Please enable JavaScript.
Coggle requires JavaScript to display documents.
Chapter 10: Recovery Strategies - Coggle Diagram
Chapter 10: Recovery Strategies
Turnaround,
"Is to produce a noticeable and durable improvement in performance, to turnaround a trend of results form down to up, from not good enough to clearly better."
The process of taking a company from a situation of poor performance to a situation of good sustained performance
Turnaround vs. normal management
The major issues tackled in a turnaround are:
New leadership styles and a greater sense of urgency
Interventions might be considered rather harsh due to failings from the past
Management will be under severe pressure since it has to manage the turnaround as well as manage daily activities of the org.
The situation is generally much worse than was initially thought.
the turnaround process can typically take up 2 years
Stages of the Turnaround process:
Acknowledging there is a crisis
Management change
Situational analysis
Emergency action
Business restructuring
Return to normal
Initial Realization
that the org is in trouble.
the evidenced presented by the financial position of org, can no longer be ignored and that failure is imminent if the crisis is not managed
Management must change
,
Turnaround specialists are committed to change and have to make harsh short-term changes for long-term benefits
Important to guage if the org can survive the short-term changes for the long-term plans created
new management must tighten the finances and inventory
Situational analysis,
During this phase a thorough analysis of the organisation and its constituent parts must be done.
Assessing the last 3yrs of the financial ratio
the to do so tools to do so:
Working capital to total assets
Retained earnings to total assets
Earnings before interest and tax to total assets
Market value of equity to book value of total debt sales to total assets
Emergency action
.
the 3 most common strats used during the turnaround process:
Strat turnaround
, redefines the org in terms of changing markets and redefining the product lines.
Operational turnaround
, that changes the manner in which operations are conducted which means cost-cutting measures, revenue generation and a reduction in the assets of the org.
Financial turnaround
, focuses on restructuring the financial operations of the org. The idea to use the financial strength of the org and to leverage this restructure the business.
Organisation Restructuring
,
once this phase is completed, the new org may well be different from the old org
Reengineering is drastic, but necessary and the focus is on the org core strengths when all the non-profitable or unrealistic operations were stripped away.
Return to normal
,
the new org may very well be pursuing a new mission and during this phase, the org is stable, redesigned and begins to function in new, more efficient ways
Stakeholder relations and strong leadership are vital
Transformational leadership
is the one style of leadership that reflects the traits and behaviour necessary for initiating change.
Leaders require:
Strong analytical and diagnostic skills
High energy levels
Excellent strat and risk-taking skills
Good crisis management skills
Assuming, org does not meet the necessary criteria to qualify for a turnaround, the owners have the option to divest or liquidate the org, division or subsidiary.
Bankruptcy, the last option left if all the previous strategies fail and the organisation wants to avoid major debt obligations and union contracts.
the strats are defensive in nature, which can defend the the negative and poor situation of the org.
Turnaround process, 4 possible outcomes if the org is not using a structured framework
Nothing happens,
org divests or faces insolvency
Cosmetic changes are introduced
, but the underlying problems remain unchanged
Change is not monitored
, org reverts to the status quo
an
unforeseen negative turn
of events outweighs the benefit.
Small Business Entreprises(SBE's) have major differences from Large orgs:
They need to approach the crisis faster
Less resources to help them
Deal with primarily simpler strats and org issues
They are usually to insignificant for outside agencies or governments to get assistance( Strat in action 10.1, page 224)
STAGES OF ORGANISATIONAL DECLINE;
The hidden phase, requires a pre-emptive turnaround.
The Subtle Phase, requires business correction.
The overt phase, requires the classic turnaround.
Common causes and symptoms of organisation failure;
Signals of business decline, are usually recognised by outsiders
Can be broken into 2 broad categories;
Internal Factors, can be directly controlled by the management of the enterprise
External factors, very difficult to control as these are forces from the external environment.
Internal factors incl.:
Poor financial control
Negative cash flow
Underperforming board of directors
Poor product or service
Poor pricing structure
insuffcient communication wiht stakeholders
External Factors:
Economic recession/downturn
Changes in government policies
Political instability
High inflation
Interest rate changes
Competition
Entry of new competitors
Symptoms of failure usually like to finances:
Decreasing profitability
Increasing debt
Decreasing sales and revenue
Declining market share
High turnover of managers
Lack of strategic planning
The "symptoms" of the business starting to fail:
lack of commitment to try something new
Despite the start-up being a success the ability to take the business to a new level lacks.
org relies heavily on outside people
org is under capitalised
Managers ego is at stake
Divestiture vs. Liquidation
Divestiture
, Also known as divestment and is the release(sales or other means) of assets.
Reasons for a divestiture:
Most common is financial
Strategic change and redirect focus
Non-performing assets
Desire to take profits
Bankruptcy
Lack of competitive spirit
Liquidation
; refers to a situation in which a business is unable to honor its debt.
Liquidator will take charge of the org and sell its assets by way of a public auction
During the process of liquidation, the management of the org has a duty to protect all the assets of the org