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Ripping the Band-Aid Featured

8:00pm EDT May 26, 2008

When Jeff Tognoni arrived at Made2Manage Systems Inc. in August 2003, he found a company in serious need of a reboot. The business software and service provider had seen its revenue dip from $34.5 million in 2001 to $30.2 million in 2002.

It was also the fourth straight year the company had lost money and spirits were down.

But Tognoni says the last thing employees in that situation want to hear is a rah-rah speech about how bright the future is going to be.

“You can motivate for a short amount of time because of charisma, but you can’t really get them to change because of charisma,” Tognoni says. “You don’t try to unnaturally hype them up about how it’s going to be great and play music and blah, blah, blah. To me, I’m on the other side of that and mostly what we say is, ‘OK, how long will this joker last?’”

Instead of trying to rally the troops, Tognoni moved quickly with actions he believed would make the company more profitable again. Made2Manage was taken private upon Tognoni’s arrival, and its name was eventually changed to Consona Corp. after being acquired by Tognoni’s equity firm.

“You’re very honest with them,” says Tognoni, the president and CEO. “You tell them what is going to happen and what you believe the decisions will lead to. You open with what the plan is going to be. You are open and candid and say, ‘I don’t expect you to trust me. I’m new, and there are a lot of changes here, and I don’t expect you to trust what these changes are going to do. All I’m asking is to do your best and execute the way we’re asking you, and I will let the results speak for themselves.’”

Tognoni gathered what data he could, compared it to industry standards and quickly began making moves. He shared his plan with employees and tried to figure out who would fit into the new picture and who would not.

Within a month, the decisions had been made, and it was time to move forward.

“You’re always making decisions where you don’t have perfect data,” Tognoni says. “That’s the whole essence of being an executive. The worst thing is to not make decisions and to continually say, ‘I don’t have enough data so I can’t make a decision.’ That will destroy even a good company over time.”

Work out a plan

What Tognoni saw at Consona was a company that had a lack of focus, which had bred a lack of productivity. Part of the problem was a company philosophy of pursuing new opportunities that operated at a loss with the hope that they would turn profitable in the future.

“That’s just the wrong way to go,” Tognoni says. “The best way to go is you cut your cost base immediately so you can have the kind of margins that are leading the industry, not margins that are not sufficient to even pay capital back.”

In order to get a handle on what Consona’s core strengths were, Tognoni began talking to the company’s employees.

“Candor is the answer,” Tognoni says. “It’s honesty and candor as well as being willing to answer questions.”

Tognoni sat down with the people on his new management team and built a plan for the company while simultaneously teaching the new leaders how to build their own operating plan.

“You take everybody together and split people off into functional areas,” Tognoni says. “You’re basically reviewing everything everybody does. It’s a pretty intense process of essentially hands-on people learning the operating approach.”

You need to be open with your people about where you think the company needs to go and be clear that you want to hear their feedback.

“If you’re building a plan and you’re a part of that planning process and your boss is saying that we should do 10 widgets a month or whatever and you know it’s not possible to do that, you shouldn’t be just sitting there and not saying anything back to that,” Tognoni says.

“You need to be bringing up why it’s not possible to do 10 widgets a month. If you’re wrong, you have to accept that you could be wrong. But to not say anything and leave out a truth that you may know ends up developing a bad plan. We’re all going to suffer for a bad plan, and it’s because you didn’t bring up what you maybe uniquely only knew because you were afraid to disagree with your boss. We first tell them what that means, and then we show it.”

This push and shove is the key reason for a bottom-up, top-down planning process and makes getting buy-in a lot easier.

“You set a strategy, and then you ask your business units to figure out exactly what is a realistic plan for the business to do,” Tognoni says. “There is a push and shove back and forth from the top down and bottom up making sure you don’t set too easy of a plan. You force analytical thinking about what the business should do.”

You also ensure that the plan has a means of monitoring execution to ensure that the results you seek in the plan are the results you achieve on your financial report.

Have no fear

One of the problems that often comes about when trying to turn around a business is actually a fear of making things worse.

“Businesses are more durable than you think they are,” Tognoni says. “You can push change pretty hard on a lot of businesses and not break them. That is usually what paralyzes people from making decisions. They are so afraid that if they make one change, the whole house of cards is going to come down. So they don’t make any change.”

Tognoni analyzed the company’s data and determined that cuts needed to be made.

“You figure out the productivity that is the right level of productivity for doing everything in the business,” Tognoni says. “Sales, marketing, product development, service and support. You figure out what the right productivity is for those things and then you cut your staff back to that productivity level. It’s not rocket science. It’s just that most people have a hard time doing it.”

Tognoni used a combination of data analysis and conversation with employees to figure out what moves needed to be made.

“You either have a good judgment about what makes a good salesperson or you don’t,” Tognoni says. “Most organizations you go into, everybody knows who the good salespeople are and who is just hanging on. The problem, many times, is that people fail to act.”

Data is a critical factor in making decisions. Almost every company has its own data that can be researched, and if it doesn’t, Tognoni says there are always industry averages that can be reviewed.

“At the end of the day, if you don’t have any good internal data, you’ve got external data and you’ve got judgment,” Tognoni says. “There’s a lot of judgment involved, but that’s what they pay executives to do.”

Tognoni’s formula for personnel moves is a fairly simple one. “If a company is going to make 100 sales per year and a moderate or average productivity staff salesperson should be able to do 10 sales a year, you take 100 and divide by 10 and you should have 10 salespeople,” Tognoni says. “If you find out you have 20 salespeople, you cut 10 of them. It’s a little bit more sophisticated than that, but that’s essentially what we do.”

While difficult moves are often necessary, you can do a lot for the morale of those who are staying with the company by showing a little empathy.

“When you’re doing a lot of changes to an organization, going out and being rah-rah right after you’ve cut a bunch of jobs is actually counterproductive,” Tognoni says. “People go, ‘You want me to be excited when you just fired my friend.’ It’s a lowkey approach, but it’s a very direct approach, and we tell them exactly why we do things. ... We tell them why, and we try to educate them about why decisions were made and then just ask for patience.”

Make quick decisions

So how do you avoid making mistakes when decisions are being made so quickly?

“It’s just having the guts to actually do what, in most cases, is the right thing,” Tognoni says. “We haven’t made a lot of mistakes. It’s not that we’re never going to make mistakes and don’t make them. What most people do is they worry about things they can’t do anything about. We don’t spend a lot of time on that.”

For example, Tognoni says if there are two people being considered for one job and the wrong person is cut, he doesn’t worry about it.

“Over time, we’ll figure it out and correct it,” Tognoni says. “The mistakes associated with that aren’t usually terminal if you have the experience in the industry and you know how a company is going to react to the changes. You’re just typically not going to make that big of a mistake.”

There is more danger in putting off difficult decisions to gather more and more data.

“It doesn’t matter what kind of decision it is,” Tognoni says. “You have to make decisions quickly in business. That’s endemic to management, in my opinion. The faster you make decisions, the more productive a company is largely because people sit around twiddling their thumbs if people aren’t making a decision, which means they are not getting anything done. In turnarounds, it’s absolutely critical that you get in and make decisions quickly.”

The other benefit to making decisions quickly is analogous to the idea that it’s better to rip off a Band-Aid rather than slowly pull it off.

“We typically do whatever changes we’re going to do immediately,” Tognoni says. “That’s it, one time and off we go. We will err on the low side when we restructure a business so we don’t have to be doing it a year later again. The essence of it is we do it fast.”

The idea is that the company and its employees should not be held in limbo for a long period of time.

“We make the decision quickly, and then we’re moving forward,” Tognoni says. “Over time, people understand that we tend to make a pretty good decision the first time so there’s not anything to be worried about afterward, and it’s a more stable environment.”

Four and a half years later, the reboot of Consona has paid off. The 650-employee company posted $150 million in revenue in 2007, a 64 percent increase over the figure for 2006.

And in the end, results are what it’s all about. “You take the Boston Celtics,” Tognoni says. “Last year and over the last 10 years, Boston Celtics fans have been whittling down to a very few, and they’re upset, and they don’t like the current management. Now, the same management who was running the team three years ago is running the team this year, and now, they are geniuses. Why are they geniuses? Results, period. It’s not because they went out and gave some speech.”

HOW TO REACH: Consona Corp., (888) 8CONSONA or www.consona.com