Corporate Turnaround - Is There A Most Appropriate Response To Corporate Decline?
May 30, 2019
By Dumi Tshuma
Corporate turnaround previously represented a relatively undiscovered field, but is now a global sensation with many scholarly articles written on the subject. Whilst most writers are adept at articulating the causes of corporate decline, there is no agreement on form or structure of solutions to a corporate decline. There is no universally accepted corporate turnaround strategy.
Many theories and frameworks abound. There are frameworks that are proponents of a turnaround strategy premised on different stages of corporate life cycle or the stage of corporate decline arguing that different approaches need to be applied at different stages of corporate decline. There are those who propose a “Rambo style” approach with drastic short-term measures being taken at the beginning with a subsequent longer-term vision applied.
I consider the more effective approaches to be ones that link corporate turnaround strategies to causes of decline and advocate solutions that seek to address root cause of decline. Such approaches for example distinguish internal entity specific causes of decline from industry specific causes and also acknowledge that the timing of recognition of decline is critical. A remedy which proposes a solution that does not address underlying root cause of a decline, will in all likelihood lead to failure or less than optimal results. Also prolonged denial of a corporate decline will exacerbate the situation and complicate the solution.
One of the key areas of discussion in a corporate turnaround situation is what the appropriate approach to Human Resources (HR) should be. Most solutions have inbuilt wanton downsizing including mandatory dismissal of the CEO as panacea for all corporate decline situations arguing that cost cutting is paramount from the onset. This however ignores the need to have a deeper understanding of root causes of a corporate decline prior to prescribing solutions.
I acknowledge that downsizing is in most instances an inevitable part of the solution, but it need not be the only solution or indeed the one that is prioritized. It can be argued that in some instances it might not even be desirable. Sometimes the solution could paradoxically involve bringing in more people with a different skills set to complement existing skills, or to increase learning and relevance among existing employees instead of letting them go as a first option. Depending on the root cause, this, combined with focused training, might be the most effective approach.
The understanding of root causes of corporate decline goes hand in hand with understanding the objective of corporate turnaround – what is the end game? Is the purpose to purpose to achieve a more flexible HR process to drive recovery, maintain or enhance an entity’s competitive advantage in a declining industry, improve efficiencies or cut costs? The end game combined with the root cause should drive the solution.
This calls into question then whether laying off staff to cut costs is the best or even a desirable solution for a corporate decline. A more collaborate approach which encompasses a more responsible downsizing with options for reduced working hours, redeployment to different roles, re-training for more relevant skills, attractive retrenchment packages for non-core workers all linked to the objective of the corporate turnaround strategy might be more effective. Ultimately clear communication will enhance buy-in and avoid demotivation among staff.
So at the end of the day, root cause analysis and a clear articulation of the objective will drive a successful corporate turnaround strategy. There is no one-size-fits all response, each situation is different and must be dealt with on its merits or demerits as it were. Corporate turnaround specialists and practitioners take heed!