A Midwestern Fortune 500 corporation is in crisis. The conglomerate is losing money in almost all operating units, watching sales sink further and heading steeply toward liquidation. But a team of Columbia MBAs has found hidden value in the company. In Warren Hall, laptops are open, PowerPoint slides are ready and the team is about to propose a strategy to save the firm.
This is Turnaround Management, the course that examines the fundamental reasons — operational, financial and managerial — that companies undergo crisis. Students learn how to rebuild operations, assets and liabilities, capital structures and strategies in order to make a failing company viable again. The demands on actual turnaround managers are broad and deep, and accordingly, the course workload drives many all-nighters. But students forfeit other coveted courses to garner a place in this class, and many alumni say the course directly prepared them for their careers. Turnarounds requires that students integrate and apply every core business discipline, as well as every qualitative and quantitative tool they have learned. “Turnarounds is a capstone class,” explains Amanda Heron ’03. “It incorporates almost every other class you have taken and forces you to think about different considerations: Does your financial model correlate with your strategy? Can you fund your marketing plan?”
Augmenting their classroom learning, this spring six student teams applied the lessons of Turnaround Management to actual businesses in real time. Laura Resnikoff, associate professor of management, developed an opportunity for students to spend eight weeks as turnaround consultants for small downtown-focused businesses devastated by September 11 and the recession. Working with Eric Burd ’01, a program manager at the nonprofit organization Seedco, and her teaching assistants, Pedro Caruso ’03 and David Zorub ’03, Resnikoff created “a tangible opportunity to apply the lessons acquired in class to a real-life operating situation,” says Burd.
The opportunity was developed as a partnership between the School and Seedco, a nonprofit organization that provides grants, loans, wage subsidies and business consulting services to small downtown businesses through its Lower Manhattan Initiative (LMI) program. Since September 11, Seedco has saved more than 650 businesses and more than 1,200 jobs. Burd, who manages a team of 17 people and a fund of $45 million, knew that attention from a team of dedicated Columbia MBAs could be a significant boon for many Seedco clients. Six businesses agreed to participate in the program (see sidebar, page 16).
Among students, interest in the LMI project was overwhelming: Twice as many teams as clients were available. Even the most rigorous case study is an exercise in theory and imagination, and the project promised a coveted opportunity to apply two years of acquired knowledge. A certain restlessness comes from “learning with the benefit of hindsight,” says Matt Aboud ’03. “Business is done on the street with your sleeves rolled up. I think we all wanted to put our money where our mouth was.”
Through a lottery, six teams were paired with firms, and in an orientation meeting Burd gave students an overview of the clients, the consulting process and the inherent expectations. “These are struggling businesses, tough times and a very real turnaround environment,” Burd explained. “They’re going to look at you as experts, to bring a skill set that they don’t have. You will need to climb into their lives to try and figure out what’s going on and what they need.”
Student teams met with their clients to understand the key business issues involved and to develop an outline of objectives and a plan for how to proceed. Next came the larger process, at times frustrating and painful, of beginning to implement change. Working with their teams, clients could tackle some issues immediately, such as collecting payments from customers with outstanding balances or selling excess inventory. More radical recommendations could include implementing activity-based accounting and internal work-flow processes, upgrading technology, streamlining product mix, pursuing new revenue sources, separating personal finances from firm finances, consolidating debt, refinancing a mortgage, using more targeted marketing efforts, developing a Web site and redefining employees’ roles. Collectively, if not individually, the student teams were dealing with virtually every major turnarounds issue covered in the classroom. “Everything we’ve talked about with big businesses, you’re seeing in real life,” says Resnikoff.
Within each business, there was not one but several sources of difficulty, which is emblematic of a business in trouble. “Trouble doesn’t come in one area, it comes in multiple areas,” Resnikoff tells her students. “That’s why it’s so complex.” Sandra Navalli ’03 found that “you have to look at every single process and every single person.” Because crisis in organizations is metastatic, the teams quickly saw that dealing with each problem effectively required allocation of responsibilities within teams. “You really see the benefit of having diversity in your project group,” says Navalli. “Some people are better about the issues around operations, some people are better about the management issues, some people are better about looking for assumptions.”
For the MBAs, it was affirming to discover that, both in teams and as individuals, they possessed the full range of business knowledge needed to grasp multilayered business crises. Learning your own capabilities and trusting yourself is essential for a turnaround manager, and Resnikoff encourages students to rely on their intuition — “that gut sensibility.” Aboud explains, “I think deep down inside we all were a little nervous that we might not really have had the tools or depth of knowledge to succeed. This assignment has given us all confidence that we do have what it takes.”
Despite the range of sophisticated quantitative tools and business knowledge that a Columbia MBA may bring to the table, there is another skill set that students say cannot be learned entirely through a case study: how to navigate the difficult emotions and behaviors involved. These are lessons that hit home only with real-world experience.
“It’s very easy when you’re doing a case to say, ‘We’ll fire this person, we’ll reassign this person, we’ll have this person do this differently,’” says Glenn Goldman ’03. “It’s much different when it’s no longer a theoretical exercise.” Mauricio Tristan ’03 adds, “You can grasp the concept of crisis in the classroom, but until you talk to these people and they tell you that there is no cash for next week’s payroll, it is difficult to really believe it.”
A reluctance to acknowledge the severity of mounting problems is a common source of trouble, and turnaround managers must cope with being the initiators of unwanted change. As is common in corporate turnarounds, some students had to manage despite their clients’ unwillingness to change. A key insight for all MBAs is that successful businesses must uphold a level of awareness that allows the recognition of trouble and the presence of contrary points of view. “The core ingredient of keeping a company healthy is openness,” Resnikoff says. “Allow dissenters. Be tolerant of change.”
“The hardest part of the turnarounds business for a newcomer is the number and frequency of tough conversations you have to have,” Aboud says. “This is a crisis; you aren’t doing anyone any favors by sugarcoating the facts.” Navalliexplains, “You need to have that personal fortitude to gointo a situation, and if you need to cut costs and deliver a tough message,you can.” Resnikoff urges her students to consider the emotional experience of employees. “We are managers. We are responsible for other people. Every program that we propose is going to produce pain.”
Early in the semester, Resnikoff asks students to consider a question: “Why turn companies around at all? The pain of restructuring is deep: Why go through all that pain?” The answer lies in the discovery that restructuring serves the greater good. The aforementioned Midwestern conglomerate was saved in the early 1990s through a pioneering acquisition — a “win-win” takeover that has been called one of the greatest turnarounds in history. Ultimately, a successful turnaround benefits the company’s employees, customers and community: “The concept of a capitalist society is that you allocate resources where they generate returns for the benefit of society,” says Resnikoff. “There should be value at the end.”
A drive to be the agents of productive change propels second-year MBAs to enroll during their final semester in what is rumored to be the toughest course at Columbia Business School. The six MBA teams brought to their consulting projects not just the tools and knowledge they have developed as MBA students, but the dedication one would expect from a consulting project done by McKinsey or Bain. One team devoted more time to its client than to any other business school project. Resnikoff herself had not anticipated the degree of students’ sheer goodwill, which she calls “the single most remarkable feature about this initiative.” There was an uncanny rapport between clients and student teams that belied the random method by which they had been matched. Yet, says Resnikoff, “after learning the full range of issues the teams faced — from clients’ not making meetings to running out of cash — I know these teams and clients meshed due to the students’ demonstration time and again of perception, diplomatic skills and pragmatism.”
“The most rewarding part of the project has been applying our human and intellectual capital to help a real company and real people fix something they truly believe in,” Aboud explains. Tristan adds, “To go into a business and feel the pressure and the need for help, and to see how you could be helpful in that environment — you suddenly feel that this is more important than anything else. I came to Columbia to push myself and experience all these new opportunities. It has been more rewarding than I ever thought it would be.”
