10 facts on turnaround situations
172 businesses file for bankruptcy in the US per day, this translates into 320’000 jobs lost every year due to distress situations of firms.
Many turnarounds could resolve distress situations and lead to success if understanding and managing such situations of rapid change well. In situations of rapid change, dynamics of (involuntary) transformation keep accelerating and often exceed the capabilities to control of the management.
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Everyone on board at a distressed company is paddling for survival, chances for success dramatically increase with skills and experience at the helm.
Chances of survival are 53 times higher with the help of professional guidance.
Only 12.5 % of companies in situations of rapid change, as indicated by Chapter 11 survive, but chances increase by 93% if certified consultants are engaged.
This number sounds like an aggressive sales pitch, but many of the underlying reasons, leading to a turnaround situation, are shortcomings of business strategy and execution. Seasoned professionals, synchronizing and aligning planning and resources can fix these internal pitfalls.
Among a sure command of managerial tools and sound application of analytical skills, the experience to have dealt with distress situations before, is a core element of the profile of an eligible consultant. Turnaround Professional benefit from “battle experience”. Hence, in distress situations, it is less about “doing things right” (aka observing compliance), but only about “doing the right things” (creating quick traction and impact).
Most of the specific reasons for turnaround situations are clearly identified. Distress situations add a momentum of urgency and call for the right steps.
Internal reasons for distress are connected to the culture of the organization
The internal reasons for a crisis, have their root cause further back in the past, and are embedded in the culture of the organization.
Internal reasons, leading to a distress situation include:
- wrong strategic decisions
- lack of addressing markets
- lack of vision
- insufficient internal communication
- lack of experience for difficult situations
- fails product launches/market expansions
- cash constraints
The managerial challenge of getting the organization back on track is comparable light and easy to the required cultural challenge.
Consequently, a number of quick fixes can be applied to the organization from an outside perspective, changing the culture is a critical task from the inside. Hence, managing a turnaround is not limited to finance or strategy, but always includes serious HR challenges, including, but not limited to:
- Retaining talent and key players in situations under the rule of high uncertainties
- Fostering cultural change to support a new strategy
- Supporting leveraging operational efficiency and performance
In any case, making up for shortcomings of the past creates time constraints.
External reasons for distress situations can be systematic
Whereas internal shortcomings can be addressed with thorough management skills, external factors may be systematic to an industry.
Systematic changes in the economic environment require a full review of the strategy, in order to reposition the company in a changing market.
External factors leading to a situation of rapid change include:
- changing market demand
- evolving technologies
- changes in the regulatory situation
Therefore, cuts and changes to the organization are likely to be even bigger, as the whole firm may need to be re-invented.
The right skills at the right moments
When deciding for a turnaround professional, boards and investors should understand first, the true root cause of the distress situation. This alone might require external help.
In an analogy, understanding the own positioning is very valuable in rough waters. Hence, on-boarding the pilot, will very often guide the ship to the save harbor.
With the application of the right skills at the helm, the chances for survival are higher and success of the turnaround is not a gamble but more subject to sound managerial instruments, comprehensive experience, and thought leadership.
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