Precipitous commodity price declines and high volatility, coupled with high operating costs and high levels of borrowing, led to a wave of restructuring in the energy industry. In the frenzy of restructuring, a company is consumed with legal issues, employee layoffs, salary cuts, asset sales, and workload reassignments, to name a few. When the company emerges out of restructuring, the focus turns to healing.
This is not dissimilar to recovering from any major illness or surgery, where the key to recovery is to take meaningful actions forward, rebuild old skills as well as build new skills, make healthy choices, and have frequent checkups where you consult with your doctor. Key actions for a recovering organization are analogous.
Have a Plan. The short-term impact of restructuring can immediately improve the financial position of the company, and may be necessary to survive, but the long-term impacts on the remaining workforce can lead to infighting, loss of purpose and innovation, and a loss of trust in management.
Whether due to low morale or fear that it will only get worse, the likelihood that the remaining employees will exit is high. Top-performing employees, who have more options, are more likely to leave. Conflict rises and communication between employees declines. Leadership must be clear on priorities.
Being a great leader is most challenging when your organization is struggling. Henry Ford said, "Don't find fault, find a remedy." Leadership must integrate the current situation into a well thought out vision that makes clear how the company will be viable in the future.
In a post-bankruptcy world, the focus should be on the core business. Where does your company have a competitive advantage? What can you stop doing? Where do you add the most value? Define success and the path to achieving it.
Now is the time for leadership to be active and visible. Spend time with people building the plan. Let people ask questions and talk about how their goals fit into the larger picture. Employees want to know the company's financial status, and have questions about timing and the market. Be clear on the challenges that lie ahead. Seek input and address rumors.
Open and frequent communication of the priorities with all employees is critical to securing their commitment to the plan. Leadership should start by explaining how the business makes money. If there is a possibility for future organizational changes, leadership should explain what conditions or benchmarks would drive those decisions.
Messages should be delivered frequently. Repeat old news; emphasize new news. Employees will respect leadership for taking responsibility during tough times and for being honest.
Rehab. The road to recovery is an opportunity to challenge traditions, decide how to improve work processes and focus on your employees. The key is to instill your team with a commitment to excellence.
Consciously foster creativity and innovation. When issues arise, and they will often, involve employees in problem solving activities to solicit ideas and allow them to take action. With the right motivation and help, people will achieve remarkable goals even during the worst of times.
Attrition is draining for the organization, whether the attrition was involuntary or not. Replacing lost skills is a top priority. While attrition is harmful to the morale and productivity of the organization, it also creates an opportunity to seed the organization with people with strength in the areas most critical in this transition period. Search for people that will matter the most at that critical time. An external hire, especially in a leadership position, will be able to carry the plan for change unburdened by the status quo.
When key skills are lost and productivity declines, another challenge is not just surviving, but revitalizing the remaining organization. Prepare for future needs. Provide cross-training, which mitigates risk and improves productivity, while benefiting both the organization and the employees. Provide management training. Good management skills can positively impact productivity, performance and overall employee morale. This investment will develop new leaders to see you through the tough times.
Frequent Checkups. To avoid a relapse or what is often referred to as a "Chapter 22," key performance metrics should be monitored frequently and transparently. Take advantage of the strict accountability that was introduced during restructuring.
Having created financial projections to demonstrate the company can successfully operate post-restructuring, the performance metrics should be reported on both the projections and actuals. A continued downward trend is a warning light, and corrective measures should be agreed on and put into action.
While there is no exact method for predicting post-bankruptcy success or failure, there are common indicators. The No. 1 predictor of performance is cash flow, including free cash flow, cash flow from operations and core cash flow. Most restructurings have resulted in the conversion of debt to equity and the elimination of interest payments, but it doesn't ensure that the company will be cash-flow positive.
Vital signs for the company must include both operating and human factors as well. Monitor the capital structure, market conditions, revenue, costs, safety, employee morale and turnover. With expectations being wary, each missed target is a concern. The approach must go beyond benchmarking. The company must have proactive processes that will turn metrics into meaningful debate, smart decisions and quick actions.
The road to health is achieved in milestones, not overnight. Share even the smallest of wins and recognize successes. Often a public "thank you" across the organization is more sought after than a complicated system of rewards.
Openly communicate how the business is doing, whether the news is good or bad. Delivering bad news is difficult. Be considerate, but don't sugar coat the news. Be very clear on the impacts and how decisions will be made. The objective is to identify red flags early and act on them, preventing a relapse.
An organization that is fully committed to recovering by actively planning, working together to do what must be done, and monitoring its health along the way is going to become a healthier, stronger company for the longer term…