– an Introduction
The primary purpose of this article is to provide general managers with a practical perspective and recommendations for how to tackle turnaround situations, sharing insights, tools, techniques, frameworks and examples on “how to”/ “how not to” tackle and manage turnarounds successfully. However, it is not the ambition to provide an exhaustive all-encompassing guide on how to manage all turnaround situations, as there are as many ways to tackle a turnaround as there are turnarounds.
All companies strive towards profitable growth. However, achieving it does not seem to be that easy. According to one survey, CEOs project two times the growth they achieve, and while profitable growth is even harder, CEOs project four times(!) the profitability they achieve. Furthermore, not only do most companies not meet their profitable growth ambitions, there are many companies where things go very wrong. These companies consequently need a dramatic improvement in their financial performance, i.e. “a business turnaround”. In fact, one analysis1 suggests that in most industries 10-15% of large companies are in distress at any given time – requiring successful turnaround management to succeed.
Essentially, a turnaround is a massive short-term performance improvement in a constrained environment; and most successful turnarounds are completed in two years or less.
Companies in a turnaround situation are companies with declining, critical and/or non-sustainable financial results. Such companies have many challenges, limitations and constraints such as lack of resources, declining sales, lack of time and lack of investors patience and require faster financial results improvement as the patience of owners (and other stakeholders) reduces the longer the financial results are non-acceptable.
Most turnarounds are completed in two years or less. From a larger macroeconomic perspective, it is interesting that recessions – which often trigger externally driven conditions for turnaround situations to emerge – also typically have a duration of two years or less. As an example, the average duration of the 11 recessions in the USA between 1945 and 2001 is 10 months2.
Let us now introduce The Conceptual Situational Business Development Framework – which showcases how turnarounds differ from other types of business development efforts with regard to time horizon and financial health of the business. The point here is not to introduce an exact framework, but rather a conceptual framework to aid us in establishing a common understanding of what we mean by turnaround and how this contrasts to other types of business development efforts.
Which business development action is the most suitable depends on the financial health of the business and the time horizon of the expected impact the action will provide. A turnaround effort is initiated when the financial health is at a critical and non-sustainable level and is typically short term by nature.