Meaning of Turnaround Strategy
Following diagram depicts the core meaning of turnaround strategy.
The concept or meaning of turnaround strategy covers following points:
- Turnaround strategy means to convert, change or transform a loss-making company into a profit-making company.
- It means to make the company profitable again.
- The main purpose of implementing a turnaround strategy is to turn the company from a negative point to a positive one.
- If a turnaround strategy is not applied to a sick company, it will close down.
- It is a remedy for curing industrial sickness.
- Turnaround is a restructuring strategy. Here, a loss-bearing company is transformed into a profit-earning company, by making systematic efforts.
- It tries to remove all weaknesses to help a sick company once again become strong, stable and a profit-making institution.
- It tries to reverse the position from loss to profit, from declining sales to increasing sales, from weakness to strength, and from an instability to stability.
- It aids to reduce the brought forward losses of the loss-making company.
- It helps the sick company to stand once again in the market.
- It is a complete U-turn of a planned strategic economic transition.
Definition of Turnaround Strategy
The definition of turnaround strategy w.r.t different senses is depicted below.
In general, the definition of turnaround strategy can be stated as follows.
“Turnaround strategy is a corporate practice designed and planned to protect (save) a loss-making company and transform it into a profit-making one.”
“Turnaround Strategy is a corporate action that is taken (performed) to deal with issues of a loss-making (sick) company like increasing losses, lower return on capital employed, and continuous decrease in the value of its shares.”
Finally, from an academic point of view, its definition can be stated as under.
“Turnaround strategy is an analytical approach to solve the root cause failure of a loss-making company to decide the most crucial reasons behind its failure. Here, a long-term strategic plan and restructuring plans are designed and implemented to solve the issues of a sick company.”
Examples of Turnaround Strategy
Some examples of turnaround strategy are depicted below.
Consider following examples of turnaround strategy:
- Financial Institution, for example, some bank ‘A’ is suffering from losses due to non-performing assets (NPA). NPA is loan given but not yet recovered. This bank ‘A’ will follow turnaround strategy and try to recover its loans by appointing recovery agents.
- Manufacturing company say ‘XYZ’ is suffering from losses due to excess idle time taken by labour to complete their jobs. The manufacturing company ‘XYZ’ will follow turnaround strategy to reduce labour inactivity by installing modern machines (automation) to carry on the same work or job.
- Educational institution, for example, ‘C’ is suffering from losses due to non-registration of students in their courses. This institution ‘C’ will follow turnaround strategy to reduce losses by providing facilities like e-Registration, conducting online classes, etc. to attract students.