Turnaround management

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 ling. 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.

4. The stabilization stage

The reposition situation (3) is the point in the process, where the minimally accepted performance is longlasting below its limits. In empirical studies a performance of turnaround is measured through nancial success indicators. These measures ignore other performance indicators such as impact on environment, welfare of sta, 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 company takeover or an
insolvency. In the public sector performances are characterized by multiple aims that are political contested and
constructed. Nevertheless, are dierent criteria of performances used by dierent stakeholders and even if its
use results in the same criteria, it is likely that dierent
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, eciency, eectiveness) 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 dissatised 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 nancial, legal, or other dierent resources on service providers.

5. The revitalization stage

The rst 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 nd 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 xed.

Turnaround Managers

Turnaround Managers are also called Turnaround Practitioners , 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 organization 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-mergerintegration 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 and the Private
Equity community) and with professional services rms
(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. The job often involves
frequent travel. Others work for large corporations and
have permanent positions.

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 rst 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 perfor-

Stages

Stages in repositioning of an organization

1. The evaluation and assessment stage
2. The acute needs stage
3. The restructuring stage
1

2
mance. 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 fth stage reached, the selection of a new strategy (5a) has been made by the company. Especially researcher typically concentrates on this 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 dierent risk-averse groups, like suppliers,
customers or sta 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 dicult to nd 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.

TECHNIQUES

3.1 Retrenchment
The Retrenchment strategy of the turnaround management describes wide-ranging short-term actions, to reduce nancial losses, to stabilize the company and
to work against the problems, that caused the poor
performance.[1] 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 dicult markets, stopping unprotable production lines, downsizing
and outsourcing. These procedures are used to generate resources, with the intention to utilize those for more
productive activities, and prevent nancial losses. Retrenchment is therefore all about an ecient orientation and a refocus on the core business.[2] 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[3] and increase productivity
and eciency.[4] Most practitioners even mention, that a
successful turnaround without a planned retrenchment is
rarely feasible.[5]

3.2 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
The outcomes of the turnaround strategies can result in
products, entering new markets, exploring alternative
three dierent ways. First of all a terminal decline (7a)
sources of revenue and modifying the image or the
may occur. This is possible for situations, where a bad
mission of a company.[6]
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 3.3 Replacement
failed, but dominant members within the company and
the environment still believe that a repositioning is pos- Replacement is a strategy, where top managers or the
sible. If thats the case, they need to restart at stage four Chief Executive Ocer (CEO) are replaced by new ones.
and look for a new strategy. Does an outcome of the new This turnaround strategy is used, because it is theorized
strategy turns out to be good, a turnaround (7c) is called that new managers bring recovery and a strategic change,
successful. This is achieved, when its appropriate bench- as a result of their dierent experience and backgrounds
mark reaches the level of commercial success, like it was from their previous work.[7] It is also indispensable to be
the case before the onset of decline. This is commonly aware, that new CEOs can cause problems, which are
measured in a timeframe between two and four year.
obstructive to achieve a turnaround. For an example,
if they change eective organized routines or introduce
new administrative overheads and guidelines.[8] Replacement is especially qualied 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
3 Techniques
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 situaThere are dierent techniques that can be applied to tions, where CEOs do notice that a current strategy isnt
cause a repositioning. The four main techniques are successful as it should be. But this hasnt to imply, that
known as Retrenchment, Repositioning, Replacement they are capable or even qualied enough to accomplish
and Renewal:
a turnaround.[9] Is a company against a Replacement of a

3
leader, could this end in a situation, where the declining
process will be continued. As result qualied employees
resign, the organisation discredits and the resources left
will run out as time goes by.[10]

3.4

Renewal

With a Renewal a company pursues long-term actions,

which are supposed to end in a successful managerial
performance. The rst 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.[11] A Renewal may also lead to consequences
within a company, like the removal of ecient 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.[12]

[1] Walshe, K./ Harvey, G./ Hyde, P./ Pandit, N. (2004): Organizational Failure and Turnaround: Lessons for Public
Services from the For-Prot Sector, in Public Money &
Management, Vol. 24, No. 4 (August, 2004), pp. 201
208. (p. 204)
[2] Boyne, G. A./ Meier, K. (2009): Environmental Change,
Human Resources and Organizational Turnaround, in:
Journal of Management Studies, Vol. 46, No. 5 (July,
2009), pp. 835863. (p. 843)
[3] Robbins, D. K./ Pearce II, J. A. (1992): Retrenchment
und Recovery, in: Strategic Management Journal, Vol.
13, No. 4 (May, 1992), pp. 287309. (p.290)
[4] Barker III, V. L./ Duhaime, I. M. (1997): Change in the
Turnaround Process: Theory and Empirical Evidence, in:
Strategic Management Journal, Vol. 18, No. 1 (Jan.,
1997), pp. 1338. (p. 13)
[5] Boyne, G. A. (2006): Strategies for Public Service
Turnaround: Lessons from the Private Sector?, in: Administration & Society, Vol. 38, No. 3 (July 2006), pp.
365388. (p. 378)

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 specic 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?[13]
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?

7 References

[6] Boyne, G. A./ Meier, K. (2009): Environmental Change,

Human Resources and Organizational Turnaround, in:
Journal of Management Studies, Vol. 46, No. 5 (July,
2009), pp. 835863. (p. 844)
[7] Barker III, V. L./ Duhaime, I. M. (1997): Change in the
Turnaround Process: Theory and Empirical Evidence, in:
Strategic Management Journal, Vol. 18, No. 1 (Jan.,
1997), pp. 1338. (p. 20)
[8] Boyne, G. A./ Meier, K. (2009): Environmental Change,
Human Resources and Organizational Turnaround, in:
Journal of Management Studies, Vol. 46, No. 5 (July,
2009), pp. 835863. (p. 842)
[9] Castrogiovanni, G. J./ Baliga, B. R./ Kidwell Jr., R. E.
(1992): Curing Sick Businesses: Changing CEOs in
Turnaround Eorts, in: The Executive, Vol. 6, No. 3
(Aug. 1992), pp. 2641. (pp. 28)

Professional Organizations

There are a number of professional industry associations

that provide advice, literature and contacts to turn around [10] Barker III, V. L./ Duhaime, I. M. (1997): Change in the
professionals and academics. Some are:
Turnaround Process: Theory and Empirical Evidence, in:
Turnaround Management Society (International /
Focus on Europe)
Institute for Turnaround (England)
Turnaround Management Association (International)
Institut fr die Standardisierung
ternehmenssanierungen (Germany)

von

Un-

External links
Operational Turnaround-lecture by Igor Zax & London Business School

Strategic Management Journal, Vol. 18, No. 1 (Jan.,

1997), pp. 1338. (p. 20)
[11] Walshe, K./ Harvey, G./ Hyde, P./ Pandit, N. (2004): Organizational Failure and Turnaround: Lessons for Public
Services from the For-Prot Sector, in Public Money &
Management, Vol. 24, No. 4 (August, 2004), pp. 201
208. (p. 204)
[12] Ruiz-Navarro, J. (1998): Turnaround and Renewal in a
Spanish Shipyard, in: Long Range Planning, Vol. 31, No.
1 (1998), pp. 5159. (p. 51)
[13] Schmitt, A & Raisch, S. (2013): Corporate turnarounds:
The duality of retrenchment and recovery, Journal of
Management Studies, Vol. 50, Issue 7, pp. 1216-1243

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