Executing Turnaround for a troubled Firm

 

 

Introduction

Turnaround of companies is a process that requires a great deal of critical thinking and careful consideration of different aspects of a business strategies implementation. Executing a turnaround may be easier in some cases than one thinks. I say this because while executing a turnaround, the key turnaround levers are in control unlike managing the growth of a company. When a turnaround is being executed, their might be less resistance to it from within the company as the human resource of the company is aware that the company needs the execution of the turnaround due to being in trouble which could also result in loss of job for some of the employees. The company has a clear goal as it has already seen the good days and the aim of the turnaround is to reach that level again. The purpose of this paper to shed some light on the process of executing turnaround in the case of a company that has dropped from a certain high level to a lower level in terms of its functioning and financial returns. Following are some of the factors that would help in the execution of turnaround for a troubled firm.

Business mismanagement

As it was discussed in the Eric Watson case that a poor project management and having more expenses than income had triggered his company towards a bankruptcy, business mismanagement can be a factor contributing to the failure of a business. We talk a lot about business management. I think that there is a great need to also focus on mismanagement of business. Business mismanagement is one of the major cause of business loosing track and ending up in trouble (Collard, 2011). There are different areas where mismanagement might happen. For example a dictatorial and autocratic management style might negatively impact the behaviour of the employees who would then turn to be less productive than they were before. In the same way and ineffective communication system in a firm could also cause confusion and misunderstanding and hence compromise the quality of the different business processes. Sometimes business focus more on their existing customers and poorly or do not plan to attract more customers. In such situations they might not increase their customer base and hence lose a good share of the customer market. Businesses might also plan to expand while they do not have the resource to carry out the expansion. This could cause these business get into a status where they have exhausted their financial resources.

Apart from the above examples, there could be a lot more mismanagement issues that could get a firm end up in a troubles situation. There is a need to make the business management processes efficient enough so that there is no room for mismanagement.

Initiating groundwork

There is a high possibility that a failing firm can be turned around and made profitable again. A business should not be dissolved simply because it is performing poorly. With the right help and perspective, a failing business can turn around to profitability once more. For example in the case of Westlake Lanes when the top management was in favour of shutting down the business if it did not become profitable soon. But Shelby started the groundwork immediately irrespective of the pressure of short deadlines and was able to turn around the business within a few months. The efforts employed in turning around failing organizations have enabled individuals to invest in underperformers. This has been made a more acceptable process that can be very advantageous to the investors who are aware of what to look for and how to execute the process (Schopflocher, 2013). Through investing in buyout firms, there are hedging funds that are finding their way out. With the knowledge that success depends on the capability of a troubled organization is turn-able, various concepts can be employed by a failing firm to turnaround.

In initiating a failing firm turnaround, the first step is preparing the groundwork for a turnaround. Li & Li (2016) observe that while developing the groundwork, some issues may only need a single meeting while other matters may keep on being attended on more than a single occasion because of the complex issues that are linked to the convening of many. Turnaround groundwork would include and not limited to the following site logistics, quality review, safety review, spares review, inspection review, project review, major task review, as well as the plant standards (Schopflocher, 2013). This is made possible by conducting some meetings convened to solving specific issues. The second step of preparing the groundwork for a turnaround is documentation. Li & Li (2016) assert that several documents are involved in developing a turnaround. They documents may appear in two forms either in softcopy or hardcopy. The team needs to gain access to these records to have a planning strategy that is efficiently organized.

The third step comprises the initiation phase; a period where the groundwork is laid for the preparation of the phase. The team members are expected to make contact with several various aspects of the actual turnaround. This happens by the acquisition of the necessary documentation and more information that would be helpful in the preparing and planning for the event. This seals the foundation of the groundwork for the turnaround. This model directs leaders to a critical path they should follow in facilitating the turnaround process.

Marketing strategies

Executing a turnaround also requires an organization to determine the proper marketing strategies. Schopflocher (2013) observes that a company should identify potential market through conducting a series of market research processes and then address them more successfully than the competitors to ensure that a firm with a new face is outstanding in the market. Therefore a firm should wholly focus on its strategies. A marketing strategy is the one that makes the most of the matches and strengths that are connected to the targeted clients. The foundation of an effective marketing strategy should be based on well-informed marketing strategy. Li & Li (2016) observe that an effective marketing strategy is the one that helps an organization to build business goals, mission, and vision.

Marketing strategy affects how the company operates the overall business. Therefore a good marketing strategy should be developed under great decision making that involve the consultation with the team. A marketing strategy comprises a strategic planning tool that describes an organization, its services, and the products it intends to offer as a new firm. Li & Li (2016) observe that an effective marketing strategy describes the role and position of the products and services that an organization takes to the market (Schopflocher, 2013). A complete marketing strategy should be capable of profiling the customers as well as the competitors. An organization should also have proper marketing strategies that they intend to use. A great marketing strategy aids an organization in building a proper marketing plan that helps in measuring its effectiveness.

A marketing strategy is responsible for setting up the general goals and directions of the market and is totally different from a marketing plan. Having a proper marketing strategy ensures that the specific actions that an organization takes to implement a marketing strategy are properly enlisted for future references. A marketing strategy takes several years to be fully developed. This means that a marketing strategy includes tactics that are to be achieved in a particular year. A marketing strategy should be well drawn up to help the business realize its goals and building an imperative reputation for its products and services (Schopflocher, 2013). Creating compelling ideas helps in raising awareness or selling the organization’s products. Developing a marketing strategy entails components such as identifying the business goals, stating the marketing goals, researching the market, profiling potential customers, profiling potential competitors, develop strategies to support marketing goals and finally testing the ideas.

Acquiring cash

Another thing is obtaining much need cash required. For a start-up cost, a business can look for several ways of getting money. Executing a turnaround means that an organization requires money. According to Schopflocher (2013), an organization should always know where to obtain the finances that are required for the turnaround. There is also a lot of money that is required to maintain a company. The finances are required so that they can fund the businesses processes such as buying the necessary equipment, paying the employees and keeping start-up budget on the right track (Schopflocher, 2013). If the organization does not have the required amount, it is good for it to start small in case the owners of the organization have very high expectations. Blind optimism should not push an organization towards investing too much money too quickly. It is always good for the employees to keep an open mind in preparation for the issues that may arise. A business can consider obtaining money from bank loans or borrowing among other methods. For Example one of the option in Eric Watson’s case was to borrow money from the banks to clear the already present depts. Though I didn’t think that it would be a good option.

Financing the company

Financing a company can happen in any economic climate whether an individual is looking for investments to fund the start-up, capital to expand or even money to maintain an organization in hard times. Financing the company could be through a bank loan, factoring, using a credit card, crowd funding, pledging for future earnings or even attracting the angel investors.

In conclusion, there is a high possibility that a failing firm can be turned around and made profitable again. In initiating a failing firm turnaround, the first step is preparing the groundwork for a turnaround. Marketing strategy is responsible for setting up the general goals and directions of the market and is totally different from a marketing plan. For a start-up cost, a business can look for several ways of obtaining cash. An organization should always know where to obtain the finances that are required for the turnaround.

Risk management

When we talk about risks, the first risk that troubled companies face is the risk to be shut down as it was the risk faced by Paul Thomson when he acquired the Walker Insurance company that had serious financial and management issues. Risk management is a fundamental process that needs to be implemented in any type of organizational functioning. Risk is a kind of threat but it can also be seen as an opportunity. For example according to Casualty Actuarial Society Enterprise Risk Management Committee (2003), risks might have the potential to create value. There are different types of risks that are involved in executing the turnaround of a company. Some of these risks are internal and some are external. The internal pressures may be some of the financial risks that would need to be taken when planning and executing a turnaround. There could also be some employees who have lost hope and do not believe that the turnaround may be executed. Taking such employees on board and making them a part of the process is also a risk that needs to be assessed and properly handled.

External risks could be that of faced by the market pressure. The competitors might be trying to adopt to strategies that would limit the opportunities for a turnaround. The status of the market where it needs to be predicted if the demand for the services or products is increasing or decreasing needs to be assessed. Market uncertainty may have cause the firm to be in the bad shape that it is and there is a risk for the firm situation to go worse during the execution of the turnaround in the presence of a volatile market. Risk is not something that can be completely avoided, but with a systematic approach, risks can be identified, understood and reduced or controlled (Barker & Duhaime, 1997).

Role of top management

Top management has an important role to play in the implementation and formulation of turnarounds. The top management has different types of responses to turnaround as suggested by research (Lohrke, Bedeian & Palmer, 2004). Top management may have a conservative responsive when it comes to planning and executing turnarounds. They might use conservative decision making processes that are more focused on a restrained and rigid responses. For Example one of the great challenge that Shelvy Givens faced was the conservative attitude of the company’s board who had decided to close the company if it did not become profitable till the mid-2010. This must have put a lot of pressure on Shelvy and could have impacted her own decision making capabilities due to psychological pressure. The top management may depict an innovative response that could lead to successful implementation of the process. The innovative response involves taking the suggestions of many personnel in consideration and being able to incorporate high risk strategies in turnaround planning and implementation.

I was evident in the case study of Malden Mills that top management has a greater role to play in the time of crisis. Like the role Aaron Feuerstein played when he continued paying his employees till the rebuilding was complete after the fire breakout. This proved to be a great personal ethical compass.  The same way Schultz was also proved to be a reliable and efficient leader in the turnaround of Starbucks. The personal characters of the top management are also some of the factors that may impact the process of turnaround. For example the demographic characteristics of a top manger could impact his/her perception process and hence have a reflection in the strategic decision making. Top management need to be well prepared for the turnaround process. Calculated decisions should be made by the top management as these decisions could impact the turnaround process in either way.

Different stages in the turnaround process

In the precious sections, I discussed the different factors that must be considered while planning and executing the turnaround process. It is also important to mention here that sometimes a turnaround may not be a feasible option as we can see in the case of Malden Mills where the rebuilt was not a great option in the short run at least. In this section, I would like to discuss the actual turnaround process. Collard, (2011) has described five stages involved in the turnaround process. These stages are management change stage, situation analysis stage, emergency action stage, business restructuring stage and return to normal stage. In the following discussion I would like to describe these stages one by one.

  1. Management Change Stage

The worse status of the business or firm may be caused by the wrong decisions of the present management. Therefore, there might be a need to bring changes in the management at the top and/or other stages. It is pertinent to select a CEO who are capable of leading the turnaround in a successful way. The CEO should have a professional track record where he/she has been able to handle pressure and take innovative decisions. In one of the video that I watched, it was mentioned that the knowledge and skills are important but the attitude of the people applying them in the real life situation and connecting them to these situations is more important. What is expected of the turnaround is to achieve positive results. The person who is going to lead the change process must be able to achieve positive results and be able to use his knowledge and skills in relations to the situation in hand. It is better to select such a person who already has dealt with such issues and know what he/she is doing. He/she should be capable of identifying effective turnaround strategies should understand the business live cycle and its relation to the turnaround process at different levels. Schultz is a great example in getting Starbucks back to its place. He had the guts to take tough decision and took several risks that another person may have avoided.

  1. Situation Analysis Stage

When a situation analysis is the aim, it is important to start from the analysis of the internal factors that might be causing the business to demise. For example the downfall of Starbucks in 2007 was greatly because of Starbucks internal management issues and over pricing of its products. The status of the situation of the troubled firm is important to understand. The personnel including the person in charge should analyse the situation by answering the questions like is the firm viable and sustainable? Is it really important to save the firm or there are other alternatives? What is the status of the cash availability for the turnaround? And so on. At this stage, the governmental, social and environmental factors related to the turnaround process are analysed. It is also pertinent to note here that the different products or services that are producing the highest revenue are identified and analysed for risks and improvement. Different departments of the firm are assessed for their readiness to the turnaround and are analysed for the effectiveness of their relationship with each other. It is important to take each department on board during the turnaround so that no one is left behind.

  1. Emergency Action Stage

Turnaround is a process that is aimed primarily at gaining control at business process that may have gone out of hands. For example the cash might be flowing out of control and would need to be controlled. Such situations call for an emergency. In such situations, timely and immediate decisions would need to be made. For example if the money is bleeding, a stop to it would be aimed and the raising more money would be required. In such emergency situation, downsizing might be required which needs to be done in a professional and fair manner. There could also be a need to hire new professionals. It would be a tricky situation to hire more people when there is a financial crisis but would need to be done. Looking for some extra cash from investors or banks may not be a great option always just as in the case of Walker Insurance where Paul Thomson needed extra cash but borrowing money from banks or getting some investors involved was not an option.

  1. Business Restructuring Stage

One of the aim of turnaround is to get the company going where it is profitable and feasible. Different restructuring to the business might be required. For example there could be a need to install a proper reporting system that keeps track of all the operations of the firm. There could be a need to change the attitudes at which the employees have been treated in the past that might have resulted in their decreased productivity. If such is a case, there would be a need to introduce an incentive based system that could motivate the employees and they feel recognized. In the case of Malden Hills, Aaron Feuerstein showed great Ethical standards by continuing the employee’s salary even the mill was non-functional. That is why Malden Hills is considered to be among the best places to work till date. There could also be a need to deal with the customers differently. Customer relationship department may need to be restructured as well.

  1. Return to Normal Stage

Once the above steps are carried out effectively, the business would start to return to normal. At this stage there is a need for proper management of the return to normal process. New opportunities should be sought out. Obstacle should be identified and removed that could compromise the turnaround process. Financial restructuring might also be required to serve short term vs long term objectives.

Conclusion

Turnaround process is an attempt to get a troubled firm back to where it used to be and beyond it. There are different factors that impact the turnaround process. All these factors need to reconsider before and during the planning and execution of turnaround processes. Financial resources need to be located and acquired for the process. At the same time risks associated with the turnaround process also need to be identified and managed. Once the goals of the turnaround process are identified and set, the people who would be participating in the process and others who are one or the other way related to the firm should be taken into confidence. These stakeholders need to be assured that the results of the turnaround would be in the best interest of the firm. After all the impacting factors have been identified and understood, only then should the turnaround process be implemented.

 

 

References

Barker III, V. L., & Duhaime, I. M. (1997). Strategic change in the turnaround process:    Theory and empirical evidence. Strategic management journal, 18(1), 13-38.

Casualty Actuarial Society Enterprise Risk Management Committee. (2003). Overview of             enterprise risk management. Fairfax, VA: Casualty Actuarial Society.

Collard, J. (2011). Managing Turnarounds: Phases and Actions in Turnaround Process.

Li, Z., Yang, S., & Li, Z. (2016). Overview of Risk Management System of Commercial

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Lohrke, F. T., Bedeian, A. G., & Palmer, T. B. (2004). The role of top management teams in         formulating and implementing turnaround strategies: a review and research agenda.       International Journal of Management Reviews, 5(2), 63-90.

Schopflocher, T. F. (2013). The turnaround experience: Saving troubled companies. Calgary: Detselig Enterprises.