Turnaround management gained prominence when there were incidences of corporate decline at global scale that caused organizational failure. Turnaround can be explained as business firm that faces financial disaster or action taken to prevent the occurrence of that financial disaster. The true nature of turnaround is a firm whose recent past or projected future financial performance undesirable to the owners / creditors. Turnaround management is the procedure of evaluating an underperforming business to determine the cause of its problems. Management theorists stated that Turnaround management occurs when a company with one or more problems has sufficient time and resources to find solution. Turnaround management rehabilitates the troubled company and sets the stage for future achievement (Harlan D. Platt, 2004). Additionally, developing potential solutions to address the problems, selecting and implementing the suitable strategies and course of action, and making corrections to the plan as circumstances warrant.

Szuki, however, defined the corporate turnaround as a series of rescue efforts aimed at arresting the declining trend of business activities of a firm. Nugent meant turnaround management as the operational development measured in terms of financial results over a sustained period (1989). The improvement may range from turning a losing enterprise into a profitable one, or making marginally profitable one more profitable. Another theorist, Nugent supported that every turnaround situation is different and unique. The players are different, the businesses are different, and causes, levels, and cures of underperformance are different.
Turnaround management is a central element of corporate renewal. As part of the turnaround management process, the new management team must recognize the root cause of the crisis. Generally, most crises are caused by falling revenues due to a shrinking market or weak economy or excessive costs caused by over optimistic sales projections or the incorrect strategic choices. However, firms are also in trouble if they lose control of major resources; suffer significant research and development failures; their market is grabbed by a successful rivals or they have insufficient financial and governance controls.
Charles Hofer is academic originator of turnaround management. He considered that nature of turnaround management as being strategic or operative. Strategic turnaround attempts either to change the strategy for competing in same business or to define how to enter a new business. Most strategic turnaround focus on marketing, production or engineering functions. An operating turnaround is concerned with increasing revenues, decreasing cost or decreasing assets. Final form of turnaround is financial restructuring in which a firm with excess debt exchanges new shares of its equity for a portion of its outstanding debt or arranges for creditors to modify the terms of debt by lengthening its maturity date or lowering its interest rate (Harlan D. Platt, 2004).
Bibeault also studied turnaround management in details and set new stages of generic strategies.

There are several distinct stages of turnaround management: Bibeault described stages of turnaround management in details (Harlan D. Platt, 2004):

Phases in turnaround management: Turnaround is considered to be an engineering event of relatively short duration but it is only one segment of cynical process with four phases that include invitation, preparation, execution and termination.

Significance of Turnaround Management

Turnaround management is the organised and rapid implementation of a range of measures to correct a seriously unsuccessful situation. Turnaround managers deal with a financial ruin or measures to avoid the highly likely occurrence of such a disaster (Bo Arpi, 1999).When firms are poorly performing that failure seems imminent then turnaround management can reinstate performance and profitability. In fierce competition, rapid progresses in technology and rising complexity of the business conditions accompanied by diversity of customers and employees, the challenges for any company have been rising. Only a timely response to this situation can enable organisations to survive in competitive environment. But, due to management inadequacy, most of the corporate fail to recognise the problems and therefore delay in taking precautionary measures affecting the owners, employees, customers, suppliers and the economy. To re-establish the organisation on its normal course, a corporate turnaround is indispensable (Stuart, 1999). Organizational turnaround is not only impacted by good management practices but also by shifts in organization. The impact of such shifts on organizational performance especially in public sector organizations has neutral or negative effects on performance but the extent of organizational strategy as well as environment influence turnaround success. A positive turnaround depends on developing suitable turnaround prescription and implementation of effective turnaround plan. The appropriate rescue plan or turnaround prescription must addresses the vital problems, tackle the underlying causes and be broad and deep enough in scope to resolve all the key issues.

Advantages of a turnaround specialists:

The turnaround specialist works in a firm with immense knowledge and skills and enjoys complete objectivity. These professionals involve resolving problems and create new solutions that may not be noticeable to company insiders simply because the latter are too close to the subject.
The turnaround manager has no political programme or other obligations to effect the decision-making process, allowing him or her to take the unpopular yet necessary steps for existence from corporate insolvency, liquidation, company administration or bankruptcy.
A turnaround specialist brings experience in crisis situations.
The turnaround professional must deal justifiably with annoyed creditors, scared employees, wary customers and a nervous board of directors.

Signs of a Troubled Business

A company needs turnaround specialist in several conditions. There are common signs of trouble.
Market lag: Fluctuations in the marketplace have evaded a company, leaving it with drooping sales and lost market share. For some firms, there is lack of technology and their equipment may become outdated. In other companies, the problem lies in sales and marketing; their products or services slide into outmodedness because the company has not kept pace with the needs of the marketplace.
Lack of operating controls: Managing a company without adequate reporting mechanisms is problematic. If management is making decisions on old or incorrect information, the company can easily go in wrong direction.
Over diversification: In contemporary situation, many businesses feel the pressure to diversify in order to lessen risk. However, too much diversification may cause them to spread themselves too thin. Consequently, they become even more susceptible to the competition.
Explosive growth: Companies are sometimes desirous to add value by engineering a growth spurt. However, a company cannot expand its way out of trouble. Growth often carries a very high price tag and leveraging a company to such a degree means that management must operate with little or no margin for error.
Family vs. business matters: It has been observed that there is rivalry among many privately held companies. Deciding which relative or which of their offspring should run the business after retirement or death can be one
of the most difficult challenges a privately held business owner can face. If the decision is based on emotion instead of good business judgment, trouble can soon follow. Operating without a business plan: Remarkably, numerous progressive companies operate without a business plan. Their plan may change overnight because it is based on their own “feel” for the market. The result is that plans are executed according to individual analysis.
Ineffective management style: The president and founder of a company may be unable to give authority. Consequently, the rest of the management staff is without solid experience or any feeling of ownership. If the president suddenly dies or becomes incapacitated, the whole company may face financial crisis.
Poor lender relationships: Some companies develop an adversary relationship with their financial lending institution leading to financial and cash flow problems.

Reasons for Failure and Decline

Major causes of organizational failure have two dimensions viz., factors external to the organization i.e., exogenous endogenous to the organization. Schendel et. al., initially proposed this contradiction, arguing that a firm needs to understand the root causes of its deterioration and respond to its needs, thereafter, to be geared to the nature of the problem that created that decline initially (1976). Nevertheless, the decline mainly comes from factors external to the firm. Thus, there may be a changes in the environment that promote new organizational forms, new dominant technologies or new business models leading to decline in firms that are unable to adjust to the changes. This view is extensively acknowledged although from different perspectives by population ecology research and worked in industrial economics (Porter, 1980). To summarize, turnaround Management is dominant procedure to prevent bankruptcy and for those who find the strength to identify the need for change, the rewards can be enduring and lifelong success. Turnaround management is a group of management practices used by organizations in financial decline. Specialists in the management area are highly trained and have expertise in corporate organization and evaluation. Major goal in most turnaround initiatives is to evaluate and stabilize the business in problematic period. Other objectives include realistic operational guidelines and eventual profit progress.

Please leave this field empty

Sign up to Receive Awesome Content in your Inbox, Frequently.

Enter Your Email Address *

We don’t Spam!
Thank You for your Valuable Time

Check your inbox or spam folder to confirm your subscription.