Raw corn is dull. However, when roasted and mixed with spices they taste yummy.
We may apply this same theory to our management and business. In this technologically advanced world, the growth of our firm stops if we continue to use the same conventional business strategies. But that’s not always the end; other times, it heralds a fresh start.
Businesses use a variety of techniques to reduce the impact of a declining external environment, national economy, and market conditions.
A TURNAROUND STRATEGY is one of them. It is a type of bootstrapping approach. As part of this approach, the corporation decides to reverse some of the choices that may hinder its expansion. It is a strategy wherein a losing business becomes a profitable one. A corporation may decide to implement a turnaround strategy in the following circumstances: Uncompetitive products, excessive employment and high employee turnover, poor management, declining market share, and the adoption of bad business strategies.
What strategy does the company use when implementing a turnaround plan? It’s crucial to concentrate on both long- and short-term objectives, as well as financial concerns, for the successful implementation of a turnaround strategy.
1. Assessment of current problems
Root cause analysis is often adopted to assess the prevailing problems. This excercise allows anyone to know the extent of decay. This further allows one to estimate the resources that would be required for a turnaround.
Thereafter the scarce resources should be carefully prioritized for maximum impact and returns. It is best to work with an excel sheet and prepare different scenarios.
2. Analyze the situation and develop a strategic plan
Be sure that the firm has a possibility of surviving before you make any significant adjustments. Make a preliminary action plan and decide on acceptable strategies. Search for viable core businesses, sufficient bridge financing, and accessible organizational resources to achieve this. Examine the advantages and disadvantages of your competitive position. Once significant issues and opportunities have been identified, create a strategic plan with clear objectives and comprehensive functional steps.
3. Emergency action plan implementation
A suitable action plan must be created if the organization is at a critical stage in order to halt the bleeding and give it the chance to survive. The strategy often calls for activities in the areas of human resources, finances, marketing, and operations to consolidate debts, increase working capital, lower expenses, enhance budgeting procedures, eliminate unprofitable product lines, and expedite high-potential goods. As soon as feasible, a positive operating cash flow must be generated, and sufficient money must be raised to carry out the turnaround plans.
4. Restructuring the business
Particularly significant is the organization’s primary business’s financial health. The future of the entire company could be gloomy if the primary business suffers irreparable harm. To put the firm in a position for quick progress, prepare cash forecasts, analyse assets and debts, monitor profits, and examine other important financial functions.
The “product mix” may vary during the turnaround, necessitating some organizational restructuring. To be competitive, core items that have been ignored over time can need rapid attention. To become leaner or to tailor its products to a new niche, the firm can close some facilities or even withdraw from some marketplaces.
Another crucial component of the organization’s competitive success is morale raising. Systems of rewards and remuneration that reward commitment and inspire innovation among personnel will lead to best results.
5. Returning to normal
The firm should start to demonstrate indicators of profitability, return on investments, and increasing economic value-added throughout the last stage of the turnaround strategy process. The focus is on a number of strategic initiatives, including cautiously introducing new goods, enhancing customer service, forging partnerships with other businesses, growing market share, etc.
The following are crucial components of a turnaround strategy:
• Remove redundancy in top management
• Increasing income generating channels
• Rapid cost cutting
• Reducing dependency on outside sources
• Communicating the message effectively within the organisation
Numerous well-known companies, including Land Rover Jaguar, Apple, Mittal Steel, and Starbucks, are instances of turnaround strategies.
6. Wrapping up
Any business has the potential to reach its crescendo. However, much depends on the entrepreneurs ability to adapt and be flexible in the face of challenges. Customers need to trust the business in the first transaction itself for a repeat sale to occur.
Do we know that the business is successful in providing what the customer wants? Which tools can we use to know the customer requirements? Is the pricing in sync with the market and better value is provided?
Numerous brainstorming sessions need to be conducted. Don’t expect everything to fall in place the first time. Be ready for many iterations and don’t get bogged down.
FAQs
Q. Why would companies apply turnaround strategies?
Ans. Companies apply turnaround strategies to recover from sickness and losses. The strategies help companies to turn profitable by reducing costs and selling products in new markets.
Q. What are the stages of turnaround strategy?
Ans. The stages of turnaround strategy are a. Assessment b. Planning c. Implementation of the plan d. Stabilization e. Monitoring.
Q. Which are the prominent organizations that have used turnaround strategies?
Ans. The most prominent organizations that have used turnaround strategies successfully include Apple, General Motors, Airbnb, Reddit, FedEx, Evernote, Marvel, Starbucks, Delta Airlines, Netflix and many more.