Turnaround Strategy

8 August 2016

The two broad turnaround strategies that may be followed by Public and Private companies are Strategic and Operating. Strategic turnarounds can be branched into activities that comprises of a change in business strategy for competing in the same business and those that involve for entering a new business or businesses. Operating strategies does not involve altering the business level strategies and usually focuses on increasing revenues, decreasing cost, decreasing assets or a combination effort.

Our research work mainly focuses on existing corporates that applies Strategic turnaround strategies to reverse a major decline in their performance. Repositioning Strategy Repositioning is an entrepreneurial strategy that puts its emphasis on growth and innovation. This strategy answers the declining situation in an organization by devising out a new definition of the mission and its core activities. The organization can choose to stay and become more dominant in the existing market or by diversifying itself into new markets and products.

Turnaround Strategy Essay Example

In some of the cases the management may think that the current resource capabilities of a company can achieve a greater competitive advantage, if applied to a new market segment by successfully integrating and making a fit between the capabilities of the firm and the external environment. The repositioning strategy acknowledges the notion of diversification and provides an opportunity for a firm to leverage on it existing resources such as financial and technical capabilities to come up with related or unrelated products. However, the success of this strategy is highly dependent on the management to effectively select the right portfolio mix.

Nike was successful in pursuing related diversification when it decided to launch beach styled sport clothing (Hurley) as a business line. The impact of this entrepreneurial strategy applied in the private sector has been researched in 11 empirical studies. Out of 11, only two of these find that the repositioning strategy has no impact on the financial recovery . From the remaining 9 studies, 7 of them has clear evidence that repositioning has a positive impact on the firms performance. Focusing on the Core Activities This turnaround relates to a particular niche or a focus strategy (Porter,1980,pp. 38–40). This strategy doesn’t involve a complete redefinition of the business but it tries to bring in a strategic change for refocusing on a particular product/market mix. Sometimes this strategy is chosen when a firm loses its focus by adding new product lines or customers while still trying to compete with its historical product/market mix. A classic extension failure example would be Coca-Cola launching “New Coke” in 1985. [33] Although it was initially accepted, a backlash against “New Coke” soon emerged among consumers.

Not only did Coca-Cola not succeed in developing a new brand but sales of the original flavour also decreased. Coca-Cola had to make considerable efforts to regain customers who had turned to Pepsi by focusing on its core brand. Outsourcing Outsourcing is a strategy that addresses an organization’s position within the value chain it operates. It shares some similarity with the focus strategy as this process calls for focusing on the activities where the firm is more profitable and to outsource the remainder activities to the third parties who can perform them more efficiently.

Traditionally, outsourcing strategy has been applied more to the finance and Information system departments. In 2008 Chrysler made news in which it announced that several hundred technology workers would lose their jobs as it was moving with plans to outsource their IT department. The rationale behind this step was to improve the effectiveness and efficiency of the company while making it more flexible to the environmental changes. The Management Process One of the widely researched and generalized Turnaround strategy is the replacement of the current Top Management Team of the business suffering from declining performance.

Alot of turnaround experts sees that replacing the CEO is one the most important ingredient for recovering a business. The rationale behind this is that the top management has a certain set of beliefs about running a business, many of which must be wrong for the current decline in performance to arise. Previous researchers who have studied the turnaround strategies have also asserted that the turnaround efforts are begun with the top management being replaced mainly due to thefact that the new management brings in a new understanding of the factors affecting a firm’s performance, enabling productive change to occur. However, regardless of the evidence provided above, not all of the turnaround strategies require a change in their top management. Some of them can be successfully accomplished through the incumbent management. The decision whether to change the current management or not are dependent on a number of factors, e. g. the causes of decline (Some decline may occur because of unmanageable external factors), the industrial differences as well as the firm resource situation.

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