A CASE STUDY ON TURNAROUND STRATEGY OF VESPA

WITH REFERENCE TO PIAGGIO VESPA SCOOTERS.

SUBMITTED TO UNIVERSITY OF MUMBAI

BY APARNA NAIR

Contents• 1 History

• 1.1 Concept • 1.2 Design

• 1.3 Product • 2 Launch • 3 Sales and development • 4 1990s and beyond

• 4.1 Under new ownership • 4.2 Re-entry to North America

• 5 Design icon • 6 Global markets

• 6.1 Europe • 6.2 North America

• 7 Production outside Italy • 7.1 India • 7.2 Indonesia • 7.3 Soviet Union • 7.4 Taiwan

• 8 Racing • 9 Vespa models

INTRODUCTION

The scooter was invented in 1947 as a low cost alternative to the automobile in war

ravaged Europe – it was designed as transport for the masses and it caught on so

quickly that it became one of the great transport phenomena to sweep the world in

the 20th century. The Vespa (which means “wasp” in Italian) was the result of Enrico

Piaggio’s determination to create a viable alternative to the automobile for the masses.

As the war drew to a close, Enrico studied every possible solution to get production in

his plants going again.

Most companies that rose to become global leaders, most often, started with limited

resources and capabilities. But they were bent on winning and then sustained that

obsession, termed as “strategic intent”.Piaggio, the Italian motorcyclemanufacturer,

who tasted initial success withthe launch of ‘Vespa’ motor scooter in1946 faced

numerous challenges ahead and was close to bankruptcy in 2003.

The Vespa has evolved from a single model motor scooter manufactured in 1946 by

Piaggio&Co. S.p.A. of Pontedera, Italy—to a full line of scooters and one of seven companies

today owned by Piaggio—now Europe's largest manufacturer of two-wheeled vehicles and the

world's fourth largest motorcycle manufacturer by unit sales.

From their inception, Vespa scooters have been known for their painted, pressed steel unibody

which combines a complete cowling for the engine (enclosing the engine mechanism and

concealing dirt or grease), a flat floorboard (providing foot protection), and a prominent front

fairing (providing wind protection) into a structural unit.

History

Vespa 150 TAP, modified by the French military, that incorporated an anti tank weapon

Post World War II Italy, in light of its agreement to cessation of war activities with the Allies, had its

aircraft industry severely restricted in both capability and capacity.

Piaggio emerged from the conflict with its Pontedera fighter plane plant demolished by bombing. Italy's

crippled economy and the disastrous state of the roads did not assist in the re-development of the

automobile markets. Enrico Piaggio, the son of Piaggio's founder Rinaldo Piaggio, decided to leave the

aeronautical field in order to address Italy's urgent need for a modern and affordable mode of

transportation for the masses.

Concept

The inspiration for the design of the Vespa dates back to Pre-World War II Cushman scooters

made in Nebraska, USA. These olive green scooters were in Italy in large numbers, ordered

originally by Washington as field transport for the Paratroops and Marines. The US military had

used them to get around Nazi defense tactics of destroying roads and bridges in the Dolomites (a

section of the Alps) and the Austrian border areas.

Design

Piaggio MP5 "Paperino", the initial Piaggio prototype

In 1944, Piaggio engineers Renzo Spolti and Vittorio Casini designed a motorcycle with

bodywork fully enclosing the drivetrain and forming a tall splash guard at the front. In addition

to the bodywork, the design included handlebar-mounted controls, forced air cooling, wheels of

small diameter, and a tall central section that had to be straddled. Officially known as the MP5

("Moto Piaggio no. 5"), the prototype was nicknamed "Paperino" (either 'duckling' or Donald

Duck in Italian).

Enrico Piaggio was displeased with the MP5, especially the tall central section. He contracted

aeronautical engineer Corradino D'Ascanio , to redesign the scooter. D'Ascanio, who had earlier

been consulted by Ferdinando Innocenti about scooter design and manufacture, made it

immediately known that he hated motorcycles, believing them to be bulky, dirty, and unreliable.

D'Ascanio's MP6 prototype had its engine mounted beside the rear wheel. The wheel was driven

directly from the transmission, eliminating the drive chain and the oil and dirt associated with it.

The prototype had a unit spar frame with stress-bearing steel outer panels.[3] These changes

allowed the MP6 to have a step-through design without a centre section like that of the MP5

Paperino. The MP6 design also included a single sided front suspension, interchangeable front

and rear wheels mounted on stub axles, and a spare wheel. Other features of the MP6 were

similar to those on the Paperino, including the handlebar-mounted controls and the enclosed

bodywork with the tall front splash guard.[2]

Upon seeing the MP6 for the first time Enrico Piaggio exclaimed: "Sembra una vespa!" ("It

resembles a wasp!") Piaggio effectively named his new scooter on the spot.[3][4]Vespa is both

Latin and Italian for wasp—derived from the vehicle's body shape: the thicker rear part

connected to the front part by a narrow waist, and the steering rod resembled antennae. The name

also refers to the high-pitched noise of the two-stroke engine.[citation needed]

Product

Glove box on newer Vespa PX.

On 23 April 1946, at 12 o'clock in the central office for inventions, models and makes of the

Ministry of Industry and Commerce in Florence, Piaggio e C. S.p.A. took out a patent for a

"motorcycle of a rational complexity of organs and elements combined with a frame with

mudguards and a casing covering the whole mechanical part".[5]

The basic patented design allowed a series of features to be deployed on the spar-frame which

would later allow quick development of new models. The original Vespa featured a rear pillion

seat for a passenger, or optionally a storage compartment. The original front protection "shield"

was a flat piece of aero metal; later this developed in to a twin skin to allow additional storage

behind the front shield, similar to the glove compartment in a car. The fuel cap was located

underneath the (hinged) seat, which saved the cost of an additional lock on the fuel cap or need

for additional metal work on the smooth skin.

The scooter had rigid rear suspension and small 8-inch (200 mm) wheels that allowed a compact

design and plenty of room for the rider's legs. The Vespa's enclosed, horizontally-mounted two-

stroke 98 cc engine acted directly on the rear drive wheel through a three-speed transmission.

The twistgrip-controlled gear change involved a system of rods. The early engine had no cooling,

but fan blades were soon attached to the flywheel (otherwise known as the magneto, which

houses the points and generates electricity for the bike and for the engine's spark) to push air

over the cylinder's cooling fins. The modern Vespa engine is still cooled this way. The mixture of

two-stroke oil in the fuel produced high amounts of smoke, and the engine made a high buzzing

sound like a wasp.[citation needed]

The MP6 prototype had large grilles on the front and rear of the rear fender covering the engine.

This was done to allow air in to cool the engine, as the prototype did not have fan cooling. A

cooling fan similar to that used on the MP5 "Paperino" prototype was included in the design of

the production Vespa, and the grilles were removed from the fender.[2]

LaunchPiaggio filed a patent for the Vespa scooter design in April 1946. The application documents referred to a "model of a practical nature" for a "motorcycle with rationally placed parts and elements with a frame combining with mudguards and engine-cowling covering all working parts", of which "the whole constitutes a rational, comfortable motorcycle offering protection from mud and dust without jeopardizing requirements of appearance and elegance". The patent was approved the following December.

The first 13 examples appeared in spring 1946, and reveal their aeronautical background. In the first examples, one can recognize the typical aircraft technology. Attention to aerodynamics is evident in all the design, in particular on the tail. It was also one of the first vehicles to use monocoque construction (where the body is an integral part of the chassis).

The company was aiming to manufacture the new Vespa in large numbers, and their longstanding industrial experience led to an efficient Ford-style volume production line. The scooter was presented to the press at Rome Golf Club, where journalists were apparently mystified by the strange, pastel coloured, toy-like object on display. But the road tests were encouraging, and even with no rear suspension the machine was more manoeuvrable and comfortable to ride than a traditional motorcycle.

Following its public debut at the 1946 Milan Fair, the first fifty sold slowly—then with the introduction of payment by installments, sales took off.

[edit] Sales and development

Original Vespa with attached sidecar

Piaggio sold some 2,500 Vespas in 1947, over 10,000 in 1948, 20,000 in 1949, and over 60,000 in 1950.[6]

The biggest sales promo ever was Hollywood. In 1952, Audrey Hepburn side-saddled Gregory Peck's Vespa in the feature film Roman Holiday for a ride through Rome, resulting in over 100,000 sales. In 1956, John Wayne dismounted his horse in favor of the two-wheeler to originally get between takes on sets.[7] By the end of the fifties, Lucia Bosé and her husband, the matador Luis Miguel Dominguín,[8] as well as Marlon Brando, Dean Martin, and the entertainer Abbe Lane had become Vespa owners. William Wyler filmed Ben Hur in Rome in 1959, allowing Charlton Heston to abandon horse and chariot between takes to take a spin on the Vespa.[9][10]

Vespa clubs popped up throughout Europe, and by 1952, worldwide Vespa Club membership had surpassed 50,000. By the mid-1950s, Vespas were being manufactured under licence in Germany, the United Kingdom, France, Belgium and Spain; in the 1960s, production was started in India, Brazil and Indonesia. By 1956, one million had been sold, then two million by 1960. By the 1960s, the Vespa—originally conceived as a utility vehicle—had come to symbolize freedom and imagination, and resulted in further sales boosts: four million by 1970, and ten million by the late 1980s.

Improvements were made to the original design and new models were introduced. The 1948 Vespa 125 had rear suspension and a bigger engine. The headlamp was moved up to the handlebars in 1953, and had more engine power and a restyled rear fairing. A cheaper spartan version was also available. One of the best-loved models was the Vespa 150 GS introduced in 1955 with a 150 cc engine, a long saddle, and the faired handlebar-headlamp unit. Then came the 50 cc of 1963, and in 1968 Vespa 125 Primavera became one of the most durable of all.

T5 Millennium from the PX series

Vespas came in two sizes, referred to as "largeframe" and "smallframe". The smallframe scooters came in 50 cc, 90 cc, 100 cc, and 125 cc versions, all using an engine derived from the 50 cc model of 1963, and the largeframe scooters in 125 cc, 150 cc, 160 cc, 180 cc, and 200 cc displacements using engines derived from the redesigned 125 cc engine from the late 1950s.

The largeframe Vespa evolved into the PX range in the late 1970s and was produced in 125, 150 and 200 cc versions until July 2007. The smallframe evolved into the PK range in the early 1980s, although some vintage-styled smallframes were produced for the Japanese market as late as the mid 1990s.

[edit] 1990s and beyondThe ET model range stuck true to the wasp/aero design principles. It was lighter, more aerodynamic, had an automatic gearbox and could take a series of engines from a 50 cc in either two-stroke or four-stroke, up to a 150 cc four stroke.[11]

When Vespa celebrated its 50th anniversary in 1996, more than 15 million of the scooters had been sold worldwide.[citation needed] Other companies vied with Piaggio for market share, but none came close to emulating the success—or romance—of Vespa.

[edit] Under new ownershipThis section does not cite any references or sources. (July 2010)

In 1959 Piaggio came under the control of the Agnelli family, the owners of car maker Fiat SpA. Vespa thrived until 1992 when Giovanni Alberto Agnelli became CEO, but Agnelli was already suffering from cancer and died in 1997. In 1999 Morgan Grenfell Private Equity acquired Piaggio, but a quickly hoped-for sale was dashed by a failed joint venture in China.

By 2003, the company found itself close to bankruptcy. Continual management changes and millions spent on many different plans and products had saddled Piaggio with debt and left it vulnerable to competition from cheaper Asian rivals. Despite this, the brand was still well-known and products such as the Vespa ET4 were gaining positive publicity. In October 2003 Roberto Colaninno made an initial investment of 100 million euros through his holding company Immsi SpA in exchange for just under a third of Piaggio and the mandate to run it. Chief executive Rocco Sabelli redesigned the factory to Japanese principles so that every Piaggio scooter could be made on any assembly line. The company rolled out two world firsts in 2004: a gas-electric hybrid scooter and a scooter with two wheels at the front and one at the back.

Piaggio acquired scooter and motorcycle maker Aprilia in 2006 and in that same year Piaggio shares were launched onto the Borsa Italiana with the listing symbol PIAGF.

[edit] Re-entry to North AmericaThis section does not cite any references or sources. (July 2010)

Piaggio first came back into the market in 2001 with the ET2 (two stroke 50 cc) and ET4 (four stroke 150 cc). In 2004, the PX (model year 2005) was re-introduced to North America to meet market demand for the classic Vespa design. Growth in the US market and worldwide environmental concerns meant a need for larger and cleaner engines, so Vespa developed the LEADER (Low Emissions ADvanced Engine Range) series of four-stroke engines. The larger Granturismo frame, with larger 12-inch (300 mm) wheels, was introduced to handle the additional power. The bike in 2006 spawned the iconic GTS-250ie version, with an upgraded suspension and the new QUASAR (QUArter-liter Smooth Augmented Range) 250 cc fuel-injected engine, capable of 80+ mph. As of the end of 2010 the GTS 250 has been replaced by the GTS 300 which has a 278cc fuel - injected engine. In 2005, the ET was withdrawn from Europe and North America and replaced by a new small-frame scooter, the LX range. These were available in the USA in 50 cc and 150 cc versions, while Europeans could choose a 50 cc, 125 cc and 150 cc.

[edit] Design icon

Modified Vespa as popular in the mods/skinhead culture.

In recent years, many urban commuters have purchased new or restored Vespas. A shortage of available parking for automobiles in large urban areas and the Vespa's low running costs are two

reasons for the increase in Vespa (and other scooter) popularity. The cultural use of the scooter as a recreational vehicle with a sub-cultural following in the USA/Canada and parts of Europe & Japan has also contributed to the rise in Vespa ownership. In contrast, the Vespa is considered a utilitarian vehicle for hauling products and sometimes up to 5 family members in much of Asia and Mexico

This resurgence in interest in vintage motor scooters has also spawned a scooter restoration industry, with many restored Vespas being exported from Thailand, Vietnam and Indonesia to the rest of the world.[12][13][14]

There is a Piaggio Museum & Gift Shop adjacent to the plant in central Pontedera, near Pisa, Tuscany. The permanent exhibition includes those items which toured venues such as the Guggenheim in New York and the Centre Pompidou in Paris. Also on display is a model personally customised by Salvador Dalí in 1962.

The 1959 Vespa N was also the styling inspiration for the Neco Italia.[15]

[edit] Global markets[edit] Europe

Vespa's largest market by all measures globally is still Italy, but as a result of the mod subculture that developed in the 1960s, the United Kingdom is still Vespa's second largest global market—and at one point in the 1960s, its largest. The appeal of the Vespa to the style-conscious mods was the weather protection. Their counterparts, the rockers rode classic British motorcycles such as Triumph Bonneville and BSAs, and needed to wear leathers against the elements. Mods would modify their Vespas, adding lights, mascots, accessories, various racks and crash bars. A new lifestyle evolved in the UK, with thousands attending scooter rallies.

The dominance of the Vespa declined through the 1970s, as small car ownership increased and cheap and reliable commuter bikes like the Honda Super Cub hit sales. Despite the introduction of the more modern 'P' range in the 1970s, the lack of development cost Vespa, and like other markets, the sales fell off drastically in the economic boom of the 1980s. Then Vespa introduced the trendy automatic ET2, London introduced the congestion charge and—partly with celebrity chef Jamie Oliver's indirect help from his BBC2 series—sales suddenly leapt.[16]

[edit] North America

A Vespa Boutique in San Francisco

Much as Vespa had used the Cushman Army scooter as inspiration for its original design, Vespa in turn made scooters for Sears and Cushman after World War II.[17]

Imported by Morton Colby of Colby General Tire Company, 662 E. Fordham Road, Bronx, New York, the Sears models were 3- and 4-speed 125 cc Vespas rebadged as Sears Allstate Cruiseaires. Innocenti also distributed their Lambretta brand via Montgomery Ward's catalogue during this post-World War II period. These were the premier brands of scooters, bringing premium pricing to many, including farmers, whose link to the outside world was via purchases made in these catalogues. Cushman sold rebadged Vespa scooters as Cushmans, but many Cushman dealers refused to market a "foreign" machine. However, collectors prize the Cushman Vespa because it is relatively rare.

Bankruptcy of Vespa's American importer due to two expensive product-liability lawsuits, increased competition from Japanese manufacturers, and certain states' passing so-called "green

laws" caused a withdrawal from the US market in late 1981.

During 1981-2001, despite an absence of United States domestic sales, Vespas continued to have a core group of enthusiasts who kept vintage scooters on the road by rebuilding, restoring, and adding performance-enhancing engine parts as the stock parts would wear out.

Vespa returned to the US market in 2001 with a new, more modern style ET series, in 50 cc two and four stroke, and 150 cc four-stroke. According to the Motorcycle Industry Council, U.S. scooter sales increased fivefold over six years, swelling from 12,000 units in 1997 to 69,000 units in 2002. Vespa sales in the U.S. increased 27 percent between 2001 and 2002. The 65 "Vespa Boutiques" scattered throughout the U.S. gave scooterists a place to buy, service, and customize Vespa scooters, and outfit themselves in everything from Vespa watches and helmets to Vespa jackets, T-shirts, and sunglasses. Vespa restarted its American sales effort, opening its first boutique on Ventura Boulevard in Sherman Oaks, Calif.

In light of vastly-increasing US sales, Vespa developed the GT, offered as a 200 cc four-stroke and a 125 cc variant in Europe. In 2004 Vespa reintroduced a modernized PX 150 to the US. In the fall of 2005, Piaggio offered their largest-selling Vespa scooter ever, the 250 cc-engined GTS250, available in Europe with ABS.

[edit] Production outside Italy

Bangkok: Vespa in business mode

Vespa scooters were sold beyond Europe and North America. When expanding into these markets it was common for Vespa to partner with, or license certain models to, existing manufacturers.

[edit] India

Piaggio first licensed the production of Vespa scooters in India to Bajaj Auto in the 1960s. In 1971, Piaggio's license was not renewed as a part of Indira Gandhi's privatization programs. After the collaboration ended, Bajaj continued to produce scooters based on the Vespa design, namely the Chetak.

Another Vespa partner in India was that of LML Motors. Beginning as a joint-venture with Piaggio in 1983, LML, in addition to being a large parts supplier for Piaggio, produced the P-Series scooters for the Indian market. In 1999, after protracted dispute with Piaggio, LML bought back Piaggio's stake in the company and the partnership ceased. LML continues to produce (and also exports) the P-Series variant known as the Stella in the U.S. market and by other names in different markets.

In the 2012 Auto Expo held in New Delhi, the iconic Vespa re-entered the Indian Market. Piaggio unveiled its range of scooters at the Expo. The range of Vespa sport 125cc engines and will be available in the market from March 2012. This will be the first such venture of Piaggio in India without a local partner.

On April 26, 2012, Piaggio India launched the Vespa LX125 model specifically designed for brand conscious Indian customers, it is simply named Vespa (LX125 is lifted off).

[18]

[edit] Indonesia

Danmotor Vespa Indonesia (DMVI) was a joint venture between Indonesian interests and the

East Asiatic Company, which was based in Denmark. Between 1972 and 2001 it produced Vespas under licence for the Indonesian market.[19][20] In 1976 approximately 40,000 units were produced giving DMVI the third biggest share of the Indonesian scooter market. Government tax incentives allowed these scooters to be exported to Thailand at less than the domestic market price, so that they would be economically competitive.[21] DMVI only built 90 and 150cc models. From 1972 onwards the company was located at a purpose-built factory in Pulo Gadung. This was greatly expanded in 1977 to also manufacture sub-components, following a government decree that a higher domestically-built proportion of these should be used. Sub-components were also bought from other Indonesian manufacturers after their quality had been approved by Piaggio.[22]

[edit] Soviet Union

Between 1956 and 1966 an unauthorised, reverse-engineered version of the Vespa was built and sold in the USSR by Vyatka. This was withdrawn after protests by Piaggio.[23]

[edit] Taiwan

Vespa has had various partnerships and presence in Taiwan. In 1965 Taiwan Vespa Co. Ltd was licensed for Vespa scooter production. From 1972 to 1982 Vespa entered into a collaboration with manufacturer PGO. In 1978 Vespa entered into a collaboration with TGB, which to some extent, continues to this day (namely with CVT transmission production).

[edit] RacingIn the 1950s and early 1960s, Vespa and Lambretta scooters were raced competitively against motorcycles, often winning the races. In the mid 1960s, motorcycle engines became larger and faster, and a gap was created—along with varying cc classifications. Since the 1980s, Vespa and Lambretta racing has grown into a serious sport in the United States. There are various classes in the United States, depending on the racing association. They are generally:

• Small Frame Class: Open class up to 152 cc

• Automatics Class

• Specials Class

•

•

Vespa modelsThere have been 138 different versions of the Vespa. Today five series are in production: the classic manual transmission PX and the modern CVT transmission S, LX, GT, and GTS.

But things have changed. The company almost went bankrupt a while ago after losing ground and sales dollars to Japanese bike makers for many years. But beginning in 2003 new management and the employment of Japanese assembly line techniques have reinvigorated the marque and have once again made Vespas a cult item, in demand for the metropolitan commuter and Sunday drive in the country crowd. For example, the young fellow I chatted with at Wangwon Farm the other day had a new LX150 of which he was quite proud.

The Modern Generation

By 1990 sales for the Vespa scooter had plummeted badly compared to previous decades. Indian markets were fully-served by government factories manufacturing Bajaj and LML copies of the Vespa. Asian markets were saturated with Honda and Yamaha scooters that were cheaper and easier to operate. U.S. markets had forgotten about the Vespa and opted for Japanese imports that ran cleaner engines. Italy and England seemed to be the remaining bastions for the old brand. All that Vespa was producting was the PX model, which was just a rehash of the 1970s P-series model.

Piaggio had to rethink and redesign its scooter. The critical demands included a modern design, a cleaner engine, an attractive package that would once again bring in the youth, and a product that appealed to a generation that wasn’t even born when the last 1970s model was produced. The approach of the ET line of Vespas was created.

The ET model shed some of the weight of the all-metal PX and brought the engine range down in size. Instead of sticking to one engine choice, the ET line allowed swappable engine sizes ranging from 50cc to 150cc. The engine model was completely replaced as well with a four-stroke design to address cleaner emission regulations, both in Europe and in the U.S. The body retained the basic shape of the traditional Vespa, but it removed all the various metal parts and made the body frame more streamlined. The transmission was changed to an automatic version versus the old manual hand-shift approach, much to the chagrin of Vespa purists. The new scooter still kept the 10 inch size wheels, maintaining the scooters maneuverability, particularly at a time when many urban areas were suffering from a glut of car traffic. As a result, the new product mix worked and the Vespa was once again allowed back into the U.S. as a new vehicle in 2001.

Five years earlier, Piaggio had celebrated 50 calendar years with the Vespa and over 15 million units sold since 1946. But had it not been for the ET, that birthday might have been one of the last for the historical scooter. Despite the success of the ET, however, Piaggio was still suffering financially.

The company had created too much operational and financing debt for itself not being efficient in its fiscal commitments. Piaggio was about to find itself in bankruptcy by 2003, being unable to raise sufficient revenue to offset debt via sales and being undercut still by cheaper Asian competition. Early on Piaggio had left the control of its original family owner. In 1959 the same family that owned Fiat took over Piaggio Incorporated. This ownership lasted until 1999 when it was then bought by Morgan Grenfell Private Equity, looking for some kind of an investment payoff in a deal destined to then be sold to the Chinese. Subsequently, the company was up for sale again but did not budget until 2003.

Robert Colaninno stepped with a 100 million Euro stake via Immsi SpA. The trade back was a third ownership of Piaggio and direct management control of the company. Given that Morgan Grenfell was more investor than manager, they took a turn with Colaninno at the steering wheel.

Modeling operations after Japanese factory efficiency modes, Piaggio forced every new scooter to be built back on the assembly line again for reduced costs and scales of economy in resource/material ordering. Colaninno linked labor benefits to performance and quality as rated by customer approval. Nobody was fired, but nobody got a raise either until the company again proved its merit to the consumer. Deadlines were imposed again, getting idle workers pumping out product.

The ongoing financing challenge needed to be met by a much larger scale of funding. This was not going to be raised by Piaggio continuing to follow the private investor road.

To match the competition of Honda and Yamaha, the Italian scooter company was going to need stronger leverage. The public investment market was the answer. Colaninno took Piaggio onto the public market in mid-2006, and now trades under the ticker symbol PIAGF for trader and investor alike.

RELAUNCH

Piaggio believes that introducing European products in India may not suit the market and, therefore, is planning to develop new products from scratch for the domestic market.

The company has set up a research and development centre in India where it has employed about 13 engineers.

Gabriele Galli, chief financial officer, Piaggio Group said, “We cannot sell as many as Honda or Yamaha sells in India. What we can do is we will price our products at a premium than these Japanese products. Aprilia is a very good and trusted brand to launch motorcycles in India, however these are in the planning stages”.

The Italian company’s entry into the mass two-wheeler space will further fuel the competition among companies. The market is dominated by Hero MotoCorp, followed by Honda and Bajaj Auto. The top three companies control 80 per cent of the domestic two-wheeler market.

Piaggio today launched the Vespa LX125 in India pricing it at Rs 66,661 (ex-showroom Pune) 37 per cent more than its closest rival Suzuki Access 125 priced at Rs 47,774. The scooter will be available across 50 dealerships spread across 35 cities. The plan is to double the reach to 100 dealers across 70 cities within the next one year.

The company has set up a 150,000 units per annum capacity at Baramati, Maharashtra for the Vespa. It hopes to hit 12,000 units per month by October, the production of the Vespa has begun from today.

It is also confident of doubling its sales and has hence started work to add another 150,000 capacity to be operational by mid of 2013. Piaggio is making the engines and body parts of the Vespa 100 per cent in India. This has allowed it to price the product lower than in markets such as Europe

DEFN The financial recovery of a company that has been performing poorly for an extended time. In order to effect a turnaround, a company must acknowledge and identify its problems, consider changes in management and develop and implement a problem-solving strategy. In some cases, the best strategy may be to cut losses by liquidating the company rather than trying to turn it around.

Turnaround situations often are delicate ones. While good communication is essential between the turnaround person and its vendors, proper communication with and evaluation of service providers can not be down played. Problems can be created when service providers are awarded projects based on the

lowest bid rather than on giving the project to firms that can create or recover the highest asset value for a project. It is also important to choose the right appraisers, who have a good grasp of all the variables in the appraisal process and who can use that knowledge to create “best-value” situations. This being said, finding the right service providers in a turnaround situation becomes an integral part of the turnaround process.

TURNAROUND STRATEGY

DEFINITION OF TURNAROUND STRATEGY:

The financial recovery of a company that has been performing poorly for an extended time. In

order to effect a turnaround, a company must acknowledge and identify its problems, consider

changes in management and develop and implement a problem-solving strategy. In some cases,

the best strategy may be to cut losses by liquidating the company rather than trying to turn it

around.

MEANING OF TURNAROUND STRATEGY:

Turnaround situations often are delicate ones. While good communication is essential between

the turnaround person and its vendors, proper communication with and evaluation of service

providers can not be down played. Problems can be created when service providers are awarded

projects based on the lowest bid rather than on giving the project to firms that can create or

recover the highest asset value for a project. It is also important to choose the right appraisers,

who have a good grasp of all the variables in the appraisal process and who can use that

knowledge to create “best-value” situations. This being said, finding the right service providers

in a turnaround situation becomes an integral part of the turnaround process.

Understanding What a Turnaround Strategy Is

Having a successful business requires constant work and planning; but sometimes situations can

happen that catch even the most well-prepared entrepreneur off guard. A turnaround strategy is

an action plan that can give struggling business owners the guidance and direction they need to

revitalize their company.

Understanding its Purpose

When a company starts to experience problems, such as declining profit, and increased debt;

there has to be an intervention to return the company back to a profitable state. If no action is

taken0, the company will undoubtedly fail. When management starts restructuring the business

to correct its decline, they are probably using a turnaround strategy. This is an in-depth plan,

designed to not only save the business, but make it financially sound as well. There are also

companies that have consultants and teams that specialize in the different aspects of turnaround

management.

Why a Business Fails

There are numerous factors that could be identified as the “cause” for a business’s demise.

Maybe an inexperienced entrepreneur underestimated the cost of operations, or tried to grow the

business too fast. Perhaps poor management of finances led to a shortage in capital. Corrupt

management, inefficient leadership, and the failure to plan for the worst-case event, can often

turn a growing company upside down. Being unprepared for an economic downturn may be a

factor. Business experts agree that typically, the underlying cause(s) of failure are already in

motion, long before the visible signs are present.

Recognizing the Signs

There are always signs, or indicators, when a company is doing poorly. The first, and most

obvious, would be in the finances. If your profits are declining and your debt is rising, this could

be your red flag, indicating that something is wrong. As a business owner, are you avoiding calls

that could be a bill collector? Have you lost customers because of poor service or delivery

issues? High turnovers in management or employees can also be a sign of potential decline. The

attitude and behavior of the employees can tell you a lot about what is happening inside the

company.

Taking Action

The size of the business and the stage of distress it’s in will determine some of the actions that

may need to be taken. If management is proactive and acts immediately, the company may only

require a turnaround strategy consultant to help them get back on track. A company in spiraling

decline may require a complete restructuring turnaround strategy. At this point, hiring a

turnaround management service may be the only way to salvage the business. Their team can

assess every aspect of the business and tell you what actions need to be taken. They can also be

responsible for cutting operations or personnel.

Business owners need to know there are options for saving a failing business. A turnaround

strategy can help to guide them through the steps of rebuilding and revitalizing their business, in

all aspects. This gives struggling entrepreneurs an option to save their business; instead of

throwing up their hands and succumbing to complete liquidation and bankruptcy.

Turnaround Strategy Objectives for Saving a Business

Operating a business that is in a state of decline can test the skills of even the best businessman

(or woman). Using a turnaround strategy plan as a guide can assure that no step is missed in the

process of rebuilding your business. The turnaround strategy objectives give clear guidance that

is broken down into easy to follow stages.

Managing the Strategy

Turnaround strategy objectives can vary depending on the company, its state of distress and the

owners’ overall goal. Typically, the ultimate objective is to return the company to a state of

normal. This would include becoming more profitable and solvent. Managing the turnaround is

the first step, and this is acquired through leadership. Without proper leadership and a supportive

and dedicated team, the turnaround won’t get far. Keeping or regaining support from

shareholders is achieved through communication and consultation. Strict management is required

to maintain focus; for instance, managing the turnaround strategy as a project will accomplish

this.

Stabilizing for Survival

Immediate stabilization of the business is required to guarantee even a short-term future. This is

achieved through generating, managing and conserving cash flow. Cash management is gained

from introducing a cash management system, centralizing that management, and rationing the

availability of cash. Re-budget - suspend discretionary spending, and place strict controls on

sales and purchase orders, pricing and sales contracts. Work on generating cash by disposing of

unneeded assets, reduce your working capital and consider utilizing cost reduction options and

short-term financing.

Gaining Funds

A business that has been in decline for any amount of time will usually need to regain capital

and/or acquire funding. Management of the turnaround includes restructuring of finances.

Distressed companies may have any number of financial problems facing them, and may also

require additional money to return them to solid ground. Locating funding is often the most

difficult part of the turnaround. Focus on internal funding first; options like reducing your

working capital, selling assets, or appealing to shareholders. Utilize every avenue before

resorting to outside funding. The distressed company can consider finance loans or private equity

funding.

Fixing the Distress

The last objective is certainly not the least, but very often, it is the most overlooked or ignored.

Fixing operational, organizational, and strategic components of the business is crucial to its

turnaround success. This may require changes in management and leadership; reorganizing staff

and improving skills, or improving on service and delivery. Construct a new business mission

statement and vision that reflects the company’s new direction. Remember to create a long-term

strategy for the success of the company.

Creating and following a turnaround strategy is like making a new business plan. It takes you

back to the basics of evaluating each aspect of your business and the industry it serves. It helps to

identify areas that are weak and gives solid resolutions to restructuring your organization.

Working a turnaround strategy greatly improves the chances of your businesses ability to

recover.

A Turnaround Strategy Example

The effort of developing and implementing a strategy plan can pay off; even for businesses that

seem to be too far gone. One approach is to be creative when working with the assets you have.

Think outside of the normal definition for “asset.” This turnaround strategy example proves that

creative thinking can lead to success.

A Turnaround can be Successful

Even in some of the worst-case scenarios, some companies have dug in, and implemented

turnaround strategies that successfully pulled them out of a plummeting decline. Some were able

to make small, cost cutting changes that would correct their problem. Other companies had to

change drastically in many areas of the entire business, through restructuring. Turnarounds can

take between five or six months to three years to complete. Additionally, to be considered a

success the company has to be financially strong and on its own for at least two years after the

turnaround plan is completed.

Sliding Towards Failure

Apple is a company that once knew the one product they offered was inferior to their

competitor’s product. In production cost, competitive price, quality, and many other aspects they

fell short. In 1997, during a span of about three months, they managed to lose over $6.5 million.

In a ten-year period, they lost 11% of their 15% market share. This company was a sinking ship.

They knew drastic strategies had to be devised if they were going to have even a slim chance of

survival. After an assessment of strengths and weaknesses, they went to work developing a

strategic plan.

Accentuate the Positive

The company went with the one asset they knew was strong - their company image which they

knew to be solid and carried a strong customer loyalty. In an aggressive marketing campaign

they targeted a different consumer audience; young and more non-traditional professionals. Their

message was individuality. They expanded into another industry and used their positive assets to

become top ranking in design and new product development. They recognized they were failing

to grow with the current product they made, so they focused on what they had going for them at

the time.

Achieving Global Success

What the company had was their image. Now they have one of the most recognized images in

the world. In 2001, their stock was selling for less than $10 a share. In 2009, it had grown by

90%. Today, it will cost around $350 for a share of Apple’s stock. Steve Job’s knew they couldn’t

compete in the computer arena with IBM, so he acted quick and developed a plan, and focused

on their core resources. Apple is an excellent turnaround strategy example. The execution and

follow through of their plan succeeded in turning their declining company into a profitable and

growing one.

The hard work and ingenuity of Steve Jobs and the whole Apple Company was instrumental in

its turnaround success. This is a perfect example of using creative thinking to expand and market

the positive traits your company has, while minimizing and reducing its obvious flaws

Creating a Successful Business Turnaround Strategy

Owning and running a business is not an easy task. Moreover, it can be especially

overwhelming when the business is on the decline. Creating and implementing a turnaround

strategy by following the guided steps, can lead to a successful execution of the plan, and to

a successful and profitable business recovery as well.

Traits of Successful Businesses

If successful businesses were compared, almost all of them would have similar

characteristics in common. They have developed a strong brand, and they target expanding

market segments. The companies keep a careful balance between their equity and debt. Their

existing business strategies are complete, clear and defined. Several of these companies also

have a short-term business turnaround strategy already developed. These entrepreneurs not

only planned their businesses’ success; they made a plan in case it started to head towards

failure.

Why a Business Turnaround Strategy is Important

People do not start businesses so they can fail. However, sometimes no matter how well

things were planned; unforeseen circumstances can occur. Recognizing the signs of decline

and acting quickly is imperative to reviving the company. Quick action can reduce the length

of time it takes to complete the turnaround. By having a recovery strategy in place, you’re

saving precious time and money that can be invested in other areas of the business. For every

strategy that is developed to achieve success, there should also be a back-up plan of action

incase that strategy for success fails.

Starting Over with a New Plan

Creating a successful business turnaround strategy is in many ways like starting over. It is an

attempt to look at the situation from a different perspective. In essence, you are creating a

new business plan. It means making honest and unbiased assessments of your business and

communicating with everyone involved. This includes the management team, employees,

accountants, attorneys and your banker. Adjust the company’s original business plan to show

where the business is now. Remember to include specific statements on what changes will be

made to correct identified issues.

Following through with Changes

Besides the initial steps to recognize problems and quickly act on them; following through

with the designated changes is crucial to success. Your business mindset has to change from

running the business and doing daily tasks; to saving the business, and making whatever

changes are necessary to accomplish that. This may involve management restructuring,

and/or, employee and operational changes. With quick action, assessment, planning and

follow through, it is possible to take a failing company and make it a solid, financially stable

and profit creating institution.

Statistics show that as many as 80% of new businesses close in the first year of operation.

Most of them don’t close due to bankruptcy, but rather because they were unsuccessful. The

business owners felt that the companies required too much work, and provided too little in

the return on investment. Improve your odds of business success by adding a short-term

strategy plan to your business plan.

Managing the turnaround

The enabling components to manage the turnaround's stabilisation, funding, recapitalisation

and fixing are turnaround leadership, stakeholder management, and turnaround project

management.

Stabilising the business

The momentum of an underperforming or distressed business is down.

Such a business needs to be stabilised to ensure the short-term future of the business through

cash management, cash generation and cash conservation, demonstrating control, re-

introducing predictability and ensuring legal and fiduciary compliance.

Funding and recapitalisation

An underperforming or distressed business invariable needs to be funded and recapitalised to

ensure that it can be fixed.

Fixing the distressed business

Finally, the underperforming or distressed business needs to be fixed in strategic,

organisational and operational terms.

Once the need for a turnaround has been recognised, the first stage after triggering the

turnaround is turnaround situation assessment to determine:

•Short-term survivability.

•Longer-term viability.

•Turnaround strategy.

•A high-level turnaround plan.

Emergency management

If a business case exists, the next stage is emergency management.

The objectives of emergency management are:

•Securing the short-term future of the business through stabilising the distressed company.

•Laying the foundation for funding and fixing of the distressed company by allowing a

window of opportunity for turnaround plan refinement.

Restructuring

The turnaround restructuring stage involves the implementation of the turnaround plan

devised during turnaround situation assessment and refined during the emergency

management stage.

Turnaround restructuring takes the form of:

• Leadership restructuring;

•Financial restructuring;

•Strategic, organisational and operational restructuring.

Recovery

Lastly, turnaround recovery entails embedding these changes, and managing the business

during its return to normality.

The recovery stage involves the embedding and monitoring of the turnaround plan, and

managing the business during its return to normality.

Turnaround recovery is characterised by:

•An increased emphasis on profits in addition to the earlier emphasis on cash flow.

•Operational efficiency improvements.

•Building the organisation.

Typically, this is when the turnaround leader passes on the baton to someone new to head the

stabilised and restructured company as it returns to normal.

The turnaround is completed when the company has returned to normal on a sustainable

basis.

What happened to changing the management?

In contrast to the TMA model (see below), we regard changing the management not as a

stage, but as a component of the turnaround plan (see turnaround leadership).

Management changes may take place prior to turnaround situation assessment, or as part of

restructuring, or not at all.