5. THE TURNAROUND CONCEPT – WHEN IS A TURNAROUND
FEASIBLE?
A corporate turnaround is feasible when both of the following
requirements are satisfied :
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circumstances and conditions are such that a turnaround is
rationally expected to succeed, based on a viable Turnaround
Concept, and
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the turnaround is an attractive option compared to other strategic
options available.
The turnaround plan, strategic in nature, addresses primarily the
repositioning and the restructuring of the company. The plan is usually
short because, as a rule, it has to be created quickly.
In addition to the strategic plan, a Catalogue
of actions and projects that will be implemented as part of the
turnaround process, must be created and updated continuously. Typically,
this Catalogue comprises further restructuring and re-engineering
activities, actions and projects such as training of staff and
management, preventive maintenance, error-proofing of various
activities, including quality assurance, advertising, change in channels
of distribution, sales promotions, and other procedures, which
individually are often tactical in nature but collectively are of
primary strategic importance.
Together, the strategic plan for the turnaround and the Catalogue of
other turnaround actions / projects form the Turnaround Concept. This
comprises the above briefly-mentioned 3
R's of Turnaround, namely the repositioning, restructuring and
re-engineering of the company. See cases and examples in Annex
II.
Usually the turnaround leader must provide the core of the strategic
plan himself / herself, but experience shows that when properly
motivated, employees of various ranks can often provide very valuable
ideas, particularly for the re-engineering of operations.
It should be noted that it takes broad business knowledge,
penetrating analysis, experience, and a creative mind to generate a good
turnaround plan. It takes these skills to know what is a viable and
realistic plan, and to know what priorities to follow, in order to
achieve a turnaround.
It should also be kept in mind that a turnaround is rarely easy, that
it takes time (though typically less time than it took to run the
company down) and that a turnaround is always hard work for
management. Therefore, before a turnaround is undertaken other
alternatives should be considered.
Typically, these alternatives are the sale of the company or some of
its business units and / or an orderly liquidation (i.e. not at fire
sale prices). Sometimes these alternatives are reasonably attractive,
for instance if there is a "special
buyer", to whom the troubled company or some of its assets,
represent a greater economic value than to the general marketplace. See Alternatives
to Turnaround in for more information.
In sum, when a company is in trouble, and there are no other
attractive options, turnaround actions ought to be taken – if the
prospects for turnaround are reasonable.
A Realistic and Viable
Plan. The prospects for turnaround are regarded as realistic and
viable when there is viable / realistic plan for it.
No matter what are the accumulated losses, the on-going losses, or
the loss of clientele or valuable employees, no matter how large are the
problems of the company, no matter what are the headaches and the
disappointments – it is not too late to cure the situation as long as
there exists a realistic, well thought-out expectation for success.
In particular there must be a realistic, well thought-out expectation
that if management takes certain actions, the following will happen :
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certain tangible positive results will be attained by the company;
and in particular there is a realistic expectation that measurable
improvements will be made in productivity or sales or profitability
fairly quickly;
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parties whose support is essential to the success of the
company, will provide that support – such as lenders, important
suppliers, key employees, unions, customers, existing and / or
prospective shareholders and other investors, and possibly some
branches of government;
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with that support, and other rationally-expected events, operating
and financial viability will be restored.
A realistic plan for Co-opting
Support of these parties constitutes an essential element of any
viable Turnaround Concept.
My experience (see Case
#1) is that when management is creative and flexible, and works
to obtain cooperation of third parties on a basis that is attractive to
both sides of the transaction, many intelligent new arrangements are
possible with practically all parties : with lenders, with minor
suppliers, different ones with key suppliers, with shareholders, with
unions and even with governments. It should be remembered that it is
generally easier to obtain such support in stages, that perseverance and
success breed respect, sympathy and support, and that having the support
of some parties makes the support of the others easier to obtain. Such
arrangements contribute enormously to the turnaround process.
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