6/6/2022 2 Comments
Probably the most well-known turnaround success story is the rise of tech company Apple.
Apple went into a decade-long downward spiral after CEO Steve Jobs left the company in 1985 and lower-priced products from competitors, like Microsoft Windows, took over the personal computer market.
For 12 years, its innovation, popularity and sales continued to plummet, almost reaching bankruptcy until Jobs rejoined the company in 1997. The company was able to turn itself around with a successful rebrand and new technology like the first iMac.
Now, Apple is one of the most well-known and valuable companies in the world, raking in almost $300 billion in revenue each year. But what is a turnaround strategy and when should organisations consider it?
Turnaround Strategy is a strategy employed by organisations when the decision made earlier has missed the mark and needs to be undone before it damages the profitability of the company. Simply put, a turnaround strategy is backing out or retreating from the decision wrongly made earlier and transforming from a loss making company to a profit making company.
Many executives ask, "When should my organisation adopt a turnaround strategy?" The need for a turnaround strategy arises because of the changes in the external environment, change in government policies, saturated demand for the product/service, a threat from substitute products/services, changes in the tastes and preferences of the customers and many other factors.
The following indicators makes it mandatory for organisations to adopt this strategy for their survival:
Approaches to a Turnaround Strategy
Cost Efficiency Strategies
Cost efficiency strategies are implemented first in the recovery strategy. They are preferred turnaround recovery strategies that achieve cost efficiencies because they are easy to implement, require little capital, and their effects are almost immediate.
Cost-oriented turnaround strategies include reducing research and development, stretching accounts payable, eliminating pay increases, reducing accounts receivable, cutting inventory, investment diversification, and reducing marketing activities.
The measures can be accompanied by reduced pressure from debt repayments through financial restructuring. However, such an action carries some risk. If an organisation solely relies on cost-cutting as a turnaround recovery strategy, it will face risks such as increased staff turnover because of the reduced employee morale. Organisations should be aware that cost efficiency strategies can also damage the resources necessary to maintain their core focus.
Asset Retrenchment Strategies
Organisations that face performance decline usually pursue asset retrenchment actions after a cost-efficiency drive. Under the strategy, organisations evaluate underperforming areas to eliminate them or make them more efficient.
The usefulness of retrenching assets as a turnaround recovery strategy depends on an organisation’s ability to generate cash flow. For example, an organisation may dispose of its old assets to generate cash or invest in new ones.
Focus on Core Activities
Organisations can also resort to focus on their core activities as a turnaround recovery strategy. Under the increased focus, they can identify markets, customers that can potentially generate high profits, and adopt the measures as the main focus of the firm activities.
For example, organisations may re-focus on the Skills Development Plan (SDP) or other plans best known to them. They may develop a clear competitive strategy through focus.
Change of Leadership
Organisations often replace incumbent CEO's as a turnaround recovery strategy. During turnaround situations, most organisations appoint new chief executives from outside the company as a way of injecting a new way of thinking into the top management.
Some organisations may need to relook at reinventing and reorganising themselves (organisational restructuring) through assembling teams that will enable them to focus on new strategies to lead the turnaround.
Even the most successful businesses have failed at some point in time. However, if handled correctly, rock bottom could serve as the first stepping stone an organisation needs to begin climbing back up to the top. Let us help you mobilise for change, navigate uncertainty, and flex as needed, so you can achieve sustained, profitable growth—a feat only 1 in 11 companies manages to pull off.
Thanks for mentioning how a turnaround strategy can help an organization move from loss-making to profit-making. I imagine that a turnaround strategy would be much more effective with the help of a turnaround management service. That way, the organization can benefit from the service's experience and expertise in the matter.
Correct, Charlotte. A turnaround strategy would be much more effective with the help of a turnaround management service or a strategy consultant (https://www.gestaldt.com/strategy-consulting.html).
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