turnaround management (1)

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Turnaround Management of a company

Page 1

Project On:

Turnaround Management of a company.

Submitted By-

YASIKA D. SHIWALKAR.

M.COM BANKING AND FINANCE - PART I.

SEMESTERI.

ROLL NO: 17.

Submitted To-

UNIVERSITY OF MUMBAI.

Project Guide:

Prof. (Miss) Kalpana Chandhoke.

VPMs

K.G. Joshi College of Arts

& N.G. Bedekar college of commerce

Chendani bunder road, Thane (w) - 400601

Tel: 25332412

ACADEMIC YEAR

2012-2013.

Vidya Prasarak Mandal, Thane


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K.G. JOSHI COLLEGE OF ARTS &

N.G. BEDEKAR COLLEGE OF COMMERCE

CERTIFICATE

OF

PROJECT WORK

This is to certify that

Mr./Ms. Yasika D Shiwalkar_____________________________

M. Com (Banking and Finance) Semester ____ Roll No. ____ Seat

No.__________ has undertaken & completed the project work

titled_________________________

During the academic year __________ under the guidance of Mr.

/Ms._________ ___________________________

Submitted on__________ to this college in fulfillment of the curriculum of

MASTER OF COMMERCE (BANKING AND FINANCE)

UNIVERSITY OF MUMBAI

This is bonafide project work & the information presented is True &

original to the best of our knowledge and belief.

Internal External

Examiner Examiner


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Declaration.

I, Yasika D. Shiwalkar, the student of Joshi Bedekar college presently

pursuing the knowledge in M.comBanking and Finance Part-I hereby

declare that I have completed these project on Turnaround Management

of a company. in the academic year September 2012. The information

submitted is true and original to the best of my knowledge.


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Acknowledgement.

In brief, this project has taught me the basic fundamentals ofTurnaround

Management of a company. I take this opportunity to thank the people

who have helped me in preparing my project.

It gives me immense pleasure in expressing my gratitude to my project

Guide Prof. Miss. Kalpana Chandhoke for giving her precious time and

helping me in completing my project.

I would also like to thank Prof. Mr. D. M. Murdeshwar (co-ordinator), our

Principal Dr. (Mrs.) S. A. Singh, for their valuable suggestions and support

provided during the project and also for library staff for providing the books

whenever demanded by us.

I thank them for being informative and tolerant. I would not have been able

to complete my project without sincere guidance of the above mentioned

people whose presence was blessing in disguise for me which motivated me

to complete my project on time.


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INDEX

Sr No. Topics Page No.

1.

2.

3.

3.1

3.2

4.

5.

6.

7.

8.

9.


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Turnaround management is a process dedicated to corporate renewal. It

uses analysis and planning to save troubled companies and returns them to

solvency. Turnaround Management involves management review,activity

based costing, root failure causes analysis, andSWOT analysisto 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 abankruptcyfiling. 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.

Turnaround Managers

Turnaround Managers are also called Turnaround Practitioners in the UK,

and often are interim managers who only stay as long as it takes to achieve

the turnaround. Assignments can take anything from 3 to 24 months

depending on the size of the organisation and the complexity of the job.

Turnaround management does not only apply to distressed companies' it in

fact can help in any situation where direction, strategy or a general change of

the ways of working needs to be implemented. Therefore turnaround

management is closely related to change management, transformation

management and post-merger-integration management. High growth

situation for example are one typical scenario where turnaround experts also

help. More and more turnaround managers are becoming a one-stop-shop

and provide help with corporate funding (working closely with banks andthe Private Equity community) and with professional services firms (such as

lawyers and insolvency practitioners) to have access to a full range of

services that are typically needed in a turnaround process. Most turnaround

managers are freelancers and work on day rates, but there are a few very
http://en.wikipedia.org/wiki/Activity_based_costinghttp://en.wikipedia.org/wiki/Activity_based_costinghttp://en.wikipedia.org/wiki/Activity_based_costinghttp://en.wikipedia.org/wiki/Activity_based_costinghttp://en.wikipedia.org/wiki/SWOT_analysishttp://en.wikipedia.org/wiki/SWOT_analysishttp://en.wikipedia.org/wiki/SWOT_analysishttp://en.wikipedia.org/wiki/Bankruptcyhttp://en.wikipedia.org/wiki/Bankruptcyhttp://en.wikipedia.org/wiki/Bankruptcyhttp://en.wikipedia.org/wiki/Bankruptcyhttp://en.wikipedia.org/wiki/SWOT_analysishttp://en.wikipedia.org/wiki/Activity_based_costinghttp://en.wikipedia.org/wiki/Activity_based_costing


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high profile individuals who work for very large corporations on an

employed basis and usually get 5 year contracts.

Stages in repositioning of an organisation

1. The evaluation and assessment stage

2. The acute needs stage

3. The restructuring stage

4. The stabilization stage

5. The revitalization stage

The first stage is delineated as onset of decline (1). Factors that cause this

circumstance are new innovations by competitors or a downturn in demand,

which leads to a loss of market share and revenue. But also stable companies

may find themselves in this stage, because of maladministration or the

production of goods that are not interesting for customers. In public

organisations are external shocks, like political or economical, reasons that

could cause a destabilization of a performance.

Sometimes an onset of decline can be temporary and through a corrective

action and recovery (2) been fixed.

The reposition situation (3) is the point in the process, where the minimally

accepted performance is long-lasting below its limits. In empirical studies a

performance of turnaround is measured through financial success indicators.

These measures ignore other performance indicators such as impact on

environment, welfare of staff, and corporate social responsibility. The

organizational leaders need to decide, if a strategy change should happen or

the current strategy be kept, which could lead on the other hand to a


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company takeover or an insolvency. In the public sector performances are

characterized by multiple aims that are political contested and constructed.

Nevertheless, are different criteria of performances used by different

stakeholders and even if its use results in the same criteria, it is likely that

different weights apply to them. So if a public organization is situated in a

turnaround situation, it is subject to the dimensions of a performance (e.g.

equity, efficiency, effectiveness) as well as its approach of their relative

importance. This political point of view suggests that a miscarriage in a

public service may happen when key stakeholders are ongoing dissatisfied

by a performance and therefore the existence of an organisation might be

unclear. In the public sector success and failure is judged by the higher

bodies that bestow financial, legal, or other different resources on service

providers.

If decision maker choose to take a new course, because of the realization

that actions are required to prevent an ongoing decline, they need at first

to search for new strategies (4). Question that need to be asked here are, if

the search for a reposition strategy should be participative and decentralized

or secretive and centralized or intuitive and incremental or analytic and

rational. Here, the selection must be made quickly, since a second

turnaround may not be possible after a new or existing poor performance.

This means, that a compressed strategy process is necessary and therefore an

extensive participation and analysis may be precluded. The same applies to

the public sector, because the public authorities are highly visible and

politically under pressure to rapidly implement a recovery plan.

Is the fifth stage reached, the selection of a new strategy (5a) has been

made by the company. Especially researcher typically concentrates on this


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one of the reposition process. Most of them focus on the structure and its

impact on the performance of the strategy that was implemented. It is even

stated by the scientist, that a commercial success is again possible after a

failing of the company. But different risk-averse groups, like suppliers,

customers or staff may be against a change or are sceptical about the

implementation of the strategy. These circumstances could result in a

blockade of the realization. Also the conclusion is conceivable, that no

escape strategy is found (5b), as a result that some targets cant be

achieved. In the public sector it is difficult to find a recoverable strategy,

which therefore could lead to a permanent failure. The case may also be, that

though a recovery plan is technically feasible, it might not be political

executable.

The implication of the new strategy (6) ensues in the following sixth stage.

It is a necessary determinant of organizational success and has to be a

fundamental element of a valid turnaround model. Nevertheless, it is

important to note, that no empirical study sets a certain turnaround strategy.

The outcomes of the turnaround strategies can result in three different ways.

First of all a terminal decline (7a) may occur. This is possible for situations,

where a bad strategy was chosen or a good strategy might have been

implemented poorly. Another conceivable outcome is a continued failure

(7b). Here is the restructuring plan failed, but dominant members within the

company and the environment still believe that a repositioning is possible. If

thats the case, they need to restart at stage four and look for a new strategy.

Does an outcome of the new strategy turns out to be good, a turnaround

(7c) is called successful. This is achieved, when its appropriate benchmark

reaches the level of commercial success, like it was the case before the onset


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of decline. This is commonly measured in a timeframe between two and four

year.

Techniques needed for organisation 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:

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. 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 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.


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Repositioning

The Repositioning strategy, also known as entrepreneurial strategy, its main

focus is to generate revenue with new innovations and change in product

portfolio and market position. This includes the development of new

products, entering new markets, extrapolating alternative sources of revenue

and modifying the image or the mission of a company.

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 CEOs 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 CEOs, 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

CEOs do notice that a current strategy isnt successful as it should be. But

this hasnt 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.


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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

analyse the existing structures within the organisation. 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

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?


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Professional Organizations

There are a number of professional industry associations that provide advice,

literature and contacts to turn around professionals and academics. Some

are:

1. Turnaround Management Society (International / Focus on Europe)

2. Institute for Turnaround (England)

3. Turnaround Management Association (International)

4. Institut fr die Standardisierung von Unternehmenssanierungen

(Germany)


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There are 3 phases in any Turnaround Management.

1 The diagnosis of the impending trouble or the danger signals

2. Choosing appropriate Turnaround Strategy

3. Implementation of the change process and its monitoring.

Let us understand each phase individually

Phase I: Watching out for the danger signal

Do companies turn sick overnight and qualify as potential candidates for

turnaround, or do they become sick slowly, which can be stopped by timely

corrective action? Obviously only the latter is possible. But in reality, most

companies do not recognize this fact. The following are some of the

universally accepted danger signals, which a company should watch out for:

Decreasing market share / Decreasing constant rupee sales Decreasing profitability Increased dependence on debt / Restricted dividend polices Failure to plough back the profits into business

/ Wrong diversification at the expense of the core business.

Lack of planning Inflexible CEO / Management succession problems /

Unquestioning Board of Directors

A management team unwilling to learn from competitors.


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Phase II: Choosing appropriate Strategy

Hoffer, an expert management guru, classifies Turnaround Management into

two broad categories. They are

1. Strategic Turnaround

As the name itself suggests, strategic turnaround choices may force

the company to completely change its current way of operations.

The choices under this method are

A new way to compete in the existing business Entering into an altogether new business

Under the first choice, the focus is either on increasing the market share

in a given product market frame work or in repositioning the product

market relationship. The increase in market share can be achieved by

improving product quality perception through dealer push or by

a consumer pull. Alternatively, entering a new business as a turnaround

strategy can be approached through the process of product portfolio

management.


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2. Operating Turnarounds

Basically they are of 4 types and the strategy adopted depends on the various

situations in which the firm is. All these strategies focus on shortterm

effects only.

1 Asset reduction strategies

2 Revenue increasing strategies

3. Cost cutting strategies

4 Combination strategies

If a firm is operating much below the Breakeven level, it must takesteps to reduce its assets. This will reduce the level of fixed costs

and help in reducing the total costs of the firm.

If the firm is operating substantially but not extremely below itsbreakeven level, then the appropriate turnaround strategy isto generate extra revenues.

Operating closer but below breakeven levels calls for application ofcombination strategies. Under this method all the three namely cost

reducing, revenue generating and asset reduction actions

are pursued simultaneously in an integrated and balanced manner.

Combination strategies have a direct favorable impact on cash flows

as well as on profits.

If the firm is operating around or above the breakeven level, costreduction strategies are preferable as they are easy to carry out

and the firms profits rise once the unnecessary costs are cut down.


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Phase III: Implementation of the change process

Implementation plays an important role in any turnaround management.

Identification of an appropriate strategy by itself will not guarantee success.

Similarly partial adoption of a strategy is also not useful.

The selected strategy needs to be pursued relentlessly and with all-out effort

to make it work. The success or otherwise of a Turnaround strategy depends

on the commitment shown by the top management as also

the operating management.

Success Stories

The case of Hindustan Machine Tools

HMT was formed to manufacture machine tools with a foreign collaborator.After nearly a decade of operation, it decided to diversify into Watch

industry. The effect of this diversification was felt only after 57 years when

the main business of HMT crashed and the company started incurring losses.

The watch division came to the rescue and it generated cash profits to

keep the company going.


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The case of Bharat Heavy Electricals Limited

The company was started with the objective of

producing power generating equipments and virtually enjoyed monopoly.

But as the years went by because of the inability of the State Electricity

Boards and private sector to set up new power plants, its capacity utilization

fell down tremendously. To offset this depression, BHEL

ventured into Telecommunications, Metropolitan Transportation

and Defense production. Due to this timely diversification, BHEL is

now one of the rare profit making PSUs.


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There are 3 vital factors that any person leading a failing company must

consider. These are:

1) Stress And Worry May Keep You From Saving YourCompany

2) Lawyers Dont Have All The Answers3) Innocent Mistakes Often Kill Troubled Companies

Factor #1: Stress and Worry May Keep You from Saving Your

Company

Here are some common worries associated with a failing company:

You cant pay the employees on time. What can you do about it? Is bankruptcy the rights answer? Will this save your company or

kill it? Is your attorney giving you good advice or is he just trying to

make a big score?


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Should you pay your taxes? What happens when the IRS or someother taxing authority padlocks your door?

Can you make your loan payment? Should you ask your banker forhelp? Will you screw up talking to your banker causing the bank to

foreclose?

Youve made personal guarantees. What happens when the businessfails? Will you be working the rest of life to pay these debts? Could

they take your house?

A family member is dragging the business down. What do you do?Can you fire the family member without causing a major rift in the

family? Or keep the family member and pray he or she stops screwing

up?

Heres the problem.Worrying is taking valuable time away from you

time that you should be using to save your company.

And its a vicious cycle. Because your worries are stopping you, your

business declines further. And this causes even more worry and less action.

Factor #2: Lawyers Dont Have All the Answers

Heres what we call lawyers in Texas,buzzards in a three-piece

suits. This is especially true for bankruptcy attorneys.

Let me explain.

Of the companies that file for Chapter 11 bankruptcy, only 1 in 10

survives the procedure. And the one lucky company only survives because it

has a ton of cash when it files.


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(As you may know, Chapter 11 is a form of bankruptcy that lets your

company continue to run with protection from your creditors, but with the

oversight of a bankruptcy judge. Chapter 7 bankruptcy on the other hand is

a liquidation of your company. You can get a detailed description of these

and other legal alternatives in the "Fix Your Failing Company Toolkit.")

Now, as you might guess, most failing companies dont have much cash

when they file for Chapter 11. So why do their bankruptcy attorneys

encourage them to file Chapter 11? Thebankruptcy attorneys make a

fortune on the deal, thats why!

How much will your attorney make? Typically a Chapter 11 filing is going

to cost you at least $50,000 in attorney fees for the smallest company and

over $100,000 is common. Your bankruptcy could make your attorneys

year and buy him or her a new luxury car..

Let me show you how outrageous these fees can be. In a recent bankruptcy

filing, a $20 million technology firm took Chapter 11 and it had over a $1

million in fees before it was over. Fortunately, it had $3 million in the bank

before the filing so the company survived.

Heres what typically happens to most cash-poor companies filing a Chapter

11 bankruptcy. The CEO or business owner becomes tired of fighting the

creditors everyday. He or she thinks that Chapter 11 will make their debts go

away (it will) and save their business (it wont.) The business leader goes

down to the bankruptcy attorneys office, and the attorney, with a gleam in

his eyes, wholeheartedly recommends filing Chapter 11.


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(By the way, if the attorney gives you non-bankruptcy alternatives to

Chapter 11, you will know that your attorney is looking out for your best

interests... but these individuals are often hard to find.)

Then, within the next few months, the company runs out of cash completely

because of paying the high legal fees. Since theres no cash remaining, the

creditors attorney (which the bankrupt company is also paying for) files a

motion to convert the Chapter 11 into a Chapter 7 liquidation bankruptcy.

Without cash in the bank, the judge has no choice, but to order a liquidation

of the company.

Game over for your business.But thats not all

Do you have personal guarantees on debts that your bankrupt company cant

pay? Will angry creditors and investors sue you anyway? The hits just keep

coming for you, but your bankruptcy attorney had a great year.

So the moral of this story is: Chapter 11 is seldom is the best choice for your

company.

Obviously, the solution is to fix your failing company, sell it or use little-

known, inexpensive legal maneuvers. These are much better choices than

Chapter 11 and youll find out more about them later in this article.

Factor #3: Innocent Mistakes Often Kill Troubled Companies

Because youre not an expert in business crisis management, youre certain

to make dumb, but honest mistakes right now.


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Lets see how easy you can make a mistake. Do you know what to do

when

The sheriff seizes your equipment for the leasing company? The bank calls your loan? You cant make the rent payment? The IRS padlocks your door? Youre out of cash and your big customers check is lost in the mail? A creditor is asking you to make good on your personal guarantee?

The list could be much longer. You can imagine all the problems for whichyou dont have an answer. And when you decide wrong, you could be

shutting your doors shortly and paying your creditors out of your own

pocket.

Remember when you were in school. Leading a failing business is like

having a pop quiz the day after you were sick. Its not your fault you missed

yesterdays lesson, but now you must have the right answers oryoull fail.

Having a successful business requires constant work and planning; but

sometimes situations can happen that catch even the well-prepared

entrepreneur off guard. A turnaround strategy is an action plan that can give

struggling business owners the guidance and direction they need to revitalize

theircompany

Understanding its purpose:

When a company starts to experience problems, such as declining profit, and

increased debt; there has to be an intervention to return the company back to


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a profitable state. If no action is taken, the company will undoubtedly fail.

When management starts restructuring the business to correct its decline,

they are probably using a turnaround strategy. This is an in-depth plan,

designed to not only save the business, but make it financially sound as well.

There are also companies that have consultants and teams that specialize in

the different aspects of turnaround management.

Why a business fails:

There are numerous factors that could be identified as the cause for a

businesss demise. Maybe an inexperienced entrepreneur underestimated the

cost of operations, or tried to grow the business too fast. Perhaps poor

management of finances led to a shortage in capital. Corrupt management,

inefficient leadership, and the failure to plan for the worst-case event, can

often turn a growing company upside down. Being unprepared for an

economic downturn may be a factor. Business experts agree that typically,

the underlying cause(s) of failure are already in motion, long before the

visible signs are present.

Recognizing the signs

There are always signs, or indicators, when a company is doing poorly. The

first, and most obvious, would be in the finances. If your profits are

declining and your debt is rising, this could be your red flag, indicating that


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something is wrong. As a business owner, are you avoiding calls that could

be a bill collector? Have you lost customers because of poor service or

delivery issues? High turnovers in management or employees can also be a

sign of potential decline. The attitude and behavior of the employees can tell

you a lot about what is happening inside the company.

Taking Action

The size of the business and the stage of distress its in will determine some

of the actions that may need to be taken. If management is proactive and acts

immediately, the company may only require a turnaround strategy consultant

to help them get back on track. A company in spiraling decline may require

a complete restructuring turnaround strategy. At this point, hiring a

turnaround management service may be the only way to salvage the

business. Their team can assess every aspect of the business and tell you

what actions need to be taken. They can also be responsible for cutting

operations or personnel.

Business owners need to know there are options for saving a failing

business. A turnaround strategy can help to guide them through the steps of

rebuilding and revitalizing their business, in all aspects. This gives

struggling entrepreneurs an option to save their business; instead of throwingup their hands and succumbing to complete liquidation and bankruptcy.


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Business Turnaround Strategy

Having a successful business requires constant work and planning; but

sometimes situations can happen that catch even the most well-prepared

entrepreneur off guard. A turnaround strategy is an action plan that can give

struggling business owners the guidance and direction they need to revitalize

their company.

Understanding its Purpose

When a company starts to experience problems, such as declining profit, and

increased debt; there has to be an intervention to return the company back to

a profitable state. If no action is taken, the company will undoubtedly fail.

When management starts restructuring the business to correct its decline,

they are probably using a turnaround strategy. This is an in-depth plan,

designed to not only save the business, but make it financially sound as well.

There are also companies that have consultants and teams that specialize in

the different aspects of turnaround management.

Why a Business Fails

There are numerous factors that could be identified as the cause for a

businesss demise. Maybe an inexperienced entrepreneur underestimated the

cost of operations, or tried to grow the business too fast. Perhaps poor

management of finances led to a shortage in capital. Corrupt management,

inefficient leadership, and the failure to plan for the worst-case event, can

often turn a growing company upside down. Being unprepared for an

economic downturn may be a factor. Business experts agree that typically,

the underlying cause(s) of failure are already in motion, long before the
http://www.turnaroundstrategy.net/Business-Turnaround-Strategy.htmlhttp://www.turnaroundstrategy.net/Business-Turnaround-Strategy.html


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visible signs are present.

Recognizing the Signs

There are always signs, or indicators, when a company is doing poorly. The

first, and most obvious, would be in the finances. If your profits are

declining and your debt is rising, this could be your red flag, indicating that

something is wrong. As a business owner, are you avoiding calls that could

be a bill collector? Have you lost customers because of poor service or

delivery issues? High turnovers in management or employees can also be a

sign of potential decline. The attitude and behavior of the employees can tell

you a lot about what is happening inside the company.

Taking Action

The size of the business and the stage of distress its in will determine some

of the actions that may need to be taken. If management is proactive and acts

immediately, the company may only require a turnaround strategy consultant

to help them get back on track. A company in spiraling decline may require

a complete restructuring turnaround strategy. At this point, hiring a

turnaround management service may be the only way to salvage the

business. Their team can assess every aspect of the business and tell you

what actions need to be taken. They can also be responsible for cutting

operations or personnel.

Business owners need to know there are options for saving a failing

business. A turnaround strategy can help to guide them through the steps of

rebuilding and revitalizing their business, in all aspects. This gives

struggling entrepreneurs an option to save their business; instead of throwing

up their hands and succumbing to complete liquidation and bankruptcy.


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Creating a Successful Business Turnaround Strategy

Owning and running a business is not an easy task. Moreover, it can be

especially overwhelming when the business is on the decline. Creating and

implementing a turnaround strategy by following the guided steps, can lead

to a successful execution of the plan, and to a successful and profitable

business recovery as well.

Traits of Successful Businesses

If successful businesses were compared, almost all of them would have

similar characteristics in common. They have developed a strong brand, and

they target expanding market segments. The companies keep a careful

balance between their equity and debt. Their existing business strategies are

complete, clear and defined. Several of these companies also have a short-

term business turnaround strategy already developed. These entrepreneurs

not only planned their businesses success; they made a plan in case it

started to head towards failure.

Why a Business Turnaround Strategy is Important

People do not start businesses so they can fail. However, sometimes no

matter how well things were planned; unforeseen circumstances can occur.

Recognizing the signs of decline and acting quickly is imperative to reviving

the company. Quick action can reduce the length of time it takes to complete

the turnaround. By having a recovery strategy in place, youre saving

precious time and money that can be invested in other areas of the business.

For every strategy that is developed to achieve success, there should also be

a back-up plan of action incase that strategy for success fails.


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Starting Over with a New Plan

Creating a successful business turnaround strategy is in many ways like

starting over. It is an attempt to look at the situation from a different

perspective. In essence, you are creating a new business plan. It means

making honest and unbiased assessments of your business and

communicating with everyone involved. This includes the management

team, employees, accountants, attorneys and your banker. Adjust the

companys original business plan to show where the business is now.

Remember to include specific statements on what changes will be made to

correct identified issues.

Following through with Changes

Besides the initial steps to recognize problems and quickly act on them;

following through with the designated changes is crucial to success. Your

business mindset has to change from running the business and doing daily

tasks; to saving the business, and making whatever changes are necessary to

accomplish that. This may involve management restructuring, and/or,employee and operational changes. With quick action, assessment, planning

and follow through, it is possible to take a failing company and make it a

solid, financially stable and profit creating institution.

Statistics show that as many as 80% of new businesses close in the first year

of operation. Most of them dont close due to bankruptcy, but rather because

they were unsuccessful. The business owners felt that the companies

required too much work, and provided too little in the return on investment.

Improve your odds of business success by adding a short-term strategy plan

to your business plan.


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A Turnaround Strategy Example

The effort of developing and implementing a strategy plan can pay off; even

for businesses that seem to be too far gone. One approach is to be creative

when working with the assets you have. Think outside of the normal

definition for asset. This turnaround strategy example proves that creative

thinking can lead to success.

A Turnaround can be Successful

Even in some of the worst-case scenarios, some companies have dug in, and

implemented turnaround strategies that successfully pulled them out of a

plummeting decline. Some were able to make small, cost cutting changes

that would correct their problem. Other companies had to change drastically

in many areas of the entire business, through restructuring. Turnarounds can

take between five or six months to three years to complete. Additionally, to

be considered a success the company has to be financially strong and on its

own for at least two years after the turnaround plan is completed.

Sliding Towards Failure

Apple is a company that once knew the one product they offered was

inferior to their competitors product. In production cost, competitive price,

quality, and many other aspects they fell short. In 1997, during a span of

about three months, they managed to lose over $6.5 million. In a ten-year

period, they lost 11% of their 15% market share. This company was a

sinking ship. They knew drastic strategies had to be devised if they were

going to have even a slim chance of survival. After an assessment of

strengths and weaknesses, they went to work developing a strategic plan.


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Accentuate the Positive

The company went with the one asset they knew was strong - their company

image which they knew to be solid and carried a strong customer loyalty. In

an aggressive marketing campaign they targeted a different consumer

audience; young and more non-traditional professionals. Their message was

individuality. They expanded into another industry and used their positive

assets to become top ranking in design and new product development. They

recognized they were failing to grow with the current product they made, so

they focused on what they had going for them at the time.

Achieving Global Success

What the company had was their image. Now they have one of the most

recognized images in the world. In 2001, their stock was selling for less than

$10 a share. In 2009, it had grown by 90%. Today, it will cost around $350

for a share of Apples stock. Steve Jobs knew they couldnt compete in the

computer arena with IBM, so he acted quick and developed a plan, andfocused on their core resources. Apple is an excellent turnaround strategy

example. The execution and follow through of their plan succeeded in

turning their declining company into a profitable and growing one.

The hard work and ingenuity of Steve Jobs and the whole Apple Company

was instrumental in its turnaround success. This is a perfect example of

using creative thinking to expand and market the positive traits your

company has, while minimizing and reducing its obvious flaws.


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Turnaround Strategy Objectives for Saving a Business

Operating a business that is in a state of decline can test the skills of even the

best businessman (or woman). Using a turnaround strategy plan as a guide

can assure that no step is missed in the process of rebuilding your business.

The turnaround strategy objectives give clear guidance that is broken down

into easy to follow stages.

Managing the Strategy

Turnaround strategy objectives can vary depending on the company, its state

of distress and the owners overall goal. Typically, the ultimate objective is

to return the company to a state of normal. This would include becoming

more profitable and solvent. Managing the turnaround is the first step, and

this is acquired through leadership. Without proper leadership and a

supportive and dedicated team, the turnaround wont get far. Keeping or

regaining support from shareholders is achieved through communication and

consultation. Strict management is required to maintain focus; for instance,

managing the turnaround strategy as a project will accomplish this.

Stabilizing for Survival

Immediate stabilization of the business is required to guarantee even a short-

term future. This is achieved through generating, managing and conserving

cash flow. Cash management is gained from introducing a cash management

system, centralizing that management, and rationing the availability of cash.

Re-budget - suspend discretionary spending, and place strict controls on

sales and purchase orders, pricing and sales contracts. Work on generating

cash by disposing of unneeded assets, reduce your working capital and

consider utilizing cost reduction options and short-term financing.


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Gaining Funds

A business that has been in decline for any amount of time will usually need

to regain capital and/or acquire funding. Management of the turnaround

includes restructuring of finances. Distressed companies may have any

number of financial problems facing them, and may also require additional

money to return them to solid ground. Locating funding is often the most

difficult part of the turnaround. Focus on internal funding first; options like

reducing your working capital, selling assets, or appealing to shareholders.

Utilize every avenue before resorting to outside funding. The distressed

company can consider finance loans or private equity funding.

Fixing the Distress

The last objective is certainly not the least, but very often, it is the most

overlooked or ignored. Fixing operational, organizational, and strategic

components of the business is crucial to its turnaround success. This may

require changes in management and leadership; reorganizing staff and

improving skills, or improving on service and delivery. Construct a new

business mission statement and vision that reflects the companys new

direction. Remember to create a long-term strategy for the success of the

company.

Creating and following a turnaround strategy is like making a new business

plan. It takes you back to the basics of evaluating each aspect of your

business and the industry it serves. It helps to identify areas that are weak

and gives solid resolutions to restructuring your organization. Working a

turnaround strategy greatly improves the chances of your businesses ability

to recover.


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Turnaround management of Dell:

Dell had first announced cost-cutting measures as early as May last year. In

2007, Dell changed its direct-sales model to offer computers in retail outlets,

after losing the title of top PC maker to Hewlett-Packard Co (HP). Dell is

now beginning to supply similar products to retailers like Wal-Mart, but as a

smaller percentage of its business. Dell is currently the second largest

computer retailer in the world behind HP.

Dells well-established direct-sales model allowed buyers to custom-build

and purchase computers online or by phone. Customers could choose custom

PCs (almost 500,000 configuration options or combinations that were

assembled) direct from its factory. On the other hand, competitor HP also

sold configure-to-order models but also supplied fixed-configuration PCs

direct to retail.

Dells new retail business is not profitable as of now. So Dell aims to makeits retail computer business cost-effective by aligning (reducing)

manufacturing costs (cost of goods sold) with its competitors. But this will

be challenging since Dell does not have the same volume in retail globally

(as competitors), and therefore a smaller fixed base to spread costs.

Secondly, Dells supply chain had not exactly been designed for mass

distribution. HP uses a diversified supply chain unlike Dells one supply

chain approach.


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Michael Dell, the founder of Dell returned as the CEO in January 2007, and

the company has a turnaround plan which it promises will yield $3 billion in

annual savings over the next three or four years. Dells plans include

depending more on resellers and contract manufacturers to cut costs and

boost sales of which the consumer personal computer business is expected to

contribute more than the current 15 percent of total revenue. (At HP,

consumer sales of PCs and printers account for about one-third of revenue.

Industry-wide sales of consumer PCs are growing at about twice the rate of

PCs for businesses.) Contract manufacturers who manage large volumes of

orders for big PC makers like HP will be given more work. But apart from

concentrating on designing and manufacturing to cut costs, supply chain and

logistics (distributing PCs for retailers) are key focus areas as scale is less of

an issue. The cost-cutting exercise would also include restructuring of its

logistics network and outsourcing more of its manufacturing operations. Dell

also announced its intentions to install a logistics hub in Dubai to cater to the

emerging market regions and also into the east African regions. Developed

economies like the US (though the biggest) are the slow in growth. Last

year, the EMEA region made up less that 25 per cent of its total revenues

(70 per cent growth) and is estimated to be $61 billion in 2008.

Dells Turnaround Plan:

Cutting costs: Cutting costs is very important because competitors like HP

use the money from profitable printers operations and take more market riskwith designing innovative products. Moreover the prices of computers keep

going down. One can buy a Dell laptop now for less than $500.


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Moving away from computers internally and outsourcing more of its

manufacturing operations: Dell has manufacturing facilities in Texas,

North Carolina, Tennessee, and in Malaysia, Penang, China and Poland. Its

manufacturing operation in Austin, Texas will shut down. Also HP, IBM

and Sun Microsystems already have long-standing partnerships with outside

manufacturing partners. These partners offer customers bundles of computer

hardware, software and services. Dell on the other hand is relatively a new

player in this field and has traditionally depended on its own businesses to

design and make computers.

Moving into indirect sales channels like computer resellers and

retailers.

Introducing more products: New product introduction is vital since major

PC manufacturers realistically only make money in the first three months (or

six in some cases) of a new product.

Analysts predict that it will take Dell one more year for its PCs to be as cost-

effective as its competitors and stage a recovery.


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Turnaround Management of a companyConclusion:

Turnaround management is the process of evaluating an underperforming

business to determine the cause of its problems. Further on developing

potential solutions to address the problems, selecting and implementing

appropriate strategies and course of action, and making corrections to the

plan as circumstances warrant. Turnaround Management is the business of

Corporate Renewal. The key benefits are

Stability and continued operations

Accelerate return to profitability Secure rescue capital Minimize costs of current crisis

Turnaround Management is better than going into insolvency and for those

who find the strength to recognize the need for change; the rewards can be

enduring and lasting success.

turnaround management (1)

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