Effective Corporate Turnaround Strategies
Every business around the world needs a combination of several factors and ingredients to succeed and maintain that success. But not each one of it manages to keep the graph going up either due to lack of funds, improper marketing, wrong people onboard or inefficient products and services. It may then begin to take the road down and go through a downward spiral. So should one just give up and lose all hope or should it make efforts to revive and come up the surface? Well, the process of revival and finding the way up again is known as corporate turnaround.
In this article, we shall discuss the various strategies that can lead to an effective corporate turnaround by exploring the sections 1) corporate turnaround: an insight, 2) basic requirements for corporate turnaround, and 3) super-effective turnaround strategies.
CORPORATE TURNAROUND: AN INSIGHT
It is common for businesses around the world to experience a downturn in their endeavors either due to higher than expected expenses or due to lower than anticipated sales or profits. While, in some cases, this situation can be handled and dealt easily, in other cases, this situation may lead to a downwards spiral. In such a case, the management of the organization must find ways to rise up from depths and make its way towards profits again. Corporate turnaround or turnaround management is the process of transforming a loss-making company into a profit-making. It is simply the method to corporate renewal that is aimed at saving a troubled corporation and rectifying all those mistakes and wrong steps that can lead to a profit generating situation again. Corporate turnaround is structured, well-planned and methodological approach to the revival of a company and is achieved by following a step-by-step approach that takes time, investment and the participation of people.
Questions to ask to find out whether your company needs a turnaround
In order to find out whether your company needs a corporate turnaround or not, it is important to ask yourself a few questions, and they are given as follows:
- Is your company currently in a distressed condition and is heading towards a downward spiral?
- Is your company faltering in its efforts and going out of control?
- Is your company spending more than it’s earning and are the earnings hard to come by?
- Has your company suffered from the reputation?
Once you answer these questions, you will automatically get an idea of its current state, based on which you can take further actions.
Common causes for failure of a corporate enterprise
Before making your way towards a corporate turnaround, it is important to know and understand the various causes of the failure of your enterprise. In most cases, businesses focus more on the signs/symptoms of decline rather than looking into the actual reasons for it. But without knowing the reasons, the rectification remains incomplete. There can be many reasons for the decline of a business, and they are broadly divided into two types: external and internal causes. Let’s take a look at both in detail:
External causes for failure of a company or organization are those kinds of causes that result from an external event, activity, trend or happening. The trends in the industry and the economic condition outside it can greatly affect a business or organization, no matter how it functions or how well it implements changes. The following are some of the main external causes for failure of a corporate enterprise:
- New aggressive competitor – Presence of one or more aggressive competitors in the market or industry can lead to the downfall of an enterprise.
- Increase in prices of supply – Another reason for the failure of a corporation could be a sudden and unexpected increase in the prices of supply.
- Changes in the market demand – Shift in market demand and reduction in product preference too can be a major reason.
- Economic conditions – The current condition of the market or economy could be a contributing factor to the decline of a company.
As the name suggests, internal causes for failure of a corporation are those kinds of causes which emerge from within the company and is a result of poor people participation, inadequate efforts, improper tools, and others. The following are some of the main internal causes:
- Failures of management – Poor management of a business enterprise often leads to its downfall and can be a major reason for is a failure.
- Failures in financial decisions – Loss in budget controls, weak financial forecasting and absence of a proper costing system are just some examples of insufficient financial controls in a company that could lead to its downfall.
- Ignorance of new trends – Ignoring the new trends in the industry and failing to grow with it could also be a big reason for a business’s decline.
BASIC REQUIREMENTS FOR A CORPORATE TURNAROUND
It is important to understand that not all businesses facing failure can be rescued. There are some things needed to implement the process of turnaround and without fulfilling these basic requirements, no distressed business can be totally revived. The following are the 3 basic components or requirements for a corporate turnaround:
1. A strong core: Any business with a viable and strong core qualifies to go through the process of a turnaround, no matter how distressed it may be currently. A solid background with reliable employees and enough goodwill can be revived through efforts and turnaround strategies. Of course, even on having a strong core, a business will need to work hard to taste success again.
2. Short-term financing: Besides strong and solid roots, a business or corporation also needs proper funding, and that can be made possible through short-term financing. A company must have access to sufficient short-term financing in order to rise up again and work towards its own revival. The idea is to have enough cash flow to bring back the business on its feet again.
3. Resources and skills: A company must also have access to both intangible and tangible resources as well as skills. Without the proper resources, knowledge, expertise and skills, no business can bounce back again, in spite of having the cash flow and solid base. Without skills and resources, the corporate turnaround can prove to be either a very difficult task or an impossible one.
SUPER-EFFECTIVE CORPORATE TURNAROUND STRATEGIES
Corporate turnaround isn’t just one-point procedure that can be achieved by making just a few minor changes. Turning around a struggling business to a thriving one can be a complex process, one which involves several steps, methods, and strategies. It may sometimes take years to bring a business back on its feet because several factors need to be taken care of including management, finances, marketing, operations, human resources and many others. A strategic approach has to be followed to fulfill the turnaround and for your reference, we have compiled some of the best strategies for an effective corporate turnaround:
1. Situation reevaluation
To cure a problem, a diagnosis of the initial cause is the first step that is to be followed. Same is the case with corporate turnarounds. The first step that you need to follow is to figure out whether your business is damaged beyond repair or not. If not, then you need to look within the organization to figure out what the problem is. Only when you reevaluate the situation can you decide what actions can be taken next. To achieve this, you need to focus on some key areas, which are given as follows:
- Product – A business is made by the products and services it offers and hence it is important to focus on whether the products you are offering are innovative enough, unique enough and buyable enough for the consumers.
- Customers – You need to figure out whether your consumers are satisfied with the products being offered to them and is the right target audience being targeted.
- Finance – Is the cash flow enough to sustain the business’s operations? Do you have short term financing to stabilize the situation?
- Process – You must fathom whether all your business processes and systems are in place and working effectively. Without this, business performance can go down considerably.
- People – It may be time to figure out whether your business is supported by the right people and staff. Employees can play a big role in any organization’s success and hence you may have to cut down on few who may not be providing a good output.
2. Crisis stabilization
Once the situation has been looked into, the next step is to stabilize the situation and make sure that the emergency state can be eliminated. To stabilize the crisis, you will need to conserve the liquidity of funds so that a window of opportunity can be created. You must aim for gaining a little restructuring of both the finances as well as the business so that the next steps can be easily dealt with, without worrying about the shortage of funds or chaos in business operations.
You must, at this step track the situation, monitor it well and try to control it from going out of hand. Only when you make efforts for stabilization would you be able to experience the freedom to make necessary changes.
3. Strategy redefining
The next step to follow in order to turnaround the business effectively is to redefine the strategy that is being followed by your company currently. Redefining the strategy means making strategic or objective changes in the approach followed by your business to reach its goals. If the corporation is on a downward spiral, then one of the biggest reasons behind this could be a gap in the strategy. This is the step where you can make all the difference for the future of the organization and give it a new direction. Revisiting the strategic approach can also make you realize the holes in the previous approach and the changes that need to be made to it.
Key areas to focus on:
- Vision – You need to create your new strategy by keeping in mind what your vision or objective is. You must know exactly what you wish to achieve and where you want to take your business.
- Purpose – Are you aware of the real purpose of your business? Your strategy must address this purpose and make sure it is fulfilling the objective for which it was created in the first place.
- Brand – Your business strategy must also address your brand value and should focus on the kind of impact you wish to have on the public as a brand.
- Mission – You must incorporate the intent to succeed in the business and how to succeed in the strategy as well.
- Values – Does your business have any principles, policies and standards that it wants to maintain and follow? If yes, make sure your strategy takes them into consideration.
4. Employee retention and reemployment
There is hardly any corporate turnaround without talking about the people involved in it. It is the people or employees which run a business and no matter how your finances are, how good your strategy is, if the people backing it are not performing well, there is no way for it to succeed. Now may be the right time to figure out who really is offering the best services to your organization and who isn’t performing as per expectations.
At this step, you need to take the decision of reemploying people, eliminating the weaker links and retaining those who are crucial to your business. To revive a business, it is important to retain the right people on board and politely excuse yourself of the wrong ones.
5. Process and product improvements
Besides people and strategy, another thing that you need to focus upon is the re-innovation of the products(services) and the business operations. Without regular upgradation and innovation of products and services, customers soon tend to lose interest, and this could be the reason for your downfall. Make sure you are offering your consumers something that they cannot find anywhere else. Regular changes in the products according to the demands of the market and customers are the keys to maintaining consumer interest.
Same holds true for your business processes and operations. Have you incorporated the latest technologies or systems in your systems and processes? Do you innovate your working style, environment and principles with changing times? If not, then you should probably start doing that now!
6. Financial restructuring
One of the main and obvious reasons for a failing business is the lack of funds. Without solving the problem of financing, all the other efforts towards a turnaround can fail miserably. If you are running out of cash, then it is a good idea that you focus on the financial restructuring of your business. While it is a great idea to look for external funding, it is even better to try to source it from within your company. Some of the ways to do so are given as follows:
- Cut down on costs wherever possible and lay off some of the unproductive staff.
- If you need to raise quick cash, consider selling some fixed assets.
- Try to take some money from your personal savings.
Only after internal funding sources have been exhausted should you opt for external funding, the best examples of which are borrowing from a friend, taking a loan from a bank and leasing, etc.
7. Back to normal
Now the next strategy involves returning to normal. Once the company has a constant cash flow, and everyone has gotten used to the changes, it is important to go back into the same work schedule and create an atmosphere of normality. Once the company is out of the crisis situation, employees begin to gain more confidence, processes are put back into their normal speed and efforts are made to maintain the strong performance.
8. Become digital
As the world is moving towards technological advancements and development, it is important to move ahead with it. Most consumers and customers these days look online for buying products and services and the industry demands you to go digital. Going the digital route is not just the need of the hour but also the demand of the consumers. Introduce latest systems, online technologies and online marketing in your strategy to gain the maximum in the current circumstances. Going digital also gives you an edge over your competitors and puts you in the league of those who are already gaining huge profits through online marketing and sales.
The internet offers you a superb opportunity to reinvent yourself and bounce back hard. It is no doubt that the internet has changed the world, the way businesses work and the way consumers buy. So to complete the process of your corporate turnaround, it is important to have a good website, a strong SEO centric approach, e-commerce facility as well as social media presence.