Turnaround management

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Turnaround management

  1. 1. DECLINE AND TURNAROUND MANAGEMENT
  2. 2. Turnaround is of considerable importance to strategic management. However the process by which firms move away from deterioration in performance to enduring success has not received sufficient attention in management literature.
  3. 3. The frame work of the Turnaround Process: Turnaround Process model of Shamsud Chowdhury ( Turnarounds: A stage theory perspective)
  4. 4. The turnaround occurs when “ a firm perseveres through an existence threatening performance decline; ends the threat with a combination of strategies, systems, skills & capabilities; and achieves sustainable performance recovery. The reverse is failure and eventual death.
  5. 5. The definition identifies four key attributes of a turnaround: 1.Declining performance is the trigger for turnaround. 2.Turnaround involves a series of activities. 3. A turnaround is undertaken with a definite purpose. 4.Turn around activities continue for a number of years.
  6. 6. Shamsud Chowdhury suggested the use of a stage theory to study the turnaround process. The four stages mentioned are: Decline stage Response initiation stage Transition stage Outcome stage
  7. 7. Stage-1- Decline: 1. Decline starts from firm equilibrium and reaches a nadir. This is based on : K- extinction perspective : Macro or external factors related to the industry in general is responsible for the decline. R- extinction theory: The decline is due to reduction in resources within the firm , independent of the external environment.
  8. 8. It is necessary to 1. identify the various factors that contribute to each type of decline 2 identify the sources of intervention that trigger action. Usually more than one source of intervention or stimuli can be identified in a turnaround situation e.g. banks, creditors, stockholders , government, etc.
  9. 9. Stage-2 Response Initiation: Turnaround responses can be categorized into Strategic and operating responses: Strategic response :Changing or adjusting the business the firm is currently involved in. Examples are diversification, vertical integration , divestment etc. Operating response: How the firm conducts its business. These include short-run tactics aimed at cost cutting and revenue generation
  10. 10. The type of turnaround response used depends on the cause of a firm’s decline. a) If the decline is due to structural shifts in a market, a strategic response should be used. b) If the decline is due to inefficiency an operating response should be used
  11. 11. Stage-3 Transition : A substantial amount of time has to pass before the results of turnaround strategies show.
  12. 12. Stage-4 Outcome : To determine whether a turnaround has been accomplishedA cut-off point of measure of performance can be used to measure this. The measures used to determine outcome should be same as was used to determine the decline e.g. the same ratios in ratio analysis should be used before and after the turnaround to measure the accomplishment

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