Business Psychology - Latest Findings

Article No. 106
Business Practice Findings, by James Larsen, Ph.D.

How to Stop the Bleeding

Researchers study business turnarounds and reveal the secrets of the executives in charge.

In our worst business nightmares, everything goes wrong. All our decisions are bad, every turn in our fortunes is downward, and loses in one month seem modest compared to following months. This is when business failure looms its ugly head, and executives get desperate, willing to try anything. And it is in response to this need that a new management specialty has arisen, the turnaround change agent. These executives save failing companies, coming in like Superman to effect a rapid rescue, and then moving on to other struggling companies. They have a body of literature to guide them and a professional association to represent them, the Turnaround Management Association.

This management specialty was the object of a study led by Achilles Armenakis, of Auburn University, who pursued a very simple idea: turnaround executives have learned something about introducing painful changes the rest of us would profit by knowing. One hundred and forty-five of these specialized executives agreed to answer Armenakis´┐Ż questions and share their insights. Here's what they learned.

A successful turnaround follows 4 steps: It begins when an awareness develops among employees that something is very wrong. This leads to a recognition that a change is coming. These 2 steps create a readiness for the third step when changes are actually made. The final step finds painful changes being accepted as permanent. It's a curing process that prevents a regression to old ways when conditions improve. Each step begins with a trigger, an action of the executive that signals a new, unfamiliar period ahead; and these triggers were a special focus of Armenakis´┐Ż study.

Change alarms people, and when conditions are seriously wrong, they know their jobs may be lost. Their families' welfare is threatened, and they're afraid. Failing companies are also vulnerable, and it is only through the extraordinary effort, sacrifice, and loyalty of employees that a turnaround can occur.

The leadership challenge to make needed changes while simultaneously stimulating people to great effort, is daunting, making leading in good times pale in comparison. But it is the only way changes have a chance to work. What's needed is emotional communication, talking to people's hearts, and Armenakis and his team learned how these executives do it.

Nearly all use a metaphor as a theme in explaining what's wrong and what must be done. Half use a medical metaphor, characterizing their companies as bleeding patients and themselves as physicians, while exhorting everyone to help stop the bleeding. A quarter use an athletic team metaphor, and the rest use either a ship at sea or a military metaphor.

Nearly all executives also take actions high in symbolic value. For example, 76% eliminate perks for themselves and other managers, thereby immediately improving the balance sheet while alerting people that sacrifices will be expected from everyone. Most also give special attention to individuals and departments in order to recognize achieving important goals, to encourage reluctant people to join in the change effort, and to help them accept changes as permanent. For example, an executive may reward beating a deadline to signal a shift toward nimbleness to replace a methodic, deliberate pace that dogged them in the past. Other popular symbols include recognizing turnaround survivors as the "chosen few," and remodeling highly visible parts of the building. Firing a key manager as a sacrificial lamb was frequently used by a small number of these executives; but overall, it was not a popular choice.

Like any powerful tool, we should have a sobering respect for the power of metaphors and symbols to affect people and move them to action. Consider, for example, the impact of the American flag when veterans recall the sacrifice, suffering, and freedoms won in past conflicts; or religious symbols like the Cross or the Star of David. It is appropriate to use emotional symbols when they are needed, but it's a mistake to use them when conditions don't warrant their use. Doing so can spoil their impact when you really need them.

Reference: Armenakis, Achilles, William Fredenberger, Linda Cherones, Hubert Field, William Giles, and William Holey (1995). Symbolic Actions Used By Business Turnaround Change Agents. Best Papers Proceedings, Fifty-fifth annual meeting of the Academy of Management, Vancouver, British Columbia, Canada, August 6-9, 1995, 229-233.

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