MIT Sloan Fellows Program Newsletter
Spring/Summer 2017, Issue 26
Johanna Hising DiFabio, Director, MIT Sloan Fellows Program

Johanna Hising DiFabio
Director,
MIT Sloan Fellows and EMBA Programs

A message from Johanna Hising DiFabio:
The Art and Science of Turnarounds

What are the signs that an organization is failing? Sometimes the evidence is obvious. Thad Allen, SF ’89, for example, was called in to turn around the Hurricane Katrina recovery effort in New Orleans after the whole world witnessed a relief effort in chaos.

But organizational failures are not always that clear-cut. Margot Murphy Moore, SF ’07, an experienced turnaround artist, recommends looking for organizational distress in the faces of employees. If you look carefully, she says, you will be able to detect if the organization is under strain. “When people are not productive or happy, when they abandon their usual patterns and routines, it’s like watching a spike on a gauge of seismic activity.”

In this issue of the MIT Sloan Fellows Newsletter, Moore, Allen, and other Sloan Fellows alumni from around the world share their turnaround stories. MIT Sloan professor emeritus Arnoldo Hax adds his prodigious experience to the mix.

You might also enjoy this in-depth profile of Alan Mulally, SF ’82, and his legendary transformation of Ford Motor Company—one of the great turnaround stories in the marketplace.

So go ahead and dig into this trove of authentic turnaround tales from the global arena.

In the Spotlight
Arnoldo Hax: Turning around a company—and a country

Arnoldo Hax MIT Sloan Professor
Emeritus Arnoldo Hax

You could say that Arnoldo Hax has a reputation. Generations of students, scores of colleagues across the globe, and loyal readers of his seminal books on business strategy consider him a sort of enterprise whisperer. Hax knows what makes an organization work, and he knows how to turn it around when it doesn’t.

The MIT Sloan professor emeritus has a tried-and-tested formula. “A turnaround is a deep change that has an impact on the entire organization,” he says. “It is not a hierarchical change that simply relies on the buy-in of the C-suite. A turnaround is organization-wide and the strategy has to take into account every person on the org chart.”

Hax believes that the best game plan for a successful turnaround is to create a framework for the implementation of the strategy, determine who will be affected and how they are likely to support or resist change, then develop a blueprint that outlines who, when, and how to execute the key tasks necessary to achieve the goal—and that includes pivotal incentives and reward systems.

Perhaps most important, Hax says, is to know your culture. “Your success or failure in turning the entity around will ultimately rely on how well you have assessed the culture. Even if you’ve done everything else right, if you’ve misread the culture, your turnaround will fail. What are the norms—individual and collective—that drive and influence the individuals in the organization? Understand the imbedded micro-cultures. Often, the sales force has one culture, the engineers a very different one, yet both must be considered.”

The transformation of Chile

Hax has been involved in many a turnaround, but two are perhaps the most storied. When democracy was restored to Chile under President Patricio Aylwin, Sergio Molina, Minister of Planning, asked Hax to organize a workshop that included 200 influential Chileans representing the major decision makers across the country: all the candidates for the presidency, members of the Congress, religious leaders, and distinguished academics. Hax worked with them to diagnose the Chilean situation, which culminated in an action plan: “The Mission of Chile and its Strategic Agenda.”

Aylwin accordingly introduced tax reform that boosted revenues by 15% and enabled the government to increase spending on social programs. By the end of the Aylwin government, his administration had allocated unprecedented resources to social programs, including greatly expanded public health programs, vocational opportunities, and a major public housing initiative. The number of Chileans living in poverty significantly decreased.

Running rings around GM

Hax was also an advisor in General Motors’ Saturn phenomenon. “General Motors was a huge organization, the largest in the country, but the company was beginning to go off the rails,” Hax remembers. “The catalyst was the entrance into the market by Japanese carmakers. Toyota and Honda were creating cars that were affordable, dependable, attractive, and fuel-efficient. And these vehicles appealed to an enormous segment of the American market.”

The solution, of course, was to develop a competing small car, and that was the Saturn, the first compact car to be introduced into the American market. The Saturn operation was a kind of skunkworks for GM, a sub-brand with its own management and its own management style—a completely out-of-the-box and un-GM style.

When he took the helm as Saturn CEO, MIT Sloan alumnus Richard “Skip” LeFauve asked Hax, his former professor, to consult on strategy. “Skip looked at the corrosive relationship between the unions and management at GM, the financial losses, and the disgruntled workers and said, ‘We can’t run Saturn that way.’”

Creating a new management style

LeFauve decided to move the entire operation to Spring Hill, Tennessee, a world away from Detroit and the parent company’s powerful influences. “We wanted to invent a wonderful car,” Hax says, “but just as important, a wonderful culture, and we wanted to create a new management style, a new way to run a car company.”

Saturn’s counter-culture labor agreement gave the union workers a greater say in plant decisions. “We started out determined to avoid any us-against-them vibe. Our premise was that we all share the same bottom-line goals, so let’s work together to achieve them.” That human-centered approach extended to all areas of the company—internal and external. LeFauve created an image for Saturn as a customer-focused organization that put service and personal attention before profit. Perhaps most famously, he instituted Saturn’s groundbreaking “one-price, no haggle, no hassle” policy.

The approach was phenomenally successful. LeFauve was promoted out of Saturn, but a few short years later died of a heart attack. Eventually, GM took the renegade brand under its own wing and absorbed it into the larger company culture. “The rest,” Hax says, “is history.”

Fans of Arnoldo Hax have turned many of his greatest bits of wisdom into what they call “haxioms.” The haxiom that perhaps best sums up the core ethic of his turnaround strategy is this one: Strategy is not war. It is love.

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Alumni roundtable
Global turnaround tales from Britain to Budapest

Coast Guard Commandant Thad Allen confers with Barack Obama on the Deepwater Horizon oil spill Coast Guard Commandant Thad Allen confers with Barack Obama on the Deepwater Horizon oil spill

Turning Around Unprecedented Disaster

Thad Allen, SF ’89

Few leaders—in any realm—are as revered for their prowess in turning around an acute organizational crisis as Thad Allen, SF ’89. Former Commandant of the Coast Guard, Allen has been summoned by United States presidents on both sides of the aisle to turn around the most critical crises of the modern age, including the aftermath of Hurricane Katrina and the Gulf Oil Spill.

Now a senior executive advisor at Booz Allen Hamilton, Allen’s particular expertise is in bringing together government and non-government entities to address major challenges using a whole-government approach designed to achieve a unity of effort. In 2010, President Barack Obama selected Allen to serve as the National Incident Commander for the coordinated response to the Deepwater Horizon oil spill in the Gulf of Mexico. Working closely with federal, state, local agencies and the private sector, he unified response operations and capped an uncontrolled well on the sea floor that had no human access.

The hurricane blew in on August 29, 2005

But Allen earned his household name as a turnaround superstar during the formidable Hurricane Katrina recovery effort. Michael Brown, President George Bush’s FEMA head, was finding the situation increasingly unmanageable. After several days of a disintegrating situation, Secretary of Homeland Security Michael Chertoff tapped Allen, then chief of staff of the U.S. Coast Guard, to turn the disaster around.

“The hurricane made landfall on the 29th of August. I dispatched on the 5th of September. What I found was a complete breakdown of law and order,” Allen remembers. “Chaos in the Superdome. Press reports were showing the same human remains on street corners day after day. We were dealing with the equivalent of a weapon of mass effect—but the terrorist was nature. New Orleans, in effect, lost continuity of government.”

The first step in any turnaround, Allen says, is to correctly identify the problem. “One of the things that crippled the government’s initial response to Hurricane Katrina was that they did not get the problem right. We were dealing with the loss of civil institutions and the lack of local government capacity—not a hurricane. You must understand the challenge before you can even begin to turn a situation around.”

Cut red tape and transcend politics

Allen immediately built a coalition with assigned military forces, regional leaders, and law enforcement, and they divided the area into sectors. He provided support for local law enforcement officers in each sector and federal oversight for the critical unwatering of the city, which entailed clearing the streets and working to repair, restore, and replicate the lost capacities so that the local governments could manage their response.

“We conducted a sweep of each sector, touching every single structure, going door to door, to make sure everyone received the attention they required. We placed an icon on every structure so that we knew when structures had been checked.” Within 48 hours, Allen and his extended team had turned the situation around. Soon afterward, Hurricane Rita rolled into town. But that, Allen says, is a turnaround story for another day.

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Tana Utley, SF ’07 Tana Utley, SF ’07

Time to start your engines

Tana Utley, SF ’07

“When I was a student at MIT Sloan, Jack Welch gave us an important tip: pick your industry first, then pick your company,” Tana Utley, SF ’07, remembers. “Under that rationale, no smart business strategist would start a business in the small diesel engine marketplace. That, however, was the turnaround project I inherited.”

Utley is vice president with responsibility for the large power systems division at Caterpillar Inc., one of the world’s leading engine manufacturers. The business she was charged with transforming was Caterpillar’s small diesel engine business, an increasingly competitive industry.

Small diesel engines, Utley says, are being made all over the world and the competition is stiff as companies in emerging markets try to gain a toehold by keeping their prices at rock bottom. “It’s almost impossible for us to sell our equipment at prices that low,” Utley says. “On top of that, there’s an overcapacity of small diesel engines in the global marketplace, bringing the market price even lower.”

Exiting was not an attractive option, as the small engines power a variety of Caterpillar machines, generator sets, and some external applications. The best path forward was to improve the business by addressing four workstreams: product competitiveness, operational efficiency, period cost, and commercial strategy.

“I knew that coming in as the new leader charged with a turnaround would put me up against a wall of challenges,” Utley remembers, “but time was of the essence. We had to quickly improve competitiveness. Also, a change agent has a limited window to bring about transformation. Once you become a fixture, you lose your objectivity and can become part of the problem. It’s imperative to remain focused on your goal while demonstrating compassion for those for whom the business is a lifeline.”

Utley says that it was crucial to make visible change within the first 100 days—both for the sake of morale and for the health of the business—and to establish a path to measurable progress within a year. She cautions leaders charged with turning around an operation to be crisp in setting goals, however. “Set three or four critical metrics that everyone can understand and relate to. Communicate those metrics at the outset, and track the progress you’re making toward them along the way. Make communication authentic, visual, and incredibly consistent. People will go along with change if you explain the reason for it and if they understand that the result will mean progress, improvement, and a better place to work.”

Keep the flywheel spinning

Momentum, Utley says, is crucial to a successful turnaround. “I adhere to what Jim Collins calls the ‘Flywheel Effect’ in his business bible Good to Great. Get the flywheel going in the right direction at the start and keep it going—don’t let it lose steam. Your actions as a transition leader are what keep that flywheel spinning.”

The two keys to maintaining momentum, Utley says, are engaging talented local leaders to spearhead the workstreams and proactively managing and communicating workstream progress using obeya. “The word is from the Japanese meaning big room or war room—and it is both. An obeya is essentially one central working space dedicated to a project where plans and charts and progress can be posted and whiteboard messages left un-erased, a space for team members to discuss progress, make decisions, and identify actions to close gaps. To some extent, the room embodies the project.”

With these strategies, Utley recounts, “we were able to communicate our progress effectively enough that the turnaround strategy became part of the culture. Those who were affected by the change saw it working. The progress became tangible—exciting, even—and it gave them confidence that the plan was working and that they could achieve the larger goals going forward.”

Utley notes that what surprised her in the end was seeing how quickly employees embraced the turnaround and the changes it represented. They became eager to take the business to the next level. “I don’t think they were confident that we could turn the business around, but we did, and nobody was happier about that success than the employees who are running the small engine business today.”

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Margot Murphy Moore, SF ’07 Margot Murphy Moore, SF ’07

It All Starts with a Listening Tour

Margot Murphy Moore, SF ’07

For Margot Murphy Moore, SF ’07, a successful turnaround is all about people and the culture of an organization. President and chief strategy officer of Standard Homeopathic Company, Moore notes that one person does not turn around a failing organization. It takes a team. She says she starts her process with an intensive listening tour, sitting down with each of the key players one by one.

“During these in-depth conversations, I make an effort to determine the operational issues, the cultural and political issues, and the strategic issues that are challenging the organization—and also assess the factors that make it great. It’s essential to listen carefully to the people involved in the situation and work hard to understand their often divergent perspectives. I ask these players the pivotal question: How has the current scenario evolved to this point?”

In the course of this debrief, Moore builds a picture of why the present situation is failing, tracing it from the first symptoms of distress through every change effort along the way. “In my experience, when you sit down with stakeholders individually, you find they often have greater insight than you expect into complex challenges and innovative solutions. The issue often is not a lack of awareness about the source of a problem but multiple failures to act on that awareness. The goal, then, is to find out what systems, perceptions, or individuals are preventing action.”

Termination is always a last resort—but must be an option

Moore is dedicated to resolving personnel issues as a precursor to driving change, and she admits that sometimes the only solution—although a last resort—is termination. “I can recall one turnaround situation in a remote plant. I was flying there every Monday to resolve an acrimonious situation. By Wednesday, I would pretty much have resolved the issues and, on the flight home, would be feeling relieved and optimistic. But on Thursday, I would get a few disgruntled calls and emails, then on Friday a few more. By the time Monday rolled around, we were back to square one.” Moore says that in such cases, when disruptive individuals continually sow discontent and undermine change efforts, termination is the only answer.

The business of turnarounds, Moore says, is not for everyone and, in fact, can be thankless work if you’re in it for the glory. “It takes a strong stomach and a level of unrelenting optimism to make a career of rescues. Success is often not viewed as gloriously as it merits, so the satisfaction of facing the challenges and reaching success must be enough. Bottom line: turnarounds are not a sport for the weak-spirited or for souls seeking affirmation.”

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Oleg Bodiul, SF '13 Oleg Bodiul, SF '13

Building GE Global Operations

Oleg Bodiul, SF '13

When Oleg Bodiul, SF ’13, took on a vast transformation role on the leadership team that was tasked to create a global shared services organization at General Electric (GE), he wasn’t entirely sure the plan could work. As Europe Integration Leader of GE Global Operations, his role was to lead the centralization of many of the enabling functions, such as accounting, finance, and commercial operations in the region.

Among the top 100 firms in the world, GE is a multinational, digital-industrial player providing software-defined machines and solutions for markets ranging from aviation, power generation, and oil and gas to renewables, healthcare, and financial services. The idea, says Bodiul, was to simplify GE’s operations. “Historically, functions like accounting and order management were performed in more than 300 locations around the globe. The objective was to centralize, where possible, into a few locations to leverage scale and deliver better outcomes for our customers, employees, and shareholders.”

Bodiul says the fragmentation and lack of enterprise-level process standards led to eventual operational inefficiencies and reduced cycle times. The solution was to create a multifunctional shared services organization with a network of four centers and regional sites. The operating centers were established to bring together work that benefitted from scale, to breakdown process silos, and to provide more robust career opportunities.

Transformation from the ground up

In just over two years, Bodiul led the European transformation and overall program management to build from the ground up a new center in Budapest with 1,500 employees. “This was a one-of-a-kind experience. The task was to migrate work from more than 120 locations in Europe to a new team in Hungary, an undertaking that required significant coordination with a strong focus on talent, training, organization design, culture, and change management.”

The four centers in Hungary, China, Mexico, and the U.S. are now up and running. The turnaround, Bodiul says, has been even more successful than projected. “Today, GE Global Operations is delivering superior process quality and efficiency at levels that were very difficult to attain in the past. In addition to simplifying the operations—a change that has delivered more than $300 million in savings to date globally—the team is leveraging the latest technology and data science to deliver the best possible experience to our customers and business partners.”

One of the forces that keeps the organization dynamic is its sheer diversity. Combined, the Global Operations organization employs more than 9,000 individuals from 85 countries—40+ languages are spoken in the hallways and conference rooms. “The vibrancy and excitement of these global workplaces are extraordinary,” Bodiul says, “but also eye-opening. GE is becoming simpler, faster, and more entrepreneurial, and Global Operations is playing an important role in this transformation.”

Building upon that success, in 2016 Bodiul stepped into a global role leading an effort to build the enabling operations for GE Digital. He has recently accepted a new role within GE Digital—this time focusing on M&A integration. Earlier this year, GE bought ServiceMax, a provider of cloud-based field service management software and solutions, and Bodiul will lead the post-acquisition integration of the company.

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Meet the roundtable participants

Thad Allen, SF ’89
United States
Executive Vice President
Booz Allen Hamilton

Thad Allen leads the development of thought leadership and client engagement regarding the future of law enforcement and homeland security at Booz Allen Hamilton. He completed his distinguished career in the U.S Coast Guard as its 23rd commandant. In 2010, President Barack Obama selected Allen to serve as the national incident commander for the unified response to the Deepwater Horizon oil spill in the Gulf of Mexico after his much admired work in the aftermath of the Hurricane Katrina disaster.

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Oleg Bodiul, SF ’13
Netherlands
Global Operations Executive Leader
General Electric

Oleg Bodiul is an experienced leader with a proven record of success in leading finance, business operations, accounting, and analytics in startups and mature fast-paced multicultural environments. He has extensive experience in building high-performing teams and driving large transformation initiatives, including M&A integration, business restructuring, and the implementation of global ERP systems.

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Margot Murphy Moore, SF ’07
United States
President and Chief Strategy Officer
Standard Homeopathic Company

Margot Murphy Moore represents the third generation of the Murphy family, the owners and operators of Luyties Pharmacal. Moore initially served as its vice president and operations manager then joined Standard with the acquisition of Walker Laboratories in 1995. She leads all Standard Homeopathic Company’s subsidiary businesses, including its direct-to-consumer and direct-to-professional operations.

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Tana Utley, SF ’07
United States
VP of Large Power Systems & Growth Markets Division
Caterpillar Inc.

Tana L. Utley is responsible for the Large Power Systems Division at Caterpillar Inc., the most comprehensive line of diesel and gas engines in the industry. Since 1986, she has held a variety of engineering and general management positions. Her technical career has been focused on reducing diesel engine emissions, and she has played key engineering and leadership roles in the development of the near-zero-emissions engines that Caterpillar sells today.

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We’re already at work on the next MIT Sloan Fellows Program Newsletter. Please drop us a line at fellows.mitsloan@mit.edu if you have ideas about themes and news items for future issues.

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