As turning around a company involves reversing organizational performance, turnaround is of considerable importance to strategic management. However, the process of turnaround (how firms move away from deterioration in performance to enduring success or death) has not received sufficient attention. Not enough literature is available on turnarounds because of the wide gap between empirical findings (which may be based on large samples or case studies) and the work done towards uncovering the causal structure of events from the start of a firm's decline to its ultimate recovery or death. Here we will discuss the framework of the turnaround process developed by Shamsud Chowdhury1 and relate it to the turnaround process of three companies, Chrysler, IBM and Nissan. These three companies went through the same turnaround process.
Aturnaround
occurs when "a firm perseveres through an
existencethreatening performance decline; ends the
threat with a combination of strategies, systems, skills
and capabilities; and achieves sustainable performance
recovery. The obverse of performance recovery is failure
and eventual death." This definition identifies
four key attributes of a turnaround. First, declining
performance is the trigger for turnaround. Second,
turnaround involves a series of activities. Third, a
turnaround is undertaken with a definite purpose. And
fourth, turnaround activities continue for a number of
years. Chowdhury suggested the use of a stage theory to
study the turnaround process. He identified four stages
of the turnaround process: Decline, response initiation,
transition and outcome. Figure 1 shows the four stages
of the turnaround process. According to Chowdhury,
though external forces such as competitive strategies of
immediate competitors, and pressure from shareholders
influence the outcomes of the turnaround, top management
can still control the outcome to a great extent.
During
the first stage, (decline stage), decline starts from
firm equilibrium and reaches a nadir. As the firm's
performance reaches its nadir, the management begins to
take corrective actionsthis is the second stage of the
turnaround process. According to Chowdhury, the third
stage of the turnaround process; the transition stage,
is the most complex of all the stages. At this stage,
the firm experiments with different strategies,
structures, cultures, and technologies. During the
fourth stage, the outcome stage, the outcome of the
activities undertaken during the third stage is
realized. The outcome could be either success or
failure. |
