Pretext

In Brazil, a reorganization is the optimization of fiscal, managerial or organizational conditions within a company. Turnaround is part of restructuring and not reorganization or transformation. This distinction is generally valid in Brazil and is based on the delimitations of the North American economic area. This may sometimes sound confusing with regard to the German-speaking economic area, since in this region there is usually no real distinction between reorganization and restructuring.

Why reorganization measures to cope with a corporate crisis in Brazil can fail is a topic we have presented again and again in various articles, seminar lectures, blogs and also vlogs.

In this article, however, we will look at the issue from a more fundamental perspective.

Brazil - a constant crise scenario?

As a result of the rapid changes in the Brazilian market, management structures have to be adapted again and again. There are always those massive defensive strategy requirements to then switch back to offensive almost overnight. These are requirements that cannot really be observed in Europe and North America, may in the upcoming future.

If a company has the right management at each of these times, the natural changes contribute to strengthening and healthy growth, because in the ideal case the managers, in addition to the classic management tasks, actively shape in particular the safeguarding of the future viability of the company, and this at all times.

This allows negative corporate developments to be identified at an early stage and the right measures to be initiated before a crisis manifests itself. And this management understands how to react differently and more adequately, despite the fact that a crisis may already have occurred.

As I said - ideal case.

Discontinuity is part of everyday life in Brazilian companies.

This is a regularity, even if we are sometimes too willing to surrender to a different illusion for reasons of convenience. Insofar as entrepreneurs and managers persist in the respective status quo, an approaching imbalance has already been initiated. And at this point, the behavior of the parent company should also be integrated into the scenario and seen as part of the problem. The same happens when new and quite good concepts are to be implemented with the old - i.e., unsuitable for successful change management - management team.

A management that has failed to recognize and act on the signs of the times in the run-up to a crisis will only be able to implement a new strategy in a suboptimal way for a very short time at best and - despite all efforts - will fall back into old habits relatively quickly. Here we can observe time and again that in very many cases a "comfortable focus on pure cost reduction" is perceived as sufficient.

A further dramatic deterioration within a short period of time is the immediate consequence.

To ensure the future viability of a Brazilian company, management and leadership, both locally and at the parent company, must not remain in the status quo and must never be too sure of the level they have reached.

The most important basis for avoiding or mastering crises is the constant questioning of one's own leadership ability and the personal willingness of managers to constantly explore new avenues together with employees, so that the company does not have to be restructured in the first place.

Can corporate crises in Brazil be recognized in good time?

To put it bluntly: crises can be recognized in good time, provided that management keeps its eyes and ears open. It's easy to write and sounds so simple.

But there is an interesting observation among those companies in Brazil that were able to use a turnaround to make a lasting change. And the focus is strongly on management.

Whereas it used to be that local managers and managers of the parent companies often revolved around themselves and surrounded themselves in Brazil with managers who were similar to them and used the same words, who then in turn hired employees for the same reason, the new type of manager allows himself to question everything - including himself.

Rare

Yes, rare

At this point, the activity of HR consultants in Brazil in appointing new managers must also be viewed critically. Keyword: stable smell, industry, same task already for years. So what is the ideal new manager?

The really new Brazilian managers know very well that management is always only as successful as customers are willing to pay for products and services.

Strategies, concepts, processes and also tactics are part of the agenda and undoubtedly form an important business basis. However, especially in phases of upheaval, completely different things have to be examined as well:

Does our management style, our corporate culture fit our current cycle?

When asking this question, it is essential to distinguish between the phase in which the market is in the country of the parent company and the phase in which it is in Brazil. It does not have to be in lockstep!

Are there recurring patterns that put us in a bad position?

Which predetermined breaking points help us to overcome them more quickly?

Often, crises can be derived and recognized long in advance by clear conditions, because they always follow the same pattern: from the earnings crisis to the liquidity crisis to the necessary restructuring.

And then the most important, but also most sensitive indicator: if you were to ask the employees, they would have recognized the danger due to management problems - usually caused by well-known egomaniacs in the company - long before a crisis becomes visible in figures.

The effectiveness of management in restructuring measures succeeds, provided that the management positions are properly filled. The effectiveness of management reflects the current and future positioning in the market.

Therefore, the selection and proper staffing of management positions is also critical at every stage of a company's life cycle in Brazil. Therefore: it may be uncomfortable, but a fluid adjustment of management structures is necessary.

Our learnings

From our reorganization and restructuring projects we know that no matter if it is a growth, a crisis or a succession, there is the temporary necessary interim manager in Brazil, who has already experienced exactly these phases in his projects and still - fitting to the respective company, the industry, the circumstance and especially the involved employees - always breaks new ground at the right moment. We have the knowledge and experience to recognize what might be coming in good time, but above all the ability to communicate necessary changes in such a way that the employees support them. If there is a good management team in the client's company, it can make sense to bring in outside support in situations of reorganization and restructuring.

However, not as practiced in numerous cases and often synonymous with the medium-term demise of the company as a result of insubstantial and inadequate reorganization reports with a focus on pure cost reduction.

As interim managers and implementation-oriented consultants, we can be particularly helpful if, in addition to a method-based approach, we question entrenched opinions and attitudes in particular, in order to set up reorganizations and restructurings for the long term with the goal of maintaining and increasing values.

The tunnel

Generally, Brazilian corporate crises follow a clear pattern: a missing or outdated strategy as well as the failure to adapt to a changed market condition lead to an earnings and subsequent liquidity crisis caused by the management, even if they rarely want to admit their own mistakes.

If the subsequent restructuring is carried out with the same management or parts of it, the same patterns usually emerge. Even when a sustainable strategy is developed, it fails because of poor transformation and implementation with employees. Of course, local management should be involved in the measures! But this does not guarantee inevitable success.

The prerequisite for solving this complex task is the experience and knowledge of which management can really deliver effective contributions and results and manage to implement them through highly communicative leadership within the company.

The status quo has no potential for the future!

Sometimes radical change is needed. Companies are subject to dynamic change and this also affects management. The art of leadership, especially in reorganization and restructuring phases, lies in not just looking at a small window of time. Whether growth, crisis or restructuring - no phase is permanent, not even if the right things are done at the right moment.