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Turning a company around is a critical task and demands effective cost management and strategic overhaul. The author provides some valuable lessons from companies like IBM and Sears, Roebuck & Co, which have undergone the turnaround process.
A
company's decline over a period of time necessitates
a turnaround to stop further deterioration and to increase
its prospects of survival. But before that, it is necessary
to understand the reasons for the decline. Typically,
a company's performance may decline due to its environmentthe
company might not be able to keep up with the changing
business environment and thus may suffer a crippling
decline. Regardless of the causes of the decline, if
the company doesn't react in time to the situation,
then its survival may be in danger. A turnaround aims
at setting things right and making the company adapt
to its business environment, including its competition.
If
the company doesn't make any effort at turning itself
around, a continuing decline may have the following
consequences (as propounded by Kamala Arogyaswamy and
Vincent L Barker III in their paper "Firm Turnarounds:
An Integrative Two-stage Model"1Stakeholder
support may erode, internal inefficiencies may increase,
organizational structure may deteriorate further reducing
the chances of recovery, competition may takeover, people
anticipating doom may leave, thereby making the company
more vulnerable to the hostile business environment.
When a combination of all these fatal problems drains
out the company's financial resources, creditors as
well as other stakeholders withdraw their support to
the company. And, as a result of the loss of the support
the company fails. The turnaround process contains the
grave consequences of a continuous decline. Aided by
the turnaround strategies, the turnaround company tries
to restore stakeholder confidence and even attempts
to get the internal irregularities on track to mitigate
external competitive and environmental threats. |
