A turnaround situation can be viewed as a company in need of restoration of corporate value.

This all-encompassing view covers all stages of corporate decline, whether exhibiting symptoms of decline, underperforming or in distress.

The overall goal of turnaround strategy is to return an underperforming or distressed company to normal in terms of acceptable levels of profitability, solvency, liquidity and cash flow.

Turnaround is defined as the action taken to prevent the occurrence of financial disaster. Key features of successful turnaround strategies include:
Act with speed and precision Clear focus on the cause of the predicament Communication of the critical nature of problem to key stakeholders Ensure financial solvency Replacement of CEO Stabilisation of problem Re-engineer

To achieve its objectives, turnaround strategy must reverse causes of distress, resolve the financial crisis, achieve a rapid improvement in financial performance, regain stakeholder support, and overcome internal constraints and unfavourable industry characteristics.

Managing the turnaround stabilisation, funding, recapitalisation and fixing are turnaround leadership, stakeholder management, and turnaround project management.

Stabilising the business The momentum of an underperforming or distressed business is down. Such a business needs to be stabilised to ensure the short-term future of the business through cash management, cash generation and cash conservation, demonstrating control, re-introducing predictability and ensuring legal and fiduciary compliance.

Funding and recapitalisation An underperforming or distressed business invariable needs to be funded and recapitalised to ensure that it can be fixed. Fixing the distressed business Finally, the underperforming or distressed business needs to be fixed in strategic, organisational and operational terms.

Characteristics of a successful turnaround

Stuart Slatter & David Lovett describe how executing the components of a turnaround plan form the basis of turnaround success. Comprehensive All the components of the turnaround plan are applied "right away and all at once". A common source of failure is to initiate a too narrow turnaround approach. Non-linear Key issues are addressed simultaneously rather than in sequence. Wide-ranging A turnaround plan should be broad in scope - dealing simultaneously with: Hard and soft issues. Tackling revenue enhancement and cost reduction. Launching strategic and operational initiatives. Addressing both short- and long-term priorities.

Turnaround situation assessment Once the need for a turnaround has been recognised, the first stage after triggering the turnaround is turnaround situation assessment to determine: Short-term survivability. Longer-term viability. Turnaround strategy. A high-level turnaround plan.

Emergency management If a business case exists, the next stage is emergency management. The objectives of emergency management are: Securing the short-term future of the business through stabilising the distressed company. Laying the foundation for funding and fixing of the distressed company by allowing a window of opportunity for turnaround plan refinement.

Restructuring The turnaround restructuring stage involves the implementation of the turnaround plan devised during turnaround situation assessment and refined during the emergency management stage. Turnaround restructuring takes the form of: Leadership restructuring; Financial restructuring; Strategic, organisational and operational restructuring.

Recovery

Lastly, turnaround recovery entails embedding these changes, and managing the business during its return to normality. The recovery stage involves the embedding and monitoring of the turnaround plan, and managing the business during its return to normality. Turnaround recovery is characterised by: An increased emphasis on profits in addition to the earlier emphasis on cash flow. Operational efficiency improvements. Building the organisation. Typically, this is when the turnaround leader passes on the baton to someone new to head the stabilised and restructured company as it returns to normal. The turnaround is completed when the company has returned to normal on a sustainable basis.