Turnaround refers to a firm’s period of financial recovery from a period of poor performance. It also refers to a country’s economic recovery from a period of recession or stagnation. It also applies to a person whose personal finance bounces back from a period of steady decline.
Turnarounds mark the end period of an economic recession or negativity and also the beginning of a financial increase of economic boom. Turnarounds can be likened to restructuring periods, where an institution turns losses into profits while ensuring future stability. Turnarounds, however, can mean something different in investing, as it is the amount of time between placing and fulfilling a trade.
Important Notes on Turnarounds
- Turnaround refers to financial recovery of a company, an economy, or a person who has been suffering from poor financial performance or recessions.
- Turnarounds are similar to restructuring processes, where a company needs to evaluate the problems and consider possible changes.
- Turnarounds depicts period of improvements in the financial status of an entity, making them a very important concept in life.
Creating a Turnaround
Examining the problems which are causing recessions or downturns is the first step to creating a turnaround. Businesses and firms can choose to examine management changes or opt for restructuring and other strategies. In a situation where the decline is beyond manageable, they may choose to sell off the company.
Determining Entities in Need of Turnarounds
Different factors are used in determining whether an entity requires a turnaround or not. In firms, unnecessary layoffs, low capital to cover operation cost, and decline in the price of shares are major signs that such a business requires a turnaround. Also, it is important to consider a firm’s competitive nature and product quality, as they may be signs of financial declines. Also, improper management of the factors of production can lead to a financial decline. A stock speculator (an individual or firm that guesses the movement of stock prices) may be entitled to large returns if he or she can accurately predict the turnaround of a company in financial mess.
Factors Affecting Turnarounds
Turnarounds are mainly as a result of internal and external forces in an economy or business. The internal aspect covers identifying the causes of financial decline and trying to fix them, while the external aspect primarily focuses on getting new regulations that can help them get more profit from lower cost of production materials.
Each company has a turnaround team which analyzes the causes of the firm’s decline and comes up with a strategy– like restructuring the business– for a healthier performance.
Illustrations of Turnarounds
In 2009, the US experienced a series of recession as a result of a collapse of the US housing bubble due to subprime mortgage chaos. This chaos led to a number of fold-ups, as major world banks experienced dramatic collapses. Turnarounds came into play when the government provided a series of bailouts and packages aimed at altering the nature of the economy.
Also, in the late periods of the 2000s, the automotive industry suffered a recession. General Motors (GM) in 2009 declared bankruptcy and this led to the delisting of their stocks and shares from the market. In 2010, after a series of bailout funds have been injected into this firm in addition with the time they had to restructure themselves by declaring bankruptcy, this firm was able to get back into the automotive industry and the market with better performance than before.
References for “Turnaround”
Academic research “Turnaround”
Turnaround strategies, Hofer, C. W. (1980). Turnaround strategies. Journal of business strategy, 1(1), 19-31.
Turnaround leadership, Fullan, M. (2005, June). Turnaround leadership. In The Educational Forum (Vol. 69, No. 2, pp. 174-181). Taylor & Francis Group.
Turnaround strategies for mature industrial-product business units, Hambrick, D. C., & Schecter, S. M. (1983). Turnaround strategies for mature industrial-product business units. Academy of management journal, 26(2), 231-248.
Strategic change in the turnaround process: Theory and empirical evidence, BARKER III, V. L., & Duhaime, I. M. (1997). Strategic change in the turnaround process: Theory and empirical evidence. Strategic management journal, 18(1), 13-38.
Corporate turnaround strategies: A study of profit decline and recovery, Schendel, D., Patton, G. R., & Riggs, J. (1976). Corporate turnaround strategies: A study of profit decline and recovery. Journal of general management, 3(3), 3-11.
The nonmetropolitan population turnaround, Fuguitt, G. V. (1985). The nonmetropolitan population turnaround. Annual review of sociology, 11(1), 259-280.
Toward improved theory and research on business turnaround, Pearce, J. A., & Robbins, K. (1993). Toward improved theory and research on business turnaround. Journal of management, 19(3), 613-636.
Retrenchment: cause of turnaround or consequence of decline?, Barker, V. L., & Mone, M. A. (1994). Retrenchment: cause of turnaround or consequence of decline?. Strategic management journal, 15(5), 395-405.