Rolls-Royce CEO fired managers and held staff brainstorms as part of a ‘4 pillar' turnaround plan that led to 500% share price jump
Just two years ago, Tufan Erginbilgiç, then newly installed as CEO of Rolls-Royce, gave a grim warning to the engine maker's employees, describing the company as a 'burning platform' facing its 'last chance' at survival, as he lamented its track record of destroying value with each of its investments.
With that considered, Rolls-Royce's turnaround since—including a 500% share price jump and hitting profit targets two years ahead of schedule—is nothing short of astounding.
But Erginbilgiç, a former BP executive who doesn't regard himself as ruthless, took a fairly rudimentary approach to instill a successful turnaround at a group that has added more than $70 billion to its market value in the last two years.
Rolls-Royce manufactures engines for major plane manufacturers, Airbus and Boeing, on large, dual-aisle aircraft. The group is also a supplier of engines and propulsion systems for combat aircraft and submarines to government defense departments including the Ministry of Defense in the U.K.
Despite that, when Erginbilgiç joined Rolls-Royce, the company was near its floor for market valuation, bogged down by falling air travel during the COVID-19 pandemic and costly contracts with loss-making clients. An industry-wide rebound in travel demand and some astute contract negotiations are among the headline points that explain Rolls-Royce's turnaround.
In the background, though, are the fruits of an ambitious plan involving each of Rolls-Royce's 42,000 employees.
In an interview with the Financial Times, a victorious Erginbilgiç described how he leaned on 'four pillars' to encourage wholesale change throughout his organization.
The first pillar involved showing staff the extent of the difficulties faced by the company, exemplified by Erginbilgiç's 'burning platform' comments, which both shocked and focused his employees.
Tougher stances were to follow. Under Erginbilgiç's guidance, the company laid off 2,500 employees in 2023, mostly in middle manager positions, the FT reports. At the same time, Erginbilgiç held workshops for 500 employees to allow brainstorming and the implementation of the best ideas.
Erginbilgiç's third pillar required the company to set clear performance targets. The company now has 17 targets, including improving the amount of time its engines were on the wing of a plane, rather than losing money in the repair shop. The fourth pillar of the turnaround aimed to ensure Rolls-Royce's targets were attacked with 'pace and intensity.'
'If you don't have a strategy that can cascade down to 42,000 people it won't get delivered,' Erginbilgiç summarized to the FT.
Bosses are increasingly turning to management practices that can help them get their message across directly to as many staffers as possible. In some cases, this is driven by urgency and, in other cases, by technological advancement.
Speaking to Fortune last year, Sanofi CEO Paul Hudson described how he used the 'Fight Club' approach to encourage employees to begin using its AI agent. Hudson initially got a small group of people in a room using the tool, before allowing word of mouth to help uptake of the technology spread.
Meanwhile, Bayer, a similarly struggling European giant, also turned to a personnel shakeup to combat investor pessimism.
Bayer's CEO, Bill Anderson, got rid of more than 5,000 employees, mostly in managerial positions, and asked employees to self-organize and work in 90-day 'sprints' in self-directed teams.A year after Bayer's attack on bureaucracy began, Anderson said attrition at the company had fallen.
This story was originally featured on Fortune.com
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