MS 25 IGNOU MBA Solved Assignment -What is Turnaround Management? Explain how turn around Management can be used for bringing change in organisations. Give examples.

What is Turnaround Management? Explain how turn around Management can be used for bringing change in organisations. Give examples.

Ans :

Turnaround management is a group of administration techniques used by organizations in financial distress. Professionals in the field are highly trained and specialize in corporate organization and evaluation. The first goal in most turnaround initiatives is to evaluate and stabilize the business in trouble. Other objectives include realistic operational guidelines and eventual profit growth.

The turnaround specialist enters a company with a fresh eye, knowledge and skills and enjoys complete objectivity. This professional is able to spot problems and create new solutions that may not be visible to company insiders simply because the latter are too close to the subject.

The turnaround manager has no political agenda or other obligations to colour the decision-making process, allowing him or her to take the unpopular yet necessary steps for survival from corporate insolvency, liquidation, cvs, company administration or receivership.

Experience within a particular industry may mean little when a company is facing bankruptcy and the loss of millions in revenue. A turnaround specialist brings experience in crisis situations. Like a paramedic, the talent lies in making critical decisions quickly in order for the patient to have the best chance at recovery.

Operating in the eye of the storm, the turnaround specialist must deal equitably with angry creditors, scared employees, wary customers and a nervous board of directors. With the highest stakes on the table, clearly this is no assignment for the faint-hearted

3 Stages of Turnaround Management

Stage 1 – Assess Viability

This consists of a high level and detailed investigation of the business and its situation, and can take 2-4 weeks.

The investigation acquires a wide range of information including:

• current and historical financials (P&L, balance sheet, cash flow and verification these are reliable including costing systems)

• stakeholders and debtors

• management capability

• cause of situation

• potential solutions

• assess if business issues are controllable

• assess if ongoing business is viable

• develop SWOT analysis to provide clarity on options.

• Crisis stabilisation – taking control, cash management, short term financing, first step cost reduction.

• New or improved leadership – due to inadequate skills, instability in management, need for fresh ideas, or to bolster a tired team.

• Stakeholder focus – advising and engaging stakeholders dependent on the outcome and includes financiers, creditors, employees, customers, industry associations and even government officers (sometimes a source for grants). The benefit of this aspect is often underestimated and often provides the greatest source of solutions and support.

• Strategic focus – redefining the core business, restructuring, M&A, divestment.

• Organisational change – engaging key staff, improving communication, improving morale.

• Process improvements – operational improvements that provides low hanging fruit, and focus on key issues that may be key risks.

• Financial restructuring – implementing tighter control and monitoring of cash (implementing a rolling 13 week cash flow forecast), equity injection, asset reduction or selling  under-utilised assets to generate cash or use as security for short term funding.

This is summarised to provide decision-makers with a concise assessment, including options, risks and priorities to consider in implementing a turnaround.

With current legislation in most countries, the directors have to make the decision on what to do with this information.  The turnaround specialist’s role is to provide the advice and likely scenarios with the issues.

Stage 2 – Stabilise and Develop Strategy

Once the issues and priorities have been identified and agreed to, Stage 2 focuses on stabilising the business and planning the recovery strategy. The timeframe can vary widely depending on the business situation and complexity and can take from 4 weeks to 3 months. In many cases the foundations of Stage 2 are being formed through the Stage 1 discovery.

The turnaround strategy consists of the following, and may occur concurrently and in any order:

Stage 3 – Implementation and Monitoring

Once Stage 2 is underway, the focus will be the detailed implementation and monitoring.

This may include setting up an advisory board to assist the owners, directors, or board to maintain focus on the implementation.

The business may bring on board a Chief Restructuring Officer whose prime role is to implement the turnaround strategy – this allows management to maintain focus on their core skills.

Stage 3 can over lap stage 2, and can vary from 3 – 12 months.

For more information on turnaround, listen to our podcast on this website.

The next update will expand on the Chief Restructuring Officer role, how it works and the benefits.