Business turnaround strategies : A study of their need, nature and effectiveness

Abstract

On account of increasing globalization, liberalization, the threat of takeover and increasing competition more and more businesses are finding themselves in situations from which they can not seem to extricate themselves. Their current repertoire of remedies does not seem to work. In a panic situation, businesses can engage in self destructive actions such as cutting costs through cutting benefits to the customer or halting investment in research and development. Such steps are myopic and spell disaster for the firm.

Alternatively, businesses could engage in a 'turnaround' strategy which leads the company from the 'frying pan into the fire'. By concentrating on 'flavor of the month' approaches such as Business Process Reengineering and Total Quality Management, companies seek a quick fix but solve only the symptom and not the problem itself.

What is needed is a deeper introspection into the nature of the crisis and the construction and orchestration of a more holistic turnaround strategy. This report seeks to provide managers with a framework with which to develop and deliver such strategies.

First, we discuss business crises - their causes and their nature. A model, the Business Alignment Model, which is built on models proposed by strategic stalwarts such as Kenich Ohmae and institutions such as Anderson Consulting is put forward. The essence of the model is that business crisis is the result of stresses that build up between external elements such as customer needs, competitor ability and company ability and strategy as well as internal elements such as people, process and technology with strategy. These stresses manifest themselves as business crisis. Hence to resolve a crisis, a strategy must achieve alignment of internal and external elements and strategy. Case examples are cited to support the robustness of this model.

Next, we move on to designing a turnaround strategy. It is proposed that successful strategies have three components without which turnaround is incomplete. First is the cutting of losses and achievement of quick wins, the second is consolidation proper when the strategy, internal and external elements are recast and lastly is the second growth phase which leaves the business crisis far behind. We discuss some of the popular methods of turnaround and the key considerations involved. Lastly, we recommend four orientations to business turnaround which can provide a thread of commonality through the entire exercise - growth orientation, profitability orientation, quality orientation and value addition orientation.