Getting an operator's turnaround right (Detecon Executive Briefing)

Detecon Executive Briefing

Getting an operator’s turnaround right

Customers are reluctant to spend, infrastructure and service costs are rising, and new competition is putting more and more pressure on prices – these factors all contribute to the bleak situation managers are currently facing in their daily work. How to deal with these challenges is not always clear.

But it’s not all bad news. The current challenges also provide the opportunity to fundamentally revise outdated business practices. Our experience has shown time and time again that following five simple rules will increase the chances of a successful turnaround significantly.

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The nature of turnaround

Turnaround follows crisis. Crisis manifests itself in adverse trend and adverse behavioral signals. Adverse trend signals include declining margins, declining market share, rapidly increasing debt, a high employee turnover rate and - worst case - a liquidity shortage. Adverse behavioral signals are typically poor communication and low employee morale, often accompanied by severe interdepartmental or business unit fighting.

To master the crisis with a sustainable turnaround requires a clear understanding of at least four points right from the start of any turnaround activity:

1. Adverse trend and behavioral signals are only symptoms. A sustainable turnaround needs a full, transparent, and honest analysis of the true root causes of the crisis.

2. A crisis is not always or, as our experience shows, not even predominantly driven by external factors like the current global financial crisis. Instead the root causes for crisis situations are often internal in nature and range from an outdated go-to-market approach over a wrong assessment of the company’s own capabilities to deficiencies in operational management skills.

3. These shortcomings can only be mastered by a holistic turnaround approach with a medium to long term business development perspective. This doesn’t neglect the need for quick wins through cost cutting, but emphasizes the need for balancing mid term revenue stimulation with short term efficiency measures.

4. A crisis is almost always the opportunity to revitalize business and at best completely reinvent the business.

Turnaround strategies

A concerted business excellence strategy supporting the turnaround on both the revenue and the cost sides can ensure long-term success. It is crucial, however, not to waste scarce resources in a trial-and-error approach as you will probably only get one chance to get the turnaround right. An effective economic turnaround covers strategies including an audit and adaptation of the company’s service and product portfolio, tight control over economies of scale and an intense focus on the development of the right value propositions and market niches. Sustaining the business in these types of turnarounds is usually considered to be a difficult task and hence requires a leadership style of entrepreneurial drive and commitment.



Imperatives for successful turnaround management in telco industries

Considering today’s financial restrictions, in most turnaround settings a merger or an acquisition are not growth options. Organic growth and increasing operational efficiency are often the only alternatives open. In an ever-more competitive and cost-driven telecoms world business realignment and cost cutting measures will most likely become necessary. But simple across-the-line cost cutting alone cannot ensure an operator’s long-term success. Experience shows that – depending on the initial position – standalone cost cutting measures and incremental operational improvements affect the bottom line by only 5 to 15%. This is frequently not enough for the operator to escape an agonizing long-term decline. Industry best practice shows that only a bold move can produce real and lasting results.

Get the full picture!

In a turnaround situation it is essential to correctly assess the company’s medium and long-term threats and opportunities and the market’s lifecycle stage in order to arrive at the appropriate positioning for the company. The legal and regulatory framework must also be understood.

Think out of the box!

For the turnaround manager it is imperative that the true current value contribution of each of the company’s business elements is questioned and, consequently, the potential of transforming or reducing superfluous activities and/or processes is understood. Field experience shows that a good way to develop innovative “defend and attack” strategies is to act as a competitor and to attack one’s own operator by using all insight gained about it. This frees the mind from the psychologically confining “inside view” which is all too widespread in the corporate world. Once identified, potential threats can be classified according to impact and risk. It is vital to be creative in this phase. Once the turnaround scope is fully understood, it becomes possible to develop future-proof solutions.

Follow proven managerial rules and avoid common pitfalls!

Rule 1: Get rid of “sacred cows” which doom the turnaround, and acknowledge the company’s true strengths and weaknesses.

All too often operator transformation programs are driven by myths about the importance of “sacred cows” rather than by facts. Sometimes it’s painful and unpopular to raise daring questions about long-established business practices, e.g. the traditional stove pipe setup. But not raising them will diminish the chances of getting the turnaround right.

A recent example in a cut-throat South East Asian telecom market illustrates the challenge: Rather than stopping the expansion of its loss-making, but historically important voice telephony business, the company preferred to continue with the provision of additional capacity.



Its real strength, however, lies in its modern network infrastructure and its cable television licenses. By focusing on its traditional business rather than embracing new markets the company jeopardized its future. Only by refocusing on its areas of competitive advantage did the company manage to initiate a turnaround.

Rule 2: Avoid a turnaround cacophony. Focus on the long-term direction and orchestrate your journey.

A well-conceived vision has two major components: the core principles (which are permanent) and the envisioned future (what your operator wants to become). The vision serves as the centerpiece of the turnaround and as a foundation for the next steps, i.e. the development of top-level strategic alternatives and their evaluation in terms of long-term potential, complexity, ease of implementation, financial feasibility and risk.

An often-cited example of a successful turnaround is Spain’s Telefónica, which turned itself from a dull national incumbent into one of the world’s leading telecommunications operators by a consequently executed internationalization strategy.

Rule 3: Minimize resistance and secure commitment early. Communicate extensively!

Another reason for many disappointments in company turnarounds lies in extreme communication failures between the turnaround management and other stakeholders. Managers and employees often wrongly fear that the transformation will impact them negatively. Best practice shows that effective communication is based on repeating the turnaround’s goal like a mantra, communicating quick wins and major milestones as well as achieved objectives.

Rule 4: Don’t change horses in midstream – Stick to your decision.

Taking a directional decision is not easy. Once a decision has been made it is very important for the leadership to stick to it! Visible wavering of the leading team’s resolution will ultimately result in failure as the line organization will withdraw its support. The momentum needed for the turnaround effort will diminish and eventually disappear to make room for destructive fatalism or infighting.

A recent example of a North African operator impressively underlines the consequences of repeatedly calling off a necessary turnaround. Growing infighting between the various business units led to massive market share losses and to an EBITDA margin decrease of almost 12% in two years. The success of turnaround management here relies on the fact that its decisions are made tangible through the creation of a formal and visible turning point, and by communicating progress consistently to keep up momentum.

Rule 5: Institutionalize change and secure implementation stamina.

A further major stumbling block in many turnarounds is the premature victory cry. Management must keep its targets and key indicators firmly in view and must monitor their development in order to ensure progress is being made as planned. In this context of implementation, strict and comprehensive transformation monitoring ensures that all transformation activities are on track and are being delivered and implemented according to plan. Once the transformation has been completed successfully, it is time to communicate.



Recommendations for getting started

Experience shows that following the few rules outlined above can lead to the success of a telecom operator’s transformation effort. Although these rules are conceptually straight-forward, it is not always easy to stay on top of things in the complex and heavy pressure turnaround environment.

In addition it is essential

for the top management not only to set up a future-proof, comprehensive, and concerted business excellence strategy, but that they then entrust it to a professional and experienced team.

for turnaround executives to learn from the failures of other operators in order to avoid common pitfalls. This will spare them costly mistakes and will dramatically increase their chances of completing a positive turnaround.

that everyone is taken on board once a decision has been taken. It is vital to communi-cate extensively to ensure continued support for the transformation journey, and management should not be shy to communicate successes once these are certain.

The authors

Jochen Dinger [email protected]

Thomas Pittschieler [email protected]

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Getting an operator's turnaround right (Detecon Executive Briefing)