The South African business operating environment currently carries a lot of risks. This is reflected in the number of liquidations that are increasing at an alarming rate.
While some of the challenges that companies face are related to the external operating environment, such as loadshedding, many challenges are self-inflicting, such as ignoring Porter’s Five Forces or ignoring the need to adopt new cash management systems at a time when the economic climate calls for innovation.
Many companies accepted their fate and voluntarily filed for liquidation. Others have tried to implement ambitious turnaround plans to save their business. What goes into these plans? I recently read an article on LinkedIn which discusses this in more detail.
Effective turnaround plans
The article points out that 20 Questions, a global franchising company, underwent an extensive turnaround strategy. A fast-food franchise company, 20 Questions, decided to expand internationally in 1991. 20 Questions’ expansion strategy focused on countries with high growth potential, good economies, high literacy levels and well-established networks for fast food. 20 Questions marketed fast food in 10 countries, with their strategic plan to expand into additional ten countries. 20 Questions used the twenty questions as their primary sales tool and focused on bringing in international franchisees. 20 Questions used franchising to overcome language barriers.
The article adds that 3M also carried out an extensive turnaround programme. In 1990, 3M Company faced declining demand for their products. 3M Company concentrated on its technological future of research and development and formed 3M Ventures, which focused on developing new products and new markets. 3M Company also focused on new products and services and created a marketing department. The marketing department was responsible for new product development and market development.
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The Thermo King Corporation faced declining demand for its truck trailer refrigeration equipment. Thermo King Corporation focused on two strategies to improve its financial position and market share. The first was to diversify into new product lines. Secondly, Thermo King Corporation needed to enhance its research and development capabilities. Aerospace Components faced declining demand for its space shuttle components. Aerospace Components then concentrated on product development and marketing. Aerospace Components also focused on diversifying into new markets.
The article points out that the Ford Motor Company was the most prominent example of an effective business turnaround. Ford faced declining demand for its cars. Ford focused on manufacturing new products and developing new markets through diversification. Ford Company also focused on new product development and new product development. Further, Ford faced declining demand for their car factories. Ford concentrated on research and development and focused on new product development to reinvigorate the company.
The article adds that Deloitte faced declining demand for their services. Deloitte & Touche focused on developing new products and developing new markets. Deloitte & Touche also focused on new product development. Additionally, Kimberly-Clark faced declining demand for its product tissues. Kimberly-Clark Corporation concentrated on product development, market research, and new product development.
Value creation on the road to profit through turnaround strategies
The article points out that value creation is essential for organisations looking to achieve and sustain profitability. The ability to create value for customers, employees and other stakeholders is a critical factor in driving successful turnaround strategies.
There are various ways to create value, but typically it involves finding new or better ways to meet customer needs or wants. This can be done by developing innovative products or services, improving the customer experience, or creating more efficient processes.
Organisations that can successfully execute turnaround strategies often do so by generating increased value for their stakeholders. By focusing on value creation, businesses can improve their chances of achieving profitability and long-term success.
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Impact of turnaround strategies and their sustainability in an unpredictable economic environment
The LinkedIn article adds that to assess the impact of turnaround strategies and their sustainability in an unpredictable economic environment, a survey where 32 organisations and 60 turnaround managers were interviewed to find out their views on what constitutes an effective turnaround. The researchers adopted the approach proposed by Davidson and Borgerson (1995). They analysed the interventions implemented, the changes in the systems and processes, and crucial turning points, the reasons for them and their impact on the organisation. The organisations used several strategies: restructuring; disinvestment; privatisation; re-organisation; cost-cutting; innovation; and change. The turnaround managers’ role was pivotal in organisational success.
However, in most cases, managers should have realised the expected benefits of their interventions. Most managers conducted restructuring, disinvestment, privatisation and re-organisation procedures (67%), and up to 87% considered organisational change necessary. Cutting costs was implemented by 81% of managers. Higher management initiated innovation (55%) and change (70%), although only 18% and 40% of managers considered innovation necessary for organisational success. Only 42% of managers changed performance measures and KPIs. Half of the managers interviewed had yet to consider sustainability in their strategies. The sustainability of turnaround strategies depends on the criteria applied, the value chain and the target customers. Organisational success depends on several variables, but the most important is the relationship between the organisation and its customers, reflected in its value proposition. Moreover, managers should think long-term and focus on the sustainability of the strategies.
Measured implementation
The LinkedIn article points out that turnaround strategies are essential for struggling businesses. Implementing the right strategy can help revive a business and improve performance. There are many different turnaround strategies, so selecting the one best suited for the company is essential. With careful planning and execution, a turnaround strategy can help a business rebound and succeed again.
While there is an urgency when implementing turnaround plans, companies must adopt a measured approach. Companies in South Africa can ill afford to go through a hastily implemented turnaround effort only to have to go back and plug holes that were left in its wake. Turnaround plans already come with extensive capital requirements; going back will only result in a snowball effect of increasing costs.
The Mystery Practitioner is an industry commentator focusing on the shifting dynamics and innovative thinking that BRPs and turnaround professionals must embrace to achieve business success.
