Lessons Learned in Leadership: Knowing When Turnaround Management Is Your Best Option

Distressed organizations can rejuvenate sluggish operations by implementing turnaround management. Turnaround management uses the process of analysis and planning to rescue troubled organizations, resulting in returning them to solvency, identifying the reasons for failing performance, and assessing overall operations.

When should organizations implement a turnaround strategy?

Turnaround strategies are adopted by organizations when they begin to witness a decline in profit, lack of growth, failure to meet the sales objectives, or suffering from a weak industry reputation. Additionally, turnaround strategies are implemented by new organizations that fail to meet their strategic goals and objectives. The ability to successfully improve outcomes will result in recognizing and responding to the early signs of low or poor performance.

Why do organizations fail to meet objectives?

Before deciding to implement turnaround management strategies, it is imperative to understand the causes of failure. Most organizations go immediately into panic mode rather than conducting a thorough analysis of operations. The reason for failure could be identified as either internal or external factors or both.

Some of the most common factors:

● Internal factors: ineffective leadership and management, poor financial management, or inadequate marketing.

● External factors: industry trends, new technology, stock market, cost of goods, regulations, or increased competition.

What is the process?

Turnaround management begins with reviewing current administration, analyzing the causes of failure, and conducting a SWOT analysis to determine the organization’s strengths, weaknesses, opportunities and threats. Upon completion of the overall review, the turnaround professional will assist in the process of developing both a short-term and long-term strategic plan.

Although turnaround professionals can be designated as internal staff members, the most effective turnaround projects require the lens of an outsider (someone who is removed from the day-to-day operations). A prudent turnaround professional will begin the process by assessing the situation while determining what turnaround strategy is best suited for your organization.

Turnaround management is based on your current status and desired outcomes.

An effective turnaround strategy includes the following five steps:

● Step 1: Hire or assign a turnaround professional.

● Step 2: Conduct a SWOT Analysis.

● Step 3: Create a five-year strategic plan which includes long-term turnaround strategies.

● Step 4: Develop a one-year action plan which includes turnaround strategies based on the severity.

● Step 5: Schedule weekly/monthly follow-up meetings to review plan progress.

What are the various types of turnaround management strategies?

There are several types of turnaround management strategies, but the most common and effective ones involve restructuring, repositioning, replacing, or retrenching.

● Restructure: The decision to restructure operations could entail a total overhaul or be department specific. Both internal and external conditions drive the decision to restructure. The choice is based on identifying the problem(s), which could be a result of personnel performances ranging from the CEO to entry-level employees. Additionally, the problem could reside in customer service, sales, operations, or a combination of all three. Restructuring can also be required if the bottom line has been affected by new laws, regulations, economic depression, or poor stock performances.

● Reposition: The repositioning strategy requires full ownership of the process. The approach is designed to generate revenue based on the implementation of innovations, new products, or new services. These innovations are offered to both existing and potential clients. Innovations may also require the modification of your mission statement along with your image.

● Replacement: Whether large, medium or small, your company can benefit from the implementation of the replacement strategy. This strategy requires a change in top-level management, in particular, the CEO or president. This strategy can be successful because new management can offer diverse experiences from a unique background. When selecting the new CEO or president, it is essential to do your research.

● Retrenchment: The retrenchment strategy involves a collaboration of short-term actions to produce an immediate impact. These short-term strategies are useful for reducing financial losses and buying time to work on core issues. The retrenchment strategy can include employee reduction, bonus freezes, price point increases, liquidation, divestment, or elimination of unprofitable product lines.

Potential Internal Challenges

Most organizations will face the following inherent challenges as they implement turnaround management strategies:

● Employee and management resistance

● Investor concerns

● Terminal decline

The key to minimizing these challenges is to provide transparency and effective communication. Communicate the organization’s struggles and plans to rectify the problems.

When will we see results?

Turnaround professionals typically serve as interim managers and will leave upon completion of the plan. However, they will continue to review and evaluate the plan’s progress for approximately three months to two years. A successful plan will be evident between the first and fourth year of implementation.