The document discusses corporate turnaround strategies from both a theoretical and practical perspective. It begins by defining corporate turnaround and outlining various academic models of turnaround stages. It then examines the case of Crown Cork and Seal's turnaround in 1957. The case is analyzed through the five stages of decline/crisis, triggers for change, recovery strategy formulation, retrenchment/stabilization, and return to growth. The document concludes by summarizing key implications for managers implementing turnaround strategies, such as the need for top management change, operational restructuring, and financial restructuring.

1. ADVANCED STRATEGIC MANAGEMENT
INDIVIDUAL ASSIGNMENT # 1
FULL TIME MBA PROGRAM
CLASS 2010
STUDENT ID: 7159468
CORPORATE TURNAROUND: FROM THEORY TO PRACTICE-
THE CASE OF CROWN CORK AND SEAL

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Business history has seen many truly impressive cases of companies that suffered from
organizational and operational inefficiency, heavy losses and poor financial
performance, but were saved from bankruptcy thanks to well planned and executed
corporate turnaround strategies. The purpose of this work is to examine academic work
done in this area as well as the managerial implications of such strategies. Therefore,
we will try to address issues such as what we mean by the term corporate
turnaround, how to identify the need for executing a turnaround strategy, as well
as what are the steps of a successful turnaround strategy. Then, we will try to see
the issue from a more practical point of view by comparing the turnaround actions
implemented at Crown Cork and Seal in 1957, with those proposed by academics.
Finally, we briefly summarize the manager’s agenda, or the steps and actions that a
manager should follow, if he were to implement a corporate turnaround strategy.
Chowdhury (2002) defined corporate turnaround to occur “when a firm perseveres
through an existence-threatening performance decline; ends the threat with a
Combination of strategies, systems, skills, and capabilities; and achieves sustainable
performance recovery.” His work provided a theoretical model on corporate turnaround
by using a stage theory that describe the sequence of events that lead in a declining
firm’s survival or failure. His stage theory consists of 4 stages: decline, response,
initiation and outcome (See Appendix 1). At the first stage, decline starts from firm or
industry equilibrium and reaches a nadir point. This forces management team into
corrective actions and measures, which constitute the second stage of the process. The
next stage-the period of transition-requires complex interplay between strategy,
structure, culture, technology, and human variables. The last stage shows the outcome
of the actions taking place during the previous stage and can be described as either a
success or a failure.
Decline is the first stage of a turnaround process. Wilson (see Chowdhury, 2002)
referred to the k-extinction and r-extinction as the two theories explaining decline and
therefore the need for corporate turnaround strategies. The former occurs because “an
organization is part of a macro niche inhabited by a population of firms, or part of an
industry, that is shrinking or shifting in size or munificence. Because the carrying
capacity of the macro niche is exhausted, all firms belonging to the niche face a depleted
resource pool and an intense inter-firm rivalry”, whereas the later refers to “reduction
in resources within an organization independent of the changes in the environment. This
decline occurs when an organization is operating in a stable or growing macro niche,
but is fraught with self-induced problems”. According to Barker and Duhaime (1997),
both types of decline can lead to the deterioration of financial performance and level of
resources in any company.
Going to the second stage, Hofer and Schendel et all (see Chowdhury, 2002)
categorised the turnaround responses as strategic and operating. Strategic turnarounds
focus on changing or adjusting the current business in which the firm is engaged in, and
consist of major, long-term strategies which include among others diversification,
vertical integration, new market share initiatives, and divestment. Operating
turnarounds on the other hand, focus on the way the firm currently operates and involve
short-run tactics aimed at cost cutting, asset reduction, and revenue generation.
For the next stage in the turnaround process, the transition, a substantial amount of time
has to pass before the results of turnaround strategies show. According to Schendel et

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all (1976) it takes on average 7.7 years for a company to see the results of such a strategy.
The length of transition is very important in successful turnaround strategies, since
according to Chowdhury (2002), “this choice has implications for the final delineation
of turnaround and non-turnaround firms”. In this final stage Chowdhury argues that, “a
cut off point of the performance measures determines whether a turnaround has been
accomplished”. It is at this stage that outcome-either success or failure- is achieved.
Balgobin and Pandit (2001) also focused on the process of which the turnaround
strategies are implemented. Compared to the 4-stage model of Chowdhury, they
presented a five-stage framework (see Appendix 2) for successful turnarounds which
emphasised on retrenchment so as to achieve stability and then shifted the emphasis
towards profitable growth. The turnaround framework they described consisted of 5
stages, namely decline and crisis, triggers for change, recovery strategy formulation,
retrenchment and stabilisation and return to growth.
Starting from the decline and crisis, academics that have researched this area such as
Schendel et all, Bibeault, Slatter, Thain and Goldthorpe, Grinyer et all and Gopal (see
Balgobin and Pandit, 2001) divided the root causes of severe income decline into two
categories, external and internal. The former can be further sub-divided into 3 more
categories namely decrease in demand, increase in competition and increase in input
costs, whereas the latter can be further sub-divided into poor management, inadequate
financial control/ policy and high cost structure (see Appendix 3). All these are
considered to be the main roots that lead to poor business performance and as a result
activate the triggers for change. But how is this radical change triggered?
According to Schendel and Patton (1976) “during the decline phase the rate of profit
margin decline for turnaround firms is more than twice as great as for stagnating firms.
This large decrease suggests a severe performance failure is first necessary to motivate
turnaround action”. The research of Grinyer et all (See Balgobin and Pandit, 2001)
emphasised on the forms of the trigger. According to his research, in over half of the
cases a new CEO is cited as the trigger for radical change. Recognition of problems by
management as well as intervention from external bodies was found to be significant
triggers of change (see Appendix 4).
Going to the next stage, that of recovery and formulation, according to Balgobin and
Pandit “four categories of events that aid the formulation of successful recovery plans
have been identified: situation analysis, gaining control, managing stakeholders and
improving motivation.” Situation analysis is about information gathering actions
whereas gaining financial control is cited as a significant recovery plan in many
academic studies such as that of Slatter (see Balgobin and Pandit, 2001). As regards the
management of stakeholders, Balgobin and Pandit identified four major categories:
banks, suppliers, customers and employees/ unions. According to their research
cooperation from stakeholders is crucial in order for the turnaround strategy to be
successful. Finally, a very significant category of events is that of improving motivation
among employees. Remick (1980) found that the personal example and style of the
turnaround leader can significantly improve motivation. He also argued that “leadership
style means more to the success of the turnaround than perhaps any other factor”.
Turnaround plans as described by Robbins and Pearce (see Balgobin and Pandit. 2001)
also involve two more stages: retrenchment leading to stabilisation followed by a return

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to growth. The main goals of the former are to ensure the survival of the company and
the generation of positive cash flows. Retrenchment is mainly characterised by asset
reduction general cost reduction and generally significant organizational change.
Finally, the main objectives of the latter described by Balgobin and Pandit, are “to
ensure long term profitability and growth for the company and its main characteristics
are revenue generation and investment over asset and cost reduction”.
So far we had a look in academic research and respective findings in the area of
corporate turnaround. But in order for the reader of this paper to understand the practical
implementation of the theories presented above I will make use of the case of Crown
Cork and Seal so as to match theory with practical examples. For this reason, I will use
the 5-stage framework of Balgobin and Pandit as described above.
Starting from the first stage, that of decline and crisis, we can say that the reasons behind
Crown’s failure in 1957 was mainly due to internal rather than external causes. Poor
management, with no vision for the company, pursuing goals other than the company’s
growth had as a result the company to bleed financially and underperform. Poor
management had also significant implications in the culture of Crown and this affected
customer service and as a result financial performance. At the same time, there was a
continuous reduction in investments while there was no financial control of expenses
within Crown. Additionally, Crown had facilities and plants, such as that in
Philadelphia, that were totally inefficient and with high cost production lines. Coupled
with the company’s unsuccessful efforts to expand into plastics all these resulted in
Crown being on the verge of bankruptcy.
The main trigger for change in the case of Crown was the arrival of John Connelly
initially as external director and later as president of the company. Furthermore, the
intervention from external bodies as exemplified by the decision of Bankers Trust
Company to withdraw their $ 2.5 million line of credit to Crown plus John Connelly’s
recognition of the various problems that the company faced can be seen as two more
triggers for change.
As regards the formulation of a recovery strategy, John Connelly aimed at acquiring as
many information as he could through meetings with other executives and directors as
well as by touring the plants. As a result he was able to have a first hand experience of
the reasons that led Crown to its current situation at that time and better plan and execute
his turnaround strategy. The analysis of Crown’s operations allowed Connelly to plan
his turnaround strategy and transform the company into a lean, customer focused
organization.
His retrenchment and stabilisation plan for Crown included among others operational
restructuring of the company. This was achieved through making Crown a more
functional and lean organisation, by cutting lines of authority and eliminating divisional
line and staff. Furthermore, he cut unwanted expenses and costs by reducing corporate
staff and by centralising functions. At the same time he delegated responsibility to plant
managers for plant profitability and allocated costs. Finally, his plan included slowing
production and the liquidation of inventory held coupled with the establishment of
production and inventory control systems.

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After Connelly’s retrenchment and stabilisation actions, Crown soon entered a new era
where the emphasis sifted from survival towards profitable and sustainable growth.
This was illustrated by Connelly’s decision to capitalise on Crown’s strengths in metal
forming and fabrication and return to tin plated cans and crowns, instead of other areas
where the company had no advantage against competitors. Furthermore, his
commitment to this new strategy can be illustrated by his decision not to keep
competing in markets such as that of motor oil cans.
Additionally, Connelly decided to expand in beverage cans and aerosols in the domestic
market and as a result gained an early advantage in those areas. In addition to this
specialised product line he decided to expand to national distribution in US and invest
heavily abroad in underdeveloped nations.
Equally important was his decision to close down the Philadelphia facility and invest
heavily and geographically dispersed plants that secured not only lower costs but also
proximity with Crown’s customers. Change in corporate culture by adopting a more
customer centric culture plus investments in new equipment gave the company a truly
competitive advantage. Finally, apart from being interested in restructuring Crown so
as to be more flexible and agile, Connelly emphasised in improving more the financial
position of the company for the future. For this reason, he liquidated inventory so as to
get out from under the short term bank obligations. Additionally, he steadily reduced
the debt/ equity ratio and also started buying back preferred stock so as to eliminate
cash drains from dividends paid. As a result of all those actions of John Connelly,
Crown Cork and Seal, not only was rescued from bankruptcy but also became a very
successful company in the forthcoming years.
The case of Crown successfully matches theoretical frameworks discussed above with
practical examples of those theories. The issue now is to discuss what a manager of a
distressed company should generally do in similar cases.
Top management change is considered as prerequisite for a successful turnaround
strategy. That is because usually external stakeholders such as banks and other creditors
will see this change as evidence that something is being done to change the fate of the
distressed company and as a result is highly possible that they will continue financial
support.
Operational restructuring is equally important since its aim is to stabilise operations and
restore profitability. Operational restructuring is mainly designed to generate cash flow
and profit improvement. This can be achieved through strict cost cutting-, revenue
generation-, and asset reduction policies.
Particular interest must be paid in asset restructuring. This is about reorganising the
distressed company into self-contained SBUs. It includes divestments of assets in
businesses that do not fit the core business as well as investment in assets that can lead
to superior efficiency/ productivity improvements.
Also, financial restructuring of the company’s capital structure is imperative so as to
relieve the company from financial burdens such as interest and debt repayments.
I sum up my work on corporate turnaround by referring back to Balgobin and Pandit
(2001) according to whom, there are three main implications for managers charged with

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achieving turnaround: managers must be alert to the possibility of decline and do not
ignore signals of decline but to acknowledge them and act accordingly so as develop a
turnaround plan that is critical to successful recovery. Finally, according to the authors,
managers must create a crisis before a real one hits their company so as to be able to
respond in a better and more decisive way when there is a real need to do so.
References
1. Chowdhury, S.D, “Turnarounds: A Stage Theory Perspective”, Canadian
Journal of Administrative Sciences, (2002), Volume 19 Issue
3, Pages 249 – 266.
2. Wilson, E. (1980). Sociobiology. Cambridge, MA: Harvard University Press.
3. Barker, V.L. & Duhaime, I.M. (1997). “Strategic change in the turnaround
process: Theory and empirical evidence”, Strategic Management Journal, 18,
13-38.
4. Hofer, C.W. (1980). “Turnaround strategies”, Journal of Business Strategy, 1
(I), 19-31.
5. Schendel, D., Patton, G.R., & Riggs, J (1976), “Corporate turnaround strategies:
A study of profit decline and recovery”, Journal of General Management, 3 (3),
3-11
6. Balgobin, R., Pandit, N., “Stages in the Turnaround Process: The Case of IBM
UK”, European Management Journal Vol. 19, No. 3, pp. 301–316, 2001
7. Bibeault, D.B., (1982) Corporate Turnaround, McGraw-Hill, New York
8. Slatter, S. (1984). Corporate Recovery. Penguin, Harmondsworth
9. Thain, D.H. and Goldthorpe, R.L. (1989) “Turnaround management: causes of
decline.” Business Quarterly 54, 55–62.
10. Grinyer, P.H., Mayes, D.G. and McKiernan, P. (1990) “The sharpbenders:
achieving a sustained improvement in performance”. Long Range Planning 23,
116–125.
11. Gopal, R. (1991) “Turning around sick companies — the Indian experience.”
Long Range Planning 24, 79–83
12. Schendel, D.E and Patton, G.R., “Corporate stagnation and turnaround”,
Journal of Economics and Business 28, 236-241
13. Robbins, D.K., and Pearce, J.A. (1992) “Turnaround retrenchment and recovery”
Strategic Management Journal 13, 287-309

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Appendices
Appendix 1
Source: Chowdhury, S.D, “Turnarounds: A Stage Theory Perspective”, Canadian Journal of Administrative Sciences, (2002),
Volume 19 Issue 3, Pages 249 – 266.
Appendix 2
Source: Balgobin, R., Pandit, N., “Stages in the Turnaround Process: The Case of IBM UK”, European Management Journal Vol.
19, No. 3, pp. 301–316, 2001

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Appendix 3
Source: Balgobin, R., Pandit, N., “Stages in the Turnaround Process: The Case of IBM UK”, European Management Journal Vol.
19, No. 3, pp. 301–316, 2001
Appendix 4
Source: Grinyer, P.H., Mayes, D.G. and McKiernan, P. (1990) The sharpbenders: achieving a sustained improvement in
performance. Long Range Planning 23, 116–125.