Turnaround

1.  Introduction

Often once highly successful companies find that they lose their competitive advantage, and  rivals overtake them. As their sales stutter, they lose market share, and faced with excess capacity their costs rise. Profits evaporate and soon they report massive losses. Their decline is the stuff of headlines and dominates the business pages.

Usually the incumbent CEO makes minor adjustments when a much more radical approach is required to restore the company to good health. Eventually the CEO who oversees this withering decline is sacked, and a new CEO is appointed. The new CEO is afforded a limited period to prove his/her worth. The new CEO has in fact been appointed to execute a successful turnaround strategy. This new CEO may often be an outsider because the company recognizes the need to appoint a dispassionate outsider who will tackle the "sacred cows" of the organization.

2. Features of a Turnaround Strategy

One of the most successful turnaround strategies of all time occurred at Apple Computers (i.e. Apple) in the late 1990s. As the company was headed towards bankruptcy, various new CEOs had failed to deliver success, and Steve Jobs was invited back to head the company he co-founded.

So what did Jobs do? He slashed costs (and jobs) by outsourcing production to Asia. He reduced the number of computer models made by the company. He persuaded Microsoft to invest in the company. This reduced costs and stopped confusing consumers. He then simply waited for the "next big thing" and recognized that the company needed to succeed in this area in order to survive. The rest is history.

Today many other companies are in the midst of a radical restructuring program.

  • Nokia is a prime example. It is still the world's number two in cell phones, but missed out on the smartphone boom. In early 2011, its newly appointed CEO issues one of the most memorable memos ever issued to employees. You should read his "burning platform" memo.
  • Sony in spring of 2012 reported annual losses of more than $6.0bn. The new CEO unveilled his turnaround strategy for Sony in the same month. He too wishes to see more focus on a limited number of product types, and announced 10,000 job losses. Already many are commenting that Sony will never recover until it experiences a major internal culture change: stop obsessing about products and focus on delivering a unique customer experience.

Many U.S companies and other international companies are also in the midst of a turnaround strategy? Who are they? Well simply look for the following signs:

  • Sales are stagnant or in decline;
  • Profits are falling and indeed the company has reported losses;
  • The company has announced plans to reduce capacity (whether it be manufacturing or number of stores);
  • The company has recently appointed a new CEO.

Often the root cause of the company's decline is that it now has a flawed business model, but one that was the basis of past success. Companies can prove very reluctant and slow to concede that their once glorious business model has become a major liability.

3. Turnaround Failure

If a company cannot be turnaround then it faces a very bleak future, and may eventually go bust, or be acquired in order to gain access to some patents or other valuable assets.

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