Turnaround Management

Corporate renewal and restructuring during times of financial distress. Explanation of Turnaround Management.

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What is Turnaround Management? Description.

Turnaround Management involves the formulation and implementation of a strategic plan and a set of actions for corporate renewal and restructuring, typically during times of severe corporate financial distress. Often with the help of outside turnaround consultants or strategy consultants, a Root Cause Analysis is made and a turnaround plan is devised and executed, assuming that the firm still offers the potential to return to financial solvency, profitability and strategic viability.

Root Causes of Strategic distress

There are just a limited number of root causes for corporate strategic distress:

"Acts of God" - Certain risks may occur and cause irreparable damage (despite proper anticipation and thorough preparation).
Poor Vision / Understanding of the Market
Poor Strategy
Poor Business Model / Execution

More Immediate Causes of Strategic distress

Typically, when these root causes are not dealt with properly, they will cause a range of problems, which can then trigger a corporate crisis:

Lack of expertise, experience or education, weak management
Market circumstances, weak economy
Business economical reasons, earnings crisis
Bankruptcy of holding company
Board level arguments
Fraud, insufficient financial controls
Overly optimistic sales projections
Financing problems, liquidity crisis, excessive debt burden, undercapitalization
Operating cost levels too high
Very strong, successful competitor
Overinvestment
Insufficient resources, underinvestment

Often these triggers are interrelated, and several causes are involved. Slywotzky and Drzik have categorized these triggers in 7 Classes of Strategic Risk.

Steps in a Turnaround Process

The first step in a turnaround process is often to change the top management or leadership of the business and to appoint an experienced turnaround manager. Often strong, Commanding Leadership or even Charismatic Leadership is exerted. The turnaround process typically consists out of the following key steps (in approximate chronological order):

Assess the situation and future business viability
Implement emergency steps ("stop the bleeding")
Develop strategic survival plan
Implement the plan, restructuring the business. Survive the crisis
Return to normal operations, profitability and growth
Prepare for departure of turnaround management

Turnaround Management Special Interest Group

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Turnaround Management Forum

Recent User Comments

    			 
              - India
  	       
  		     Recognizing When Turnaround is a Must
  	  		 "The most important part of the whole exercise is to recognize if a turnaround is required or if some path adjustment will do. Doing frequent turnarounds may not be good for an organisation as it has some disruptive effects also.

In my opinion when the rate of change of profit is continuously going down for more than three terms or is contrary to the general business trend, there is a need for turnaround.

Another method could be using control chart techniques of SQC to recognise if the deviation in profits is significant and needs a turnaround."
  			   
    	  		 0

    			 
  			   Dheeraj Nim - India
  	       
  		     Turnaround Management is Effective
  	  		 "Turnaround mangement is an effective tool."
  			   
    	  		 2

    			 
  			   Dave WItt - USA
  	       
  		     Start with Call to Action
  	  		 "I support the idea that turn around mgt be considered a method.

I would highly recommend that the first step be a call to action section - enabling the managers to determine the urgency of the situation. The risk of closing the doors or the loss of the stakeholders investments, needs to be taken into consideration for the speed at which a turn around needs to happen."
  			   
    	  		 -4

    			 
  			   Catriona - UK
  	       
  		     Turnaround Strategy Hoffman Model
  	  		 "This seems like an impressive method... Has anyone heard of the Hoffman Model, it's a method I've been recommended and I was wondering if anyone has any details concerning it?"
  			   
    	  		 9

    			 
  			   Narendra - India
  	       
  		     Turnaround Management
  	  		 "I am impressed by the method. Probabily in India this method can be widely applied by outsider intervention in a company, coz my personal experience with few companies make me say so."
  			   
    	  		 8

Best User Comments

    			   
    			     Anonymous - USA
  	         
  				   Insider or Outsider
  				   "I wonder, what is preferable? Use an insider for a turnaround, because (s)he knows the complexity of the situation very well, or an outsider, because (s)he can act independently and without any attachments to the current situation and stakeholders?"
    			   
        	  		 4

    			   
    			     Rob Snelders - NL
  	         
  				   Turnaround Management
  				   "I do not see the value in this addition and I do not see where 12manage is going to:
* Turnaround management cannot be considered a Method, Technique
* Turnaround management - as depicted - is just an approach, but it is too shallow and empty to provide any value.

Maybe it's just a trigger to sell the Premium membership, but doing so 12manage is losing my high regards."
    			   
        	  		 0

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Turnaround Management Education & Events

Compare with Turnaround Management: Strategic Risk Management | Root Cause Analysis | Business Process Reengineering | Acquisition Integration Approaches | Leveraged Buy-Out | Management Buy-Out | Liquidation Value | Commanding Leadership | Charismatic Leadership

Return to Management Hub: Change & Organization | Finance & Investing | Leadership | Strategy

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Copyright 2009 12manage - The Executive Fast Track. V10.4 - Last updated: 11/21/2009. All names tm by their owners.

	● Edgar Zuñiga (Peru)	Insider or Outsider	"Based on my experience, you need to build a team including outsiders and insiders. Insiders help to design the strategy for the turnaround and outsiders to implement it."
	● Gian (Netherlands)	Insider or Outsider	"Good question, but (as usual) the answer is: "it depends". What is leading the company to disappointing results? If it is inertia coming from previous successes, than maybe an outsider could be the best way to go. If the reason for the bad results has to do with re-alignment of resources than maybe an "insider" could get the job done in a better way (the signal to the other employees would be one that says: "we appreciate you all and we think you can pull it off without any external help"."
	● Patrick Yankey (Ghana)	Turnaround management	"Use of an Outsider promotes new way of doing things. Turnaround mangement is a major technique that works succesfully in small organisations. I have seen results with this method."
	● Abbas (Pakistan)	Insider or Outsider	"I believe that sometimes employees are so tired of old stuff work that they need inspiration to motivate themselves ( as this principle is widely used in Football). I would go for an outsider with a good reputation."
	● (India)	Outsider is Necessary	"When the situation has gone to a level that demands turnaround, it is only an outsider who can help. He has no stake in past, can be considered unbiased, can really change and can be seen as a savior. The solution will however come from insider's knowledge and outsider's understanding and analysis. Insiders may know the solution but may not force it, due to some limitations from top and hence a suave and articulate outsider can get that solution out of insiders and present it in form by which it brings turnaround."

	● Brendan Dunphy (UK/FR)	Turnaround Managemeny	"I see Turnaround Management as a role rather than a tool or technique and yes, it may be an approach to solving a critical problem requiring drastic action."
	● Debashish Brahma (India)	Turnaround Management	"Turnaround is not a new word, you require effort in maintaining a business in breakeven also there is saying " Business is like a Car; you require effort to make it move except downhill". Nothing happens automatically, you have to make it happen. In case of an increase in the bottom line you require positive efforts/executions and that is also a turnaround to greater profitibility."
	● John Everett (USA)	Turnaraound Management	"This definitely can use some fleshing out, but I have been through a turnaround, and the CEO that took us through it followed exactly those steps with great results. Perhaps someone with experience can provide links to the specific management techniques requested by a previous post."
	● Anonymous (UK)	Rob Snelders	"Rob stop whining!... this is a brilliant site. It has everything you want on one page and maybe you should stop being so stingy and upgrade to the premium package. I think the article is very valid baring into account the current economic crisis and provides a senior managers a basic overview of fundamental areas that should be considered if trying to conduct a turnaround exercise within a business."
	● (India)	Method or approach	"Rob, you are not happy with inclusion of this subject in 12Manage because you consider it as an approach and not a method. I would like to know your views on how to differentiate between the two. In my opinion approach is just an option or way to look at a problem whereas method has some measurement, comparison, analysis, decision, action and results. In turnaround management one measures profits versus time, calculates or views at rate of change of profits and decides if it requires simple incremental adjsutments or needs turnaround management. If applied properly, it may result in change of results and so I think it looks nearer to method than approach. Please let us have your views."