Growth phase Featured

7:00pm EDT December 26, 2008

When Kevin Kennedy was asked to take the reins as president and CEO of JDS Uniphase Corp. in September 2003, the technology company was quickly drowning after finishing fiscal 2003 with $676 million in net revenue and a net loss of $934 million.

“This was a company that was an iconic boom in the telecom upswing and was equally iconic on the downswing,” Kennedy says. “I say that, in a sense, that by 2003, it had lost 88 percent of its revenues and about 98 percent of its market cap.”

On top of financial issues, the company was completely disjointed in terms of its leadership.

“This was a confederation of probably 18 to 20 acquisitions,” he says. “There were two chairmen. ... There had been about three or four CEOs in a four- to six-year period and maybe three or four COOs in that same period, and many of them were still here, so the leadership clarity was not strong. People were trying to figure out who do they listen to. Was it the current CEO or the last guy or the next guy?”

On top of these issues, the cultures had never fully integrated during all of those acquisitions.

“It was somewhat of a septic culture,” Kennedy says. “People had to be laid off. ... It was not a pleasant situation.”

With the perfect storm for failure already striking, Kennedy knew that turning the company around wouldn’t be a leisurely cruise, so he had a frank talk with the board about what he believed to be the main problems facing the company before agreeing to take the position.

“If they didn’t think that was the case, I was probably the wrong person to be applying for the job,” Kennedy says. “Either I was convincing or they were hard up, but we ended up moving forward together.”

Create a strategy

The first thing Kennedy did when he came in was figure out what specifically had to happen to turn JDSU around.

“Have a point of view of what problem you’re solving,” Kennedy says. “Second, listen to a bunch of people and be able to represent back to them what they had just told you, but in an integrated fashion — almost like a consultant would do. ... Then, thirdly, make some decisions.”

Over the first 90 days he met with the company’s top 20 people and went to all of JDSU’s major sites to talk to others.

“I was in listening mode for 90 days,” Kennedy says. “I made a spreadsheet of every conversation and had the same conversation with everyone. At the end of it, I could share with them what I thought, share with them what they had told me, and people could see where there was alignment and where there wasn’t, and then we charted a new course.”

He used a standard set of questions that included what they thought the problems were, what the answers were, what priorities they hoped he would embrace, their greatest concerns, what had changed in the last 90 days, why the company hadn’t been able to turn itself around and what assumptions were based on hope versus fact.

“You begin to find out where the soft spots in the assumptions are,” Kennedy says. “Then, as you have those conversations, sometimes you allow yourself the ability to go and add to your questions.”

As he added questions, he would then circle back to the people he already spoke with so they too could answer those new questions, and he would have uniform information from everyone.

“Getting people to admit what reality looks like and to let go of the past and to move to the future is a hard part,” he says. “All the homework upfront and being specific about what problems exist and quantifying it and having listened to everybody and being able to show the employees an amalgamated summary of what everyone told you was a crucial piece of the equation.”

After those 90 days, he held town-hall meetings and sent shock waves throughout the organization when he walked in with a spreadsheet of people’s responses and was able to provide solutions based on what they had told him.

“They were used to people telling them what the answers were,” he says. “The only currency you have after a company loses its business model and you have to lay off employees is authenticity. Telling the story that makes them feel good today, of course, tomorrow would make them feel bad.”

Kennedy focused on just a few key items and says that’s critical to do when leading a turnaround.

“Being able to articulate what’s different and so there are not more than four differences is crucial,” he says. “Having a 20-point strategy would have been too much.”

One of the new focal points was diversification. The company had been known for its optical components business. In 2000, that accounted for 95 percent of its business, and eight customers accounted for 60 to 70 percent of that. It was too concentrated, so he needed to diversify.

“We agreed to a model that said that we wanted to grow as a company 10 percent a year or better, and we wanted to have an EBITDA divided by revenue ratio greater than 14 percent,” he says.

Going forward, any JDSU business had to meet that criteria, and only four did. The rest would have to go, which led to the second part of the strategy — shutting down operations. He sold all but eight of the company’s 44 facilities to contract manufacturers, and this allowed him to also release about 40 percent of his employees. The process took about a year.

“There was no quick fix, so you begin to lower their expectations on how long it will take,” Kennedy says. “Obviously, most people hope for a two-quarter fix — the silver bullet.”

Get the right people

While a plan is good, Kennedy also had to create the right mix of people to carry out those changes.

“A lot of times people are in positions where the last people standing were the most loyal, but none of that means they were the most skilled to execute the strategy,” he says. “Be deliberate about bringing new people in.”

Tailor your hires to the specific skills you need.

“Making sure they were the right people is crucial,” Kennedy says. “If workers see you’re bringing in new talent, it suggests to them that you’re committed to and passionate about the business. If the new talent is very good, they’re probably disproportionately improving things, and employees see that, and they say, ‘OK, this is a good thing for the company.’”

First, he decided who would stay and who would go. Part of that was fixing the convoluted management structure, so he eliminated one of the chair positions, the chief operating officer and nearly 100 vice presidents.

“Obviously, if you’re going to be laying employees off, the last thing they want to see is a bloated number of big titles, so we collapsed the leadership thing down,” he says.

In determining who stays, look at who can best get you through the current turmoil.

“When you’re just trying to initiate or mobilize the turnaround, you’re looking for people who have just taken the next step and can basically take the tactics that have been laid out and execute,” Kennedy says.

Beyond that, look for realists. “You find out which people are able to look at the business with realism and which ones aren’t, and which ones have made the right decisions so far and which ones haven’t,” he says.

He says to also look for trust and respect. “You look for people who have a connection with their people and are viewed to be authentic and are collaborating across the company for the good of the company,” he says.

If people aren’t realists and authentic, then you should replace them. When hiring in a turnaround situation, it’s important to ask the right questions. Kennedy always asks candidates to talk about a time in their personal or professional experience where they came to the edge of their self-confidence for a long period of time — months versus hours — and how did they overcome that to become confident, happy and successful.

“There’s no right answer to it, but if someone gives you a good answer, they’re usually baring their soul and are authentic and trustworthy,” he says. “Second, if they’ve never hit a rough patch, a turnaround is a tough place for them to go because you do have a lot of setbacks, and you have to be prepared to doubt yourself and then figure out how to get yourself back on track.”

As Kennedy worked through the turnaround, he continually moved people in and out. In fact, in his first three years, he replaced about 70 percent of the leadership.

“You actually change your requirements as you move from the ground zero of the turnaround to a growth stage,” he says.

As you stabilize, you may need new people. “Truth be told, there’s a lot of people that fall out at that stage,” he says. “The emotion that people go through is they say, ‘Boy, I just did a lot. ... It really feels good to achieve this milestone. What do you mean there’s more to do?’ When people say that, they’re not trying to be the competitive best in the industry. They’re just satisfied with where they’ve gotten.”

If you’re not sure if someone can get you to the next phase, test him or her.

“Those that pass through that gate, they are the ones that you can engage from a competitor point of view,” he says. “‘Do you realize that competitor X, Y and Z are still beating us?’ If they get jazzed about that angle, it’s easy to keep them moving forward.”

Once JDSU stabilized, Kennedy then had to think about growing — and once again, he needed different people.

“You begin to look for people who have been in two jobs bigger or more complex than you’re bringing them in now, so that as your business continues to grow, they know what good looks like two years from now,” he says.

Again, if you’re not sure if someone is cut out for it, look for the warning signs.

“There are two telltale signs,” he says. “You look for those people to develop what good looks like two years out. If they can’t tell you, that’s usually a telltale sign that they’ll fall off the rhythm of the company. The second is if you see them execute on one or two things but drop the ball on the third or fourth thing, [then] that usually is a sign they won’t scale.”

By making sure he had the right people at each stage of the turnaround, Kennedy has been able to strengthen the company. With a strong identity, he has built upon that foundation by leading 12 mergers and acquisitions since taking over, and the financial results are improving. JDSU has more than doubled its net revenue from fiscal 2003, hitting $1.53 billion in fiscal 2008. But it’s not just the top line that’s improving. That fiscal 2003 $933.8 million net loss is down to just a $21.7 million loss last year.

Kennedy, who recently resigned as president and CEO but remains as vice chairman of the company, says that the past five years may have been trying, but they were also worthwhile.

“When people realize there’s change, they tend to have fear, so you have to have passion and conviction for the process you’re using to move things along,” he says. “... You have to be resilient because things won’t always go the way you’re hoping they will — even if you have a plan.”

HOW TO REACH: JDS Uniphase Corp., (408) 546-5000 or www.jdsu.com