
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:
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"Acts of God" - Certain risks may occur and cause irreparable
damage (despite proper anticipation and thorough preparation).
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Poor Vision / Understanding of the Market
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Poor Strategy
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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:
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Lack of expertise, experience or education, weak management
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Market circumstances, weak economy
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Business economical reasons, earnings crisis
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Bankruptcy of holding company
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Board level arguments
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Fraud, insufficient financial controls
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Overly optimistic sales projections
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Financing problems, liquidity crisis, excessive
debt burden, undercapitalization
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Operating cost levels too high
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Very strong, successful competitor
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Overinvestment
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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):
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Assess the situation and future business viability
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Implement emergency steps ("stop the bleeding")
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Develop strategic survival plan
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Implement the plan, restructuring the business. Survive
the crisis
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Return to normal operations, profitability and growth
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Prepare for departure of turnaround management
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Forum - Turnaround Management
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Turnaround Management Diagram
Corporate Renewal and Restructuring (...)
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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
| Interim Management
| General Management
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