Public-company lifespans are shrinking. Today, the chances of any given company ceasing to exist in its current form over the next five years are one in three. Fifty years ago, they were one in twenty.
Companies grappling with a strategic crisis operate under immense pressure and face enormous disruption. If they ignore the warning signs, such as declining profitability or market share, the strategic crisis can morph into a profit crisis—with plummeting profits and stagnating or falling sales—that can force them to burn through cash reserves.
Only a business turnaround can help such a company stave off the next phase of decline: a liquidity crisis.
A Turnaround Strategy is used in a business that is in trouble – where revenue has dropped, and they are no longer profitable or are quickly sliding towards making a loss. Based on these scenarios Turnaround is changing what the business is doing in its markets in order to return it to profitability.
This could include changing the product/service mix, changing what the business is focusing on, growing its market share, developing new markets, products and channels, plus other innovations or initiatives designed to increase revenue and margins.
Turnaround is outward focused at the points where the business interacts or engages with its customers.
Transformation is changing and improving the way the business operates and needs to be driven by strategic direction. The strategic direction could be the need to reduce costs, increase service levels, or realign the business’s operations to meet its changing markets.
A Turnaround Strategy could be the driving force for Transformation.
Transformation is changing the way the business operates, its processes, management systems, capability, structure culture and behaviours.
In summary Turnaround is outwards focused resulting in increased profitability, while Transformation is inwards focused improving the way the business operates by increasing the value made by its people and managing drivers that impact costs.
Transformation and Turnaround are both difficult to achieve as individual initiatives, and much more so when implemented as combined or concurrent programs. Many businesses fail to achieve the results they want from these programs and in some cases a business may never recover.
So, if going through Transformation and Turnaround at the same time is even more difficult, is it the best approach? Often, the organisation would not achieve a turnaround in sales and profits without at the same time transforming the way the business operates. In his case the Turnaround needs to be supported by Transformation, while the Transformation needs to be driven by the strategic direction of the Turnaround Strategy.
Key Enablers for a Successful Business Turnaround & Transformation:
· Focus on Total Shareholder Returns, not just Operational fixes
· Focus on Top line Growth & Strategy Execution, not just tactical cost-cutting
· Rigorous Methodology to ensure Execution Excellence and faster results - 100-day Action Planning & frequent reviews on clearly defined business metrics
· Transparent, Positive & Engaging Communication to all parts of the Organisation
Full Involvement & Commitment of Leaders & team members across the organisation
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