Turnaround strategy adopted by companies

Potato seems bit dull until it gets transformed to crispy and spicy fries.

This same theory applies in our management and business. When we follow same traditional business tactics in this modernized world growth of our business comes to an end. But it's not always an end, sometimes it bring new beginning.

When external environment, country's economy and market conditions are in declining position businesses employ various strategies to minimize its impact.

One of them is TURNAROUND STRATEGY.

It is a form of retrenchment strategy. Under this strategy company decides to undo some of the decisions that will negatively impact its growth. It is a strategy where loss-making company transforms itself into profit-making one.

There are some situations when a company decides to adopt a turnaround strategy

• Negative cash flows
• Uncompetitive products
• Over staffing, high turnover of employees
• Mismanagement
• Declining market share
• Adoption of wrong corporate strategies

What plan corporate follows while adopting a turnaround strategy

For successful implementation of a turnaround strategy, it is important to focus on long-term and short-term goals and financing issues.

1. Assessment of current problems

The first step is to assess the current problems and get to the root causes and the extent of damage the problem has caused. Once the problems are identified, the resources should be focused toward those areas essential to efficiently work on correcting and repairing any immediate issues.

2. Analyze the situation and develop a strategic plan

Before you make any major changes; determine the chances of the business's survival. Identify appropriate strategies and develop a

preliminary action plan. For this one should look for viable core businesses, adequate bridge financing and available organizational resources. Analyze the strengths and weaknesses in the areas of competitive position. Once major problems and opportunities are identified, develop a strategic plan with specific goals and detailed functional actions.

3. Implementing an emergency action plan

 If the organization is in a critical stage, an appropriate action plan must be developed to stop the bleeding and enable the organization to survive. The plan typically includes human resource, financial, marketing and operations actions to restructure debts, improve working capital, reduce costs, improve budgeting practices, prune product lines and accelerate high potential products. A positive operating cash flow must be established as quickly as possible and enough funds to implement the turnaround strategies must be raised.

4. Restructuring the business

The financial state of the organization's core business is particularly important. If the core business is irreparably damaged, then the outlook for the entire organization may be bleak. Prepare cash forecasts, analyze assets and debts, review profits and analyze other key financial functions to position the organization for rapid improvement.

During the turnaround, the "product mix" may be changed, requiring the organization to do some repositioning. Core products neglected over time may require immediate attention to remain competitive. Some facilities might be closed; the organization may even withdraw from certain markets to make organization leaner or target its products toward a different niche. Morale building is another important ingredient in the organization's competitive effectiveness. Reward and compensation systems that encourage dedication and creativity amongst employees to think about profits and return on investments.

5. Returning to normal

In the final stage of the turnaround strategy process, the organization should begin to show signs of profitability, return on investments and enhancing economic value-added. Emphasis is placed on a number of strategic efforts such as carefully adding new products and improving customer service, creating alliances with other organizations, increasing the market share, etc.

The important elements of turnaround strategy are as follows:

• Changes in top management
• Revenue generation
• Quick cost reduction
• Neutralizing external pressures
• Internal coordination

There are many well-known examples of turnaround strategy such as Apple, fedex, reddit, marvel, starbucks.