Strategy, marketing, efficiency and management in business turnaround

From a layman's point of view, turnaround is often seen mainly in the context of cost-cutting and balance sheet restructuring. Yet there are so many subtleties involved that perhaps only those who have been at the heart of this often painful activity will ever be aware of. I took this role as CEO, which involved four business turnarounds on a common human resources and finance bases, but disparate marketing and information technology bases.

I wrote an academic paper a year back on the business of business turnaround, specifically in a small business context, something I did with the intention of achieving a 'first time right' approach to turnaround of a specific small business legal entity (less than 200 employees). I have just read the paper again, and two things come to mind. The first is being able to recognise errors in my paper, which means I have fortunately learnt a lot since I wrote it! The second is how excited I get thinking about turnaround, specifically how wonderfully complex and multi-dimensional it is!

In any event, here is an excerpt from the paper, outlining just a few attributes to consider in holistic turnaround management, whether it be efficiency vs entrepreneurial, that the major cause of small business failure is management practice, strategic vs operational, and even issues around strategic positioning.

Turnaround strategies can be classified into two groups (Smith and Graves 2005:305, Harker and Sharma 1999:37) – efficiency strategies and entrepreneurial strategies (Smith and Graves 2005:305). Smith and Graves describe efficiency strategies as those rectifying inefficient operations, i.e. about cost-cutting and asset reduction, while they describe entrepreneurial strategies as those that reposition it with respect to its current or even its new markets. Smith and Graves (2005:306) quote extensive research on efficiency-oriented strategies, where the common argument was that efficiency-oriented recovery strategies are essential for any successful turnaround.  However, given the scarcity of equivalent research in SMEs, we get a hint of the added complexity of SME turnaround in a recession from Latham (2009:181-183) who states that the strategic response from business is more complex in a recession, with the consequences of that complexity often more dire for small business, and that small business responds differently to a recession compared to large business because large business tends to react by cutting costs while small business tends to react by market segmentation tactics. Boyle and Desai (1991:39), in their paper on SME turnaround, observe that most of the causes of failure seem to be internal to the firm, with a major reason for failure being lack of management practice (Lawrence 2008:89), with the key missing element being lack of control over operations, without which business has little chance of long term survival in a competitive market (Boyle & Desai 1991:40).

Complementary to the above, Pretorius (2008:21-22) writes that the cause of decline or failure is often classed as either strategic (external) or operational (internal) in nature. While it is easier to respond to operational challenges than to strategic positioning challenges, strategic challenges require quicker action. Furthermore, Pretorius suggests that turnaround is generally less severe if it is due to operational weaknesses, because they can be corrected with relative ease and visibility, while strategic challenges require directional change and high-risk expectations typical of new venture creation. An incorrect, albeit new strategy, could therefore have disastrous consequences for the business.

Beyond turnaround strategy, successful, sustainable turnarounds usually involve substantial strategic repositioning of the business (Gadiesh, Pace & Rogers 2003:42). The strategy is based on leadership having a clear point of view of the future, and by evolving the business model in line with this. Equally important however is that the operating model evolve to support the growth strategy outlined by the business model (Kapur et al 2006:11).

So there it is, a small introduction to the heart of turnaround from the voice of academia on the subject. There are huge implications for a CEO in the above text, as the leader that needs to make the decisions. And note how many critical decisions there are, as subtle as they may seem! In my experience, the issue of entrepreneurial thinking and market positioning are especially critical to a successful turnaround.


In closing, there is so much business can learn from academia, and so much academia can learn from business (practitioners). I have made it part of my routine to regularly bring business and academia together. Hmmm, I need to write all my experiences over three successful turnarounds in a book one day. Even the one unsuccessful turnaround taught me a whole host of lessons I would like to share with you one day!