Strategic ManagementStrategic Management

Turnaround management - an Turnaround management - an overviewoverview

Part 1 - Turnaround – an overview Part 1 - Turnaround – an overview - contents- contents

MeaningMeaning The importance of business skillsThe importance of business skills Managers are critical in a crisisManagers are critical in a crisis What to do in times of difficultyWhat to do in times of difficulty Obtaining support for a turnaroundObtaining support for a turnaround Understanding your optionsUnderstanding your options Conditions necessary for a successful Conditions necessary for a successful

turnaroundturnaround Turnaround Process.Turnaround Process.

Turnaround - meaningTurnaround - meaning

““A turnaround is to produce a noticeable A turnaround is to produce a noticeable and endurable improvement in and endurable improvement in performance, to turnaround the trend of performance, to turnaround the trend of results from down to up, from not good results from down to up, from not good enough to clearly better, from enough to clearly better, from underachieving to acceptable, to losing underachieving to acceptable, to losing to winning”to winning”

- Stanley J. Goodman- Stanley J. Goodman

The importance of business skillsThe importance of business skills

Types of skills requiredTypes of skills required A lack of training in the specific skills A lack of training in the specific skills

and knowledge needed.and knowledge needed. A lack of ability to deal with a crisisA lack of ability to deal with a crisis A refusal to seek help from specialistsA refusal to seek help from specialists Lack of managerial skillsLack of managerial skills

Managers are critical in a crisisManagers are critical in a crisis

A goldfishA goldfish An OstrichAn Ostrich A rabbit in the headlightsA rabbit in the headlights A headless chickenA headless chicken

What to do in times of difficultyWhat to do in times of difficulty

Spot the signs as early as possibleSpot the signs as early as possible Face up to the need to deal with the Face up to the need to deal with the

problemproblem Get helpGet help Remain alertRemain alert

Obtaining support for a Obtaining support for a turnaroundturnaround

From shareholdersFrom shareholders From management consultants From management consultants From governmentsFrom governments From banksFrom banks Insolvency practitionersInsolvency practitioners

Understanding your optionsUnderstanding your options

Fix the businessFix the business Sell the businessSell the business Shut down the businessShut down the business

----- contd….----- contd….

Understanding your optionsUnderstanding your optionsActionAction Voluntary Voluntary

arrangementarrangementAdminis-Adminis-

trationtration

Administrative Administrative receivershipreceivership

Liqui-Liqui-dationdation

What is?What is? OwnOwn By court to By court to runrun

To sell charged To sell charged assetsassets

To windupTo windup

Who is in Who is in charge?charge?

DirectorsDirectors IPIP IP IP IPIP

Use in Use in rescuesrescues

Agreement Agreement to settleto settle

To protect To protect or sell the or sell the coycoy

To sell the coy To sell the coy free of creditorsfree of creditors

Cease Cease trading – trading – close.close.

Dis-Dis-advantageadvantage

Long timeLong time ExpensiveExpensive Requires a Requires a floating charge floating charge to be in placeto be in place

For sole/partFor sole/part Individual Individual voluntary voluntary arrangementarrangement

Can also be Can also be granted granted over over partnershippartnership

NANA Bank-Bank-ruptcyruptcy

Conditions necessary for a Conditions necessary for a successful turnaroundsuccessful turnaround

Some form of viable businessSome form of viable business TimeTime Further investment and cashFurther investment and cash VisionVision ManagementManagement Stake holder's supportStake holder's support Confidence in the processConfidence in the process

Turnaround formula by FlackTurnaround formula by Flack

Positive LeadershipPositive Leadership A written strategic planA written strategic plan A coherent management to implement A coherent management to implement

the strategythe strategy An action planAn action plan

The phases of turnaroundThe phases of turnaround

Crisis managementCrisis management StabilisationStabilisation RegrowthRegrowth

The phases of turnaroundThe phases of turnaround

Decline

Crisis management

Stabilisation

Regrowth

Priorities in each phase of a Priorities in each phase of a turnaroundturnaround

SituationSituation Crisis Crisis management: management: short-term short-term survivalsurvival

Stabilisation: Stabilisation: Preparation for Preparation for relaunchrelaunch

Regrowth: Regrowth: Long-term Long-term sustainable sustainable competitive competitive advantageadvantage

FinancialFinancial To solve To solve immediate immediate financial crisisfinancial crisis

Put finance in Put finance in place for future place for future re-growthre-growth

Manage the Manage the working capitalworking capital

PeoplePeople RetrenchRetrench Get right Get right management management for re-growthfor re-growth

By retaining By retaining and recruiting and recruiting right peopleright people

MarketingMarketing Slim down Slim down product / product / marketmarket

Prepare for Prepare for relaunch of relaunch of growth growth productsproducts

Drive growth of Drive growth of turnover and turnover and profits.profits.

Turnaround ProcessTurnaround Process

Recognising the need for a turnaroundRecognising the need for a turnaround Surviving in the short termSurviving in the short term Deciding what to doDeciding what to do Doing itDoing it Keeping on succeedingKeeping on succeeding

Turnaround process Turnaround process *(source: *(source: http://www.emeraldinsight.com/fig/0510200307006.png)http://www.emeraldinsight.com/fig/0510200307006.png)

Part 2 – Recongise the need for Part 2 – Recongise the need for fast turnaround - contentsfast turnaround - contents

A) Spotting the warning signs of business A) Spotting the warning signs of business failure:failure:

Why business failWhy business fail Types of business failureTypes of business failure Normal business failureNormal business failure Avoiding FailureAvoiding Failure The symptoms of normal failureThe symptoms of normal failure Checking your business’s health to spot the Checking your business’s health to spot the

warning singswarning sings Take an “A” score test (Attached separately)Take an “A” score test (Attached separately)

Topic 2 – Recongise the need for Topic 2 – Recongise the need for fast turnaround – contents fast turnaround – contents

(contd…)(contd…) B) Understanding why Business fail:B) Understanding why Business fail: Causes of normal failureCauses of normal failure Five Key areasFive Key areas How serious your problemsHow serious your problems

Why Business fail?Why Business fail?

Recognise the following complementary Recognise the following complementary truth:truth:

1) All businesses are fundamentally 1) All businesses are fundamentally samesame

2) All businesses are fundamentally 2) All businesses are fundamentally different.different.

- Common factor – is “NO CASH” due to - Common factor – is “NO CASH” due to a) lack of profit, b) excess illiquid assets a) lack of profit, b) excess illiquid assets c) too much growth.c) too much growth.

Types of business failureTypes of business failure

1)1) The start up that never starts:The start up that never starts:

- The business model is wrong;- The business model is wrong;

- The business is undercapitalised- The business is undercapitalised

- Lack of reserves- Lack of reserves

- the business is in high growth industry, but - the business is in high growth industry, but fails to survive the ‘shake out’.fails to survive the ‘shake out’.

- lack of determination from the entrepreneur - lack of determination from the entrepreneur

------- contd…------- contd…

Types of business failure Types of business failure (Contd…)(Contd…)

2. The Catastrophic failure: - fire, flood, 2. The Catastrophic failure: - fire, flood, fraud, government action.fraud, government action.

3. Incremental failure over time:3. Incremental failure over time:

Normal type of failure:Normal type of failure:

Normal Business Failure – the Normal Business Failure – the decline curvedecline curve

Avoiding failureAvoiding failure

Recognise the symptoms of failure ;Recognise the symptoms of failure ; Check your business’s health to detect Check your business’s health to detect

the warning signs;the warning signs; Recognise the causes of normal failure; Recognise the causes of normal failure;

andand Judge how serious things are.Judge how serious things are.

Avoiding failure- the symptoms of Avoiding failure- the symptoms of normal failurenormal failure

Poor Financial performance – Poor Financial performance – Under performanceUnder performance – – (a) Market share and reputation are being (a) Market share and reputation are being

lost;lost;(b) Stagnant or reduced turnover;(b) Stagnant or reduced turnover;(c ) Stagnant or reduced profit(c ) Stagnant or reduced profit(d) Warning from bank / bank taking (d) Warning from bank / bank taking

security for its lendingsecurity for its lending

Avoiding failure- the symptoms of Avoiding failure- the symptoms of normal failurenormal failure

Distress:Distress: Increase of overdraft;Increase of overdraft; Failure to pay suppliers on time and loss of discount Failure to pay suppliers on time and loss of discount

facilities;facilities; Forced to acquire asset on lease;Forced to acquire asset on lease; Decide to move into “Factoring” (Sale of accounts Decide to move into “Factoring” (Sale of accounts

receivables)receivables) Crisis:Crisis: Unable to pay your credits;Unable to pay your credits; People will start leaving;People will start leaving; Legal actions emergeLegal actions emerge

Checking your business’s health Checking your business’s health to spot the warning signalsto spot the warning signals

Subjective judgments and objective Subjective judgments and objective measures:measures:

Accountant/bank manager’s feedbackAccountant/bank manager’s feedback Credit score;Credit score; Z and H scoreZ and H score Health check against symptoms and Health check against symptoms and

causes;causes;

Subjective judgments and Subjective judgments and objective measures:objective measures:

Subjective judgments:Subjective judgments:Does your business suffer from any of Does your business suffer from any of

the above symptoms;the above symptoms;Have a business health check (last part)Have a business health check (last part)Seeking an external opinion – Seeking an external opinion –

Accountant & Bank managers.Accountant & Bank managers. Objective measures:Objective measures: ““Z” and “H” scoresZ” and “H” scores

B) Understanding why Business B) Understanding why Business fail:fail:

Causes of failure:Causes of failure:The situation may appear highly The situation may appear highly

complex;complex;Short-term requirments must be Short-term requirments must be

balanced against long-term requirementsbalanced against long-term requirementsThe whole business needs moving The whole business needs moving

forward simultaneously;forward simultaneously;The approach should be consistent The approach should be consistent

across all areas of the business.across all areas of the business.

The Five Key areaThe Five Key area

The business’s management structure;The business’s management structure; The strategy challenges (the big The strategy challenges (the big

problems that must be managed)problems that must be managed) Lack of financial control;Lack of financial control; Lack of operational controlLack of operational control One-off projects or special One-off projects or special

circumstances that place a heavy circumstances that place a heavy demand on the business’s resources.demand on the business’s resources.

The business’s management The business’s management structurestructure

Autocrat style of management;Autocrat style of management; ““Yes” man team;Yes” man team; Lack of skilled directors;Lack of skilled directors; Unwilling to take external advices;Unwilling to take external advices; Fail to plan for succession;Fail to plan for succession; View that there is “nothing we can do” View that there is “nothing we can do”

when everyone suffers in the industry.when everyone suffers in the industry. Family business;Family business;

Strategy challengesStrategy challenges

Failure to spot and adapt to changes;Failure to spot and adapt to changes; High cost structure due to lack of High cost structure due to lack of

economy of scale of operation.economy of scale of operation. ““All eggs in one basket” – investment / All eggs in one basket” – investment /

customers / suppliers….customers / suppliers….

Lack of financial controlLack of financial control

InformationInformation ControlControl Management Management Poor credit controlPoor credit controlHigh stock levelHigh stock level Inappropriate fundingInappropriate fundingOver-gearingOver-gearingOvertradingOvertrading

Lack of operations controlLack of operations control

Inefficient production can arise from a variety Inefficient production can arise from a variety of causes:of causes:

Is the factory poorly laid out?Is the factory poorly laid out? Is the equipment obsolete?Is the equipment obsolete? Are the workers poorly trained?Are the workers poorly trained? Is the production organised in most Is the production organised in most

appropriate way?appropriate way? Does the business manufacture wide range of Does the business manufacture wide range of

products?products?

One-off projects or special One-off projects or special circumstancescircumstances

A premises move;A premises move; A big acquisitionA big acquisition Committing a business to a big Committing a business to a big

production contract;production contract; Changing an accounting or computer Changing an accounting or computer

systems;systems; Developing and launching a new productDeveloping and launching a new product

Generic turnaround strategiesGeneric turnaround strategies