Description
An Evaluation Of Turnaround Strategies Implemented By Construction Materials Manufacturing Sector In Zimbabwe Post Multicurrency Era
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ISSUE 470 April 23-29, 2014
AN EVALUATION OF TURNAROUND STRATEGIES IMPLEMENTED BY
CONSTRUCTION MATERIALS MANUFACTURING SECTOR IN ZIMBABWE POST
MULTICURRENCY ERA
By
Nyasha Kaseke
University of Zimbabwe, Graduate School of Management
Abstract
The study evaluates the effectiveness of different turnaround strategies implemented by firms in
the construction materials manufacturing sector. The objectives were to assess which strategies
were actually implemented and how effective is the strategy. A survey of identified firms was
done. It is clear that most of the firms used retrenchment and asset reduction as turnaround
strategies. However, these strategies seemed not to be working positive as there is no change in
operations with other companies falling deep into serious problems. The study concludes that
turnaround strategies were partially effective. The study recommends use of other robust
strategies such as change of company executives in order to bring a new face to the
organization.
Key Words: Turnaround Strategies, Cost reduction, Retrenchment, Downsizing, Refinancing
Cash Management.
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INTRODUCTION
The study evaluates the turnaround strategies implemented by firms in the construction material
manufacturing industry in Zimbabwe after adoption of the multicurrency system. This is a
critical sector of the economy as it provides requisites for infrastructure development for both
business and households. Prior to the period under study, Zimbabwe’s economy was very
turbulent, characterised by massive business closures, streamlining of processes and job cuts.
The world economy went through a global economic recession during this period which saw
most companies collapsing and others forced to scale down operations. The introduction of the
multi currency system in 2009 saw many companies embarking on turnaround strategies to
reposition themselves once more.
Firms in the construction materials manufacturing sector have embarked on different turn around
strategies soon after the introduction of the multi currency system. Notable strategies include
cost and asset reduction, retrenchments, improved communication channels, quality
improvements among others. The question that follow then is how effective were these
strategies?
BACKGROUND OF THE STUDY
Background of the Zimbabwe manufacturing industry
Reserve Bank of Zimbabwe (RBZ) Monetary Policy (2012) state that the manufacturing sector
was estimated to have grown by 5.7% in 2010 and was projected to register a higher growth of
about 6.4% in 2013. The Confederation of Zimbabwe Industries (CZI) Sector Survey Report
(2012) reported that the manufacturing sector in Zimbabwe was the biggest contributor to Gross
Domestic Product (GDP) between 1980 and 1990 at 22% followed by agriculture at 14%. It is
estimated that more than 40% of manufacturing output is used as inputs in mining and
agriculture. However, due to challenges relating to low capacity utilisation, foreign currency
shortages and rising inflation over the years up to 2009, the manufacturing sector’s contribution
to GDP declined from 24% in 1991 to about 16% in 2007 (CZI, 2009). The CZI Manufacturing
Sector Survey (2013) reported stagnant performance in the sector with an average manufacturing
output growing below 2%. The sector is in real crisis. The following factors were identified as
accelerating the in capacity utilization; availability and cost of funding, infrastructure in
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particular power shortages and cost, economic policy instability and high labour cost and rigid
labour laws.
At its peak, the sector used to contribute 15% to formal employment and contributed exports and
foreign exchange earnings of up to 37% (RBZ Monetary Policy Review, 2013). Average
capacity utilisation as at the end of the first half of 2010, stood at 43.7 percent, compared to 32.3
percent at the end of the first half of 2009 as shown in Table 1.
Table 1: Manufacturing sector capacity utilisation
Source (CZI, 2013)
Figure 1 shows a number of constraints that the manufacturing sector was facing prior to the
introduction of the multi-currency system.
Figure 1: Constraints faced by the manufacturing sector. From Sector survey report (p.18)
by CZI, 2013.
Lack of Worki ng
Capi tal
18%
Machi nery/Pl ant
Breakdowns
13%
Raw Materi al
shortages
10%
Competi ti on from
i mports
4%
Low product
demand
16%
Power outages
12%
Ati quated
Machi nery
5%
Other
22%
Year % Capacity utilization
2006 33,8
2007 18,9
2008 10,0
2009 32,3
2010 43,7
2011 57.2
2012 44.2
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Background of the Construction Material Manufacturing industry in Zimbabwe
The construction material manufacturing industry consists of firms that produce building
products. These include but not limited to Lafarge Cement, Pretoria Portland Cement (PPC),
Sino-Cement Zimbabwe, Gyproc Zimbabwe, Beta Holdings, Hornbill Moulding, ZimTile,
Willdale bricks, Glue & Chemical Products (GCP), Turnall Holdings and other small players.
These firms faced the same constraints as other manufacturing industries as shown in Figure 1.8.
In addition, the sector over rely on ZIMPHOS for their critical raw material (Calcium Sulphate).
This reliance on ZIMPHOS has exposed the sector to manipulation by ZIMPHOS.
New players in the construction material manufacturing sector are coming in with a big bang
with South Africa, Chinese and Thailand products flooding the market. The customers now have
high bargaining power in Zimbabwe mainly because they may opt to go and buy from other
outlets where the prices are fairly cheaper. This scenario leaves local industries with little or no
option other than lowering prices to match those of competition. There is no ideal competitive
environment from local producers for profit making. Ghauri and Cateora (2005) reported that the
“ideal” competitive environment from a profit making perspective, is when both suppliers and
customers are in weak bargaining positions, there are no good substitutes, entry barriers are
relatively high and rivalry among present sellers is moderate.
Problem Statement
The sector was on the free fall till the introduction of the multi currency regime. After the
introduction of multicurrency, the firms in the sector faced stiff competition from imports hence
lost market share. Firms have introduced different turnaround strategies for them to remain
competitive in the market. However, the sector still does not exhibit success with turnaround
strategies with features such as high economic return, increased productivity and high quality
products not reflected. The questions that then emerge for the sector are - Did firms in the sector
not carry out turnaround strategies in line with expectations? Did management adopt the
turnaround strategies without consultations with the key stakeholders or participants? Where
there some inhibitors to the implementation of the turnaround strategies? What should firms in
the sector do to benefit from a successful turnaround? It is against this background that the
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research seeks to identify and critically evaluate the turnaround strategies adopted by firms in the
sector.
Research Objectives
The study seeks to determine the different forms of turnaround strategies adopted by firms in the
construction materials manufacturing sector and to assess the effectiveness of the turnaround
strategies adopted by firms in the sector.
Research Proposition
This study proposed that the turnaround strategies adopted after multicurrency by firms in the
construction materials manufacturing sector were successful in turning around firms.
LITERATURE REVIEW
Definition of Turnaround Strategy
A turnaround strategy is a set of consequential directive, long term decisions and actions
targeted at the reversal of a perceived crisis that threatens the survival of a firm (Mintzberg,
1994). According to Platt (2004), there is the strategic turnaround, operating turnaround and
financial restructuring turnaround.
a. Strategic turnaround
Platt (2004) explains that strategic turnaround attempts either to change the strategy for
competing in the same business or to define how to enter a new business. He further asserts that
most strategic turnarounds focus on marketing, production or engineering functions. Chowdhury
(2002) states that strategic turnaround focus on strategy changes sought, with the performance
improvement being a derivative of the strategy change. They involve a change in the company’s
strategy for either competing in the same business or entering a new business.
b. Operating turnaround
Operating turnaround is concerned with increasing revenue, reducing costs or reducing assets.
Hofer (as cited in Platt, 2004) suggests that performance becomes a derivative of strategy
change. Operating strategies focus on performance targets, and any actions that can achieve them
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are considered whether they make good long-run strategic sense or not (Quinn, Mintzberg and
James 1998). These include revenue increasing, cost cutting, asset reduction and combination
strategies, none of which changes the company’s business level strategy.
c. Financial restructuring turnaround
Financial turnaround strategy refers to financial restructuring with a view to strengthening the
balance sheet and/or provides funding (Miller & Modigliani, 1958). Chowdhury and Lang (1996)
contend that financial restructuring is a process in which a firm with excess debt exchanges new
shares of its equity for a portion of its outstanding debt. It can also arrange for creditors to
modify the terms of debt by lengthening its maturity date or lowering its interest rate.
Generic turnaround strategies
Hoffman (as cited in Platt, 2004) noticed that the effects of the environment, as well as crisis
within the company, were important if a firm was to employ a successful turnaround strategy.
The firm will need to spend time making itself crisis-secure, employing methods such as
monitoring changes in the environment and conducting audits of the company's performance
before and during the crisis. They will also need to establish Crisis Management Teams (CMT)
to create built in redundancy in communications (back up plans). Finally, a firm needs to develop
a favourable culture with improved management control and communications. He came up with
the following stages and their corresponding strategies;
Table 2: Hoffman’s turnaround stages and strategies
Stage Strategies
Preparatory stage
Restructure leadership, organisation and culture
Short term fix stage
Cost reduction
Asset redeployment
Selective product/market strategies
Growth stage Repositioning strategies.
Source: Platt, (2004:9).
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Slatter and Lovett (1999) agree with Hoffman but they go on to develop an approach for
achieving a successful turnaround that consists of seven essential ingredients and an
implementation framework consisting of seven key workstreams.
Table 3: Slatter and Lovett’s turnaround stages and strategies
Key Ingredient Generic Turnaround Strategies
Crisis Stabilisation ? Taking control
? Cash management
? Asset reduction
? Short term financing
? First step cost reduction
Leadership ? Change of CEO
? Change of other senior management
Stakeholder support ? Communications
Strategic Focus ? Redefine core business
? Divestment and asset reduction
? Product market refocusing
? Downsizing/Retrenchment
? Outsourcing
Organisational change ? Structural changes
? Key people changes
? Improved communications
? Building commitment and capabilities
? New terms and conditions of employment
Critical process improvements ? Improved sales and marketing
? Cost reduction
? Quality improvements
? Improved responsiveness
? Improved information systems and control
? Packaging changes
Financial restructuring ? Refinancing
? Asset reduction
Source: Slatter and Lovett, (1999:30)
Crisis Stabilisation
Slatter and Lovett (1999) assets that stabilisation can be achieved by reintroducing predictability
to the operations by setting performance targets, establishing information systems, and tracking
progress. Stabilisation ensures legal and fiduciary compliance under circumstances where
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corporate governance often has been neglected or is deteriorating. This is done in any of the
following;
a. Taking Control: Situation Analysis
The situation analysis enables a company to come up with the best turnaround that would best
suite the prevailing industrial condition and thereby increasing the chances of a successful
turnaround. This is in line with Thompson et al. (2010) who highlighted that the best option
depends on the prevailing industry conditions, the company’s strengths and weaknesses, its
competitive capabilities compared to its competitors, and the extend of the crises situation.
Therefore a situation analysis of the industry, major competitors and the firm’s own competitive
position and its own competencies and resources are prerequisites for action.
b. Cash Management
The first step in crisis stabilisation is to generate enough cash and to survive the short term
(Slatter & Lovett, 1999). This cash may be necessary to pay wages and creditors which may be
due or to manage the working capital. This can be done in the following four ways: Prepare a
detailed short-term budget on a strict receipts and payments basis; developing cash- generating
initiatives to bridge the short term funding gap between existing facilities and forecast cash
requirements; Implementing emergency cash-management controls day-to-day; and
Implementing cash rationing where authorisation for payment becomes centralised.
Leadership
Managers attempt to turn around their organisations, through structural changes in the
organisation and/or market repositioning (Banaszak-Holl, 2000). In addition, there are a wide
variety of managerial responses used during periods of crisis and decline that reflect more
general processes, routines, and rituals of managerial decision making. Foster and Stamford
(1998) identifies three substantial areas of managerial action that are key in turnaround situations
which are decision making processes, lines of communication and market repositioning. Earlier
models of organisational decision making during periods of decline and turnaround focused on
the retrenchment of managers during these periods and the prevalence of "threat-rigidity" in
handling crisis situations (Slatter & Lovett, 1999).
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The turnaround literature supports the role of external management expertise as an important
factor in successful turnaround strategies. Finklin (as cited in Carter, 2008) says managers tend
to be very knowledgeable about their current operations but they often lack broader knowledge
and capabilities to initiate and guide organisational changes. Gowen and Tallon (2002), affirms
that effective turnarounds require that firms hire a new management team or shrink operations to
regain profitability. However, Barker (2004) found out that the common practice of replacing the
firm' s Chief Executive Officer (CEO) during turnaround attempts had conflicting and
paradoxical effects on firms' abilities to enact strategic reorientations. Adams (2001) states that a
change in leadership ensures that those techniques, which resulted in the company’s failure, are
not used. The new leader has to motivate employees, listen to their views and delegate powers.
Stakeholder support
Slatter and Lovett (1999) define a stakeholder as any party with an interest, financial or
otherwise, in a company, and hence an interest in or an ability to influence the outcome of a
turnaround. This includes equity and debt providers, bankers, suppliers, customers, management
and staff, and government regulatory institutions. Support from each group of stakeholder is a
prerequisite for any turnaround to be successful. These diverse stakeholders have different
aspirations and the objective is to gain stakeholder confidence and support by demonstrating a
viable strategy, which is responsive to their aspirations.
Strategic Focus
a. Redefine Core business
This involves re-evaluating the company's business and deciding which ones to change and
which to retain. According to Slatter and Lovett (1999), before a turnaround specialist makes any
major changes, the individual must determine the chances of the business’s survival, identify
appropriate strategies, and develop a preliminary action plan. A more detailed assessment of
strengths and weaknesses follows in the areas of competitive position, engineering and research
and development, finances, marketing, operations, organisational structure, and personnel. This
situation analysis stage steps are taken to weed out or replace any top managers who might
impede the turnaround effort. Birger (2001) adds that once the major problems are identified, the
turnaround professional develops a strategic plan with specific goals and detailed functional
actions.
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b. Divestment and asset reduction
Gladwell (2002) states that although the assets are profitable, sometimes 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. Slatter and Lovett (1999) add that a positive operating cash flow must be
established as quickly as possible. Sufficient amount of cash to implement the turnaround
strategies must be sourced. Often, unprofitable divisions or business units are sold as a means to
raise cash.
c. Product-Market Refocusing
Porter (1980) identifies three generic strategies, which can be used successfully to protect a firm
against the forces that drive competition in an industry. These are cost leadership, differentiation
and focus. The latter involves the firm focusing its limited resources on one or a few product-
market segments in which it competes on the basis of cost leadership and or product
differentiation. This is usually the only strategy available for the distressed company in the short-
term, since it is unlikely to have the large financial resources required for industry leadership
based on either cost or product differentiation.
Slatter and Lovett (1999) states that product- market refocusing for a distressed company may
involve any or all of the following: addition or deletion of product lines; addition or deletion of
customers by type or geographical area; changes in the sales mix by focusing marketing efforts
on specific products and or customers; complete withdrawal from a market segment; and entry
into a new product-market segment
d. Retrenchments
Retrenchment is a process in which a firm consolidates its current strategic and financial position
in order to buy time for organisational change efforts (Slatter & Lovett, 1999). Keith (2004)
defined retrenchment as a set of organisational activities undertaken to achieve cost and asset
reductions and disinvestment. Pearce and Robbins (1993) defined retrenchment as either
improving efficiency or changing the firm's basic strategy in order to achieve a fit with
environmental conditions. Retrenchments and downsizing are painful processes of organisational
change because they follow periods of organisational decline (Burke & Cooper, 2000).
Retrenchment implies a reduction to the essential elements of a company that have the best
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chance of producing a profitable operation. According to Pearce and Robbins (1993), it entails
deliberate reductions in costs, assets, product, product lines and overhead. Francis and Pett
(2004) add on that retrenchment incorporates the basic reduction of assets and expenses within
the firm and necessitates many turbulent actions such as layoffs or divestments.
e. Downsizing
Organisational downsizing was defined by De Meuse, Bergmann, Vanderheiden and Roraff
(2004) as consisting of a set of activities that are undertaken on the part of management designed
to improve organisational efficiency, productivity and/or effectiveness. It represents a strategy
that affects the organisation’s work force and its work processes. Barker (2004) recognises that
the success of managerial attempts to turn around companies through downsizing may be
dependent on market conditions. Downsizing occurs either proactively or reactively in order to
contain cost, enhance revenue or to bolster competitiveness. It can be implemented as a
defensive strategy to decline or as a proactive strategy to enhance performance. Barker (2004)
find that downsizing occurs in a large number of firms that face decline, including those that turn
around and those that do not.
Organisational change
a. Structural Changes
All successful corporate turnarounds involve significant organisational change (Slatter, 1982).
These involve changes to the organisational structure, people, processes and systems brought
about by the strong leadership of the top management team. The starting point for organisational
change is the appointment of a suitable turnaround manager and team (Ofek, 1993). The
combined effect of strong leadership and changes in the components of organisation will bring
about a new organisation culture. He adds that the new organisational culture will in the short
term bring about a change in behaviour while in the long run it will bring about a change in
corporate culture.
b. Key people changes
Birger (2001) argues that at this stage the "people mix" becomes more important as the company
is restructured for competitive effectiveness. It means a rebirth of the corporate culture and
transforming negative attitudes to positive, confident ones as the company maps out its future.
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Survival, not tradition, determines the new shape of the business. This step cannot be successful
without a psychological shift as well.
c. Improved communications
Improved communications particularly between employees and management brings about a
workforce that is likely to be happier, more productive and have a stronger sense of ownership
and commitment to the business. If the staff has positive perception of the company, they will act
as ambassadors. Key messages should be delivered to the employees simultaneously (Pettigrew,
1992).
d. New terms and conditions of employment
In response to performance shocks, firms can also lay-off personnel and introduce new
employment conditions for those remaining (Iverson & Pullman, 2000). Dennis and Kruse
(2000) hold that business consolidation into few distinct business units is also an important
turnaround strategy. The multi- tiered management structure will now be replaced by a much
smaller management structure comprising of those that carry the company’s vision and with vast
skill and experience. They add that corporate culture will be revised through the elimination of
bureaucratic structures and a re-orientation of compensation towards performance based stock
options and salary awards thereby aligning employee interests firmly with those of the
shareholders.
Critical process improvements
a. Improved Sales and Marketing
In this stage turnaround efforts are directed toward making the remaining business operations
effective and efficient. The company must be restructured to increase and sustain profitability
and its return on assets and equity. To achieve this, the company has to take drastic steps
(Adams, 2001).
During the turnaround, the product mix may have changed, requiring the company to do some
repositioning. This stage focuses on institutionalising an emphasis on profitability and return on
equity, and enhancing economic value (Burke & Cooper, 2000). The company may initiate new
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marketing programs to broaden the business and customer base and increase market penetration.
It may increase revenue by carefully adding new products and improving customer service.
Strategic alliances with other established organisations may be explored. Financially, the
emphasis shifts from cash flow concerns to maintaining a strong balance sheet, securing long-
term financing, and implementing strategic accounting and control systems.
b. Cost reduction
Slatter and Lovett (1999) state that the success of a company largely depends on the profit that it
can realise. The profit is determined by the costs that are made and the extent in which these
costs are recovered. Therefore, it is essential for a company to know the future costs and being
able to control them. When the future costs are known throughout the entire product
development cycle, the engineers can make use of cost information during the decision- making
processes. Corrado (1997) also supports the notion and assert that it is necessary to integrate the
cost estimation activities in the product development cycle. Ramey, Valerie and Shapiro (2001)
also argue that besides the use of cost estimation for decision- making, it can also be used to
control costs. When the costs can be controlled, it is possible to propose specific product changes
reducing the costs.
c. Quality Improvements
Dale (1999) states that quality improvements involves the mutual co-operation of everyone in an
organisation and associated business processes to produce products and services, which meet
and, hopefully, exceed the needs and expectations of customers. He holds that if the customer’s
expectations are not fulfilled, customers will usually switch over to a competitor for the
satisfaction of their expectations. Hofstede (1991) points out quality culture nurtures high-trust
social relationships. It develops a shared sense of membership as well as a belief that continuous
improvement is for the good of everyone within the organisation
d. Improved information systems and control
Slatter (1982) note that the development of systems of human resource management practices
can be powerful tools for improving the effectiveness of organisations that compete on the basis
of knowledge in manufacturing. He argues that of the many strategic capabilities that a firm can
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use to successfully implement its competitive strategy, the development of systems and
processes for managing knowledge-based resources has been recognised as among the most
important for creating a sustainable competitive advantage. This requires firms to embark on a
variety of competitive strategies including the creation of new products, production of high
quality products and having employees with the right customer care attitude.
e. Change in packaging
Packaging is defined as the science, art, and technology of enclosing or protecting products for
distribution, storage, sale, and use (Oakland, 2001). Slatter and Lovett (1999) states that if a firm
has successfully differentiated its packaging from those of rivals it can charge more than rivals
but still register significant sales and earn high profits. Alternatively, it can charge a similar price
as less differentiated rivals but use the superior packaging appeal of its products to gain market
share and increase its profits faster than rivals or it can do some combination of these two tactics.
(Ofek, 1993) states profitability can be enhanced by setting a different packaging for a product
from like competitors. He further says that it is very necessary to develop the habit of continually
examining and reexamining the packaging of the products and services to make sure they' re still
appropriate to the realities of the current market and attractive to customers.
Financial restructuring
a. Refinancing
A firm can recover from a performance shock by properly evaluating its cash generation
strategies to ensure the availability of funds to sustain regular operations (Ofek, 1993). Firms can
increase their cash flows by increasing sales revenue, reducing dividend payments and
controlling operating costs. Pant (1987) shows that revenue generation strategies account for
most profit turnarounds. In addition, a reduction in dividend payments will allow firms to
preserve internal funds for normal operations whilst a decrease in operating costs are associated
with improved operating margins (Lie, 2004).
Slatter and Lovett (1999) suggest that a company may also restructure its debt obligations in
response to performance shocks or distress. Debt restructuring could result in either an increase
or a decrease in the proportion of debt in the capital structure. An increase in debt, according to
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Jensen (1989), can improve liquidity, and also provide incentives for management to improve
performance.
b. Asset reduction
Asset reduction involves closure or sale of business units, divisions, operations and assets and
outsourcing of value chain activities in order to focus on the remaining profitable or potentially
profitable business units (Slatter & Lovett, 1999). Firms experiencing performance decline can
restructure their operations through asset reduction strategies. By disposing off redundant assets
a firm can concentrate on core businesses and eliminate negative synergies with the divested
assets to improve performance (Samwell, 1982). The sale of the assets can provide cash to fund
ongoing operations or to pay debt. Firms can implement asset reduction in a variety of ways
which include closure of plants, sale of periphery assets and sale of subsidiaries.
RESEARCH METHODOLOGY
The study focused on firms in the construction materials manufacturing sector. Both large and
small organizations were incorporated in the study. A survey was the research method used to
assess the different forms of turnaround strategies implemented by the firms. The study targeted
all the people at different managerial levels. A sample of 40 was considered using simple random
sampling. Questionnaires were used as the main research instruments in the study.
FINDINGS AND ANALYSIS
Response Rate
Out of the 40 questionnaires send out 29 were returned reflecting a response rate of 73%. These
questionnaires were targeted to senior managers, middle managers, and lower level managers.
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Period of Employment in the organization
Figure 2. Period of employment
Figure 2 shows that 5% of the respondents have been engaged with organisations for less than 3
months and 7% within a period of 3-12 months, 35% for 1-3 years, 40% between 3-7 years and
13% for more than 7 years. This implies that quite a number of respondents are knowledgeable
about their organizations.
Turnaround strategies
Type of turnaround strategy implemented in the organisation
Figure 3. Types of turnaround strategy implemented in the organisation
Less than 3
months
3 - 12 months 1 - 3 years 3 - 7 years 7+ years
5%
7%
35%
40%
13%
Period employed
35%
46%
19%
Strategic turnaround
Operating turnaround
Financial restructuring
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
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About 46% of the respondents state that their organisation implemented operating turnaround
strategy, 35% said their organization implemented strategic turnaround while 19% feel that their
organisation implemented a financial restructuring strategy.
Turnaround Strategies Implemented by Firms in Construction Materials Manufacturing
Table 4: Turnaround Strategies Implemented by Organisations
Turnaround Strategy Agree Neutral Disagree
Cash Management 56% 4% 40%
First step cost reduction 59% 9% 32%
Change of CEO 5% 9% 86%
Communication to stakeholders 32% 33% 35%
Redefine core business 51% 8% 41%
Retrenchments 81% 6% 13%
Key people changes 50% 1% 49%
New terms and conditions of employment 48% 6% 46%
Quality initiatives 35% 13% 52%
Change of packaging 9% 10% 81%
Asset reduction 71% 16% 13%
Retrenchment strategy top the strategies implemented by organizations as turnaround strategies
with 81% of respondents agreeing that they implemented the strategy, followed by asset
reduction with 71% agreeing. Most of the strategies range between 35% and 59% agreeing that
they have implemented such strategies and two of the strategies have a low responds agreeing of
5% (change of CEO) and 9% (change of packaging). From the results it is clear that when
organizations talk of turnaround its all about retrenchment and asset reduction.
Strategy effectiveness
Yes
No
51%
49%
Strategy effectiveness
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Figure 4: Turnaround Strategy effectiveness
Figure 4 shows that 51% of the respondents say the turnaround strategies were effective while
49% say otherwise. The study findings entails that the turnaround strategies implemented by
organizations were marginally effective as suggested by the respondents.
Assessment of the Effectiveness of each Turnaround Strategy Implemented
Table 5: Effectiveness of each Turnaround Strategies Implemented by Organisations
Turnaround Strategy Effective Neutral Ineffective
Cash Management 40% 4% 56%
First step cost reduction 32% 9% 59%
Change of CEO 25% 9% 66%
Communication to stakeholders 32% 33% 35%
Redefine core business 41% 8% 51%
Retrenchments 71% 6% 23%
Key people changes 49% 4% 47%
New terms and conditions of employment 46% 6% 48%
Quality initiatives 45% 13% 42%
Change of packaging 29% 10% 61%
Asset reduction 51% 16% 33%
Table 5 shows that retrenchment was the strategy observed by respondents to be effective with
71% stating it is effective, followed by asset reduction with 51%. However, change of CEO
shows the list effectiveness as 25% of respondents regard it as an effective strategy.
Turnaround Strategy and Improved Performance
Table 6: Effectiveness of Turnaround Strategies on Performance Aspects
Aspect Of Performance after Turnaround Improved Remain the same Worsened
Economic Return 46% 34% 20%
Productivity 25% 19% 56%
Quality of Products 44% 14% 42%
From Table 6, 46% of respondents stated that economic return has improved after implementing
turnaround strategies, 34% stated it remains the same and 20% stated the situation actually
worsened. In terms of productivity, 25% stated that it has improved as a result of turnaround
strategies, 19% stated it remains the same while 56% sited it worsened. For quality of products,
44% stated that it improved, 14% remains the same and 42% stated that it worsened. These
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results implies that the effectiveness of turnaround strategies implemented by construction
materials firm in Zimbabwe are partially effective.
CONCLUSION
It is clear that firms in construction materials manufacturing had implemented different
turnaround strategies. Some of the strategies adopted were retrenchments, cost reduction, asset
reductions and implementing quality improvements. It is concluded that the most common
strategies implemented by the firma are retrenchments and asset reduction.
It is also concluded that the strategies implemented to turnaround the organizations were
partially effective. This was because a number of issues were not done chief among them was the
failure to change the CEO. This meant that the performance decline in organizations was because
they did not get fresh ideas from new people as they continue with the same CEOs.
RECOMMENDATIONS
It is recommended that firms in the sector should carry out a proper situation analysis first before
implementation of a turnaround strategy. A situation analysis should be carried out as it enables a
company to come up with the best turnaround that would best suite the prevailing industrial
condition and thereby increasing the chances of a successful turnaround. The best turnaround
option depends on the prevailing industry conditions, the company’s strengths and weaknesses,
its competitive capabilities compared to its competitors, and the extent of the crisis situation.
Therefore a situation analysis of the industry, major competitors and the firm’s own competitive
position and its own competencies and resources are prerequisites for action.
Firms facing difficulties should change CEOs and top management for an effective turnaround.
The most important restructuring action in response to performance decline is the appointment of
a new CEO who can provide a new sense of direction, develop new financial and reporting
strategies and revitalise the firm. The removal of a poorly performing chief executive officer
provides some assurances to shareholders that the board has taken a prudent action to address the
performance problem.
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©2014 The African Executive
doc_762805167.pdf
An Evaluation Of Turnaround Strategies Implemented By Construction Materials Manufacturing Sector In Zimbabwe Post Multicurrency Era
1
Nyaku House Mezzanine Flr., Argwings Kodhek Rd. Hurlingham P.O. Box 135 GPO 00100 Nairobi Kenya
Tel. 254-20-2731497, Fax 254-20-2723278 Email [email protected]
www.africanexecutive
ISSUE 470 April 23-29, 2014
AN EVALUATION OF TURNAROUND STRATEGIES IMPLEMENTED BY
CONSTRUCTION MATERIALS MANUFACTURING SECTOR IN ZIMBABWE POST
MULTICURRENCY ERA
By
Nyasha Kaseke
University of Zimbabwe, Graduate School of Management
Abstract
The study evaluates the effectiveness of different turnaround strategies implemented by firms in
the construction materials manufacturing sector. The objectives were to assess which strategies
were actually implemented and how effective is the strategy. A survey of identified firms was
done. It is clear that most of the firms used retrenchment and asset reduction as turnaround
strategies. However, these strategies seemed not to be working positive as there is no change in
operations with other companies falling deep into serious problems. The study concludes that
turnaround strategies were partially effective. The study recommends use of other robust
strategies such as change of company executives in order to bring a new face to the
organization.
Key Words: Turnaround Strategies, Cost reduction, Retrenchment, Downsizing, Refinancing
Cash Management.
2
INTRODUCTION
The study evaluates the turnaround strategies implemented by firms in the construction material
manufacturing industry in Zimbabwe after adoption of the multicurrency system. This is a
critical sector of the economy as it provides requisites for infrastructure development for both
business and households. Prior to the period under study, Zimbabwe’s economy was very
turbulent, characterised by massive business closures, streamlining of processes and job cuts.
The world economy went through a global economic recession during this period which saw
most companies collapsing and others forced to scale down operations. The introduction of the
multi currency system in 2009 saw many companies embarking on turnaround strategies to
reposition themselves once more.
Firms in the construction materials manufacturing sector have embarked on different turn around
strategies soon after the introduction of the multi currency system. Notable strategies include
cost and asset reduction, retrenchments, improved communication channels, quality
improvements among others. The question that follow then is how effective were these
strategies?
BACKGROUND OF THE STUDY
Background of the Zimbabwe manufacturing industry
Reserve Bank of Zimbabwe (RBZ) Monetary Policy (2012) state that the manufacturing sector
was estimated to have grown by 5.7% in 2010 and was projected to register a higher growth of
about 6.4% in 2013. The Confederation of Zimbabwe Industries (CZI) Sector Survey Report
(2012) reported that the manufacturing sector in Zimbabwe was the biggest contributor to Gross
Domestic Product (GDP) between 1980 and 1990 at 22% followed by agriculture at 14%. It is
estimated that more than 40% of manufacturing output is used as inputs in mining and
agriculture. However, due to challenges relating to low capacity utilisation, foreign currency
shortages and rising inflation over the years up to 2009, the manufacturing sector’s contribution
to GDP declined from 24% in 1991 to about 16% in 2007 (CZI, 2009). The CZI Manufacturing
Sector Survey (2013) reported stagnant performance in the sector with an average manufacturing
output growing below 2%. The sector is in real crisis. The following factors were identified as
accelerating the in capacity utilization; availability and cost of funding, infrastructure in
3
particular power shortages and cost, economic policy instability and high labour cost and rigid
labour laws.
At its peak, the sector used to contribute 15% to formal employment and contributed exports and
foreign exchange earnings of up to 37% (RBZ Monetary Policy Review, 2013). Average
capacity utilisation as at the end of the first half of 2010, stood at 43.7 percent, compared to 32.3
percent at the end of the first half of 2009 as shown in Table 1.
Table 1: Manufacturing sector capacity utilisation
Source (CZI, 2013)
Figure 1 shows a number of constraints that the manufacturing sector was facing prior to the
introduction of the multi-currency system.
Figure 1: Constraints faced by the manufacturing sector. From Sector survey report (p.18)
by CZI, 2013.
Lack of Worki ng
Capi tal
18%
Machi nery/Pl ant
Breakdowns
13%
Raw Materi al
shortages
10%
Competi ti on from
i mports
4%
Low product
demand
16%
Power outages
12%
Ati quated
Machi nery
5%
Other
22%
Year % Capacity utilization
2006 33,8
2007 18,9
2008 10,0
2009 32,3
2010 43,7
2011 57.2
2012 44.2
4
Background of the Construction Material Manufacturing industry in Zimbabwe
The construction material manufacturing industry consists of firms that produce building
products. These include but not limited to Lafarge Cement, Pretoria Portland Cement (PPC),
Sino-Cement Zimbabwe, Gyproc Zimbabwe, Beta Holdings, Hornbill Moulding, ZimTile,
Willdale bricks, Glue & Chemical Products (GCP), Turnall Holdings and other small players.
These firms faced the same constraints as other manufacturing industries as shown in Figure 1.8.
In addition, the sector over rely on ZIMPHOS for their critical raw material (Calcium Sulphate).
This reliance on ZIMPHOS has exposed the sector to manipulation by ZIMPHOS.
New players in the construction material manufacturing sector are coming in with a big bang
with South Africa, Chinese and Thailand products flooding the market. The customers now have
high bargaining power in Zimbabwe mainly because they may opt to go and buy from other
outlets where the prices are fairly cheaper. This scenario leaves local industries with little or no
option other than lowering prices to match those of competition. There is no ideal competitive
environment from local producers for profit making. Ghauri and Cateora (2005) reported that the
“ideal” competitive environment from a profit making perspective, is when both suppliers and
customers are in weak bargaining positions, there are no good substitutes, entry barriers are
relatively high and rivalry among present sellers is moderate.
Problem Statement
The sector was on the free fall till the introduction of the multi currency regime. After the
introduction of multicurrency, the firms in the sector faced stiff competition from imports hence
lost market share. Firms have introduced different turnaround strategies for them to remain
competitive in the market. However, the sector still does not exhibit success with turnaround
strategies with features such as high economic return, increased productivity and high quality
products not reflected. The questions that then emerge for the sector are - Did firms in the sector
not carry out turnaround strategies in line with expectations? Did management adopt the
turnaround strategies without consultations with the key stakeholders or participants? Where
there some inhibitors to the implementation of the turnaround strategies? What should firms in
the sector do to benefit from a successful turnaround? It is against this background that the
5
research seeks to identify and critically evaluate the turnaround strategies adopted by firms in the
sector.
Research Objectives
The study seeks to determine the different forms of turnaround strategies adopted by firms in the
construction materials manufacturing sector and to assess the effectiveness of the turnaround
strategies adopted by firms in the sector.
Research Proposition
This study proposed that the turnaround strategies adopted after multicurrency by firms in the
construction materials manufacturing sector were successful in turning around firms.
LITERATURE REVIEW
Definition of Turnaround Strategy
A turnaround strategy is a set of consequential directive, long term decisions and actions
targeted at the reversal of a perceived crisis that threatens the survival of a firm (Mintzberg,
1994). According to Platt (2004), there is the strategic turnaround, operating turnaround and
financial restructuring turnaround.
a. Strategic turnaround
Platt (2004) explains that strategic turnaround attempts either to change the strategy for
competing in the same business or to define how to enter a new business. He further asserts that
most strategic turnarounds focus on marketing, production or engineering functions. Chowdhury
(2002) states that strategic turnaround focus on strategy changes sought, with the performance
improvement being a derivative of the strategy change. They involve a change in the company’s
strategy for either competing in the same business or entering a new business.
b. Operating turnaround
Operating turnaround is concerned with increasing revenue, reducing costs or reducing assets.
Hofer (as cited in Platt, 2004) suggests that performance becomes a derivative of strategy
change. Operating strategies focus on performance targets, and any actions that can achieve them
6
are considered whether they make good long-run strategic sense or not (Quinn, Mintzberg and
James 1998). These include revenue increasing, cost cutting, asset reduction and combination
strategies, none of which changes the company’s business level strategy.
c. Financial restructuring turnaround
Financial turnaround strategy refers to financial restructuring with a view to strengthening the
balance sheet and/or provides funding (Miller & Modigliani, 1958). Chowdhury and Lang (1996)
contend that financial restructuring is a process in which a firm with excess debt exchanges new
shares of its equity for a portion of its outstanding debt. It can also arrange for creditors to
modify the terms of debt by lengthening its maturity date or lowering its interest rate.
Generic turnaround strategies
Hoffman (as cited in Platt, 2004) noticed that the effects of the environment, as well as crisis
within the company, were important if a firm was to employ a successful turnaround strategy.
The firm will need to spend time making itself crisis-secure, employing methods such as
monitoring changes in the environment and conducting audits of the company's performance
before and during the crisis. They will also need to establish Crisis Management Teams (CMT)
to create built in redundancy in communications (back up plans). Finally, a firm needs to develop
a favourable culture with improved management control and communications. He came up with
the following stages and their corresponding strategies;
Table 2: Hoffman’s turnaround stages and strategies
Stage Strategies
Preparatory stage
Restructure leadership, organisation and culture
Short term fix stage
Cost reduction
Asset redeployment
Selective product/market strategies
Growth stage Repositioning strategies.
Source: Platt, (2004:9).
7
Slatter and Lovett (1999) agree with Hoffman but they go on to develop an approach for
achieving a successful turnaround that consists of seven essential ingredients and an
implementation framework consisting of seven key workstreams.
Table 3: Slatter and Lovett’s turnaround stages and strategies
Key Ingredient Generic Turnaround Strategies
Crisis Stabilisation ? Taking control
? Cash management
? Asset reduction
? Short term financing
? First step cost reduction
Leadership ? Change of CEO
? Change of other senior management
Stakeholder support ? Communications
Strategic Focus ? Redefine core business
? Divestment and asset reduction
? Product market refocusing
? Downsizing/Retrenchment
? Outsourcing
Organisational change ? Structural changes
? Key people changes
? Improved communications
? Building commitment and capabilities
? New terms and conditions of employment
Critical process improvements ? Improved sales and marketing
? Cost reduction
? Quality improvements
? Improved responsiveness
? Improved information systems and control
? Packaging changes
Financial restructuring ? Refinancing
? Asset reduction
Source: Slatter and Lovett, (1999:30)
Crisis Stabilisation
Slatter and Lovett (1999) assets that stabilisation can be achieved by reintroducing predictability
to the operations by setting performance targets, establishing information systems, and tracking
progress. Stabilisation ensures legal and fiduciary compliance under circumstances where
8
corporate governance often has been neglected or is deteriorating. This is done in any of the
following;
a. Taking Control: Situation Analysis
The situation analysis enables a company to come up with the best turnaround that would best
suite the prevailing industrial condition and thereby increasing the chances of a successful
turnaround. This is in line with Thompson et al. (2010) who highlighted that the best option
depends on the prevailing industry conditions, the company’s strengths and weaknesses, its
competitive capabilities compared to its competitors, and the extend of the crises situation.
Therefore a situation analysis of the industry, major competitors and the firm’s own competitive
position and its own competencies and resources are prerequisites for action.
b. Cash Management
The first step in crisis stabilisation is to generate enough cash and to survive the short term
(Slatter & Lovett, 1999). This cash may be necessary to pay wages and creditors which may be
due or to manage the working capital. This can be done in the following four ways: Prepare a
detailed short-term budget on a strict receipts and payments basis; developing cash- generating
initiatives to bridge the short term funding gap between existing facilities and forecast cash
requirements; Implementing emergency cash-management controls day-to-day; and
Implementing cash rationing where authorisation for payment becomes centralised.
Leadership
Managers attempt to turn around their organisations, through structural changes in the
organisation and/or market repositioning (Banaszak-Holl, 2000). In addition, there are a wide
variety of managerial responses used during periods of crisis and decline that reflect more
general processes, routines, and rituals of managerial decision making. Foster and Stamford
(1998) identifies three substantial areas of managerial action that are key in turnaround situations
which are decision making processes, lines of communication and market repositioning. Earlier
models of organisational decision making during periods of decline and turnaround focused on
the retrenchment of managers during these periods and the prevalence of "threat-rigidity" in
handling crisis situations (Slatter & Lovett, 1999).
9
The turnaround literature supports the role of external management expertise as an important
factor in successful turnaround strategies. Finklin (as cited in Carter, 2008) says managers tend
to be very knowledgeable about their current operations but they often lack broader knowledge
and capabilities to initiate and guide organisational changes. Gowen and Tallon (2002), affirms
that effective turnarounds require that firms hire a new management team or shrink operations to
regain profitability. However, Barker (2004) found out that the common practice of replacing the
firm' s Chief Executive Officer (CEO) during turnaround attempts had conflicting and
paradoxical effects on firms' abilities to enact strategic reorientations. Adams (2001) states that a
change in leadership ensures that those techniques, which resulted in the company’s failure, are
not used. The new leader has to motivate employees, listen to their views and delegate powers.
Stakeholder support
Slatter and Lovett (1999) define a stakeholder as any party with an interest, financial or
otherwise, in a company, and hence an interest in or an ability to influence the outcome of a
turnaround. This includes equity and debt providers, bankers, suppliers, customers, management
and staff, and government regulatory institutions. Support from each group of stakeholder is a
prerequisite for any turnaround to be successful. These diverse stakeholders have different
aspirations and the objective is to gain stakeholder confidence and support by demonstrating a
viable strategy, which is responsive to their aspirations.
Strategic Focus
a. Redefine Core business
This involves re-evaluating the company's business and deciding which ones to change and
which to retain. According to Slatter and Lovett (1999), before a turnaround specialist makes any
major changes, the individual must determine the chances of the business’s survival, identify
appropriate strategies, and develop a preliminary action plan. A more detailed assessment of
strengths and weaknesses follows in the areas of competitive position, engineering and research
and development, finances, marketing, operations, organisational structure, and personnel. This
situation analysis stage steps are taken to weed out or replace any top managers who might
impede the turnaround effort. Birger (2001) adds that once the major problems are identified, the
turnaround professional develops a strategic plan with specific goals and detailed functional
actions.
10
b. Divestment and asset reduction
Gladwell (2002) states that although the assets are profitable, sometimes 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. Slatter and Lovett (1999) add that a positive operating cash flow must be
established as quickly as possible. Sufficient amount of cash to implement the turnaround
strategies must be sourced. Often, unprofitable divisions or business units are sold as a means to
raise cash.
c. Product-Market Refocusing
Porter (1980) identifies three generic strategies, which can be used successfully to protect a firm
against the forces that drive competition in an industry. These are cost leadership, differentiation
and focus. The latter involves the firm focusing its limited resources on one or a few product-
market segments in which it competes on the basis of cost leadership and or product
differentiation. This is usually the only strategy available for the distressed company in the short-
term, since it is unlikely to have the large financial resources required for industry leadership
based on either cost or product differentiation.
Slatter and Lovett (1999) states that product- market refocusing for a distressed company may
involve any or all of the following: addition or deletion of product lines; addition or deletion of
customers by type or geographical area; changes in the sales mix by focusing marketing efforts
on specific products and or customers; complete withdrawal from a market segment; and entry
into a new product-market segment
d. Retrenchments
Retrenchment is a process in which a firm consolidates its current strategic and financial position
in order to buy time for organisational change efforts (Slatter & Lovett, 1999). Keith (2004)
defined retrenchment as a set of organisational activities undertaken to achieve cost and asset
reductions and disinvestment. Pearce and Robbins (1993) defined retrenchment as either
improving efficiency or changing the firm's basic strategy in order to achieve a fit with
environmental conditions. Retrenchments and downsizing are painful processes of organisational
change because they follow periods of organisational decline (Burke & Cooper, 2000).
Retrenchment implies a reduction to the essential elements of a company that have the best
11
chance of producing a profitable operation. According to Pearce and Robbins (1993), it entails
deliberate reductions in costs, assets, product, product lines and overhead. Francis and Pett
(2004) add on that retrenchment incorporates the basic reduction of assets and expenses within
the firm and necessitates many turbulent actions such as layoffs or divestments.
e. Downsizing
Organisational downsizing was defined by De Meuse, Bergmann, Vanderheiden and Roraff
(2004) as consisting of a set of activities that are undertaken on the part of management designed
to improve organisational efficiency, productivity and/or effectiveness. It represents a strategy
that affects the organisation’s work force and its work processes. Barker (2004) recognises that
the success of managerial attempts to turn around companies through downsizing may be
dependent on market conditions. Downsizing occurs either proactively or reactively in order to
contain cost, enhance revenue or to bolster competitiveness. It can be implemented as a
defensive strategy to decline or as a proactive strategy to enhance performance. Barker (2004)
find that downsizing occurs in a large number of firms that face decline, including those that turn
around and those that do not.
Organisational change
a. Structural Changes
All successful corporate turnarounds involve significant organisational change (Slatter, 1982).
These involve changes to the organisational structure, people, processes and systems brought
about by the strong leadership of the top management team. The starting point for organisational
change is the appointment of a suitable turnaround manager and team (Ofek, 1993). The
combined effect of strong leadership and changes in the components of organisation will bring
about a new organisation culture. He adds that the new organisational culture will in the short
term bring about a change in behaviour while in the long run it will bring about a change in
corporate culture.
b. Key people changes
Birger (2001) argues that at this stage the "people mix" becomes more important as the company
is restructured for competitive effectiveness. It means a rebirth of the corporate culture and
transforming negative attitudes to positive, confident ones as the company maps out its future.
12
Survival, not tradition, determines the new shape of the business. This step cannot be successful
without a psychological shift as well.
c. Improved communications
Improved communications particularly between employees and management brings about a
workforce that is likely to be happier, more productive and have a stronger sense of ownership
and commitment to the business. If the staff has positive perception of the company, they will act
as ambassadors. Key messages should be delivered to the employees simultaneously (Pettigrew,
1992).
d. New terms and conditions of employment
In response to performance shocks, firms can also lay-off personnel and introduce new
employment conditions for those remaining (Iverson & Pullman, 2000). Dennis and Kruse
(2000) hold that business consolidation into few distinct business units is also an important
turnaround strategy. The multi- tiered management structure will now be replaced by a much
smaller management structure comprising of those that carry the company’s vision and with vast
skill and experience. They add that corporate culture will be revised through the elimination of
bureaucratic structures and a re-orientation of compensation towards performance based stock
options and salary awards thereby aligning employee interests firmly with those of the
shareholders.
Critical process improvements
a. Improved Sales and Marketing
In this stage turnaround efforts are directed toward making the remaining business operations
effective and efficient. The company must be restructured to increase and sustain profitability
and its return on assets and equity. To achieve this, the company has to take drastic steps
(Adams, 2001).
During the turnaround, the product mix may have changed, requiring the company to do some
repositioning. This stage focuses on institutionalising an emphasis on profitability and return on
equity, and enhancing economic value (Burke & Cooper, 2000). The company may initiate new
13
marketing programs to broaden the business and customer base and increase market penetration.
It may increase revenue by carefully adding new products and improving customer service.
Strategic alliances with other established organisations may be explored. Financially, the
emphasis shifts from cash flow concerns to maintaining a strong balance sheet, securing long-
term financing, and implementing strategic accounting and control systems.
b. Cost reduction
Slatter and Lovett (1999) state that the success of a company largely depends on the profit that it
can realise. The profit is determined by the costs that are made and the extent in which these
costs are recovered. Therefore, it is essential for a company to know the future costs and being
able to control them. When the future costs are known throughout the entire product
development cycle, the engineers can make use of cost information during the decision- making
processes. Corrado (1997) also supports the notion and assert that it is necessary to integrate the
cost estimation activities in the product development cycle. Ramey, Valerie and Shapiro (2001)
also argue that besides the use of cost estimation for decision- making, it can also be used to
control costs. When the costs can be controlled, it is possible to propose specific product changes
reducing the costs.
c. Quality Improvements
Dale (1999) states that quality improvements involves the mutual co-operation of everyone in an
organisation and associated business processes to produce products and services, which meet
and, hopefully, exceed the needs and expectations of customers. He holds that if the customer’s
expectations are not fulfilled, customers will usually switch over to a competitor for the
satisfaction of their expectations. Hofstede (1991) points out quality culture nurtures high-trust
social relationships. It develops a shared sense of membership as well as a belief that continuous
improvement is for the good of everyone within the organisation
d. Improved information systems and control
Slatter (1982) note that the development of systems of human resource management practices
can be powerful tools for improving the effectiveness of organisations that compete on the basis
of knowledge in manufacturing. He argues that of the many strategic capabilities that a firm can
14
use to successfully implement its competitive strategy, the development of systems and
processes for managing knowledge-based resources has been recognised as among the most
important for creating a sustainable competitive advantage. This requires firms to embark on a
variety of competitive strategies including the creation of new products, production of high
quality products and having employees with the right customer care attitude.
e. Change in packaging
Packaging is defined as the science, art, and technology of enclosing or protecting products for
distribution, storage, sale, and use (Oakland, 2001). Slatter and Lovett (1999) states that if a firm
has successfully differentiated its packaging from those of rivals it can charge more than rivals
but still register significant sales and earn high profits. Alternatively, it can charge a similar price
as less differentiated rivals but use the superior packaging appeal of its products to gain market
share and increase its profits faster than rivals or it can do some combination of these two tactics.
(Ofek, 1993) states profitability can be enhanced by setting a different packaging for a product
from like competitors. He further says that it is very necessary to develop the habit of continually
examining and reexamining the packaging of the products and services to make sure they' re still
appropriate to the realities of the current market and attractive to customers.
Financial restructuring
a. Refinancing
A firm can recover from a performance shock by properly evaluating its cash generation
strategies to ensure the availability of funds to sustain regular operations (Ofek, 1993). Firms can
increase their cash flows by increasing sales revenue, reducing dividend payments and
controlling operating costs. Pant (1987) shows that revenue generation strategies account for
most profit turnarounds. In addition, a reduction in dividend payments will allow firms to
preserve internal funds for normal operations whilst a decrease in operating costs are associated
with improved operating margins (Lie, 2004).
Slatter and Lovett (1999) suggest that a company may also restructure its debt obligations in
response to performance shocks or distress. Debt restructuring could result in either an increase
or a decrease in the proportion of debt in the capital structure. An increase in debt, according to
15
Jensen (1989), can improve liquidity, and also provide incentives for management to improve
performance.
b. Asset reduction
Asset reduction involves closure or sale of business units, divisions, operations and assets and
outsourcing of value chain activities in order to focus on the remaining profitable or potentially
profitable business units (Slatter & Lovett, 1999). Firms experiencing performance decline can
restructure their operations through asset reduction strategies. By disposing off redundant assets
a firm can concentrate on core businesses and eliminate negative synergies with the divested
assets to improve performance (Samwell, 1982). The sale of the assets can provide cash to fund
ongoing operations or to pay debt. Firms can implement asset reduction in a variety of ways
which include closure of plants, sale of periphery assets and sale of subsidiaries.
RESEARCH METHODOLOGY
The study focused on firms in the construction materials manufacturing sector. Both large and
small organizations were incorporated in the study. A survey was the research method used to
assess the different forms of turnaround strategies implemented by the firms. The study targeted
all the people at different managerial levels. A sample of 40 was considered using simple random
sampling. Questionnaires were used as the main research instruments in the study.
FINDINGS AND ANALYSIS
Response Rate
Out of the 40 questionnaires send out 29 were returned reflecting a response rate of 73%. These
questionnaires were targeted to senior managers, middle managers, and lower level managers.
16
Period of Employment in the organization
Figure 2. Period of employment
Figure 2 shows that 5% of the respondents have been engaged with organisations for less than 3
months and 7% within a period of 3-12 months, 35% for 1-3 years, 40% between 3-7 years and
13% for more than 7 years. This implies that quite a number of respondents are knowledgeable
about their organizations.
Turnaround strategies
Type of turnaround strategy implemented in the organisation
Figure 3. Types of turnaround strategy implemented in the organisation
Less than 3
months
3 - 12 months 1 - 3 years 3 - 7 years 7+ years
5%
7%
35%
40%
13%
Period employed
35%
46%
19%
Strategic turnaround
Operating turnaround
Financial restructuring
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
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About 46% of the respondents state that their organisation implemented operating turnaround
strategy, 35% said their organization implemented strategic turnaround while 19% feel that their
organisation implemented a financial restructuring strategy.
Turnaround Strategies Implemented by Firms in Construction Materials Manufacturing
Table 4: Turnaround Strategies Implemented by Organisations
Turnaround Strategy Agree Neutral Disagree
Cash Management 56% 4% 40%
First step cost reduction 59% 9% 32%
Change of CEO 5% 9% 86%
Communication to stakeholders 32% 33% 35%
Redefine core business 51% 8% 41%
Retrenchments 81% 6% 13%
Key people changes 50% 1% 49%
New terms and conditions of employment 48% 6% 46%
Quality initiatives 35% 13% 52%
Change of packaging 9% 10% 81%
Asset reduction 71% 16% 13%
Retrenchment strategy top the strategies implemented by organizations as turnaround strategies
with 81% of respondents agreeing that they implemented the strategy, followed by asset
reduction with 71% agreeing. Most of the strategies range between 35% and 59% agreeing that
they have implemented such strategies and two of the strategies have a low responds agreeing of
5% (change of CEO) and 9% (change of packaging). From the results it is clear that when
organizations talk of turnaround its all about retrenchment and asset reduction.
Strategy effectiveness
Yes
No
51%
49%
Strategy effectiveness
18
Figure 4: Turnaround Strategy effectiveness
Figure 4 shows that 51% of the respondents say the turnaround strategies were effective while
49% say otherwise. The study findings entails that the turnaround strategies implemented by
organizations were marginally effective as suggested by the respondents.
Assessment of the Effectiveness of each Turnaround Strategy Implemented
Table 5: Effectiveness of each Turnaround Strategies Implemented by Organisations
Turnaround Strategy Effective Neutral Ineffective
Cash Management 40% 4% 56%
First step cost reduction 32% 9% 59%
Change of CEO 25% 9% 66%
Communication to stakeholders 32% 33% 35%
Redefine core business 41% 8% 51%
Retrenchments 71% 6% 23%
Key people changes 49% 4% 47%
New terms and conditions of employment 46% 6% 48%
Quality initiatives 45% 13% 42%
Change of packaging 29% 10% 61%
Asset reduction 51% 16% 33%
Table 5 shows that retrenchment was the strategy observed by respondents to be effective with
71% stating it is effective, followed by asset reduction with 51%. However, change of CEO
shows the list effectiveness as 25% of respondents regard it as an effective strategy.
Turnaround Strategy and Improved Performance
Table 6: Effectiveness of Turnaround Strategies on Performance Aspects
Aspect Of Performance after Turnaround Improved Remain the same Worsened
Economic Return 46% 34% 20%
Productivity 25% 19% 56%
Quality of Products 44% 14% 42%
From Table 6, 46% of respondents stated that economic return has improved after implementing
turnaround strategies, 34% stated it remains the same and 20% stated the situation actually
worsened. In terms of productivity, 25% stated that it has improved as a result of turnaround
strategies, 19% stated it remains the same while 56% sited it worsened. For quality of products,
44% stated that it improved, 14% remains the same and 42% stated that it worsened. These
19
results implies that the effectiveness of turnaround strategies implemented by construction
materials firm in Zimbabwe are partially effective.
CONCLUSION
It is clear that firms in construction materials manufacturing had implemented different
turnaround strategies. Some of the strategies adopted were retrenchments, cost reduction, asset
reductions and implementing quality improvements. It is concluded that the most common
strategies implemented by the firma are retrenchments and asset reduction.
It is also concluded that the strategies implemented to turnaround the organizations were
partially effective. This was because a number of issues were not done chief among them was the
failure to change the CEO. This meant that the performance decline in organizations was because
they did not get fresh ideas from new people as they continue with the same CEOs.
RECOMMENDATIONS
It is recommended that firms in the sector should carry out a proper situation analysis first before
implementation of a turnaround strategy. A situation analysis should be carried out as it enables a
company to come up with the best turnaround that would best suite the prevailing industrial
condition and thereby increasing the chances of a successful turnaround. The best turnaround
option depends on the prevailing industry conditions, the company’s strengths and weaknesses,
its competitive capabilities compared to its competitors, and the extent of the crisis situation.
Therefore a situation analysis of the industry, major competitors and the firm’s own competitive
position and its own competencies and resources are prerequisites for action.
Firms facing difficulties should change CEOs and top management for an effective turnaround.
The most important restructuring action in response to performance decline is the appointment of
a new CEO who can provide a new sense of direction, develop new financial and reporting
strategies and revitalise the firm. The removal of a poorly performing chief executive officer
provides some assurances to shareholders that the board has taken a prudent action to address the
performance problem.
20
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