orientated ownership could provide the framework in which the two iconic but chronically underperforming brands could finally fulfil their potential. Spool forward to the Frankfurt Auto Show this September, when Wright watched his ex-colleagues announce revenues up 9 per cent over 2016 to £24bn, profits of £1.5bn and retail sales up 16 per cent to 600,000 units – more than three times the level at the takeover. They also launched three new models, and have the stunning electric I-Pace SUV to come next year. Tata’s hunch was right; JLR has grabbed its destiny with both hands.
Jaguar’s symbol is a big cat, all lithe strength and dynamic movement. Jersey Zoo’s symbol is the dodo. The zoo is home to the Durrell Wildlife Conservation Trust, set up by naturalist and author Gerald Durrell in 1959, and the dodo is a dreadful reminder of why conservation is necessary, ie extinction is easily achieved. In fact the dodo was on the verge of becoming even more symbolic four years ago, when Oliver Johnson realised the first species he had to save was the listing Trust of which he had just become CEO. Johnson quickly discovered that while Durrell was doing terrific work in conservation, training and running a zoo, its vagueness about money could have come straight from a chapter in ‘My Family and Other Animals’, Gerald’s delightful account of his rackety upbringing in Corfu. When the finances were unravelled it transpired the zoo was heavily loss-making and could not be sustained on Jersey’s meagre tourist and resident numbers alone.
The sobering conclusion was that ‘we had about three years before we’d completely run out of cash... So it was really quite urgent’. One part of the turnaround was about focus. Since the mission was saving species (rather than running a zoo) Johnson reasoned that training offered the best bang for the buck because of the multiplier effect – ‘if we trained 50 people they would go off around the world and train others, and we’d achieve much more than we could on our own.’ If we could sell consultancy and set up training in the field in other parts of the world, then we’d be onto a business model that might have legs, if not fur. But Durrell also needed sustainable commercial income in Jersey to supplement the zoo gate and unpredictable donations. One immediate project was an out-of-town charity shop. Another, more original, was to set up a children’s nursery at the zoo, where Gerald’s widow Lee would read her husband’s stories and the children would interact with the animals. A generous subvention by the proposer and her husband funded building work, and the result was ‘a great and successful income developer’.
"A final poser was finding a way to exploit Durrell’s most valuable asset – a lot of land on a small well-off island."
Big developments were obviously out – but how about a few unobtrusive ecologically-friendly buildings, to show how it should be done? And accommodation for keepers and researchers on the zoo site, where they would pay rent to the Trust rather than to a private landlord? Better than Durrell and the zoo disappearing from the island, surely, went the argument to the local authorities? ‘That in a nutshell is what we did,’ says Johnson. The ‘interesting thing’, he notes, is doing them simultaneously rather than in sequence, for which there just wasn’t time. Speed, shortcuts and risks were of the essence, which not everyone was comfortable with. That put a premium on engagement and managing people. ‘I was completely transparent with everyone, including the media, local businesses and business-people, and politicians. You really benefit if you engage through being honest and you show them the problems, the plans, and the progress, and then you’re all in it together. That’s really what you’re aiming to do with that type of turnaround...It was choppy, it was difficult, but it was very enjoyable. We turned those million pound deficits into million pound surpluses. So now we’re gradually building up the reserves again’.
"The Roundhouse, the third Forum subject, is a compendium of turnarounds all on its own."
Built in 1846 as a railway engine maintenance shed, it lasted just eight years in its original incarnation and spent most of its existence FIRST as an agricultural store and THEN AS A bonded warehouse for a gin distiller before finding its role in the 1960s as a cultural centre through the unlikely agency of playwright Arnold Wesker and the TUC. That it stands at all is a miracle in itself, the building having fought off numerous threats of demolition as well as the close attentions of the men in blue as the theatre for a number of the 1960s counterculture’s more lurid happenings. When the underground and punk ran out of steam, a rundown Roundhouse closed and mostly faded from view in the 1980s (albeit with a brief renewal of notoriety for a week-long New Year’s Eve party when makeshift generators failed and power was ingeniously sourced from the nearby train lines).
The building’s latest and by far most durable turnaround, recounts CEO and Artistic Director Marcus Davey, began in 1996 with its purchase (for £6m) by a charity run by businessman Sir Torquil Norman. Norman – ‘an amazing man’ – proposed to use the venue not just as an arts centre but as a vehicle for transforming the lives of young people through the arts they had largely been excluded from at school. That required a massive fundraising exercise (rebuilding cost £30m). But an even bigger transformation, says Davey, ‘was deciding to have the young people, who are at the heart of our organisation, on the board of Trustees’, where they are involved in every important decision the organisation takes. The aim is nothing less than to change society by transforming the lives of young people who can be its motive force, with many of them ‘Neets’, those not in education, employment or training. Ninety per cent of those who work in the creative industries currently come from middle-class backgrounds, notes Davey. ‘We have a determination to change that’, he adds.
"The Roundhouse and its staff and board are the most diverse you could possibly find. We represent and include society every single day."
You can’t change society and remain immune to change yourself, however. No sooner had the rebuilt Roundhouse triumphantly reopened in 2006 than Davey realised that it was time for the organisation to transform itself all over again. Part of that was a shift at the very top. Norman, the Trust’s inspirational Founder-Chairman, felt that after 10 years developing the roundhouse that bit was time for him to stand down. He became President, making way for a new Chair to oversee the next stage.
"It was an emotional moment. But the payoff is that this ‘next stage’ has been the most financially sound and rewarding in the long and winding Roundhouse history."
It works triumphantly as both venue and venture, having made itself simultaneously the largest independent arts centre in London and Britain’s most important creative centre for young people. It has big ambitions for both in future, with young people partly running the show. Even the counterculture would approve. As for Davey, ‘I started in 1999 and I love it more today than I have loved it at any moment in all that time’. Prediction, as they say, is hard, especially about the future. But if passion and purpose, or perhaps passion for purpose, are critical ingredients for turnarounds that last, then these three organisations appear to have little to fear.
Leadership that can articulate a convincing destination is also critical (even as it switches from Jersey to Bath, as the conservation programmes and science arm of Durrell’s organisation did, among other changes on the road to recovery): JLR’s vision voiced by CEO Ralf Speth of ‘an intelligent organisation’ able to integrate long and short term and balance financial demands with underlying purpose is a case in point, but would go for all of them. Boldness always becomes necessary at some point, commensurate with the heat of the burning platform beneath; carrying it off requires honesty, openness and real (not fake) ‘we’re all in this together’ to trigger energy and adrenaline rather than numb fright. For this reason fear is not a good motivator. Smart change, going with rather than against the flow, has to underpin it all. ‘Everything must change,’ as Don Fabrizio puts it in Lampedusa’s masterpiece The Leopard, ‘so that everything can stay the same’.
So we did we make of it all? For us, at the end of the evening, three points had emerged that hadn’t been obvious when we walked in, and Simon has them woven into his notes.
The Foundation's view
The ‘burningness’ that comes with the turnaround territory is painful but creates the potential for a decisive break from the past.
It is often more obvious with hindsight, but the fraught nature of a crisis mustn’t be wasted, as Mike Wright put it. When the situation is dire, then the usually safe, inwardlooking options are clearly not going to be the answer. They won’t be enough. It means that bravery and bold steps into the unknown become the only possible routes to salvation. Not guaranteed, but with odds worth taking when failure looms. It means the usual debate over the business case gets short-circuited and the people involved are freed up to use their imagination to change the usual rules – a concept car gets rapidly taken to market (the Range Rover Evoque), planning permission is granted on the periphery of a Jersey zoo, donors back a vision for a commercially challenging young people’s charity
with an uncertain track record.
The conditions for success come from owners (or similar) creating freedom and confidence not seeking control.
The burning situation could be paralysing without an accompanying umbrella of freedom and support. At The Roundhouse, Sir Torquil Norman brought inspiration and investment that gave space to others who could develop the detailed plans and the gumption to make them real. At Jaguar Land Rover, Tata was a complete change from Ford, the previous owner. Where Ford was a corporation that handled large parts of the business – including managing cashflow, administering training, developing significant aspects of technology – Tata was truly empowering, and not just on the nice bits. When cash was in danger of running out, the JLR team needed to find the solution, not Tata, and neither were other Group companies going to be encouraged to buy JLR’s products if they didn’t genuinely want to. On the flipside, the team realised they could move much faster than their more established competition and made decisions they believed in, with real responsibility because they could see the downside too. It has proved transformational. Despite constraints, the firm has produced an amazing flow of innovative and desirable products, set up its own facilities producing engines in Wolverhampton and cars in China, Brazil and, soon, Slovakia, and has production numbers approaching 1m cars a year from just 200,000 before the deal.
For a turnaround to last, you need deep roots, and that comes from people with the inspiration and purpose to really come together.
Oliver described what happened as the people involved in the zoo and the conservation charity started to grow belief in where they were going. Ultimately they exist to save the world’s most endangered species – the zoo and the charity are means to that end, and that’s an end worth fighting for. Feeling you are part of a team that’s serious about it, throwing off what wasn’t right and making more and more determined progress in a direction that works, helped everyone involved. Their energy, commitment, mutual support and creativity all grew to go the extra mile and the whole nine yards. The Roundhouse has a similar sense of momentum, and Tata, interestingly, is ultimately set up to serve a charitable foundation not the stock market.
So there are ingredients of success. They don’t guarantee anything. But if you’re up a foul-smelling creek and you’re short on paddles, they’re not a bad place to start…
About the Foundation
The Foundation is a management consultancy specialising in growth. We help clients address big organic growth challenges; growing faster, growing into new markets or fending off threats to growth
What these challenges share is the need to influence customer behaviour, but this is inherently tough. Why? Because people in any organisation naturally see the world from the inside-out, with colleagues close and customers distant, and lots of assumptions about how things work that aren’t challenged
We help clients look from the outside-in, re-connecting them with what customers really value (the problem they want to solve, not usually what the client sells), then finding new and better ways to create this value
This means working both as expert advisors and facilitators. The issue with simply gathering outside-in information is that it lacks impact to get senior teams to tackle inconvenient truths in what customers want, and to believe their own organisation can be different
By using ‘Immersion’, personal conversations with customers and leaders of organisations in other sectors who have tackled parts of their challenge, we help teams get round beliefs that stand in their way. This helps them develop better answers for customers and new ways of achieving lasting success
We most often answer three questions:
Developing new propositions
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Our clients include HSBC, JLR, O2, M&S and Ebay, with achievements including helping create Plan A at M&S, adding £100m of value to a Travelex travel money proposition, and giving Morrisons a competitive direction contributing to their return to growth.
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