When an organization believes that a decision it took previously is incorrect and needs to be reversed before it harms the company’s profitability, it will employ the turnaround approach. In other words, a turnaround strategy is just walking away from a bad decision that was taken previously and turning a loss-making company into a profitable one. It is one of the corporate strategies.
Small and large businesses both have ups and downs. Turnaround strategies should be put in place when a company is going through a slump in order to get things back on track. Various turnaround techniques might be employed, depending on the circumstance. The most popular turnaround tactics involve restructuring the business, raising income, and decreasing expenditures.
Dell Turnaround Strategy
The best illustration of a turnaround strategy is Dell. In 2006. Dell announced the cost-cutting initiatives and began selling its goods directly as a result. But sadly, it experienced significant losses. Then, in 2007, Dell stopped selling its computers directly to consumers and began doing so through retail stores. As a result, it is now the second-largest computer company in the world.
Apple Turnaround Strategy
The most successful turnaround strategy is the rise of Apple. After the removal of Steve Jobs from the post of CEO, Apple faced a downturn in business. For a decade, Apple struggled to define its market as it lacked Job’s vision and faced a tight competition from its arch-rival Microsoft. The profitability and sale figure started to stumble, almost reaching the verge of bankruptcy.
Apple reimagined itself after Steve Jobs rejoined the company in 1997. From the verge of bankruptcy to becoming one the modern days tech-giant, Apple turned itself around.
Turnarounds are significant because they signal an entity’s improvement or upward movement following a considerable period of negativity. The turnaround is similar to a restructuring procedure where the entity transforms the losing phase into a profitable and successful phase while securing its future.
Reasons for Turnaround Strategy
Many businesses employ turnaround strategies for various reasons, based on the circumstances. Here are a few reasons why companies opt for this strategy:
Improving business outcomes
Turnaround strategy is required when outcomes are not as desired. In turnaround strategy, executives stabilize the business and restore profitability. Activities in turnaround include restructuring and transformation. Such activities aid a company in boosting profits and setting itself up for success.
Attempting to rebuild financial security
Turnaround strategies can aid companies in regaining their financial stability. Assets and liabilities management play a crucial part in turnaround strategies.In many real life situations, proper management and restructuring of assets and liabilities have assisted firms in achieving financial stability. In some cases, firms sell their assets and in some they manage their liabilities.
The majority of businesses use turnaround recovery tactics in an effort to cut costs. A wide number of actions are involved in cost savings, many of which are targeted at giving a corporation rapid wins. The actions taken could increase a company’s cash flow or maintain its financial stability before developing more intricate plans. Cost efficiency can be achieved through expenses reduction, innovation in operation, niche target and narrow target, tech-infusion etc.
Asset reduction initiatives
Companies that are experiencing a decline in performance frequently go after asset reduction initiatives after a cost-efficiency drive. Companies use the method to assess underperforming areas and determine how to improve or remove them. Many companies could not excel in business as they have made investment in passive assets. In some cases, businesses focus more on capital investments and face difficulties in managing their current operations. In such mismanagement of assets, executives go for turnaround strategies.
Identification of core competencies
Businesses can turn to concentrating on their core competencies as a turnaround recovery approach. Companies who embrace the metrics as their primary focus of their firm’s activities discover markets, customers, and products that have the potential to generate large profits.
Lack of focus or focus on multiple areas lead to mismanagement in any firm. As an approach to turnaround strategy, executives look into their core competencies and play within competencies.
Appointment of new leadership
Companies frequently choose new CEOs as part of their turnaround recovery strategy. In order to infuse the top management with a fresh perspective during turnaround circumstances, the majority of businesses name new CEOs from outside the organization. Apple Inc. after the reinstatement of Steve Jobs is a relevant example to this.
When a business faces insolvency due to insufficient cash flow, the top decision-makers adopt a variety of attitudes, from denial and finger-pointing to “head in the sand” faith that the market will improve and the issue will disappear. The wise ones recognize their need for professional aid and enlist it.
Implementing Turnaround Strategies
Many people go to their bookkeeper, accountant, or advisors first, but they are frequently constrained in the answers they can offer and can only explain what the data show. When the company is threatened by accelerated decline, insolvency, or, in the worst case scenario, inaction that results in liquidation or bankruptcy, this procedure can be time-consuming.
Recruiting a turnaround management professional is a better course of action because early intervention boosts the likelihood of survival. The situation is usually very sensitive by the time the turnaround professional is called in. Keeping these things in mind, we’ll be discussing the three key stages of implementing turnaround strategies, below.
These assessments require a wide range of information including; current and historical financials, stakeholders and debts, management capability, probable solutions, etc. This information is condensed to give decision-makers a clear assessment of the options, risks, and priorities to take into account when implementing a turnaround.
Stabilize and develop strategy
Stage 2 focuses on stabilizing the business and developing the recovery strategy after the problems and objectives have been determined and accepted. The duration might range from four weeks to three months, depending on the complexity of the company issue. In many cases, the Stage 1 finding is helping to provide the groundwork for Stage 2.
Implementation and monitoring
A thorough implementation and monitoring will be the main focus once Stage 2 is under way. This can entail creating an advisory board to help company owners, directors, or board keep their attention on the execution. The company may hire a Chief Restructuring Officer, whose primary responsibility is to carry out the turnaround strategy. By doing so, management can continue to concentrate on their core competencies. Stage 3 can last from three to twelve months and might follow stage 2.
Businesses that are having trouble need turnaround plans. The appropriate approach put into practice might help a business get back on track and perform better. Picking the turnaround strategy that is ideal for the company is crucial because there are numerous options available. A turnaround strategy can aid in a company’s recovery and resurgence with proper preparation and execution.