First Slide - Turnaround

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The concept or meaning of turnaround strategy covers following points:

Turnaround strategy means to convert, change or transform a loss-making

company into a profit-making company.

It means to make the company profitable again.

The main purpose of implementing a turnaround strategy is to turn the

company from a negative point to a positive one.

If a turnaround strategy is not applied to a sick company, it will close down.

It is a remedy for curing industrial sickness.

Turnaround is a restructuring strategy. Here, a loss-bearing company istransformed into a profit-earning company, by making systematic efforts.

It tries to remove all weaknesses to help a sick company once again become

strong, stable and a profit-making institution.

It tries to reverse the position from loss to profit, from declining sales to

increasing sales, from weakness to strength, and from an instability to stability.It aids to reduce the brought forward losses of the loss-making company.

It helps the sick company to stand once again in the market.

It is a complete U-turn of a planned strategic economic transition.
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Turnaround strategy is a corporate practice designed and planned

to protect (save) a loss-making company and transform it into a

profit-making one.

In financial, commercial, corporate or from

a business perspective, the turnaround strategy can be defined

as follows.

Turnaround Strategy is a corporate action that is taken

(performed) to deal with issues of a loss-making (sick) companylike increasing losses, lower return on capital employed, and

continuous decrease in the value of its shares.

Finally, from an academic point of view, its definition can be

stated as under.Turnaround strategy is an analytical approach to solve the root

cause failure of a loss-making company to decide the most crucial

reasons behind its failure. Here, a long-term strategic plan and

restructuring plans are designed and implemented to solve the

issues of a sick company.
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Financial Institution, for example, some bankA is suffering from

losses due to non-performing assets (NPA). NPA is loan given but

not yet recovered. This bank A will follow turnaround strategy andtry to recover its loans by appointing recovery agents.

Manufacturing company say XYZ is suffering from losses due to

excess idle time taken by labour to complete their jobs. The

manufacturing company XYZ will follow turnaround strategy to

reduce labour inactivity by installing modern machines

(automation) to carry on the same work or job.

Educational institution, for example, C is suffering from losses due

to non-registration of students in their courses. This institution C

will follow turnaround strategy to reduce losses by providingfacilities like e-Registration, conducting online classes, etc. to attract

students.
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1. Involves restructuring

Turnaround involves restructuring the sick company.

Restructuring means rearranging the resources of the company for

improving its profitability and performance.Restructuring can be a:

Financial restructuring,

Technical restructuring,

Marketing restructuring,Personnel restructuring, etc.

2. Applicable to a loss-making unit

Turnaround is a strategy of converting a loss-making or anuneconomic unit into a profitable one.

It is applicable to a loss-making unit.

It is done (applied or implemented) by making systematic efforts.

It is a solution to solve the problem ofindustrial sickness.
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3. Needs consultation of experts

Turnaround can be done by consulting company's own (internal) experts or by

external experts (hired consultants).

These two types of experts have their own advantages and limitations:Internal experts know the company's culture, resources, level of technology,

etc., much better. However, they may be biased because their interests are

involved.

External experts though may be unbiased, but their suggestions may not be

practical and the sentiments of the employees may not be considered.So, a sick company must keep a proper balance of consultation between the

internal and external experts.

4. Long and time-consuming process

Turnaround strategy is a long-term strategy:

It is not a one-day task.

It is a lengthy and a time-consuming process.

In some cases, it may even take few years to turn around a sick unit.


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5. Involves an in-depth planning

Turnaround involves stages like analysis, planning, arranging, testing,

rearranging, and re-planning.

It goes through the following stages:

Turnaround strategy first involves detailed analysis or study of the failedmodel or structure of the sick company.

It begins with planning suitable, adaptable and result-oriented strategies to

initiate the turnaround.

The implementation of newly planned strategies takes place by arranging

(orienting) the structure of the once failed model. It is done so as perinstructions (orders) conveyed by a planning authority or committee.

After this basic arrangement, planning is put to a practical test for some

determined time period. Over a time, data is collected and analysed

statistically by experts to seek improvements or failures, if any, in its

performance.The plan is enhanced or tweaked even further if some improvements are

noticed in its testing phase.

In case of witnessing some failures, the plan is corrected and again re-

planned followed by making proper rearrangements.

Thus, turnaround strategy involves in-depth planning with evidential testing.
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6. Capital intensive strategy

Turnaround is a capital intensive strategy. It mainly requires a large amount of funds

(money) to restructure the resources of a sick company.

For its initiation, company needs an excellent team of expert consultants and

professionals. Along with utilising the expertise of its internal staff, company also

needs external support and/or consultations of other professionals. It needs more

funds to pay for the services of these professionals. Furthermore, since the time

period of a turnaround cannot be fixed it needs a continuous supply of funds for its

uninterrupted operation until a satisfactory success is achieved.

This overall makes a turnaround strategy a costly affair. It is not a viable choice forthose companies who cannot afford its capital intensiveness.

7. Optimum utilisation of resources

Generally, a sick company doesn't make an optimum utilisation of its all availableresources. These mainly consist of human resources, financial resources, physical

resources, and so on.

The turnaround strategy helps to utilise the resources optimally.

Turnaround helps to restructure and reorganize all available resources of the company.

It tries to channel (use) resources only for profitable venture and not for non-

profitable ones.
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8. Leaves a permanent effect

Turnaround leaves a permanent effect (mark or impact) on the structure and

working of the company. It helps a sick company to stop its all unproductive

activities and concentrate on productive ones. It aids the company to changeits technology from a labour intensive (that involves many people working) to a

capital intensive (that requires large capital investment in modern equipments,

high-tech machines, etc. and hence less people working) one. It may also help

a sick company to amalgamate with some other company, thereby forming a

totally new company.

9. Needs co-operation of people

For turnaround to be successful, full co-operation of employees is necessary.

This is because the turnaround strategy will involve the employees.Co-operation of other groups such as shareholders, financial institutions,

suppliers, and others is also required for the turnaround strategy to be

effective.

Thus, turnaround needs full co-operation of people associated (attached) with

the sick company for its success.
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Which stage does your company belong?

There are three stages of a turnaround strategy:

I

Pre-turnaroundII Period of Crisis

III Period of Recovery


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The first stage is the period just before the profitabilitybegins to decline. The company is still consideredprofitable at this point, but losing ground. The secondperiod is known as the period of crisis. At this point the

company needs to turnaround. This stage is marked by adecline in profits (even negatives), a fall in market shareand the company's poor cash situation.The third stage is the period of recovery or the turning

point. This is the stage where serious action is taken toturnaround the company. Important decisions like scalingback production or returning to an aggressive growthstage are taken. At this point, the company's strategy isclear. The company can choose to rely on a centralisedand low cost system and continue profitably.Alternatively, it might decide to combine these benefitswith a growth strategy. This is the longest period andmay last for years.


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Steps in turnaround strategy

Changing the leadership: A change in leadership ensures that those techniques,

which resulted in the companys failure, are not used. The new leader has to motivate

employees, listen to their views and delegate powers.

Redefining strategic focus: This involves re-evaluating the company's business and

deciding which ones to change and which to retain. Diversified companies need to

review their portfolio on the basis of long-term profitability and growth prospects.

Selling or divesting unnecessary assets: Sometimes, although the assets are

profitable, they must be liquidated to contribute to the strategic focus. The cash

received from the sale of such assets should be used to repay debts. Self-sustaining

businesses are ideal candidates to do so.Improving Profitability: To do this the company has to take drastic steps like:-

1. Assigning profit responsibility to individual divisions

2. Tightening finance controls and reducing unnecessary overheads.

3. Laying off workers wherever necessary4. Investing in labour saving equipment

5. Building a new inventory management system and manage debt efficiently through

negotiating long-term loans.

Making careful acquisitions: The company must be careful while making acquisitions.

It should be in an area related to its core business enabling the company to quicklyrebuild or replace its weak divisions.

Documents

First Slide - Turnaround