Profit and Turnaround Strategy

Topics: Profit, Investment Pages: 2 (506 words) Published: February 21, 2013
Turnaround strategy
Times of corporate distress present special strategic management challenges. In such situations, a firm may be in bankruptcy or nearing bankruptcy. Often turnaround consultants are brought into the company to devise and execute a plan of corporate renewal, assuming that the firm has enough potential to make it worth saving. Before a viable turnaround strategy can be formulated, one must identify the root cause or causes of the crisis. Frequently encountered causes include: * Revenue downturn caused by a weak economy

* Overly optimistic sales projections
* Poor strategic choices
* Poor execution of a good strategy
* High operating costs
* High fixed costs that decrease flexibility
* Insufficient resources
* Unsuccessful R&D projects
* Highly successful competitor
* Excessive debt burden
* Inadequate financial controls

Which stage does your company belong?
There are three stages of a turnaround strategy:
I – Pre-turnaround
II – Period of Crisis
III – Period of Recovery
The first stage is the period just before the profitability begins to decline. The company is still considered profitable at this point, but losing ground. The second period is known as the period of crisis. At this point the company needs to turnaround. This stage is marked by a decline in profits (even negatives), a fall in market share and the company's poor cash situation. The third stage is the period of recovery or the turning point. This is the stage where serious action is taken to turnaround the company. Important decisions like scaling back production or returning to an aggressive growth stage are taken. At this point, the company's strategy is clear. The company can choose to rely on a centralised and low cost system and continue profitably. Alternatively, it might decide to combine these benefits with a growth strategy. This is the longest period and may last for years. Steps in turnaround strategy

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