Turnaround: What is it and how can turnaround expertise help?

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What is turnaround? 

The Institute for Turnaround (IFT) defines turnaround as the sustainable return to viability of an underperforming organisation. The skills of IFT members provide immediate viability and confidence to businesses and stakeholders; and are critical in curtailing the economic fallout caused as a result of an unnecessary insolvency. 

Whilst some business failure is inevitable in a healthy economy, a troubled business can survive and thrive with the right management, financing, strategy, and governance. A turnaround process using expert external help can provide the necessary catalyst for change, taking a business from the brink of insolvency, through radical change, to renewal.  

While a cash crisis catapults many firms into turnaround situations which, without rapid intervention would result in insolvency, not every turnaround is facing a cash crisis.  

Three features define a turnaround business:  

1. Stressed not fatal. These firms lie on the spectrum from underperformance through to distress.  
2. At risk. Failure to reverse business decline will lead to failure.  
3. A viable future. If it can overcome its immediate troubles, the existing offering or potential offering means that the business has a good chance of succeeding in the medium to long term.  

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Stressed not fatal 

The decline curve for a business usually starts with underperformance, progresses to a state of stress, then distress and crisis. Underperforming firms can address their problems through a transformation programme. A company in crisis is usually on the point of insolvency and a workout to reduce losses. Looking at the curve of company health, turnaround can be effective between stress and distress.  

At risk: causes  

External pressures 

A crisis can come in many shapes and sizes. Changes in the economic cycle can affect consumer and business sentiment and spending. Black swan events, such as terrorist attacks or outbreaks of disease, like the COVID-19 coronavirus that spread worldwide in 2020/2021, can dramatically reduce demand, as can a product recall, factory fire or litigation.  

Competitor innovations can disrupt whole industries seemingly in short order, as demonstrated by recent technological changes such as online selling and streamed entertainment. Regulatory or government policy can also fundamentally shape the operating environment.  

Internal factors 

Many internal factors leading to decline are within the firm’s control. People, governance, financial or strategic challenges can constrain and even severely disrupt a business.  

• People challenges can include shortages of skills and management failures, leaving it poorly placed to respond to a changing market environment.  
• Governance challenges, for example, inadequate, undocumented, misunderstood or even overly bureaucratic control procedures can hamper success.  
• Strategic challenges, including a lack of a clear strategy, over-diversification, growing too fast and poorly judged acquisitions can place undue pressure on a business.  
• Financial challenges, from a lack of cash, inadequate capital, high debt and expensive financing to insufficient management information and accounting systems and poor budgetary controls are common problems.  

A viable business 

A business has to be capable of being resuscitated to be turned around – that means ultimately there must be a profitable market for its goods or services. If the finances are stable or have been fixed through a turnaround process, operational turnaround provides a means of adapting the operating model to make a viable product or service profitable in the marketplace. 

The diagram below shows what happens in a typical business turnaround: 

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