Description
Turnaround Strategies by Companies
Turnaround Strategies
Key elements
? Prepotent role of CEO ? Creating consensus ? Diagnosis of situation ? Setting direction & momentum for change ? Variety of actions crammed in short time ? Cost cutting ? Control over operations, cash & finances ? Changing product mix / strategy mix ? Team building, communications, performance incentives
Possible actions
? Sell off assets to generate cash and/or reduce debt
? Revise existing strategy
? Launch efforts to boost revenues ? Cut costs ? Combination of efforts
Defining sick companies
? Accumulated losses at financial year end exceed 50 % peak
networth
? SICA, 1985
? BIFR
? SARFAESI Act, 2002
Choices for Sick Companies / Companies facing decline
Harvest
Divest / Liquidate
Turnaround
Main elements
? Crisis stabilisation ? Management of change ? Gaining stakeholder support ? Clarifying the target markets ? Re-focusing
? Financial restructuring
? Prioritizing critical improvement areas
Harvest Strategy
? Steers middle course between status quo and exiting quickly ? Involves gradually sacrificing market position in return for
bigger near-term cash flow/profit ? Objectives
? Short-term - Generate largest feasible cash flow ? Long-term - Exit market
Types of Harvest Strategies
? Reduce operating expenses to rock-bottom
? Hold reinvestment to minimum
? Place little priority on new capital investments ? Emphasize stringent internal cost controls
? Trim advertising and promotion expenses
? Do not replace employees who leave ? Shave equipment maintenance
When should a harvest strategy be considered
Industry’s long-term prospects are unattractive Building up business would be too costly Market share is increasingly costly to maintain Reduced levels of competitive effort will not trigger immediate fall-off in sales ? Firm can re-deploy freed-up resources in higher opportunity areas ? Business is not a major component of diversified firm’s portfolio of businesses
? ? ? ?
Divestment
? Reasons for divestment
? Approaches to divestment
? Spin-off into an independent company ? Outright sale of the unit
Some successful divestments
? Asian Paints
? Hindustan Unilever ? TOMCO ? Indian Organic Chemicals
------------------------------------------Focus on core competence
Liquidation Strategy
? Wisest strategic option in certain situations
? Lack of resources
? Dim profit prospects ? May serve stockholder interests better than bankruptcy ? Unpleasant strategic option ? Hardship of job eliminations ? Effects of closing on local community
Liquidation
? Legal aspects ? Liquidator ? Collects assets, pays off debt & distributes surplus (if any) ? Company dissolves
Understanding turnarounds
? Involves concerted effort over a period of time to fortify
a firm’s distinctive competencies, returning it to profitability
? Change management with emphasis on rapid
reconstruction, where in its absence, a business could face closure, enter terminal decline or be taken over
Conditions necessitating
? Negative cash flows
? Negative profits ? Declining market share ? Uncompetitive products or services ? Employee turnover / low morale ? Mis-management
Causes of organisational decline
? Internal factors
? Wrong strategy ? Mis-management
? External factors
? ? ? ?
Recession Intensified competition Change in government policy Technological change
Response elements
? Strategic
? Operational ? Stakeholders engagement
? Role of creativity –
nearly inexhaustible capacity to improvise solutions
? Each (successful or unsuccessful) turnaround is an
experiment, which can trigger many learnings
doc_995067347.pptx
Turnaround Strategies by Companies
Turnaround Strategies
Key elements
? Prepotent role of CEO ? Creating consensus ? Diagnosis of situation ? Setting direction & momentum for change ? Variety of actions crammed in short time ? Cost cutting ? Control over operations, cash & finances ? Changing product mix / strategy mix ? Team building, communications, performance incentives
Possible actions
? Sell off assets to generate cash and/or reduce debt
? Revise existing strategy
? Launch efforts to boost revenues ? Cut costs ? Combination of efforts
Defining sick companies
? Accumulated losses at financial year end exceed 50 % peak
networth
? SICA, 1985
? BIFR
? SARFAESI Act, 2002
Choices for Sick Companies / Companies facing decline
Harvest
Divest / Liquidate
Turnaround
Main elements
? Crisis stabilisation ? Management of change ? Gaining stakeholder support ? Clarifying the target markets ? Re-focusing
? Financial restructuring
? Prioritizing critical improvement areas
Harvest Strategy
? Steers middle course between status quo and exiting quickly ? Involves gradually sacrificing market position in return for
bigger near-term cash flow/profit ? Objectives
? Short-term - Generate largest feasible cash flow ? Long-term - Exit market
Types of Harvest Strategies
? Reduce operating expenses to rock-bottom
? Hold reinvestment to minimum
? Place little priority on new capital investments ? Emphasize stringent internal cost controls
? Trim advertising and promotion expenses
? Do not replace employees who leave ? Shave equipment maintenance
When should a harvest strategy be considered
Industry’s long-term prospects are unattractive Building up business would be too costly Market share is increasingly costly to maintain Reduced levels of competitive effort will not trigger immediate fall-off in sales ? Firm can re-deploy freed-up resources in higher opportunity areas ? Business is not a major component of diversified firm’s portfolio of businesses
? ? ? ?
Divestment
? Reasons for divestment
? Approaches to divestment
? Spin-off into an independent company ? Outright sale of the unit
Some successful divestments
? Asian Paints
? Hindustan Unilever ? TOMCO ? Indian Organic Chemicals
------------------------------------------Focus on core competence
Liquidation Strategy
? Wisest strategic option in certain situations
? Lack of resources
? Dim profit prospects ? May serve stockholder interests better than bankruptcy ? Unpleasant strategic option ? Hardship of job eliminations ? Effects of closing on local community
Liquidation
? Legal aspects ? Liquidator ? Collects assets, pays off debt & distributes surplus (if any) ? Company dissolves
Understanding turnarounds
? Involves concerted effort over a period of time to fortify
a firm’s distinctive competencies, returning it to profitability
? Change management with emphasis on rapid
reconstruction, where in its absence, a business could face closure, enter terminal decline or be taken over
Conditions necessitating
? Negative cash flows
? Negative profits ? Declining market share ? Uncompetitive products or services ? Employee turnover / low morale ? Mis-management
Causes of organisational decline
? Internal factors
? Wrong strategy ? Mis-management
? External factors
? ? ? ?
Recession Intensified competition Change in government policy Technological change
Response elements
? Strategic
? Operational ? Stakeholders engagement
? Role of creativity –
nearly inexhaustible capacity to improvise solutions
? Each (successful or unsuccessful) turnaround is an
experiment, which can trigger many learnings
doc_995067347.pptx