What is turnaround management?
Globalisation is putting increasing pressure on SMEs in the DACH region to operate as efficiently and competitively as possible. However, not all of them succeed in this endeavor, and quickly find themselves in a state of financial emergency. In situations such as these, a fast and targeted turnaround management is vital to put the company back on the path to success. After all, it is not always the market situation alone that is responsible for the failure but, oftentimes, internal factors.
In this article we explain to you exactly how structured turnaround management works and which aspects determine its success. Because it takes a lot to be able to initiate a sustainable turnaround in the company.
Table of contents
- 1 What is turnaround management?
- 2 What are the phases of the turnaround management process?
- 3 What factors does successful turnaround management depend upon?
What is turnaround management?
When a company gets into difficulties, is no longer successful and is on the verge of insolvency, many initially blame the market situation. Although the market situation does indeed have a significant influence on business success, other factors also play a role. Often the crisis goes hand in hand with bad planning, wrong decisions, and mismanagement.
So, in such situations it is possible for the organization itself to initiate the turnaround. The company relies on targeted measures and decisions to get back on the road to success. Extensive efforts are often necessary to achieve the turnaround with the help of turnaround management. Ultimately, the aim is to lead the company out of the crisis again in the short term.
What are the phases of the turnaround management process?
The turnaround management process includes four important phases that an organization goes through. Ultimately, it is always a matter of turning the company around and moving back towards success.
1. The descent of the company
Every turnaround begins with a phase in which the company reaches financial distress. Here it is enormously important to mobilise as many liquid assets as possible to counteract a possible insolvency. Ongoing operations must be guaranteed at all times, otherwise all measures will be ineffective.
2. Initiate the turnaround
At the same time, the management must take concrete measures for restructuring in order to eliminate internal grievances as quickly as possible. This often requires painful cuts in the organisation. That is why SMEs like to rely on interim managers who can draw on a lot of experience from turnarounds at other companies. They record and analyse all possible and necessary steps, while the management can continue to concentrate on the day-to-day business.
3. Implementing the turnaround steps
After a thorough analysis has been completed, the necessary steps must be implemented in this phase. This is often followed by a functional, organisational as well as strategic restructuring, which is associated with deep cuts in the company. But it is also precisely these cuts that can be accompanied by rapid results and improvements in business operations. It is not uncommon for this to lead to a stakeholder crisis, but professional interim management knows how to deal with this.
4. Consolidation of the company
In the final phase, the changes must be anchored in the business operations and lived. But this should not be a reason to rest on your laurels. A company that does not continue to develop in today’s world can just as quickly lose touch again. Therefore, you should always drive forward an ongoing and continuous improvement process.
What factors does successful turnaround management depend upon?
Successful turnaround management also requires good preparation and the right experts. After all, it is not an everyday process, and for formerly successful companies, it can mean being faced with a completely new and unfamiliar situation.
That is why success also depends on a number of factors, such as …
– … an experienced turnaround management that quickly recognises the challenges of these difficult tasks.
– … a realistic and realisable turnaround concept that pursues clear measures and goals.
– … implementation and realisation, even if painful cuts are necessary.
– … objectivity in assessing the situation without “legacy issues” and in the interests of the company.
While the first two points seem logical and clear to most companies, the importance of the third point in particular is underestimated. Managers and employees must be prepared to admit to old mistakes and learn from them. The situation must be assessed objectively and acted upon consistently in the interest of the company, like with point 4. This can concern the organisation, departments or product lines that have to subordinate themselves to the new structure. However, not everyone will be happy with the changes and there may be friction which then has to be overcome. Turnaround management therefore also has a strong change management component.
Are there early warning systems for impending crises?
SMEs in the DACH region in particular benefit from early warning systems or indicators, because today they are under increasing competitive pressure due to globalisation. That is why it is important to be able to recognise the first signs of a crisis in the market or in the company.
For example, a production-oriented company can use the following early warning systems:
– Product development: too many product variants, poor quality below customer expectations, development that bypasses the customer, failure to fulfil specific wishes of individual customers.
– Production: fragmented production across several locations, inadequate production control, lack of transparency in production costs.
– Organisation: slow order throughput, communication problems, insufficient coordination between locations.
– Market: no clear positioning, turnover instead of profit orientation, incomplete calculation of supposedly cost-covering prices.
In addition to the factors mentioned above, a company can also ask itself some additional questions that facilitate further assessment. For management in particular, these are usually easy to answer and can form a first indicator of impending crises.
– Has the company postponed or cancelled important investments? The short-term liquidity gains can have negative effects in the long term.
– Could important know-how or employees be retained? This is usually the cornerstone for long-term competitiveness.
– Do banks or suppliers ask about the company’s solvency? They have their own early warning systems and constantly assess the creditworthiness of their business partners.
– Are costs rising faster than turnover? Low-margin companies in particular can quickly get into difficulties.
– How is the company performing compared to the competition? This comparison quickly reveals whether the problems are home-made or whether they are possibly driven by the market.
Of course, there are numerous other questions and sub-areas that can be consulted. You always have to assess which factors are relevant for your company and your situation. After all, there is seldom a universally valid rule when it comes to business crises.
Turnaround management offers companies in distress the opportunity to get out of critical situations through their own efforts. But it is crucial to pay attention to professional management and the right measures as well as successful implementation. For this, experienced interim managers, can help you every step of the way and at all stages in the process. They can draw on many years of experience and are very familiar with all the challenges of a turnaround. An input from outside with a neutral perspective recognises potentials and can also implement them.
As an experienced specialist in interim and turnaround management, our professional interim managers help you to successfully prepare and implement all measures. In this way, you will be in the best position to achieve a successful turnaround.
Contact us now and let us advise you.