As foreign competition hots up, chances are that Indian companies which haven?t read the writing on the wall quickly enough will find themselves rendered irrelevant in the marketplace, irrespective of the sectors in which they operate. And the task of effecting a turnaround will assume critical significance.
Recently, the Economic Research and Training Foundation of the Mumbai-based Indian Merchants? Chamber had an intensive workshop on managing constraints and turning around companies, where some international case studies were discussed and senior representatives from Indian companies like Crompton Greaves, Tata Chemicals and Jisco put down their views on turnaround management.
An excellent presentation by Prof Pradip N Khandwalla, the well-known turnaround management expert and former professor and director at Indian Institute of Management, Ahmedabad, elaborates on the forms of turnaround management and shows how turnaround can be achieved by contrasting approaches.
Prof Khandwalla begins by explaining in simple terms what corporate sickness means. It is the impaired ability to function effectively in a competitive and complex environment. Corporate sickness is widespread in India and in many other market economies and may increase because of ?hyper-competition? as a result of globalisation. Turnaround management, Prof Khandwalla explains, is the ?management of corporate healing.? According to him, the art of corporate healing is two-fold: symptomatic and systemic.
In symptomatic healing, some of the symptoms of corporate sickness are identified and addressed through what can be termed vigorous management action. In many cases, such action may require unpleasant decisions to be taken. Cost-cutting, layoffs and closures are very much part of such decisive action.
On the other hand, systemic turnarounds will typically go beyond the immediate, look for the underlying causes and try to transform the mindset of stakeholders and the corporation?s systems and processes by including the stakeholders in both the diagnosis and remedial steps. Transformational turnarounds would often yield better corporate performance and gear an organisation to withstand the stress of competition. It also enables an organisation to grasp a big opportunity and innovate successfully. A successful turnaround model will require a certain type of corporate leadership and reduce the human costs of turnaround while building capacity for sustainable growth, Prof Khandwalla points out.
Turnarounds can differ drastically between companies. Consider, for example, the case of Scott Paper of the US, an example he lists. An old and established company with annual sales of $5 billion, the company saw losses during 1991-93 and declining sales. John Dunlap was brought in as CEO in April 1994. During his first five days in office, he dissolved the management committee, fired nine out of 11 top executives, destroyed all previous strategic plans and brought in three of his own people. Over the next few months 40 per cent of the employees were asked to go home, and this included 70 per cent of the staff at corporate headquarters.
The CEO disposed of about $4.6 billion worth of assets, paid off debts and invested some of that money in the market to keep the Scott stock at respectable levels. Scott turned profitable in under a year. Kimberly-Clark bought it out for over $7 billion and the CEO made good money from stock options.
Contrast this with the creative turnaround at Siemens-Nixdorf, Germany. S-N, an infotech company, fell sick in the early ?90s and had 40,000 employees. Gerhard Schulmeyer of ABB was brought in as CEO in October 1994 to turn the company around. He met some 9,000 employees and stakeholders even before taking over, and his diagnosis was that the company needed a mindset change to thrive in the dynamic IT industry in which it operates. It needed an entrepreneurial, customer-focused and teamwork-oriented culture, and he wanted the mindset change in just two years.
Talking to potential change agents like the heads of HR, corporate communications and corporate strategy, he asked them to identify more such change agents. Thirty were identified, who brainstormed for three days and developed a 19-point agenda. Another 300 opinion leaders were roped into the transformation, and 60 consensus issues for action emerged at a workshop.
Each such action was assigned to a project leader, who recruited his/her own team for it. Eventually 2,000 change agents were identified. Many such change agents were sent to a 13-week exposure in the US to pick up the Silicon Valley approach to entrepreneurial culture. The CEO created 2,000 profit centres and 250 SBUs, with the trained change agents heading those.
Twice monthly, transformation programme developments were discussed company-wide and new developments flashed on e-mail. Initiatives were often implemented by teams autonomously. The result was the company broke even in 1995, and in 1996 it had made a 550 million DM profit on sales of 15,400 million DM.
Prof Khandwalla?s examples serve as excellent lessons for India Inc, which often grapples with the challenge of turnaround without a sound strategy for the nature of the problem at hand.