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Turnaround Artists

Two seasoned renewal strategists offer a prescription for the corporate blahs. Carter Pate and Harlan Platt’s medicine doesn’t taste too good, but it may help cure what ails you.

Americans relish the come-from-behind, against-all-odds victory. How else can you explain the enduring success of all five Rocky films?

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Now, as the fires of corporate fraud and corruption rage out of control, licking every corner of the global economy, we’re in dire need these days of a fist-pumping, good old-fashioned comeback. (Fade to music: “It’s the eye of the tiger … It’s the thrill of the fight!”)

While there may not be an actual corporate comeback to speak of just yet, there’s at least a new plan available for how to stage one. Two veteran comeback artists, Carter Pate, a restructuring expert at PricewaterhouseCoopers, and Harlan Platt, a business professor at Northeastern University, have mapped out a nine-step path to corporate revitalization in their recently released book, The Phoenix Effect: 9 Revitalizing Strategies No Business Can Do Without (John Wiley & Sons, 2002).

Their premise is simple: “Good companies can become great companies with a tune-up; troubled ones can straighten out with a turnaround; and crisis management can enable the ugly to snatch success from the jaws of failure.” In practice, though, turning around a troubled company is no mean feat.

But Pate and Platt say that applying their nine principles is, at the very least, a good place to start: “We have boiled two lifetimes of experience into nine pivotal principles that we believe must be applied to revive any business.”

In fact, a recent study says the odds are stacked against companies that have filed for Chapter 11 bankruptcy protection. While 85% of large public companies with more than $216 billion in assets that filed for bankruptcy between 1983 and 1996 managed to emerge successfully, only one-third of companies overall clawed their way back from the brink. And while the total number of public and private companies filing for Chapter 11 has declined from the late 1980s and early 1990s, the number of public companies with assets totaling $256 billion or more that are facing bankruptcy has skyrocketed to all-time highs in the past two years.

This means that on one hand, the historic record bodes well for big companies trying to emerge from bankruptcy protection; but on the other hand, that promising record is now being put to the test by an unprecedented number of large-asset basket cases.

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In The Phoenix Effect, Pate and Platt’s approach to reviving a flagging company resembles a doctor treating a patient. The first order of business is to figure out what’s wrong with a company or, as the authors write, to “get to the point of pain.

“The first task is to diagnose the corporate patient’s condition before you can make the right prescription. Find out what hurts.”

Of course, that endeavor alone can prove tricky. “Besieged leaders see an effect, but not what is causing it. They can’t seem to diagnose the problem.” And without a proper diagnosis, the wrong course of treatment could be fatal.

The other 9 strategies (the title says there are 9, the book says 10 — but who’s counting?) involve the actual treatment of the source of pain that’s at the root of a company’s problems.

Pate and Platt roll out the tough questions for leaders to ask about their business: Have you determined the proper scope of your products? Have you oriented the business to target and meet customer needs? Have you built (or reduced) the company to an appropriate scale? What is your debt load? No, really? Are you getting the most from your capital and human assets?

Yet, rather than develop actual strategies for turning a business around, Pate and Platt offer what are more like tips for where a management team should take X-rays and how to interpret the results. And that may be just what the doctor ordered for some of today’s CEOs.

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After all, in the age of haute cuisine coming from business authors like Malcolm Gladwell, Rosabeth Moss Kanter, and Clayton Christensen, it’s nice to have a little back-to-basics comfort food now and again.

Ryan Underwood (runderwood@fastcompany.com) works on the Fast Company Web team.