Meaning of Turnaround Strategy
Turnaround strategy is a strategy that is employed to safeguard the loss-generating company and transform it into a profit-making one. It is a corporate dedicated strategy that is used for the revival of firms. This strategy conducts analysis and accordingly makes plans to protect the struggling companies for their successful recovery. It is termed as retrenchment strategy which is rolled out by enterprises for taking back their earlier decisions, which they feel are wrong. Turnaround strategy provides an option to take back all these wrong decisions taken by organizations before it negatively influences the profitability of the business. In simple terms, a turnaround strategy is backing out from the previously made decisions.
Turnaround strategy makes efforts to detect the root cause for business failure in order to solve it from a long-term perspective. For a turnaround to be successful, businesses need to have a strong management team. The support of the company’s employees and shareholders as well as the presence of competent management is needed for the turnaround to be successful.
Essentials of the Successful Turnaround Strategy
The following are the essentials that are much needed for the success of a turnaround strategy: –
Diagnosing the problem
Problem recognition is the first step in the restructuring process of a business organization. Turnaround strategy is implemented once the sickness problem is identified by the firm. The plans for an effective revival process can only be made if the real cause of business failure is known. Proper screening serves as an effective tool for knowing the root cause of problems.
Right planning and execution
Formulation of plans and executing them in the right manner is the second step of the turnaround strategy. After carrying out all evaluation processes, the right plans are made with regard to resources, time period, and policies for implementation. A well-experienced corporate turnaround expert needs to be hired by the sick company for a proper revival.
Proper communication plays a key role in determining business success. A quick response is needed by the company’s employees, management, shareholders, and financial institutions by turnaround strategy to work effectively. This strategy necessarily requires clear, prompt, and complete communication for its implementation.
Availability of funds
Financial restructuring of business enterprise is a crucial element of the turnaround strategy. There may be huge wastages and low crop yields arising from the lack of investment. A sick business unit is brought back to a healthy state via the availability of a sufficient amount of funds.
Proper cooperation among the distinct groups of business leads to turnaround success. The business group is composed of investors, suppliers, employees, creditors, management, shareholders, etc. Support of the employees is necessarily needed with the rise in workload.
Viability of business
The probability of business revival should be properly analyzed prior to implementing a turnaround strategy. Many times, a business may not be able to survive in long run due to the low chances of having a bright future. Turnaround strategy may not be viable for such business units.
Examples of Turnaround Strategy
Dell is one of the prominent computer and laptop manufacturers in the world. The company in the year 2006 made an announcement of cost-efficient measures and therefore started selling its products directly. But unfortunately, the strategy did not succeed and leads to huge losses for the company. Therefore, the company withdraws its direct selling strategy in 2007 and starts selling its systems via retail outlets. Today the company is the second-largest computer retailer in the world.
The rise of technology company Apple is one of the best examples of the success of turnaround strategy. In the year 1985, when the company’s CEO Steve Jobs left the position then it went into a long-term downward spiral. The sales, innovation, and popularity of the company continue to fall straight for almost 12 years, finally reaching the bankruptcy state. Then in the year 1997, Steve Jobs rejoined the company resulting in its revival with a successful rebrand like the First iMac. Today the Apple company is the most renowned and valuable company in the world.
Reddit is a website founded in the year 2005 and is well-known for news and discussions. During its initial days, there were zero visitors to the website which made founders form many fake accounts. The accounts were created for holding fake discussions till the time when visitors finally started trickling in. The company eventually reach great success and was purchased by Conde Nast, who was the owner of prominent brands like The New Yorker, Vogue, and Vanity Fair. Reddit has reached around 550 million users in Feb 2018 and is the sixth most visited website in the world.
The company ‘Airbnb’ was started in the year 2008 and during its initial days, the company struggles to find investors. This thing forces both the founder Joe Gebbia and Brian Chesky to form custom cereal boxes for raising funds. The founders created “Cap’n McCains’’ and “Obama-Os” as John McCain and Barack Obama were their inspirations. The company was able to raise around $30000 within 2 months and was invited for a training session related to the startup incubator. They got $ 20000 in funding along with training sessions. The company was able to grow rapidly and had around 10000 users and 2500 listings by next year.
Evernote is an app that was created for taking notes, organizing, and making lists. The app was formed by Stepan Pachikov in the year 2008. However, Pachikov decided to close the company as he was in the belief that it would never take off. But before it was shut down, an investor from overseas pledged $50000 for giving Evernote a chance of success. After facing the initials day’s trouble, Evernote was a leader in note-taking and organization software.