The Rationale behind a Turnaround Strategy of a Firm
Authors: 090014147, 090000324
Submission: 26th of April
Leadership and management in turnarounds4
The notion of turnarounds5
Symptoms of corporate decline6
Causes of Decline6
The reasons of a firm to turnaround8
The effectiveness of a turnaround strategy10
Appendix 1: Samsung14
Appendix 2: HP16
Appendix 3: Possible outcomes of a turnaround strategy according to Luffman et al.20
Appendix 4: General Motors21
Ongoing globalisation has accelerated the pace of change for companies around the globe. The economic environment as well as industries firms operate in are in flux, and new competitors and other threats lurk everywhere. Especially the recent financial crisis and the global recession it triggered have caused many companies struggling to survive. The rapid change of the global economic environment (e.g. the credit crunch and the sharp fall in demand of end-consumers for some products) disclosed shortcomings of several enterprises and plunged them into crises. Many of them failed and had to be wound down, many are still in a phase of decline and their future remains to be seen – but some were able to come up with a new strategy and a new organisational structure and are leaving the crisis stronger than before. This might be traced back to their superior turnaround strategy. A constant adaptation and re-examination of current strategies is no longer only a competitive advantage, but a necessity: “It is not a question of whether firms should change, but of where, how and in what direction they must change” (De Wit and Meyer, 2004:163). This essay will therefore focus on turnaround strategies and the thus related issues. First, the concept as well as the main terms and stages will be introduced. This will be followed by a closer examination of the reasons for turnarounds in two particular companies, namely Samsung and HP, and the effectiveness of different strategies in differing situations, illustrated by examples of HP and General Motors. Finally, a conclusion shall be given.
A turnaround strategy is a reorientation of an organisation experiencing a crisis. Whereas the general corporate strategy is described as “the direction and scope of an organisation over the long term, which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stakeholder expectations” (Johnson et al., 2008:3), and is therefore able to evolve over time, a turnaround strategy is the reaction to a sharp deterioration in performance and a worsening of the general state of the company to an extent that becomes a threat to its survival (Luffman et al., 1996:140). White (2004) describes a turnaround strategy as a radical change in a firm’s strategy with a possible alteration of its structure and culture. Ideally, it should lead to a superior and sustainable performance in future. However, it is conceived under enormous pressure and great difficulties, and it brings the additional need for fast reactions with it, which in practice makes it a big challenge to implement a successful turnaround. Although much research has been carried out about turnaround strategies, the measures applied and the strategy chosen are specific to each individual company and is derived from its main business, its competitive advantage and its industry characteristics. Nevertheless, they share the feature of addressing areas which must be developed to achieve a sustained recovery (Thompson, 1997:538). Turnaround strategies are designed to bring quick results but also to contribute towards long-term growth. Different authors subdivide turnaround strategies in different stages. Hunger and...