Turnaround Strategies - CMRCET

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Turnaround and Diversification StrategiesUNIT - IV

Dr. T. Seshadri Kiran, Asst. Prof. , CMR College of Engineering & Technology

Turnaround

Strategies


Turnaround Strategies

The Turnaround Strategy is a retrenchment strategy followed by an organization when it feels that the decision

made earlier is wrong and needs to be undone before it damages the profitability of the company.

Simply, turnaround strategy is backing out or retreating from the decision wrongly made earlier and transforming from a loss making

company to a profit making company.


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Advantages of Turnaround Strategies

1. Changing Leadership

2. Selling Assets

3. Redefining Strategic Focus

4. Boosting Revenues

5. Cutting Costs

6. Acquisitions




Indicators which make it mandatory for a firm to adopt Turnaround strategy for its survival…..

✓ Continuous losses

✓ Poor management

✓ Wrong corporate strategies

✓ Persistent negative cash flows

✓ High employee attrition rate

✓ Poor quality of functional management

✓ Declining market share

✓ Uncompetitive products and services

✓ Lack of Planning

✓ Wrong diversification of Funds


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Features of Turnaround Strategies

1. Turnaround involves restructuring. It involves bringing back the sick industrial unit to its original position. Turnaround is aimed at reversing the trend of declining performance of the business firm.

2. Turnaround is applicable to sick industrial units who are passing through economic and financial distress.

3. Turnaround is a long-term strategy. A sick unit cannot be revived over night. Proper planning and implementation to convert a loss-making unit into a profitable one. It is a lengthy and a time consuming process.

4. A sick unit is not in a position to make optimum utilisation of the resources. Turnaround involves reorganizing of physical, financial and human resources by making optimum utilisation of the available resources.

Contd…




Features of Turnaround Strategies

5. Turnaround require co-operation of all the sections of the society such as shareholders, financial institutions, suppliers, employees, customers etc.

6. Capital is the lifeblood of every business. Turnaround requires money. Finance is required to implement the plans of restructuring. Sufficient finance is required to undertake further production and remove deficiencies of the business.


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Activities of Successful Turnaround Strategy

✓ Diagnosing the problem

✓ Analyzing the products, its quality, uses, suitability to changing customer

tastes and preferences in comparison with competitors.

✓ Analyzing production process, technology, competition, market segment,

positioning etc.

✓ Analyzing financial position, cost of capital, cost control etc.

✓ Feedforward of information to various decision areas and control areas.

✓ Take up and implement activities systematically. Also control the

deviations by immediate identification.





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Management of Strategic Change

• Characteristics of Change

• Forces of Change

• Process of strategic Change

• Resistance to Change

• Overcoming Resistance to Change

• Guidelines to successfully implement a change

Agenda




‘Change’ refers to alteration , which occurs in the overall work environment of

an organization. It implies alterations in strategies, processes, procedures,

technologies etc.

Characteristics of Change:

1. Change results from pressure of forces.

2. The total organization will get affected by the change in any part of the

organization.

3. No department and functional areas are exception from Change.

4. Change may be reactive or proactive.

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‘Change’ refers to alteration , which occurs in the overall work environment of

an organization. It implies alterations in strategies, processes, procedures,

technologies etc.

Forces of Change




Anticipating ChangeProcess of strategic Change

Identifying Change

Communicating the Change

Assign Responsibility

Allocate Resources

Managing Transition State

Supporting Change

Evaluating the Change

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Resistance to Change

Individuals or groups may not immediately accepts the change. Accordingly Resistance

may occur at individual or groups/Organizational level….

• Economic Factors

• Psychological Factors

• Social Factors

• Threat to Power

• Organization Structure

• Resource Constraints

Economic Factors

These Factors Related to basic Economic

needs of workers like necessity of job, job

security and safety….

Some times employee may feel that the

latest technology may make them job less.

Psychological Factors

Employees feels that the change will effect

their psychological factors like Pride,

achievement, self-fulfillment etc….







• Economic Factors

• Psychological Factors

• Social Factors

• Threat to Power



Social Factors

Individuals do have certain social needs like friendship, belongingness. The employees

will develop informal relationships for their social belongingness….

They may resist change because of these relationships….

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Cau

ses

of

Res

ista

nce

to

Ch

ange…

• Threat to Power



Threat of Power

Top level managers may consider change as a threat to their

power. The management of organization never take steps

through which employees and trade unions will get strengthens.

Organizational Structure

Change will be resisted by the existing Structure.

Resource Constraints

Change will be resisted by an organization if it lacks in

resources. Because of inadequate resources… the new change

may not be implemented properly.




Overcoming Resistance to Change

• Effective Communication

• Consultation with Union leaders

• Education and Training

• Facilities and Support

• Negotiation

• Manipulation and Co-option

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Guidelines to Successfully Implement a Change

• Identification of Need for Change

• Determination of Elements to be Changed

• Planning of Change

• Forced Field Analysis

• Soliciting Workers’ participation

• Implementation of Change

• Appraisal



Strategies for Mergers &

Acquisitions

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Strategies for Mergers & Acquisitions

A merger is the combination of two companies into one by either

closing the old entities into one new entity or by one company

absorbing the other. In other words, two or more companies are

consolidated into one company.

An acquisition is defined as a corporate transaction where one

company purchases a portion or all of another company’s shares or

assets.

Mergers

Acquisition




Strategies / Type of Merger

✓ Horizontal Merger

✓ Vertical Merger

✓ Conglomerate Merger

This Merger takes place when there is a

combination of two or more organizations in

the same business. These companies should

have similarities in Marketing and

production process.

https://corporatefinanceinstitute.com/resources/knowledge/deals/

https://corporatefinanceinstitute.com/resources/knowledge/finance/what-is-a-stock/

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✓ Vertical Merger


A vertical merger occurs when two companies operating at different levels within the same

industry's supply chain combine their

operations.






✓ Vertical Merger


This is a merger between two or more companies engaged in unrelated business activities.

The firms may operate in different industries or in

different geographical regions. A pure conglomerate involves two firms that have nothing in

common.

https://www.investopedia.com/terms/s/supplychain.asp

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Merger ProcessDefining the Corporate Goals

Defining the Corporate Strategy

Target Identification

Valuation of Merger

Merger Implementation

Post Merger Integration




Objectives of Merger and Acquisition Strategies

✓ To expand company’s geographical coverage

✓ To extend the company’s business into new product categories or

international markets

✓ To gain quick access to new technology and avoid the need for a time

consuming R&D efforts.

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Takeovers or Acquisitions

Strategy

Takeover is an attempt of one firm to acquire ownership or control

over another firm against or friendly wishes of the latter’s

management.

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Takeovers or Acquisitions Strategy

Takeover is an attempt of one firm to acquire ownership or control

over another firm against or friendly wishes of the latter’s

management.

Advantages of Takeovers

1. Takeovers ensure management accountability

2. Takeovers provide easy growth opportunities

3. They create mobility of resources from one activity to another activity.

4. They provide the chance of survival to the sick units and provide

alternatives to the disinvestment strategy.



Takeovers or Acquisitions Strategy

Disadvantages of Takeovers

1. Professionalization of management is replaced with money power.

2. They result in monopoly and concentration of economic power.

3. Interest of the small investors are not protected.

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Diversification Strategy



What is diversification????

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Ansoff Matrix




Diversification is a business development strategy allowing a company to enter additional lines of business

that are different from the current products, services and markets.

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Why diversification is?

1. When the company have excess resources, capabilities, and core

competencies.

2. Diminishing growth prospects in the present industry.

3. Cost saving opportunities

4. Capture strategic fits

5. Capture Financial economies

6. Spread business risk

7. Leverage brand name




Steps involved in process of diversification

1. Awareness and evaluation of the diversification opportunities

2. Identifying opportunities, threats and strengths and weaknesses

3. Selecting diversification product

4. Procuring required resources

5. Implement the project

6. Evaluating the project

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Types of diversification strategies

Diversification is of three types…….

• Concentric Diversification

• Horizontal Diversification

• Conglomerate Diversification

This means that there is a technological

similarity between the industries,

which means that the firm is able to

leverage its technical know-how to

gain some advantage.

The company could seek new products

that have technological or marketing

synergies with existing product lines

appealing to a new group of customers.

This also helps the company to tap that

part of the market which remains

untapped, and which presents an

opportunity to earn profits.









The company adds new products or services that are often technologically or commercially unrelated to current

products but that may appeal to current customers.

The Firm produces new product to

same customer group

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The conglomerate diversification is similar to unrelated diversification,

there is no relationship between the new business or product and the

existing business or product in any way.



Strategies and Competitive

Advantage in Diversified

Company’s

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Strategies and Competitive

Advantage in Diversified

Company’s



Evaluation of Strategy of

Diversified Company

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Evaluation of Strategy of Diversified Company

• Identify the present Corporate Strategy

• Evaluating Industry Attractiveness

• Evaluating Business-Unit Strength

• Relative Market Share

• Cost relative to Competitors

• Ability to match key product attributes

• Brand Image and reputation

• Profitability relative to competitors

• Checking the competitive Advantage potential of Cross-Business Strategic Fit

• Resource Fit Analysis

• Ranking the SBU on Basis of past performance and Future prospects

• Crafting new strategies moves to improve overall corporate performance.

Turnaround Strategies - CMRCET

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