Turnaround Strategy
Turnaround Strategy
Turnaround Strategy
Terms used
Turnaround situation represents absolute and relative-to-industry declining performance of a magnitude to warrant a explicit turnaround action The immediacy of the resulting threat to company survival posed by the turnaround situation is known as situation severity
Possible actions
Sell off assets to generate cash and/or reduce debt Revise existing strategy
Harvest
Divest / Liquidate
Turnaround
Main elements
Crisis stabilisation Management of change Gaining stakeholder support Clarifying the target markets Re-focusing Financial restructuring Prioritizing critical improvement areas
Harvest Strategy
Steers middle course between status quo and exiting quickly Involves gradually sacrificing market position in return for bigger nearterm cash flow/profit Objectives
Short-term - Generate largest feasible cash flow Long-term - Exit market
Divestment
Reasons for divestment
Approaches to divestment
Spin-off into an independent company Outright sale of the unit
Liquidation Strategy
Wisest strategic option in certain situations
Lack of resources
Dim profit prospects May serve stockholder interests better than bankruptcy Unpleasant strategic option Hardship of job eliminations Effects of closing on local community
Understanding turnarounds
Involves concerted effort over a period of time to fortify a firms distinctive competencies, returning it to profitability
Change management with emphasis on rapid reconstruction, where in its absence, a business could face closure, enter terminal decline or be taken over
Conditions necessitating
Negative cash flows Negative profits Declining market share Uncompetitive products or services Employee turnover / low morale Mis-management
Key elements
Prepotent role of CEO
Creating consensus Diagnosis of situation Setting direction & momentum for change
External factors
Recession Intensified competition Change in government policy Technological change
Response elements
Strategic Operational
Stakeholders engagement
Role of creativity nearly inexhaustible capacity to improvise solutions Each (successful or unsuccessful) turnaround is an experiment, which can trigger many learnings