THE TURNAROUND PROCESS

Shubham Agarwal

Decision

Effective Improvement of the situation

Ineffective Worsening of the situation (Dissolving of company)

4 types of turnaround processes(Khandwalla):• Surgical-reconstructive• Surgical-innovative• Non-surgical-innovative• Non-surgical-transformational

Two strategic options(Robbins and Pearce):• Efficiency driven with belt tightening and streamlining of operations• Competitive strategy oriented with changes in technology, products or markets

Major turnaround actions:• Change in leadership• Forming the team at the top• Change in strategy• Retrenchment of assets and people• Upgrading technology• Financial restructuring• Organizational change• Support of the parent company

1. Change in leadership• Organizational decline causes loss of credibility at the top Difficult to ensure

discipline• To eliminate escalated commitment• However, if decline is due to regular economic cycle, retaining the head might boost

the confindence2. Forming the Team at the top

• During decline, many leave organization Reason: Compensation issues• Solutions: Hire retired senior managers / managers on deputation from parent

company / get managers from outside banking on reputation of parent company

3. Change in Strategy• Identification of problems by conducting series of meetings with managers• Solutions:

• Change in product domain – scooters to bikes• Diversification is less effective• Shrinking operations – concentrating on most important segment

4. Retrenchment of Assets and People• Many companies suffer from cash flows• Caution: Making employees to leave with dignity/helping them find jobs/avoiding

appearance of inequities in layoff process• VRS or redeployment & training

5. Upgrading technology• Though involves huge initial investment, can be cost saving in the long term

6. Financial restructuring• Help from banks, financial institutions or parent company

7. Organizational change• Reallocation of people and structural changes

8. Explicit support of parent company• Softens the hostility of stakeholders and dilutes employee fears

ACTION CHOICE : Framework of Organizational Decline and Turnaround Management

• In crisis situation, decline can happen due to inaction or faulty action.

• Faulty action can be a genuine mistake or intentional

• Genuine errors can be avoided by adopting multiple mechanisms like environment scanning, competitive profiling and strategic action choice making.

• Action choice making is promoted by reward mechanisms, team-based decision making, auditing and corporate governance. Agency theory also helps

Decline in crisis situation

Inaction Faulty action

Intentional due to

manager’s subjective reasons

Genuine mistake

Environment scanning

Competitive profiling

Strategic action choice

making

Reward mechanism

Team-based decision making

Corporate governance

Agency theory

Influencers of action choice

Environmental factors

• Instability - Can be recovered by changing product-market domain as per changes in the environment

Stakeholders response (hostility)

• Extent of decline determines degree of hostility

• Change in leadership establishes credibility to all the stakeholders

• When people leave, parting ceremonies can be conducted for member motivation, information dissemination, external stakeholder acceptance, impression management and guilt management

Performance Decline ( Severity or Longevity)

• In severe situation, management is more likely to act (no action, closure or turn around)

• Longevity of the decline is more positively associated with action (closure or turn around)

Organizational factors:

• Government owned organizations (esp. in developing countries) – prone to inaction

• Private conglomerate – immediate action (so that it doesn’t affect other relevant entities)

• Private organization – delay in action

• Equity holding companies – push for action

• Highly formalized and documented system – reduced willingness to take risk

• Relation between union and management good – better chances of revival