Turnaround Management - Case Study Example

Turnaround Management (Name) (University) Incorrect practices of turnaround management Turn around management aims to rejuvenate a troubled company and save it from a seriously unprofitable situation to a level of corporate renewal that is profitable (Collin 2016). A successful TMS will be carried out in three stages; assessing viability, stabilization and strategy development and implementation and monitoring stage (Bailey, 2013). In the implementation of this process, some incorrect practices are bound to be committed during the transformation process. Signs when a company’s performance is poor exist and many factors can be identified as reasons for the failure (Turnaroundstrategy.net, 2016). According to (Burkner, Faeste & Hemerling, 2015), transformation involves restarting a business to achieve a certain level of maintainable improvement in terms of performance. Resistance to quick decision making Existing managers are generally unreceptive to new ideas which causes the organization to stagnate (Nystrom & Starbuck, 2015). They hesitate to make in-depth changes as they are not conversant with the new methods. The CEO and management are under a lot of pressure because the turnaround has to be implemented alongside with the normal ongoing management coupled with a new set of legal circumstances and risks. The decision making process therefore lags behind as the ongoing problem worsens (Harvey, 2004). . Barker, Patterson and Mueller (2001) are of the idea that replacements are more likely to have an array of new and fresh perspectives as a result of different levels of knowledge and experience. Failure in identification of problem Failure to identify problems that slow down the adoption of precautionary measures later affects employees, customers and suppliers (Slatter & Lovett, 1999). A company experiencing financial crisis may implement turnaround strategies in a bid to restore its viability. In doing so, they neglect the essentials focusing on the non-fundamental issues leading to turnaround failure. Firms whose top managers are quick to make attributions to decline of organization to internal sources more often than not show greater levels of response to declining performance by strategic reorientation (Barker & Barr, 2002). An effective turnaround strategy should be based in identification of critical processes such as cost, time and quality of skills. (Ayieacha & Senaji 2014). Mismatch of skills At a certain point, a company has a pool of skills needed and the skills at hand. Education, formal training coupled together with informal work experience leads to the development of skills that lead to increased productivity (Becker, 1964). The skills at hand are normally lacking crucial skills and may be unable to handle duties that come with the turnaround strategy (Finkin, 1989). When there is inadequacy and inefficiency in skills, the process will be unsuccessful due to lack of proper knowledge and skills to handle the procedure. Improper timing The success rate of any turnaround process will depend on the proper timing. Unsuccessful companies are found to lag behind in taking action in the crisis. (Schreuder, 1993) conducted a research comparing the number, areas and timing of measures implemented by two groups that responded to the crises affecting their industries. He discovered that successful companies in overall took a great number of precautionary measures. Cost cutting measures were more active in the less successful companies. In both groups, 30% replaced their top management (Schreuder 1993). The difference between the successful and unsuccessful was that the successful companies had a tendency in expansion of the middle management, while the less successful took into retrenchment. It is therefore critical to know when the correct time to act to avoid wastage of resources and avoid a turnaround failure. (Hofer, 1980) suggested that the type of response to a decline should fit the original cause of the problem. Cost-cutting and retrenchment According to (Rosario, Kawamura and Peiris, 2004), successful businesses concentrate on competing for quality rather than on costs. In a bid to manage a financial crisis, cutting down on employees may be sought leading to retrenchment. Employees will therefore form some self-protective alliances in order to resist change as others may opt to exit. The most qualified employees with valued skills and mostly irreplaceable experience tend to exit first (Perry, 1986). Instead of assisting the TMS, it sets it back by depriving it of the necessary and required knowledge and skills Failure to protect stakeholder’s interests In an aim to safeguard their interests, powerful stakeholders may take charge in controlling a company destined to fail. This may be caused by a company’s failure to maintain, renew or increase support from stakeholders that is critical for a successful turnaround (Gopinath, 1991). Weathering the storm strategies Top managers may fail to detect crises developing in an organization and simply brush off warnings as erroneous (Ansoff, 1975). They counter the problems by a ‘weather the storm’ strategy such as liquidation of assets, price hikes, credit denial to customers and postponement of investments (Nystrom & Starbuck 2015). Such strategies only work out for a while and when the problems make a reappearance, finding the organization with lesser resources and often inadequate time to act. Emergency strategies taken to address financial crises need to be administered with stabilization plans to ensure a positive cash flow and hence immediate survival (Goodman, 1982). The relation of incorrect (TMS) practices and organizational behavior There exists a linkage between strategy implementation and organizational culture. Culture has a substantial influence on an organization’s strategy (Mantere, 2000; Van Der Maas, 2008; Van Buul, 2010). An organization that has a strong work culture can be a driving force in achieving performance (Ahmadi et al 2012). However, according to (Fisher, Lee and Johns 2004), governance and transparency issues had a major impact on behavior rather than culture. A turnaround can be implemented by the existing team of management (Scherer & Packard, 2013). It is however a challenge for the leadership in place to critic its decision-making techniques and come up with new ones. What may have been the norm may no longer be acceptable or viable. Replacement of key managers is not essential in the success of a turnaround process (Clapham, Schwenk & Caldwell 2005). Patterns of communication matter in this stage and lack of an effective line of communication may necessitate the replacement of a CEO. It is at this point that key players exit and in comes new ones. With the replacement of the top management, a new work culture is likely to be adopted that may not be acceptable by the existing workforce. This is in relation to the slow decision-making by existing key players who are used to the organizational culture and reluctant to change. Performance and effectiveness is linked to organizational culture (Fay & Denison, 2003; Pirayeh, Mahdari, & Nematpour, 2011).Adopting new customs, beliefs and procedures make people question them as they are not backed up by evidence of success. Existing beliefs are more welcomed as they arise from rational analysis and a history of successful experiences (Nystrom & Starbuck, 2015). In the mismatch of skills, it is a global challenge facing most organizations according to a study carried out by BTS; a global strategy implementation firm (Site Staff, 2013). Over educated employees are generally frustrated, less satisfied, have high cases of absenteeism and turnover than their adequately educated counterparts (Butchel, 2002). It therefore leads to the hypothesis that over-education leads to dissatisfaction and harms overall productivity of the organization (Kampelmann & Rycx 2012). It is however a contradictory statement that over-qualified are more productive but less motivated (Mahy, Rycx & Vermeylon 2010). Retrenchment being an important component to recovery from decline (Barker and Mone 1994), should not be a necessary ingredient in the turnaround process. (Hambrick and Schecter 1983) however argued that for growth to be a successful strategy it would be severely challenged by strong competition, cutbacks and restructuring but end up being successful. Other recommendations should be considered as retrenchment has a negative impact on the organizations as remaining employees will be demoralized whereas retrenched employees might spoil the organization’s image by bad mouthing. Retrenchment, repositioning and reorganization make up the 3Rs strategy (Boyne 2004). Its relevance and possible consequences are evaluated to help managers have a deeper understanding on the turnaround process and adopt strategies beneficial to their organizations. Counter strategies that complement TMS Business transformation may take place in different forms; Business process reengineering, performance management, six sigma, corporate restructuring and turnaround management strategy. Each strategy is faced with its own challenges some unique and some common to all. Whichever form is taken, the common end goal is mainly to improve effectiveness and efficiency and make the business profitable. Turnaround management is closely related to business process reengineering because both processes lead to business transformation (Proctor, 2012). While BPR aims at redesigning and redefining existing practices (Gokskoy, 2012), turnaround aims at making the organization profitable. Performance management can also complement TMS as it is closely related since it involves identification of a particular business procedure and modifying it to improve on its efficiency and effectiveness and overall output (Gillikin, 2016). The use of six sigma can also be a complementary strategy to TMS as it aimed at reduction of defects in products and services in order to improve in quality production (Business dictionary 2016). In improving the quality of products and services, profits are also boosted which is also the main aim of TMS. Corporate restructuring is designed to add shareholders’ and creditors’ value in the company (Giddy, 2003). Without proper TMS, shareholders may take charge of the organization hence corporate restructuring aims to secure shareholders’ interests which is also one of the aims of turnaround management. Employee contribution to TMS For an effective project management strategy, the right people with the right skills are crucial. For a turnaround strategy to be successful, a TMS practitioner needs to be academically suitable and well experienced given the high cost involved in turnaround to minimize chances of wastage of resources Integrity Stakeholders rely on the integrity of the management when supporting a business (Gross, 2012). Employees who uphold a high level of integrity will make the TMS easier to implement. Setting the right message within the organization in matters such as financial reporting and accountability at the same time maintaining an open line of communication is critical in its performance. This will set an organization apart from that which lacks ethical employees as stakeholders may still give a chance in situations of decline to organizations that have a high level of integrity. Relevant experience Being hardworking, full of energy and enthusiastic will be of no help when an organization suffers a serious decline that needs restructuring. In-depth knowledge and understanding is paramount in discerning its operating systems and capabilities in order to come up with the right turnaround plan. With the dynamic nature and growth of the business industry in terms of technology, the management needs to ensure that they keep abreast with the new and upcoming trends by offering relevant training to their employees. Employees on the other hand need to play their part by being receptive to the changes since it is a common challenge in the business transformation techniques for employees to be resistant to change for fear of losing their jobs as the management aims at cutting down on operational costs (Samali et al., 2013). Motivation Employees need to stay motivated in the TMS process all through. This is part of the managements’ task to ensure that they adequately compensate the employees by remunerating them as they form an integral part of the turnaround process. The relationships between employees themselves and employees and management need to be healthy to enable a conducive working environment. The development of careers need to be catered for so that an employee does not feel stagnated in a given position for years and remains motivated to work hard for the benefit of the organization. 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