TURNAROUND STRATEGIES

There is no standard model of how a company should respond to a decline. A number of generic successful turnaround strategies have been identified. It is common that a number of these will be deployed at the same time. They include:

• changing the management,
• redefining the company’s strategic focus,
• divesting for closing unwanted assets,
• improving profitability of remaining operation,
• making acquisitions to rebuild core operations.

 1. Change the Leadership:

This usually involves a change of CEO or chairman, or both, to provide a new vision for the corporation and to inspire confidence in shareholders and bankers. Since the old leadership bears the stigma of failure. For example, as the first step in implementing a turnaround, IBM changed CEO John Akers with an outsider, Lou Gerstner.
2. Strong financial control:
Strong financial control is essential for successful turnaround. Centralization of cash, improved cash- flow to reduce debt, including possible asset disposals could help.  

3. Organizational change and decentralization:
Organizational change and decentralization is long-term turnaround policy, but might be expected once new top management has been installed and often involves downsizing. Decentralization should also not occur until adequate financial controls are in place.
4. Redefining strategic focus:
This may well include: addition or deletion of product lines; addition or deletion of customers according to profitability potential; changes in the sales mix by focusing on specific products and customers; complete withdrawal from unattractive segments; and entry into new product market segments.
5. Growth via acquisition:
Making acquisitions is quite a common turnaround strategy primarily to strengthen the competitive position of a company’s remaining core businesses. This does not necessarily mean diversification, but the purchase of firms in the same industry, or in closely related industries. This alternative may not be open to firms in serious financial crisis. 

 6. Asset reduction:
This is usually an integral part of any turnaround strategy. In the short term, strict cash control and reduction in working capital assets are priorities, and in the medium term fixed asset disposals and sales of whole businesses may well be necessary. This disposal can bring the company much-needed cash that it can invest in improving the remaining operations.
7. Debt restructuring:
Frequently, financial problems may require restructuring any outstanding debt and reaching acceptable revised terms with lenders or raising additional equity.
The precise management actions required for a successful turnaround will depend on the position of the firm.