TURNAROUND MANAGEMENT

Turnaround Management involves the formulation and implementation of a strategic plan and a set of actions for corporate renewal and restructuring, typically during times of severe corporate financial distress. Times of corporate distress present special strategic management challenges. In such situations, a firm may be in bankruptcy or nearing bankruptcy. Often outside turnaround consultants or strategy consultants are brought into the company to devise and execute a turnaround plan with the help of Root Cause Analysis, assuming that the firm still offers the potential to return to financial solvency, profitability and strategic viability.

Root Causes of Strategic distress

Before a viable turnaround strategy can be formulated, one must identify the root cause or causes of the crisis. Frequently encountered causes include: 1. "Acts of God" - Certain risks may occur and cause irreparable damage -despite proper anticipation and thorough preparation. 2. Poor Vision and Understanding of the Market 3. Poor execution of a Good Strategy 4. Poor Business Model / Execution 5. Revenue downturn caused by a weak economy 6. Overly optimistic sales projections 7. Poor strategic choices 8. High operating costs 9. Insufficient resources 10.Unsuccessful R&D projects 11.Highly successful competitor 12.Excessive debt burden 13.Inadequate financial controls

STEPS IN A TURNAROUND PROCESS

The first step in a turnaround process is often to change the top management or leadership of the business and to appoint an experienced turnaround manager. Often strong, Commanding Leadership or even Charismatic Leadership is exerted. The turnaround process typically consists out of the following key steps (in approximate chronological order): 1. Assess the situation and future business viability 2. Implement emergency steps ("stop the bleeding") 3. Develop strategic survival plan 4. Implement the plan, restructuring the business. Survive the crisis 5. Return to normal operations, profitability and growth 6. Prepare for departure of turnaround management

THE TURNAROUND PROCESS

While each case is unique, the turnaround process frequently involves the following stages: 1. Management change - consultants may be called in to manage the turnaround of the firm. 2. Situation analysis - a situation analysis is performed to evaluate the prospects of survival. Assuming the firm is worth turning around, depending on the root causes of the distress one or more of the following turnaround strategies may be selected and presented to the board: o o o o o o Change of top management Divestment of certain assets Reformulation of strategy Revenue increase Cost reduction Strategic acquisitions

3. Emergency action plan - achieve positive cash flow as soon as possible by eliminating departments, reducing staff, etc. 4. Business restructuring - once positive cash flow is achieved, the strategic plan is implemented, improving continuing operations, adjusting the product mix and repositioning products if necessary. The management team begins to focus on achieving sustained profitability. 5. Return to normalcy - the company becomes profitable and the changes are internalized. Employees regain confidence in the firm and emphasis is placed on growing the restructured business while maintaining a strong balance sheet.