The focus of turn around is on reduction in assets and costs and increases in revenues and profits.
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
Rid of unprofitable
products, pursuing workforce, trimming distribution
outlets and seeking methods to make the organization more efficient
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.
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
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.
Reengineering involves casting aside old
assumptions about how an organization’s business processes should be done and
starting form scratch
to design more efficient processes. This may cut costs. This is easiest to see
in a manufacturing process, where each step of assembly is scrutinized for
improvement or elimination. Be sure to recommend wise use of reengineering. It
is better to abandon processes that are not efficient.
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.
The ten elements of turnaround
strategy as identified by Pradip N. Khandwalla are as follows.
in the top management
quick payoff activities
liquidation for generating cash
of the organizations
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
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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