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Turnaround Management - The 360º Renovation Strategy

Today in India, perhaps two-thirds of all sizeable organisations are becoming insolvent. The single greatest cause accounting for this is inappropriate management, characterized by such deficiencies as corruption, lack of professionalism, needless growth, excessive conservatism, bureaucratic rigidity, lack of proper systems, etc. Turnaround at this point can be very rewarding. To have a successful turnaround, requires enormous personal effort and the enthusiastic support of everyone involved from management down. The art of successful turnaround is the business of:
1. Identifying the strengths and capabilities of the incumbent management;
2. The potential value of the components which make up the business
3. Determining financial and human resources

A turnaround can be defined as "a process by which companies reduce their losses and achieve increased profitability". It is a process of converting an unsatisfactory result into a satisfactory result - a 'sick' company into a profitable company. The first 90 days of any turnaround mission is crucial in terms of defining the actions that will have to be implemented inorder to restore the company to financial health and then communicate those to the concerned.

Key Signals to Turnaround Management 1. Employees are ignorant about the full business picture. 2. Department Managers and first line supervisors do not participate in the decision-making process. 3. Employees do not understand the nature of consumer product business where flexibility to respond to market changes is paramount. 4. Employees do not trust the company's intentions and motives. 5. Product mix is composed of low growth brands. 6. Work force is faction ridden with strong line loyalties. 7. 'Manager' and 'worker' relationship is "deal" based and not "principle" based. 8. Equipment reliability is poor. 9. Packaging materials quality is poor. 10. Employees do not discern any stake or personal commitment to the company. 11. Competent people with potential are misled and weakened by an autocratic leadership style.

Often a company suffers a decline due to a combination of internal and external elements.

External Elements
The external elements that cause business trouble are mainly market changes, customer preference changes, foreign competition, legal precedents, and the political climate. A major problem with these elements is their interaction with each other. A cultural/social change, for example, can result in a legal/political change. This, in turn, can affect the economic environment, leading to a shift in technological developments. The rate of technological development affects the status of the competition, which in turn influences the cultural/social environment, and the circle is complete. Since all businesses are similarly affected, they can survive only because of their ability of management. Foresight and flexibility will help management safeguard against these uncontrollable elements, using tactics such as promotion, education of the consumer, accelerated research and development, product improvements or elimination, changing expansion plans, and channels of distribution.

Internal Elements
Though management is the force that drives the internal functions of finance, production, and marketing/distribution, these elements are at the root of the majority of business failures. Production techniques can become antiquated. Marketing/distribution can be in the wrong market with the wrong product. Finance can be unaware that the financial requirements of the other departments have changed. Poor information flow between departments is another signal of decline. The heart of any company is the synergy developed between the efficient operations of its various departments.

Assessing The Forces For And Against Turnaround
In order to concentrate effort where it will bring the best return, you need to strengthen the positive factors for turnaround and weaken the negative influences. Clarify the current situation of your own organisation and the desired future state that you seek. Then identify the relevant forces within the organisation, distinguishing between driving forces that can be seen to facilitate turnaround and restraining forces that might inhibit turnaround. To use this approach follow these steps:

  • List those individuals/groups who ideally need to support the turnaround.
  • Select from this list those whose support is essential for the turnaround
  • Judge the present/future level of commitment from each person or group within this critical mass required for the proposed turnaround to be successful.

Turnaround Techniques / Approaches
The selection of a turnaround strategy should depend upon the situation, in particular the business's closeness to breakeven. Basically, there are two major approaches to turnaround:

Surgical Variety
This approach is sought in order to replace the Chief Executive of an ailing corporation by a new Chief. The product mix is revamped, obsolete machinery is replaced, research and development is stepped up, marketing is strengthened, controls are toughened, accountability for performance is highlighted, and so on. By doing so, though ailing companies can no doubt improve, the loss to the company is of commitment, skills, experience, know-how and productive capacities.

Humane Kind
This involves negotiated and humane layoffs and divestiture. It tries to create a strong work culture, and generally creates a strong sense of participation in the employees. Management spends a great deal of time trying to understand what the problems are, takes all the stakeholders, including unions, into confidence and brainstorms together on what needs to be done to solve the problems.

The Five Generic Turnaround Strategies
The selection of a turnaround strategy should depend on the situation - in particular the business' closeness to breakeven. If a business is far below breakeven, an asset redeployment strategy is warranted. Such a business must recognize that it should be smaller than it once hoped it would be. If a business is moderately below breakeven, a selective product/ market strategy is called for. Here, the business probably does not have enough idle capacity to allow major asset disposal, nor can it prosper simply by cutting costs. If a business is very close to breakeven, a cost-cutting strategy is appropriate. Such a strategy often will be sufficient to push the business to acceptable profit levels without exposing it to undue risks. The market share of a business might be another factor affecting its choice of turnaround strategy. High-share businesses might rely on attempts to exert their relative market power by following the more offensive strategy -Selective product/ market strategy.

1. Restructure Leadership and Organisation / Culture
Changes in leadership usually occur during the preparatory stage. This change seems to be made for both symbolic and substantive reasons. Replacing managers stimulates change by; unfreezing current attitudes; breaking mindsets conditioned by the industry; removing concentrations of power; and providing a new view of the situation. Replacing leadership often creates the level of stress or tension needed to stimulate organisational change.

2. Cost Reduction strategies
A cost reduction strategy involves reduction in administrative, R&D, marketing and other discretionary expenses. Controlling costs appears to be the key to successful turnarounds. Defensive tactics include reducing expenses, receivables, inventory levels, and personnel. Offensive tactics involve the installation of proper management controls to either eliminate past errors or prevent them in the future.

3. Asset Redeployment Strategies
An asset redeployment strategy involves disposal of assets, primarily fixed assets. The goal is to improve capacity utilization and employee productivity. Common redeployment strategies include: relocating plants affording better-cost advantages and merging branch operations. Production economics can also be improved through capacity increases or decreases.

4. Selective Product / Market Strategies
This strategy is 'entrepreneurial' in nature. It involves short run changes in the firm's marketing mix aimed at increasing revenues. Defensive strategies include reducing marketing expenses or divesting certain products. Offensive strategies involve increasing process, promotion, quality, or customer service. Combining offensive and defensive product/market activities form parts of successful turnaround strategies.

5. Repositioning Strategies
These strategies aim at ensuring that the turnaround is permanent by repositioning the firm either in its current markets or in new ones to ensure future growth and profits. Repositioning starts by redefining or refocusing the mission of the firm. Defensive activities involve repositioning the firm using its current products. Offensive repositioning activities involve diversification efforts to expand product lines or to enter new business areas via (most popular listed first): acquisition, internal development, joint venture, or vertical integration.

Interventions To Turnaround Strategy Right management and improved marketing helps the employees acquire information, skills and commitment through complete involvement. The specific interventions of turnaround strategy are:

Communication and Information Sharing
Since employees do not have an integrated picture of business and plant operations they do not tend to see what their actions are contributing to. To overcome this problem, communication forums need to be started e.g. daily management meetings, supervisor-workers group meetings, meetings with the Union Committee and periodic plant-wide and company-wide information sharing meetings. This helps to build awareness, clarify purpose and intentions, and evaluate the suggestions and action plans that are being considered to achieve ends.

Result Orientation
Management should focus on communication and demonstrate through consistent actions that productivity process and quality improvements along with waste elimination are vital to plant's long-term survival. Each executive and department must be asked to evolve a list of tasks that would result in cost and /or quality improvement. A master list of focus areas along with a timetable should be compiled for the whole plant and communicated widely.

In most organizations, no system exists for the employees to find out 'first-hand' how their products are received in the market place. Employees do not adequately understand the products and the processes on which they are working everyday. To correct this situation, massive doses of professional and managerial training need to be provided based on individual needs - regardless of levels. Job rotation should be pursued aggressively. All these activities help people improve their capabilities and leads to a feeling in the employees that the company is genuinely interested in their development and is willing to spend money on any meaningful activity.

Manufacturing Systems Improvement
The major reason for system reliability to be low is because of poorly conceived manufacturing and packaging equipment. Following should be the course of action: - Improving the design and layout of equipment - Improving the quality of support services. This leads to an improvement in the working environment and a belief among the employees that for improvement you need not always work harder but often need to work smarter.

The Successful Turnaround Formula : Standard actions to recover the profitability

  1. Observation of current scene and needs while reducing the stress by building confidence in the eventual success.
  2. Defining sources of the dangerous condition with clear identification of proven solutions.
  3. Correction of the problem(s) and ensuring no re-occurrence.
  4. Education of management (and key staff) to enhance skills to meet current demands.
  5. Assist top management to adopt policies that will detect and prevent situations from recurring.

How to Manage Your People
There is evidence that people can be trained to increase some of the skills that good turnaround managers demonstrate. Useable tools of diagnosis and decision-making such as SWOT (strength, weakness, opportunity, threats), action research, brainstorming, survey feedback, and so forth can readily be taught to turnaround managers. Turnaround managers can be trained once we understand better their personality traits, abilities, decision heuristics, and management techniques that can contribute to effective turnaround management.

The impact of turnaround on all groups varies according to their degree of involvement and their vested interests. You therefore need to identify all such stakeholders. They could include Shareholders, Employees, Unions, Suppliers, Customers and the local community.
In stable business environments the concept of turnaround is alien to all stakeholders. People are damaged by seeing their colleagues sacked and jobs cut seemingly arbitrarily, in the wake of badly managed surgical turnaround the resistance to further change will be high.

The knowledge base is becoming one of an organisation's major assets so it is vital to engage the hearts and minds of the workforce not just their hands. A token shareholding given to staff to make their interests similar to those of shareholders will not suffice; they need to be involved in all significant decisions. "The empires of the future are the empires of the mind" (Winston Churchill).

Conclusions and Implications

Turnarounds offer splendid sites for studying processes by which organizational leadership acquires charisma. Turnarounds may also examine the improvisation by management of an intuitive sort of action research leading to effective change-agentry, and transformational processes that rejuvenate decayed organisations by getting employees to unlearn learned helplessness and learn a constructive sort of opportunism. They are also arenas where attitudes, values, beliefs, and action heuristics undergo a sea change in a relatively short period. Thus, they offer fascinating arenas for studying this phenomena and social information processing for collective change.

Excerpts from 'Turnaround Management - The 360º Renovation Strategy', a one-day Seminar designed and conducted by L.R. Management Education Institute.

Published in Indian Express - Headstart.
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