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First five steps every executive should make when taking charge

by Stephen Hawley Martin
for Virginia Business
January 2006

At the end of 1995, a good friend of mine, William T. Monahan, was given the opportunity to form and lead a $2.4 billion business made up of units being spun off from 3M Co. Most people would jump at such an offer, but Bill knew it wasn't going to be a rose garden. The units were being let go because they were a drag on 3M. Still, Bill's the kind of guy who doesn't mind taking a calculated risk. He'd been successful in previous turnaround situations, so he took the job. In short order, it was apparent he had a bucking bronco on his hands.

To bring costs in line, Bill's new company, Imation Corp., had to take a large restructuring charge. Before long, Imation found itself in debt to the tune of $450 million. To make matters worse, some Imation businesses, such as photo film and printing and publishing, were in markets that were moving rapidly from analog to digital, with the smaller margins that typically accompany these products. To illustrate how things were, on Christmas Eve 1997, members of Bill's financial team came to his office. They pushed a spokesperson to the front of the group.

"Bill," he said, "it looks as though we're not going to make payroll in January."

And a Merry Christmas to you, too, Bill thought. Then he said, "We will make payroll. We will not run a company that misses payroll and doesn't take care of its employees."

As it turned out, Imation had more cash available than had first been determined because the company was in the middle of so much change. Even so, the jolt Bill received that Christmas Eve brought home the importance of generating and conserving a sufficient amount of cash in a business, particularly during a turnaround.

He says if he had it to do over again today, he'd repeat many actions he took back then, but he'd also do a lot of things differently. What follows is a checklist we developed together that should be of value to anyone who's put in charge:

1. Conduct an immediate strategic analysis.
You need to determine right away what the business's core competencies are vis-a-vis the competition, and which way the markets you're in are headed. If you're in more than one market, should you be? Question everything rather than simply look for an easy fix. Most managers are optimistic and will project annual sales increases even when there may be no justification so insist on zero-based budgeting.

2. Underpromise and overdeliver.
Projecting optimism is healthy, and enthusiasm is essential to success, but both should be tempered with realism. If you paint too rosy a picture and don't acknowledge obstacles that must be overcome, you will lose credibility with your employees and your investors as soon as something doesn't go according to your optimistic predictions. Credibility is hard to recapture.

3. Rely on employees you already have on board if at all possible.
People who have been with the company are known entities, but you can never be sure what you are getting when you hire from the outside. It's usually best to go with those who understand the business you're in because no learning curve will be required. When you do look outside, focus on functional skills and experience you may be missing such as finance and legal.

4. Communicate, communicate, communicate.
It's a fact of life. If the message is getting boring to you, it's probably just starting to get through to everyone else. You have to keep pounding key messages in a clear and logical way until you are sick of them. Then pound them some more.

5. Cut the cord from the mother company fast.
If your business is spun off from another company, don't share space unless there is no alternative because it will be virtually impossible to create a new corporate culture. In countries where Imation separated completely and did not cohabit with 3M, it became an independent, aggressive and self-sufficient entity much faster than in places space was shared.

You may be wondering how things turned out after that fateful Christmas Eve. Bill and his management team sold businesses in markets in which they felt they had no chance to be a leader. They focused on removable digital storage media, an industry they believed had a big future and in which the company had considerable expertise. The result was that by spring 2004, Imation was not only profitable, it had $475 million in cash, no debt, and had repurchased almost $200 million of its stock. That's a billion dollar swing from being $450 million in the hole, hence the title of the book Bill wrote about the experience, Billion Dollar Turnaround: The 3M Spinoff that Became Imation.

Stephen Hawley Martin is a former principal of The Martin Agency in Richmond and the author of more than half a dozen books including his newest, Lean Enterprise Leader: How to Get Things Done Without Doing It All Yourself. He is editor and publisher of The Oaklea Press, a book publishing business dedicated primarily to helping business executives increase productivity.