Leading a corporate transformation

There are valuable lessons to be learned about leading a corporate transformation from an executive who has done so three times in the past dozen years.

Here is a brief excerpt from an interview of Davor Tomašković for the McKinsey Quarterly, published by McKinsey & Company. To read the complete article, check out other resources, learn more about the firm, obtain subscription information, and register to receive email alerts, please click here.

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Few executives lead corporate-transformation efforts at three separate businesses before they turn 50, let alone businesses in three very different industries. Davor Tomašković is one of them.

The CEO and president of the management board at Hrvatski Telekom (HT), Croatia’s biggest telco (and a subsidiary of Deutsche Telekom), first came to wider attention in 2004, when he took the top job at the struggling Balkan retail and distribution group Tisak. After helping the company to stave off bankruptcy and helping turn it into the biggest national player in its sector, Tomašković was, in 2006, appointed CEO of TDR, a successful regional Croatian tobacco manufacturer that nevertheless faced a challenging economic and regulatory environment in the wake of the global financial crisis.

At HT, by contrast, where he became president and CEO in January 2014, Tomašković inherited a company that had been losing market share for at least five years but is now once again expanding after a radical cost-cutting and reorganization plan. In this interview (at HT’s Zagreb headquarters) with McKinsey senior partner Jurica Novak and McKinsey Publishing’s Tim Dickson, Tomašković reflects on common lessons from the three transformations, including the importance of quick results, the value of data-driven decision making, and the particular environment of emerging markets in the Balkan region.

The Quarterly: How different were the three transformation experiences you have been through?

Davor Tomašković: The first company, Tisak — now Croatia’s largest distributor of cigarettes, prepaid vouchers, and newspapers — was on the brink of a new bankruptcy and facing major cash-flow problems when I became CEO, in 2004. To give you an idea of what it was like, it was not certain, during my first week, that the wages of the 3,000 persons then employed by the company could be met. It was a company in dire straits.

TDR, which had some of the same shareholders as Tisak, was much bigger and highly profitable when I arrived, in 2006. However, it also faced an uncertain future owing to the fact that negotiations to sell the business to Philip Morris International—one of five global companies that, between them, control 84 percent of the worldwide market—had just collapsed. As a consequence, PMI had withdrawn its license agreement for us to manufacture Marlboro cigarettes.

Hrvatski Telekom posed, yet again, a different scenario. The challenge here was to turn around a company that had, in effect, failed to meet most of the targets set by its parent, Deutsche Telekom, between 2009 and 2014. What was needed was a program to arrest HT’s obvious decline and a new growth strategy.

Speed seems to be an important part of your management approach. Why is it important to act quickly when you want to change an organization?

At Tisak, the organization was ripe for change because there was a burning platform. It was obvious that without rapid action, the company would not survive.

At TDR, on the other hand, I initially experienced resistance because the company was demonstrably highly successful—the prevalent mind-set among senior management was to preserve the status quo and not to embrace change. Speed, in this case, was of the essence because market trends and fluctuations were already indicating that without early change, the company’s performance would probably have declined within a year.

It is particularly critical to move fast and demonstrate early success when workforce morale and management credibility are low. This was the case at HT, which was consistently missing critical targets, though employees and managers worked hard and the company enjoyed a good, albeit declining, position in the market. They felt demoralized. In early discussions, it was clear that many were skeptical of my ability to add tangible value; rather than blaming performance, they felt they were battling overambitious targets and other circumstances beyond their control. While it’s true that telcos throughout Europe were in decline, the reality at HT was that profits were falling faster than revenues because the company had failed to adjust its costs. It was important to demonstrate this.

Do you think that managers, more than shop-floor employees, are potentially the obstacles in a transformation?

One of my first moves at HT was to de-layer the organization. We not only reduced the number of management positions by one-third—from 300 to 200, in some cases removing two out of six tiers of management—but reshuffled or rotated another third of them. Only one-third of managers retained their existing positions. That reshuffling brought a new pair of eyes to almost every situation. Combined with an early attack on other costs, such as the review of our collective-bargaining agreement and contracts with vendors, it demonstrated unequivocally that there was real scope for improvement.

Everything starts with the managers. In every organization I joined, I started by making changes at the top; I have never made changes from the bottom up. At HT, I also replaced five of the six board members within my first year, for the simple reason that I did not think they had the right mind-set or the will to effectively implement change, primarily because they perceived that to do so would be an admission of past wrongdoing.

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Here is a direct link to the complete article.

Davor Tomašković
is CEO and president of the management board of Hrvatski Telekom. This interview was conducted by Jurica Novak a senior partner in McKinsey’s Bucharest office, and Tim Dickson, a member of McKinsey Publishing who is based in the London office.

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