Strategic Management

Turnaround management - an
overview
Part 1 - Turnaround – an overview
- contents
 Meaning
 The importance of business skills
 Managers are critical in a crisis
 What to do in times of difficulty
 Obtaining support for a turnaround
 Understanding your options
 Conditions necessary for a successful
turnaround
 Turnaround Process.
 Turnaround - meaning
 “A turnaround is to produce a noticeable
and endurable improvement in
performance, to turnaround the trend of
results from down to up, from not good
enough to clearly better, from
underachieving to acceptable, to losing
to winning”
- Stanley J. Goodman
The importance of business skills

 Types of skills required

 A lack of training in the specific skills
and knowledge needed.
 A lack of ability to deal with a crisis
 A refusal to seek help from specialists
 Lack of managerial skills
 Managers are critical in a crisis

 A goldfish
 An Ostrich
 A rabbit in the headlights
 A headless chicken
What to do in times of difficulty
 Spot the signs as early as possible
 Face up to the need to deal with the
problem
 Get help
 Remain alert
 Obtaining support for a
turnaround

 From shareholders
 From management consultants
 From governments
 From banks
 Insolvency practitioners
 Understanding your options
 Fix the business
 Sell the business
 Shut down the business

 ----- contd….
 Understanding your options
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 Conditions necessary for a
successful turnaround

 Some form of viable business

 Time
 Further investment and cash
 Vision
 Management
 Stake holder's support
 Confidence in the process
 Turnaround formula by Flack
 Positive Leadership
 A written strategic plan
 A coherent management to implement
the strategy
 An action plan
 The phases of turnaround
 Crisis management
 Stabilisation
 Regrowth
The phases of turnaround

Decline
Regrowth

Crisis management

Stabilisation
 Priorities in each phase of a
turnaround
Situation Crisis Stabilisation: Regrowth:
management: Preparation for Long-term
short-term relaunch sustainable
survival competitive
advantage
Financial To solve Put finance in Manage the
immediate place for future working capital
financial crisis re-growth
People Retrench Get right By retaining
management and recruiting
for re-growth right people
Marketing Slim down Prepare for Drive growth of
product / relaunch of turnover and
market growth profits.
products
 Turnaround Process
 Recognising the need for a turnaround
 Surviving in the short term
 Deciding what to do
 Doing it
 Keeping on succeeding
 Turnaround process *(source:
http://www.emeraldinsight.com/fig/0510200307006.png)
 Part 2 – Recongise the need for
fast turnaround - contents
 A) Spotting the warning signs of business
failure:
 Why business fail
 Types of business failure
 Normal business failure
 Avoiding Failure
 The symptoms of normal failure
 Checking your business‟s health to spot the
warning sings
 Take an “A” score test (Attached separately)
Topic 2 – Recongise the need for
fast turnaround – contents
(contd…)
 B) Understanding why Business fail:
 Causes of normal failure
 Five Key areas
 How serious your problems
 Why Business fail?
 Recognise the following complementary
truth:
1) All businesses are fundamentally
same
2) All businesses are fundamentally
different.
- Common factor – is “NO CASH” due to a)
lack of profit, b) excess illiquid assets c)
too much growth.
 Types of business failure
1) The start up that never starts:
- The business model is wrong;
- The business is undercapitalised
- Lack of reserves
- the business is in high growth industry, but
fails to survive the „shake out‟.
- lack of determination from the entrepreneur
------- contd…
 Types of business failure
(Contd…)
2. The Catastrophic failure: - fire, flood,
fraud, government action.
3. Incremental failure over time:
Normal type of failure:
Normal Business Failure – the
decline curve
 Avoiding failure
 Recognise the symptoms of failure ;
 Check your business‟s health to detect
the warning signs;
 Recognise the causes of normal failure;
and
 Judge how serious things are.
Avoiding failure- the symptoms of
normal failure
 Poor Financial performance –
 Under performance –
(a) Market share and reputation are being
lost;
(b) Stagnant or reduced turnover;
(c ) Stagnant or reduced profit
(d) Warning from bank / bank taking
security for its lending
Avoiding failure- the symptoms of
normal failure
 Distress:
 Increase of overdraft;
 Failure to pay suppliers on time and loss of discount
facilities;
 Forced to acquire asset on lease;
 Decide to move into “Factoring” (Sale of accounts
receivables)
 Crisis:
 Unable to pay your credits;
 People will start leaving;
 Legal actions emerge
Checking your business‟s health
to spot the warning signals
 Subjective judgments and objective
measures:
 Accountant/bank manager‟s feedback
 Credit score;
 Z and H score
 Health check against symptoms and
causes;
 Subjective judgments and
objective measures:
 Subjective judgments:
Does your business suffer from any of
the above symptoms;
Have a business health check (last part)
Seeking an external opinion –
Accountant & Bank managers.
 Objective measures:
 “Z” and “H” scores
 B) Understanding why Business
fail:
 Causes of failure:
The situation may appear highly
complex;
Short-term requirments must be
balanced against long-term requirements
The whole business needs moving
forward simultaneously;
The approach should be consistent
across all areas of the business.
 The Five Key area
 The business‟s management structure;
 The strategy challenges (the big
problems that must be managed)
 Lack of financial control;
 Lack of operational control
 One-off projects or special
circumstances that place a heavy
demand on the business‟s resources.
 The business‟s management
structure
 Autocrat style of management;
 “Yes” man team;
 Lack of skilled directors;
 Unwilling to take external advices;
 Fail to plan for succession;
 View that there is “nothing we can do”
when everyone suffers in the industry.
 Family business;
 Strategy challenges
 Failure to spot and adapt to changes;
 High cost structure due to lack of
economy of scale of operation.
 “All eggs in one basket” – investment /
customers / suppliers….
 Lack of financial control
 Information
 Control
 Management
Poor credit control
High stock level
Inappropriate funding
Over-gearing
Overtrading
 Lack of operations control
 Inefficient production can arise from a variety
of causes:
 Is the factory poorly laid out?
 Is the equipment obsolete?
 Are the workers poorly trained?
 Is the production organised in most
appropriate way?
 Does the business manufacture wide range of
products?
 One-off projects or special
circumstances
 A premises move;
 A big acquisition
 Committing a business to a big
production contract;
 Changing an accounting or computer
systems;
 Developing and launching a new product
Generic turnaround strategies