Meaning of Turnaround Strategy
Following diagram depicts the core meaning of turnaround strategy.
The concept or meaning of turnaround strategy covers following points: 1. Turnaround strategy means to convert, change or transform a loss-making company into a profit-making company. 2. It means to make the company profitable again. 3. The main purpose of implementing a turnaround strategy is to turn the company from a negative point to a positive one. 4. If a turnaround strategy is not applied to a sick company, it will close down. 5. It is a remedy for curing industrial sickness. 6. Turnaround is a restructuring strategy. Here, a loss-bearing company is transformed into a profit-earning company, by making systematic efforts. 7. It tries to remove all weaknesses to help a sick company once again become strong, stable and a profit-making institution. 8. It tries to reverse the position from loss to profit, from declining sales to increasing sales, from weakness to strength, and from an instability to stability. 9. It aids to reduce the brought forward losses of the loss-making company. 10. It helps the sick company to stand once again in the market market.. 11. It is a complete U-turn of a planned strategic economic transition.
Definition of Turnaround Strategy
The definition of turnaround strategy w.r.t different senses is depicted below.
In general, the definition of turnaround strategy can be stated as follows. “Turnaround strategy is a corporate practice designed and planned to protect (save) a lossmaking company and transform it into a profit- making one.” In financial, commercial, corporate or from a business perspective, the turnaround strategy can be defined as follows. “Turnaround Strategy is a corporate action that is taken (performed) to deal with issues of a lossmaking (sick) company like increasing losses, lower return on capital employed, and continuous decrease in the value of its shares.” Finally, from an academic point of view, its definition can be stated as under.
“Turnaround strategy is an analytical approach to solve the root cause failure of a loss-making company to decide the most crucial reasons behind its failure. Here, a long-term strategic plan and restructuring plans are designed and implemented to solve the issues of a sick company.”
Examples of Turnaround Strategy
Some examples of turnaround strategy are depicted below.
Consider following examples of turnaround strategy: 1. Financial Institution, for example, some bank „A‟ is suffering from losses due to nonperforming assets (NPA). NPA is loan given but not yet recovered. This bank „A‟ will follow turnaround strategy and try to recover its loans by appointing recovery agents. 2. Manufacturing company say „XYZ‟ is suffering from losses due to excess idle time taken by labour to complete their jobs. The manufacturing company „XYZ‟ will follow turnaround strategy to reduce labour inactivity by installing modern machines (automation) to carry on the same work or job. 3. Educational institution, for example, „C‟ is suffering from losses due to non-registration of students in their courses. This institution „C‟ will follow turnaround strategy to reduce
losses by providing facilities like e-Registration, conducting online classes, etc. to attract students.
Understanding What a Turnaround Strategy Is Having a successful business requires constant work and planning; but sometimes situations can happen that catch even the most well-prepared entrepreneur off guard. A turnaround strategy is an action plan that can give struggling business owners the guidance and direction they need to revitalize their company. Understanding its Purpose
When a company starts to experience problems, such as declining profit, and increased debt; there has to be an intervention to return the company back to a profitable state. If no action is taken, the company will undoubtedly fail. When management starts restructuring the business to correct its decline, they are probably using a turnaround strategy. This is an in-depth plan, designed to not only save the business, but make it financially sound as well. There are also companies that have consultants and teams that specialize in the different aspects of turnaround management. Why a Business Fails
There are numerous factors that could be identified as the “cause” for a business‟s demise. Maybe an inexperienced entrepreneur underestimated the cost of operations, or tried to grow the business too fast. Perhaps poor management of finances led to a shortage in capital. Corrupt management, inefficient leadership, and the failure to plan for the worst-case event, can often turn a growing company upside down. Being unprepared for an economic downturn may be a factor. Business experts agree that typically, the underlying cause(s) of failure are already in motion, long before the visible signs are present. Recognizing the Signs
There are always signs, or indicators, when a company is doing poorly. The first, and most obvious, would be in the finances. If your profits are declining and your debt is rising, this could be your red flag, indicating that something is wrong. As a business owner, are you avoiding calls that could be a bill collector? Have you lost customers because of poor service or delivery issues? High turnovers in management or employees can also be a sign of potential decline. The attitude and behavior of the employees can tell you a lot about what is happening inside the company. Taking Action
The size of the business and the stage of distress it‟s in will determine some of the actions that may need to be taken. If management is proactive and acts immediately, the company may only require a turnaround strategy consultant to help them get back on track. A company in spiraling decline may require a complete restructuring turnaround strategy. At this point, hiring a turnaround management service may be the only way to salvage the business. Their team can assess every aspect of the business and tell you what actions need to be taken. They can also be responsible for cutting operations or personnel.
Business owners need to know there are options for saving a failing business. A turnaround strategy can help to guide them through the steps of rebuilding and revitalizing their business, in all aspects. This gives struggling entrepreneurs an option to save their business; instead of throwing up their hands and succumbing to complete liquidation and bankruptcy.
Business Turnaround Strategy Creating a Successful Business Turnaround Strategy
Owning and running a business is not an easy task. Moreover, it can be especially overwhelming when the business is on the decline. Creating and implementing a turnaround strategy by following the guided steps, can lead to a successful execution of the plan, and to a successful and profitable business recovery as well. Traits of Successful Businesses
If successful businesses were compared, almost all of them would have similar characteristics in common. They have developed a strong brand, and they target expanding market segments. The companies keep a careful balance between their equity and debt. Their existing business strategies are complete, clear and defined. Several of these companies also have a short-term business turnaround strategy already developed. These entrepreneurs not only planned their businesses‟ success; they made a plan in case it started to head towards failure. Why a Business Turnaround Strategy is Important
People do not start businesses so they can fail. However, sometimes no matter how well things were planned; unforeseen circumstances can occur. Recognizing the signs of decline and acting quickly is imperative to reviving the company. Quick action can reduce the length of time it takes to complete the turnaround. By having a r ecovery strategy in place, you‟re saving precious time and money that can be invested in other areas of the business. For every strategy that is developed to achieve success, there should also be a back-up plan of action incase that strategy for success fails. Starting Over with a New Plan
Creating a successful business turnaround strategy is in many ways like starting over. It is an attempt to look at the situation from a different perspective. In essence, you are creating a new business plan. It means making honest and unbiased assessments of your business and communicating with everyone involved. This includes the management team, employees, accountants, attorneys and your banker. Adjust the company‟s original business plan to show where the business is now. Remember to include specific statements on what changes will be made to correct identified issues. Following through with Changes
Besides the initial steps to recognize problems and quickly act on them; following through with the designated changes is crucial to success. Your business mindset has to change from running the business and doing daily tasks; to saving the business, and making whatever changes are necessary to accomplish that. This may involve management restructuring, and/or, employee and operational changes. With quick action, assessment, planning and follow through, it is possible to take a failing company and make it a solid, financially stable and profit creating institution. Statistics show that as many as 80% of new businesses close in the first year of operation. Most of them don‟t close due to bankruptcy, but rather because the y were unsuccessful. The business owners felt that the companies required too much work, and provided too little in the return on investment. Improve your odds of business success by adding a short-term strategy plan to your business plan.
