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Turnaround Management - Turnaround Strategies & Corporate Restructuring
Strategic Management - Strategy Formulation
Turnaround Management - Turnaround Strategies & Corporate Restructuring
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The focus of turn around is on reduction in assets and costs and increases in revenues and profits.
Turnaround Management
The focus of turn around is on reduction in assets and costs and increases in revenues and profits. This is similar to a weight reduction direct where two basic issues are :contraction and consolidation.
Contraction – “Stop the bleeding” attempt. Cutting back size and costs. It involves harsh decisions like the following.
Rid of unprofitable products, pursuing workforce, trimming distribution outlets and seeking methods to make the organization more efficient
Divestment, which involves selling the business and setting up a new corporation. This strategy improves the financial performance of a company and is opted when fit well to reach the organization’s objectives.
Liquidation is termination of assets and selling off. This is less preferred since it involves losses to stockholders and employees. But in a multi- business firm the impact of liquidation of one business may not be much.
Consolidation – A programme to stabilize a leaner corporation. Reducing overheads to make the firm cost effective
Another way of carrying turnaround may be as follows.
A cost cutting program should be preceded by careful thought and analysis. The possibilities are that some departments or projects may need additional funding, while others need modest cuts, and still others need drastic cuts or need to be eliminated altogether. If you consider cost cutting as part of your strategy implantation in a case, be sure to specify exactly how it would be implemented across the organization. Support why the cost cutting should take the form you propose.
Reengineering involves casting aside old assumptions about how an organization’s business processes should be done and starting form
Downsizing means laying-off people. It is a good way to cut costs quickly. But unless downsizing is tied to a rational strategy, problems can result. Cutting staff without changing the amount and type of work may result in costs cuts, but product quality and customer service may suffer, if they do, the organization’s performance measures will suffer. The downsizing plan you recommend should fit logically with the strategy proposed.
The ten elements of turnaround strategy as identified by Pradip N. Khandwalla are as follows.
Changes in the top management
Initial credibility-building actions
Neutralizing external pressures
Initial control
Identifying quick payoff activities
Quick cost reductions
Revenue generation
Asset liquidation for generating cash
Mobilization of the organizations
Better internal coordination
These ten elements are identified based on the case studies of turnaround of 10 companies in India.The following are the factors that are commonly employed in turnaround management.
Management Factor Managerial inefficiency is the root cause of the problems in a number of cases. Therefore, improvement of the management becomes a prerequisite. For carrying out the turnaround management, a new efficient chief executive officer is usually appointed. The new CEO should streamline things and in many cases will have to change the organizational culture. This was true of several successful cases of turnaround management such as E.I.D Parry and Travancore Cochin Chemicals (TCC).
Human Resource Factor In many of the companies, which are in very bad shape, the human resource is redundant, demoralized and surplus. The surplus manpower should be got rid of, morale should be restored and the quality of the manpower should be improved through training and recruitment of competent people for the key positions, if needed.
Production Facilities Modernization and other improvements of plant, equipments etc., are also often an important part of the turnaround management. Such measures helps to achieve uninterrupted production flow and better capacity utilization, quality improvement, and reduction in wastage, increase in productivity and cost reduction. Proper management of the plant and equipments like preventive maintenance etc., have also been found to be absent in several sick units.
Finance Management Arranging additional finance, financial discipline, financial restructuring (described under Business Reorganization) etc., are usually an inevitable part of the turnaround management.
Product Mix Modification A number of turnaround management cases involve modification of the product mix. Unprofitable products may have to be dropped and new products may have to be introduced. Sometimes current products require quality improvement or some other modification. In some cases new models may have to be introduced.
Marketing Strategy Absence of a proper marketing strategy is a major reason for the problems of several companies. An appropriate marketing strategy could help improve such cases. Even product mix modification may form a part of such strategy. Marketing strategy may also involve market modification like entering new markets or market segments, withdrawing from certain markets/segments, developing new customers etc.
Miscellaneous Turnaround management may also involve several measures like liquidation of assets which are not in use, closing down of some divisions or lines of business, restraints on emoluments of employees, better management of procurement of raw materials etc.
The focus of turn around is on reduction in assets and costs and increases in revenues and profits. This is similar to a weight reduction direct where two basic issues are :contraction and consolidation.
Contraction – “Stop the bleeding” attempt. Cutting back size and costs. It involves harsh decisions like the following.
Rid of unprofitable products, pursuing workforce, trimming distribution outlets and seeking methods to make the organization more efficient
Divestment, which involves selling the business and setting up a new corporation. This strategy improves the financial performance of a company and is opted when fit well to reach the organization’s objectives.
Liquidation is termination of assets and selling off. This is less preferred since it involves losses to stockholders and employees. But in a multi- business firm the impact of liquidation of one business may not be much.
Consolidation – A programme to stabilize a leaner corporation. Reducing overheads to make the firm cost effective
Another way of carrying turnaround may be as follows.
Stage One – Cost Cutting
A cost cutting program should be preceded by careful thought and analysis. The possibilities are that some departments or projects may need additional funding, while others need modest cuts, and still others need drastic cuts or need to be eliminated altogether. If you consider cost cutting as part of your strategy implantation in a case, be sure to specify exactly how it would be implemented across the organization. Support why the cost cutting should take the form you propose.
Stage Two-Re-engineering
Reengineering involves casting aside old assumptions about how an organization’s business processes should be done and starting form
Stage Three -Downsizing
Downsizing means laying-off people. It is a good way to cut costs quickly. But unless downsizing is tied to a rational strategy, problems can result. Cutting staff without changing the amount and type of work may result in costs cuts, but product quality and customer service may suffer, if they do, the organization’s performance measures will suffer. The downsizing plan you recommend should fit logically with the strategy proposed.
Measures
The ten elements of turnaround strategy as identified by Pradip N. Khandwalla are as follows.
Changes in the top management
Initial credibility-building actions
Neutralizing external pressures
Initial control
Identifying quick payoff activities
Quick cost reductions
Revenue generation
Asset liquidation for generating cash
Mobilization of the organizations
Better internal coordination
These ten elements are identified based on the case studies of turnaround of 10 companies in India.The following are the factors that are commonly employed in turnaround management.
Management Factor Managerial inefficiency is the root cause of the problems in a number of cases. Therefore, improvement of the management becomes a prerequisite. For carrying out the turnaround management, a new efficient chief executive officer is usually appointed. The new CEO should streamline things and in many cases will have to change the organizational culture. This was true of several successful cases of turnaround management such as E.I.D Parry and Travancore Cochin Chemicals (TCC).
Human Resource Factor In many of the companies, which are in very bad shape, the human resource is redundant, demoralized and surplus. The surplus manpower should be got rid of, morale should be restored and the quality of the manpower should be improved through training and recruitment of competent people for the key positions, if needed.
Production Facilities Modernization and other improvements of plant, equipments etc., are also often an important part of the turnaround management. Such measures helps to achieve uninterrupted production flow and better capacity utilization, quality improvement, and reduction in wastage, increase in productivity and cost reduction. Proper management of the plant and equipments like preventive maintenance etc., have also been found to be absent in several sick units.
Finance Management Arranging additional finance, financial discipline, financial restructuring (described under Business Reorganization) etc., are usually an inevitable part of the turnaround management.
Product Mix Modification A number of turnaround management cases involve modification of the product mix. Unprofitable products may have to be dropped and new products may have to be introduced. Sometimes current products require quality improvement or some other modification. In some cases new models may have to be introduced.
Marketing Strategy Absence of a proper marketing strategy is a major reason for the problems of several companies. An appropriate marketing strategy could help improve such cases. Even product mix modification may form a part of such strategy. Marketing strategy may also involve market modification like entering new markets or market segments, withdrawing from certain markets/segments, developing new customers etc.
Miscellaneous Turnaround management may also involve several measures like liquidation of assets which are not in use, closing down of some divisions or lines of business, restraints on emoluments of employees, better management of procurement of raw materials etc.
Tags : Strategic Management - Strategy Formulation
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