Definition of Turnaround Strategy

The definition of turnaround strategy w.r.t different senses is depicted below.

In general, the definition of turnaround strategy can be stated as follows.

Turnaround strategy is a corporate practice designed and planned to protect (save) a loss-making company and
transform it into a profit-making one.
In financial, commercial, corporate or from a business perspective, the turnaround strategy can be defined as follows.
Turnaround Strategy is a corporate action that is taken (performed) to deal with issues of a loss-making (sick)
company like increasing losses, lower return on capital employed, and continuous decrease in the value of its
shares.
Finally, from an academic point of view, its definition can be stated as under.
Turnaround strategy is an analytical approach to solve the root cause failure of a loss-making company to decide the
most crucial reasons behind its failure. Here, a long-term strategic plan and restructuring plans are designed and
implemented to solve the issues of a sick company.

Examples of Turnaround Strategy

Some examples of turnaround strategy are depicted below.

Consider following examples of turnaround strategy:

1.

Financial Institution, for example, some bank A is suffering from losses due to non-performing
assets (NPA). NPA is loan given but not yet recovered. This bank A will follow turnaround strategy and try to
recover its loans by appointing recovery agents.

2.

Manufacturing company say XYZ is suffering from losses due to excess idle time taken by labour to
complete their jobs. The manufacturing company XYZ will follow turnaround strategy to reduce labour inactivity by
installing modern machines (automation) to carry on the same work or job.

3.

Educational institution, for example, C is suffering from losses due to non-registration of students in their
courses. This institution C will follow turnaround strategy to reduce losses by providing facilities like eRegistration, conducting online classes, etc. to attract students.

Turnaround is a strategy adopted by firms to arrest the decline and revive their growth. A
turnaround situation exists when a firm encounters multiple years of declining Financial
performance subsequent to a period of prosperity (Bibeault, 1982; Hambrick & Schecter, 1983;
Schendel et al., 1976; Zammuto & Cameron, 1985). Turnaround situations are caused by
combinations of external and internal factors (Finkin, 1985; Heany, 1985; Schendel et al., 1976)
and may be the result of years of gradual slowdown or months of precipitous financial decline.
The strategic causes of performance downturns include increased competition, raw material
shortages, and decreased profit margins, while operating problems include strikes and labour
problems, excess plant capacity and depressed price levels. The immediacy of the resulting threat
to company survival posed by the turnaround situation is known as situation severity (Altman,
1983; Bibeault, 1982; Hofer, 1980). Low levels of severity are indicated by declines in sales or
income margins, while extremely high severity would be signaled by imminent bankruptcy. The
recognition of a relationship between cause and response is imperative for a turnaround process
and hence, the importance of properly assessing the cause of the turnaround situation so that it
could be the focus of the recovery response is very important.