Effective Corporate Turnaround Strategies
26 July 2012
With corporate insolvencies at an all-time high and set to get worse, it’s worth taking time to review best practice turnaround techniques to ensure your business is prepared for any collateral damage.
This year the Australian business community will have to deal with an estimated 15,700 corporate insolvencies.
This equates to a financial impact on our economy of approximately $15billion – and don’t forget every insolvency has a flow-on effect, so the impact will be felt by another 700,000 businesses.
The good news is that it IS possible to make a positive impact on our country’s rate of corporate failure and business distress.
Turnaround management is a relatively new field in Australia, and as more businesses become aware of it this will make a positive impact on the rate of corporate failure and business distress.
The following points should be top of mind when developing or executing a turnaround plan.
Stakeholder management is the key. Of course, it is important to focus significant attention on financial and operational restructuring, but any business that puts its attention here and ignores stakeholder management will suffer the consequences.
Good stakeholder management involves communicating with all key parties – financiers, employees, shareholders, creditors and customers.
Turning a business around is as much to do with maintaining confidence as it is to the initiatives being executed.
Most turnarounds fail due to insufficient focus on stakeholder management, particularly employee engagement.
It’s also important to remember that very rarely is there is quick fix in turnaround situations.
In the majority of situations the Board or CEO need to come up with one or two big strategies around which the turnaround plan can be built. This could mean a fundamental change in the business model, selling off non-core or non-essential assets/businesses, paring back the business to its core or maybe even an acquisition or merger for greater economies of scale.
Pick one or two big plays that could save the business – tinkering around the edges simply causes more distress and value destruction.
5 Key Phases to a Turnaround
These are the key phases for a typical turnaround project:
1. Analyse the situation by conducting a strategic review to determine how the business got into the position in the first place, the key risks facing the business, the key issues and recommendations to mitigate them – plus strategic options for consideration.
2. Implement a stabilisation plan including a 100 day work plan, aggressive stakeholder and working capital management, and identification of “quick wins” to develop momentum.
3. Change management, which often involves changing key personnel due to underperformance or simply bolstering the management team by engaging a Chief Restructuring Officer to project manage the many and varied initiatives. This frees up management to stay focused on the core business.
4. Restructure the business, whether by changing the business model, a rebranding exercise to drive revenue, changing the customer or product mix, sale of non-core assets/divisions or redundancies.
5. Return to normal, or sell along the way if that will drive greater value for stakeholders.
6 Essential Elements for Successful Turnarounds
It’s crucial that the Board or Senior Management Team is confident of being able to positively answer the following questions throughout the process:
- Can we prove the business is viable?
- Can we manage and “motivate” key stakeholders?
- Does management have sufficient credibility?
- Is the business reputation intact?
- Can we obtain sufficient credit from suppliers?
- Can we secure internal and/or external funding?
The knock-on impact of Australia’s record-high insolvencies will be significant director bankruptcies, loss of government taxes, numerous marriage breakdowns due to financial pressure and significant social impacts such as suicides and depression.
The unfortunate reality is that so many corporate collapses can be prevented.
The key issue is that the majority of the corporate world is not aware that turnaround management exists and is the alternative to insolvency and they are not aware of the above best practice techniques.
Given the significant economic and social benefits of reducing corporate failure, I think we can all do more to spread the word.
Michael Fingland, Executive Director of national business transformation and turnaround firm Vantage Performance, was awarded Australasian Turnaround Professional of the Year 2011 by the Turnaround Management Association, for his work with fast growth and troubled companies.
This blog first appeared as a column by Michael Fingland in The CEO Magazine May 2012 edition.