Explain the Features of Turnaround Strategy
Following image briefly explains important features of turnaround strategy.
Nine important characteristics or features of turnaround strategy are:
- Turnaround involves restructuring the sick company.
- It is applicable to a loss-making unit.
- It needs consultation of internal and external experts.
- It is a long and time-consuming process.
- It involves in-depth planning with evidential testing.
- It is a capital intensive strategy.
- It helps to utilize all available resources optimally.
- It leaves a permanent effect on the structure of the sick company.
- It needs full co-operation of people associated with the sick company for its success.
The following paragraphs discussed below lucidly explain all above-mentioned features of turnaround strategy.
1. Involves restructuring
Turnaround involves restructuring the sick company.
Restructuring means rearranging the resources of the company for improving its profitability and performance.
Restructuring can be a:
- Financial restructuring,
- Technical restructuring,
- Marketing restructuring,
- Personnel restructuring, etc.
2. Applicable to a loss-making unit
Turnaround is a strategy of converting a loss-making or an uneconomic unit into a profitable one.
- It is applicable to a loss-making unit.
- It is done (applied or implemented) by making systematic efforts.
- It is a solution to solve the problem of industrial sickness.
3. Needs consultation of experts
Turnaround can be done by consulting company's own (internal) experts or by external experts (hired consultants).
These two types of experts have their own advantages and limitations:
- Internal experts know the company's culture, resources, level of technology, etc., much better. However, they may be biased because their interests are involved.
- External experts though may be unbiased, but their suggestions may not be practical and the sentiments of the employees may not be considered.
So, a sick company must keep a proper balance of consultation between the internal and external experts.
4. Long and time-consuming process
Turnaround strategy is a long-term strategy:
- It is not a one-day task.
- It is a lengthy and a time-consuming process.
- In some cases, it may even take few years to turn around a sick unit.
5. Involves an in-depth planning
Turnaround involves stages like analysis, planning, arranging, testing, rearranging, and re-planning.
It goes through the following stages:
- Turnaround strategy first involves detailed analysis or study of the failed model or structure of the sick company.
- It begins with planning suitable, adaptable and result-oriented strategies to initiate the turnaround.
- The implementation of newly planned strategies takes place by arranging (orienting) the structure of the once failed model. It is done so as per instructions (orders) conveyed by a planning authority or committee.
- After this basic arrangement, planning is put to a practical test for some determined time period. Over a time, data is collected and analysed statistically by experts to seek improvements or failures, if any, in its performance.
- The plan is enhanced or tweaked even further if some improvements are noticed in its testing phase.
- In case of witnessing some failures, the plan is corrected and again re-planned followed by making proper rearrangements.
Thus, turnaround strategy involves in-depth planning with evidential testing.
6. Capital intensive strategy
Turnaround is a capital intensive strategy. It mainly requires a large amount of funds (money) to restructure the resources of a sick company.
For its initiation, company needs an excellent team of expert consultants and professionals. Along with utilising the expertise of its internal staff, company also needs external support and/or consultations of other professionals. It needs more funds to pay for the services of these professionals. Furthermore, since the time period of a turnaround cannot be fixed it needs a continuous supply of funds for its uninterrupted operation until a satisfactory success is achieved.
This overall makes a turnaround strategy a costly affair. It is not a viable choice for those companies who cannot afford its capital intensiveness.
7. Optimum utilisation of resources
Generally, a sick company doesn't make an optimum utilisation of its all available resources. These mainly consist of human resources, financial resources, physical resources, and so on.
The turnaround strategy helps to utilise the resources optimally.
- Turnaround helps to restructure and reorganize all available resources of the company.
- It tries to channel (use) resources only for profitable venture and not for non-profitable ones.
8. Leaves a permanent effect
Turnaround leaves a permanent effect (mark or impact) on the structure and working of the company. It helps a sick company to stop its all unproductive activities and concentrate on productive ones. It aids the company to change its technology from a labour intensive (that involves many people working) to a capital intensive (that requires large capital investment in modern equipments, high-tech machines, etc. and hence less people working) one. It may also help a sick company to amalgamate with some other company, thereby forming a totally new company.
9. Needs co-operation of people
For turnaround to be successful, full co-operation of employees is necessary. This is because the turnaround strategy will involve the employees.
Co-operation of other groups such as shareholders, financial institutions, suppliers, and others is also required for the turnaround strategy to be effective.
Thus, turnaround needs full co-operation of people associated (attached) with the sick company for its success.