Approach to Turnaround Industrial Businesses

Step 1: Ensuring Survival

The first step in any successful turnaround is to ensure the immediate survival of the business. If there is any concern about the cash reserves, one of the initial tools used is a 13-week cashflow (TWCF) that helps understand the solvency position of the business (details here). In case cash outflows are greater than cash inflows, the payments need to be rescheduled to remove that mismatch with minimal costs. This may require negotiating with suppliers, vendors and lenders to delay payments, and requesting customers to pay earlier than scheduled. However, the messaging needs to be extremely cautious to avoid sending any negative signals in the ecosystem.

Step 2: Diagnosis

After ensuring survival and mitigating any immediate risks, an in-depth diagnostic analysis is required. This involves scrutinizing all aspects of the company’s operations, financial performance, and market positioning. The objective is to identify the root causes of the problems the business is facing. The root causes can be either generated due to internal weaknesses of the organization or external threats. SWOT analysis does not only provide a good framework to address these but also provides basis for building a strategy on strengths and opportunities.

Step 3: Identifying and Executing Quick Wins

Once the root causes have been identified, the next step is to identify any quick fixes. Some of these quick fixes may relate to strategic planning areas such as pricing strategy, cash conversion cycle, overheads, revenue model, etc. or corporate interventions such as optimizing the organizational structure. Such quick wins not only help address immediate challenges but also boost the organizational morale and help get the immediate buy-in on the turnaround plan from all stakeholders.

Step 4: Turnaround Strategy

Once the root causes have been identified, the next step is to develop a turnaround strategy. The turnaround strategy should address the following key areas:

1. Strategic Plan: The plan should outline how the business will reposition itself in the market. This may involve entering new markets, developing new products, or expanding into new channels.
2. Organizational Plan: The plan should outline the optimization of roles and responsibilities of employees, as well as the decision-making processes.
3. Operational Plan: The plan should outline how the business will improve its operations. This may involve improving efficiency, quality, or customer service.
4. Financial Plan: The plan should outline how the business will improve its financial performance. This may involve reducing costs, increasing revenue, or a combination of both.

The turnaround plan should be realistic and achievable. It should also be flexible enough to be adjusted as needed.

Step 5: Execution and Monitoring

The last phase is to execute the turnaround strategy. This requires strong leadership, commitment from employees, and a willingness to make changes. Once the strategy has been implemented, it requires continuous monitoring of the progress and making adjustments as needed.