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Turnaround Management

Turnaround Management- Techniques, Challenges, Nature & Stages

Turnaround Management- Meaning

Turnaround management is a process dedicated to corporate renewal. It uses analysis and planning to save troubled companies and returns them to solvency, and to identify the reasons for failing performance in the market, and rectify them. Turnaround management involves management review, root failure causes analysis, and SWOT analysis to determine why the company is failing. Once analysis is completed, a long term strategic plan and restructuring plan are created. These plans may or may not involve a bankruptcy filing. Once approved, turnaround professionals begin to implement the plan, continually reviewing its progress and make changes to the plan as needed to ensure the company returns to solvency.

Techniques to cause a repositioning

There are different techniques that can be applied to cause a repositioning. The four main techniques are known as Retrenchment, Repositioning, Replacement and Renewal:

  1. Retrenchment:

    The Retrenchment strategy of the turnaround management describes wide-ranging short-term actions, to reduce financial losses, to stabilize the company and to work against the problems, that caused the poor performance. The essential content of the Retrenchment strategy is therefore to reduce scope and the size of a business through Shrinking Selective Strategy. This can be done by selling assets, abandoning difficult markets, stopping unprofitable production lines, downsizing and outsourcing. These procedures are used to generate resources, with the intention to utilize those for more productive activities, and prevent financial losses. Retrenchment is therefore all about an efficient orientation and a refocus on the core business. Despite that many companies are inhibited to perform cutbacks, some of them manage to overcome the resistance. As a result they are able to get a better market position in spite of the reductions they made and increase productivity and efficiency. Most practitioners even mention, that a successful turnaround without a planned retrenchment is rarely feasible.

  2. Repositioning:

    The repositioning strategy, also known as “entrepreneurial strategy”, attempts to generate revenue with new innovations and change in product portfolio and market position. This includes development of new products, entering new markets, exploring alternative sources of revenue and modifying the image or the mission of a company.

  3. Replacement:

    Replacement is a strategy, where top managers or the Chief Executive Officer (CEO) are replaced by new ones. This turnaround strategy is used, because it is theorized that new managers bring recovery and a strategic change, as a result of their different experience and backgrounds from their previous work. It is also indispensable to be aware, that new CEO’s can cause problems, which are obstructive to achieve a turnaround. For an example, if they change effective organized routines or introduce new administrative overheads and guidelines. Replacement is especially qualified for situations with opinionated CEO’s, which are not able to think impartial about certain problems. Instead they rely on their past experience for running the business or belittle the situation as short-termed. The established leaders fail therefore to recognize that a change in the business strategy is necessary to keep the company viable. There are also situations, where CEO’s do notice that a current strategy isn’t successful as it should be. But this hasn’t to imply, that they are capable or even qualified enough to accomplish a turnaround. Is a company against a Replacement of a leader, could this end in a situation, where the declining process will be continued. As result qualified employees resign, the organisation discredits and the resources left will run out as time goes by.

  4. Renewal:

    With a Renewal a company pursues long-term actions, which are supposed to end in a successful managerial performance. The first step here is to analyze the existing structures within the organization. This examination may end with a closure of some divisions, a development of new markets/projects or an expansion in other business areas. A Renewal may also lead to consequences within a company, like the removal of efficient routines or resources. On the other hand are innovative core competencies implemented, which conclude in an increase of knowledge and a stabilization of the company value.

Hurdles or challenges in turnaround management

Three critical hurdles or challenges that management faces in any repositioning program:

  1. Design:

    What type of restructuring is appropriate for dealing with the specific challenge, problem, or opportunity that the company faces?

  2. Execution:

    How should the restructuring process be managed and the many barriers to restructuring overcome so that as much value is created as possible?

  3. Marketing:

    How should the restructuring be explained and portrayed to investors so that value created inside the company is fully credited to its stock price?

Nature of Turnaround management

  1. Turnaround management is a process dedicated to corporate renewal.
  2. Turnaround management involves management review, root failure causes analysis, and SWOT analysis to determine why the company is failing. Once SWOT analysis is completed, a long term strategic plan and restructuring plan are created.
  3. When a company that has experienced a period of poor performance moves into a period of financial recovery, it is called a turnaround management.
  4. The turnaround is akin to a restructuring process where the entity converts the period of loss into one of profitability and success while stabilizing its future.
  5. A turnaround which is sometimes referred to as a TAR is a highly-expensive planned period of regeneration in a plant or refinery. During this time, an entire part of the operation is off-lined whilst plants are inspected and revamped.
  6. Turnaround time is a period of time required for completing a particular process or task since the moment it is formally demanded. Turnaround time commonly refers to the amount of time measured from the submission of a request to the conclusion and delivery to the requester.
  7. A turnaround is a planned break in production so that maintenance may be performed.

Stages of Turnaround Management

  1. Assess Viability:

    The first stage comprises a high level and detailed investigation of the business and its problematic situation and can take around 2-4 weeks of time.

The investigation acquires a wide range of information to be figured out that includes:

  • Current and historical financials (P&L, balance sheet, cash flow and verification these accounting and costing systems, if they are reliable in nature or not)
  • List of the Stakeholders and debtors
  • Management capability
  • Cause of situation or the problem
  • Potential solutions to solve the problem
  • Assess if business issues are controllable or not
  • Assess if the ongoing business is viable or not.
  • Develop a SWOT analysis to provide clarity on all the given options.
  1. Stabilize and Develop Strategy:

    Once the issues and priorities have been identified and agreed to by all the key members of the management and the company, stage 2 involves focusing on the aspect of stabilizing the business and planning the recovery strategy from all the issues and problems. The timeframe can vary widely depending on the business situation, problems and their nature of complexity and can take from 4 weeks to 3 months time to complete the same. The turnaround strategy consists of the following factors, and may occur concurrently and in any given order depending on the merit of the case:

  • Crisis stabilization that encompasses taking control, management of cash, short-term financing options, first step cost reduction,
  • New team for leadership – owing to inadequate skills of the current team, instability in management, need for fresh and creative ideas.
  • Stakeholder focus – advising and engaging stakeholders dependent on the outcome and includes financiers, creditors, employees, customers, industry associations and even government officers as well for various reasons. The benefit of this aspect is often underestimated and often provides the greatest source of solutions and support to solve the problems of the business and an effective Turnaround Management.
  • Strategic focus – redefining the core business, restructuring, M&A, divestment, values, and fundamentals.
  • Organizational change – engaging the key staff, improving the levels of communication, and improving the morale of the employees.
  • Process improvements – operational improvements that provide low hanging fruit, and focus on key issues that require instant attention.
  • Financial restructuring- implementing tighter control and monitoring of cash, equity injection, asset reduction or selling under-utilized assets to generate cash or use as security for short-term funding that will be quite beneficial for the organization.
  1. Implementation and Monitoring:

    Once Stage 2 is underway and under process, the focus will be the detailed implementation and monitoring of the finalized strategy. This may include setting up an advisory board to assist the owners, directors, or board to maintain its focus on the implementation of the strategy. The business may bring on board a Chief Restructuring Officer, whose main and principle role is to implement the Turnaround Management strategy.

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