What is a Turnaround Strategy?

What is a Turnaround Strategy?

What is a Turnaround Strategy? Jonathan Poland

A turnaround strategy is a business plan that is implemented when a company is facing financial difficulties or declining performance. The goal of a turnaround strategy is to restore the company to financial stability and improve its performance.

There are several different approaches to turnaround strategies, including:

  1. Cost-cutting: This involves reducing expenses in order to improve profitability. This can be done through measures such as layoffs, wage freezes, and outsourcing.
  2. Restructuring: This involves reorganizing the company in order to improve efficiency and reduce costs. This can include reorganizing departments, streamlining processes, and introducing new technology.
  3. Diversification: This involves expanding into new markets or product lines in order to reduce reliance on a single industry or product.
  4. Asset divestment: This involves selling off non-core assets or businesses in order to focus on the company’s core competencies.

Implementing a turnaround strategy can be a difficult and complex process, and it requires careful planning and execution. It is important for companies to communicate openly with employees and other stakeholders about the changes being made and the reasons for them.

Essentially, a turnaround strategy is a business plan that is implemented when a company is facing financial difficulties or declining performance. It involves a range of measures designed to restore the company to financial stability and improve its performance. This typically requires fast and aggressive decisions in the context of constrained resources and large threats. The following are common examples of a turnaround strategy.

Triage

Triage is a process of quick decision making in an urgent situation. A turnaround may require large decisions to be made within hours. For example, if a trade dispute causes borders to close disrupting a supply chain, a manufacturer may have to immediately decide which operations need to shutdown.

Replacement

The practice of replacing the management of an organization or team that has generated poor results. In some cases, a management team has produced good results but an organization is at risk of failure due to external factors such as a disaster or economic collapse. A replacement strategy may still be used where management has performed well. This is typically done where it is felt that insiders are likely to hold tightly to the status quo of the organization.

Business as Usual

Business as usual is a basic principle for managing drastic circumstances whereby people are asked to continue with their work without becoming distracted by events of the day. For example, an airline with a drastic cut in revenue due to an adverse global event may ask employees to continue on without loss of enthusiasm despite pending job cuts.

Retrenchment

Retrenchment is the process of reducing an organization including elements such as departments, teams, products, regions and business functions. This is a painful process that is often nonetheless necessary for the survival of an organization. For example, a firm that is facing a liquidity crisis may be able to secure additional funding based on the condition that they reduce costs by 40%. From an optimistic viewpoint this can be considered a process of creative destruction.

Repositioning

Repositioning is the pursuit of creativity and innovation to find a leap forward that saves an organization. For example, an oil company that repositions itself as a solar energy firm that produces energy at great scale and low cost.

Renewal

Renewal is the pursuit of a long term strategy that will eventual pay off in significant ways. Once a firm stabilizes its finances a turnaround begins to invest in the long term goals of the organization. For example, an oil company that begins to recruit talent who can realize a shift to green energy.

Culture Shift

The process of changing the culture of an organization. For example, shifting from a culture of resistance to change where people find excuses not to do things to a culture of aggressive change where people find ways to speed things up.

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