Turnaround Strategies

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Which stage does your company belong?

There are three stages of a turnaround strategy:

I – Pre-turnaround

II – Period of Crisis

III – Period of Recovery

The first stage is the period just before the profitability begins to decline. The company is still considered profitable at this point, but losing ground. The second period is known as the period of crisis. At this point the company needs to turnaround. This stage is marked by a decline in profits (even negatives), a fall in market share and the company's poor cash situation.

The third stage is the period of recovery or the turning point. This is the stage where serious action is taken to turnaround the company. Important decisions like scaling back production or returning to an aggressive growth stage are taken. At this point, the company's strategy is clear. The company can choose to rely on a centralised and low cost system and continue profitably. Alternatively, it might decide to combine these benefits with a growth strategy. This is the longest period and may last for years.

Steps in turnaround strategy

Redefining strategic focus: This involves re-evaluating the company's business and deciding which ones to change and which to retain. Diversified companies need to review their portfolio on the basis of long-term profitability and growth prospects.
Selling or divesting unnecessary assets: Sometimes, although the assets are profitable, they must be liquidated to contribute to the strategic focus. The cash received from the sale of such assets should be used to repay debts. Self-sustaining businesses are ideal candidates to do so.
Improving Profitability: To do this the company has to take drastic steps like:-
1. Assigning profit responsibility to individual divisions
2. Tightening finance controls and reducing unnecessary overheads.
3. Laying off workers wherever necessary
4. Investing in labour saving equipment
5. Building a new inventory management system and manage debt efficiently through negotiating long-term loans
Making careful acquisitions: The company must be careful while making acquisitions. It should be in an area related to its core business enabling the company to quickly rebuild or replace its weak divisions.