Focusing on strategies to drive out cost during a corporate tech turnaround may work in the short term, but if the strategy is growth a different approach is required, says Envitia CEO Nabil Lodey.

The subject of corporate tech turnarounds evokes thoughts of strategies to drive cost out of the business. This approach can work in the short term, to improve cash flow for small companies or appease senior leadership and shareholders for larger corporates, but it will be a blocker for growth.

Instead, a different approach is required if the aim is growth. The three critical areas for a tech turnaround are:

1. People
2. Culture
3. Business Value

People

As a former rower, I use a rowing boat analogy to categorise employees within the company when leading an organisation through change.

• Change Champions: 15-20% of the company will see change as a positive step and will welcome new initiatives to move the boat forward;
• Change Neutrals: 60-70% of the company will be neutral – waiting to see how the change impacts them. They don’t hinder the direction of travel and could provide stability;
• Change Resisters: 15-25% of the company will view new initiatives with scepticism and may even resist change and seek to destabilise the process. They will row in the opposite direction, and if this group is the same size or greater than the change champions the boat could move backwards. Even a small group of resisters will slow down any progress.

Each group requires a different approach:

• Change Champions: Be fully transparent and actively seek feedback/rigorous challenge to your plans so those who are bought into a programme of change see this as an opportunity to be part of a journey. Reward those that are willing to lead.
• Change Neutrals: Bit by bit, bring the neutrals on side by delivering on promises and measuring success so they can “touch and feel” the difference and how that improves their working environment and the company’s performance. However, it is important to understand that there will always be a group of individuals who will remain neutral, and that that’s OK.
• Change Resisters: Transparency is just as important for this group. Give them every opportunity to explain their position and try to understand why they resist change. Offer them a chance to become a change champion (noting that a Resister rarely just moves to the Neutral category). If not, then it’s in both party’s interests to go your separate ways and do this earlier rather than later so energy can be focussed more positively within the business. Then, hire new employees that reflect the ethos and culture of the business going forward – this is important as otherwise the rest of the company may think that there has been a cost-cutting initiative in play when the truth is completely the opposite. It’s about removing the inhibitors to growth whilst also an opportunity to bring in fresh skills and experience, particularly if you are trying to disrupt a sector.

 

Creating the culture for success

Having the right mentality and energy in a business is probably the single most important factor that will enable change.  Culture is important in creating the right environment to create success – and this is all to do with behaviour.  Culture defines everything we do but is different for every company and every leadership team, so there’s little point in defining what it should or should not be – it’s an exploratory journey. However, here are a few guidelines:

• What type of behaviours that currently exist would you want to be reflected in the identity of the company?
• What type of behaviours do you want to actively discourage?
• How do you want to be seen by the customer?
• How do you want your employees to talk about their company in a social setting?

You need to find an environment where everyone is comfortable and feels like they can contribute to the success of the business, but most importantly one that is genuine and a natural-fit.  Don’t try to be a Google or Facebook because that’s how you think all tech companies should be.  Learn from those companies and take from them what fits your business.

A key part of culture is communication. In a turnaround process, “over-communication” is required to ensure that sales and marketing are fully engaged with the product and delivery teams.  During difficult times it becomes very easy for sales to blame engineering for a bad product, or engineering to blame sales for failing to sell and excite the market. This has to be eradicated quickly and effectively so both departments work together to deliver cross-company initiatives and ensure a two-way dialogue.

“Don’t try to be a Google or Facebook because that’s how you think all tech companies should be.  Learn from those companies and take from them what fits your business.”

For a tech turnaround, there needs to be a sense of urgency to make change a reality. I often find that sales are the first to adopt the new sense of urgency but over time this will permeate throughout the business, which is critical to increase the chance of success. That’s why if a Change Resister can be turned into a Change Champion, they can become an accelerator with the ability to convert the Change Neutrals – for example: “if  this new way of working is OK for Joe or Joanna Bloggs then it could be OK for us”.  The risk is waiting too long for that to happen … and it doesn’t happen.

During the process of change, there will be things that work and things that don’t work. It’s important that there are multiple channels of communication between the employees and management team. The team should be provided with regular updates to show why it’s working, or not working. There are no right or wrong answers, so you will need to work from facts and be open and transparent with the team while you work through the priorities.

Finally, as it could be a period of stress, there should be close observation on levels of stress and anxiety with opportunities for down-time.  There may be employees who decide that the change and the new ways of working are not for them, and that’s fine. It’s imperative that everyone is treated fairly and, if they wish to, leave the company on good terms with an appreciation for all their previous efforts.

 

The tech turnaround is all about business value

The most common inhibitor to growth that tech companies face is being able to translate their technology to business value for the customer, in such a way that:

• The business value for the customer is well understood and discussed with the customer and end user of that technology;
• That business value is measurable in financial terms such that the customer’s budget holder can justify the Return on Investment from the purchase;
• It’s easy for a customer to buy and ties in with the customer’s business model.

And

• The above is achieved in a way that is easily repeatable and scalable for the company to grow
• Monetization is secure and de-risked in terms of the changing tech market (eg. SaaS vs on-premise, or pay-per logic, or selling consulting expertise over software)

Far too often the technology is clever and widely acknowledged in the market as such, but no-one can quite see the business value. Starting with the customer’s value chain will help the company understand how their technology can deliver benefits and why someone would not only want it, but would be willing to pay for it, and wants (even needs) to pay for it now.

“Starting with the customer’s value chain will help the company understand how their technology can deliver benefits.”

During a tech turnaround, it may pay dividends to re-visit customer relationships with a much more open approach to understanding the customer’s business, their pain points, and their challenges and then identifying what the company can do better to assist them on that journey.  It may not always help but there is no obvious downside for doing it.  It’s amazing how easy it is to make assumptions about customers that become outdated.  This is a good opportunity to engage with your customer base or new potential customers.

 

Summary

Once the right People are in the business, the conditions for growth are established through the company’s Culture, and the focus is solely on Business Value (both internally across the business and externally when considering the customer’s business), then everything that company does can be measured in terms of:

• Will it enable the company to grow?
• If yes, how?
• Where is the evidence or the assumptions on which a business decision can be made?

This covers everything from product development, office space, marketing, events, to travel expenses. This unrelenting focus on measurable performance and business value will drive significant cost out of the business yet set the business up for growth because everything is justified and backed by a realistic and achievable business model. Through this, the Turnaround Growth Phase will be immediately enabled, ensuring that whilst revenue grows, the company’s bottom line also dramatically improves.

There are too many software companies that have a poor or negative margin yet still generate investment through external financing or grants, hoping to deliver profit and generate shareholder returns at a later date once they have captured market share. This assumption doesn’t necessarily hold true which is why so many software companies fail when that external funding dries up.

The principles above remain the same when the company seeks investment to enable scale with a roadmap, one that focusses on new sectors, new geographical markets, or new technologies in a future market with new products and business models to ensure a continued and sustainable growth trajectory, and long-term shareholder returns.

Note that I have purposely avoided using the term “strategy” during this article. Despite a MSc in Leadership & Strategy as a Sloan fellow at London Business School, I believe that strategy is a story that can (and must) be written to appease shareholders and various stakeholders once the three pillars of People, Culture and Business Value have been achieved. Too often a bright spark starts with strategy which is intellectually brilliant and passes muster in the Boardroom but then fails to materialise on the shop floor.

Or, as Mike Tyson more eloquently put it, “Everyone has a plan until they get hit”.