Western and Indian models of turnaround management

Manjunath Hegde

The author compares Western and Indian mechanisms for turning around sick corporations. Based on 18 Western case studies, the paper links cases of sickness with turnaround mechanisms. The author also presents a model for preventing sickness in organizations.

Manjunath Hegde is a student at the Indian Institute of Management, Ahmedabad. The research reported in this paper was supervised by Professor Pradip N. Khandwalla. Mr. Asim Mukherji brought several British turnaround cases to the notice of the author.

Industrial sickness has reached alarming pro-portions in India. In 1980, there were nearly 24,000 units that were sick, that is, were defaulting on repayments of loans to banks, leaving Rs. 18 billion (1,800 crore) of bank finance in geography(10). Over 400 large, 1,000 medium scale, and 22,000 small scale units were sick, many in the employment intensive traditional industries like textiles, su-gar, and jute. Statewise, Maharashtra and West Bengal had the most sick units. The threat to employment, and to the business of suppliers to the sick units was serious, and closures could trigger a chain reaction that could plunge the economy into a recession. The management of turnaround is still poorly understood. A study of 9 Indian case studies prompted Khandwalla to suggest a model of effective turnaround (9). Its chief characteris-tics were a credible change agent; mobiliza-tion of the organization's rank-and-file; priority to quick pay-off projects; negotiation of tem-porary reprieve from pressure groups in the environment; seizing of opportunities offered by the -environment; selective changes in the organization's product mix; selective strength-ening of management systems; motivation of staff through giving them challenging tasks, participative decision-making; operating auto-nomy coupled with accountability for per-formance; peer group pressure for excellence; and example set by the change agent; co-ordination through performance review meet-ings, coordination committees, direct face-to-face settlement of conflicts; setting up

Vol. 7, No. 4, October-December, 1982 289

Table 1 Turnaround companies

Company Location Size Products Case period Situation

1. Arkala Gas U.S. Company (16)

$ 975 million (sales/year) Natural gas 1973-80 Profits declining up to 1972 (profit of $ 22

million in 1972). From 1973-80, 16% rise in earning every year. $73 million profit in 1979. EPS from 88 cents in 1963-72 has increased to $3 in 1979

2. American Safety U.S. Razors (2)

$42 million (sales/year)

Shaving blades 1976-80 Company was faring badly in competition with

Gillette. But later executives took over and turned it into a $7 million pre-tax profit com-pany at the same level of sales, i. e., more than 4 times under the previous management

3. ARBED (21) Luxemberg £580 million (sales/year) • Steel 1971-80 In 1971, profit dropped by 78% and 1972 was

still worse. Emanuel Tesch took over and made it an international group with turnover of £ 580 million and employed 85,000. (39,000 during 1971)

4. Autobar (15) U.K. £ 62 million (sales/year)

Vending machines, plastic cups

1977-78 Took over Monocontainers in 1977 which was losing £ 750,000 per year. Very next year rea-ched a profit of £ 75,000. Now it has reached £ 1.5 million profits over sales of £ 15 million

5. British European U.K. Airways (11) N.A. Airline

business 1968-71 Revenue per employee lowest in the industry. Sharp cost increases. After 1971, revenues increased by 40%

6. British Leyland (8) U.K. (Austin Morris division)

£500 million (for Austin Morris)

Automobiles 1 970-71 Lost £ 1 6 million in 1 970 but earned £ 6 million the very next year

7. British Steel U.K. Corporation (12)

14 million metric tonne steel pro-duction per year

Steel 1980 Losing $ 4 million a day. Low morale, low productivity until Mogregor took over. Showing improvement

8. Bullova (5) U.K. $ 214 million (sales/year) Watches 1975-76 $ 26 million loss in 1976. First quarter of 1977

showed $1.2 million profits 9. Burroughs (20) U.S. $2.8 billion

(sales/year) Data proces-sing equip-ment and software

1979-80 In 1979, first drop in quarterly earnings in 17 years. Earnings per share halved. But after Blumenthol took over most of the short term production snags have been solved. Orders are up by 18%. Receivables dropped from 97 days to 60 days. Inventories slashed by $ 150 million and debt of $ 1 billion reduced to $ 850 million

10. Carey Energy (7b) U.S. 0.5 million barrels per day refining capacity

Refined oil 1974-79 Annual losses varied from $20 million to $90 million between 1974-78. Profits of $ 40 million a month after Mason took over

11. EMI (3) U.K. $2 billion (sales/year)

Gramaphone records, entertainment products

1 979-80 In June 1979, net profit was 0.4% of turn-over. Interest payments were all time high. Thorn Electricals acquired EMI and converted it into an enterprise with highest turnover and profit in the industry

12. FIAT (14) Italy $17.4 billion (sales/year)

Automobiles, newspapers, construction, etc.

1977-82 After continuous losses for 3 years and deficit of $ 200 million in 1980, turned around to show a profit of $76.7 million in 1981. Productivity which was lowest in the industry jumped by 20%

250 Vika/pa

Company Location Size Products Case period Situation

13. Helena Rubenstein (2) U.S. N.A. Cosmetics 1979-80 A losing company about to be liquidated. Bought

by an entrepreneur and revived

14. Litton Industries (7a) U.S. $ 4.1

billion (sales/year)

Conglomerate 1974-79 Share value went down to $ 3 in 1974 from $91.5 in 1967. But in 1979 it was revived and share value again shot up to $ 35. Earnings in 1979 were $172.2 million on a sale of $4.1 billion which was an all time record

15. National Cash Registers (13) U.S. $2 billion

(sales/year) Accounting machines and calculators

1972-74 Loss of $ 60 million in 1972 was converted into profit of $ 87 million in next year

6. Olivetti (1) Italy S 2.5 billion (sales/year)

Typewriters, accounting . machines, office equipment

1978-79" In 1978 profit margin was very low ($2.5 on sales of $ 2 billion). No dividend payment since 1975. One billion dollars debt. But in 1979, revenue went up by 40% and company was heading towards dividend payment

17. Searle (18) U.S. S1 billion (sales/year)

Pharmaceu-ticals

1977-82 Loss of $28 million in 1977. Turned up a profit of $99 million in 1982

18. Toyo Kogyo (19) Japan $ 5.3 billion (sales/year)

Automobiles 1970-80 Lost around one billion dollars in 1970-80, but turned up a profit of $91 million in 1982

Vol. 7, No. 4, October-December, 1982 291

responsibility centres; and institutionalization of an organic, entrepreneurial, professional, and participative style of management.. ,.

There may, however, be no one model of effective turnaround. For, actions that are sensible in one culture, such as ready firing of staff, may be infeasible in another culture in which legislation prohibits or sharply re-stricts such lay offs. Similarly, divestiture and diversification, relatively easy in some societies, may, for a host of reasons, including import restrictions and anti-monopoly legislation, be infeasible in others. Also, turnaround strategies are likely to be strongly influenced by the causes of sickness : if sickness has been due to stagnation in the firm's industry, diversifica-tion may be the cornerstone of a turnaround strategy; if mismanagement has been the cause, its change and revitalization may be the cor-nerstone. Thus a search for alternative, more situation specific models of effective turn-around is highly desirable. For this purpose, 18 cases of turnaround, published in British and American business magazines, were analysed. As can be seen from Table 1, these cases cover a wide spectrum of industries ranging across consumer goods (cosmetics, blades, watches, entertainment products, cars, etc.), producer goods 'steel, chemicals, oil), equipment (computer nardware, office equip-ment) and services (airline, data processing). Cases are drawn not only from the U. S. and Britain but also from Japan and European countries.

Those cases were included in the sample that were reasonably completely described. There may be many omissions and commis-sions in the published cases, since these were written by journalists rather than scholars, and journalists often highlight—or even invent— the dramatic, and gloss over what to them appears mundane or uninteresting. For the purposes of this paper, sickness was defined as a decline in performance (not necessarily a loss making situation), and turnaround as dramatic performance improvement (not neces-sarily a profit-earning situation) (17).

Analysis of causes of sickness As far as sickness is concerned, data on con-tributory causes have been analysed (Table 2) under the heads of 1) root cause; 2) external cause; 3) general management (inappropriate structure, strategy or style); 4) finance and control; 5) R & D; 6) operations; and 7) per-sonnel. For instance, Bullova, the famous maker of watches, made a loss of 25 million dollars in 1976. The root cause of 'sickness appeared to be a dogmatic, authoritarian CEO who was obsessed with the expansion mania and failed to recognize environmental changes. He led the company to blind expansion in 127 countries without prior market studies with an obsolete product that faced stiff com-petition. Financial assessment of the profita-bility of Bullova's revenue and cost control was poor. The company had neglected R & D and hence had not developed new products. There was widespread staff resentment against the CEO.

An examination of Table 2, especially the root cause column, indicated that, in the majority of cases, sickness was caused mainly by inappropriate management. Either it was too centralized or autocratic, as at Bullova, or too conservative and non-innovative, as at NCR and Olivetti, or too conservative and seat-of the-pants, as at Carey and British Leyland, or too bureaucratic as at BEA, or foolhardily risk taking, as at Litton. Even when external causes for sickness were operating, management shortcomings may have aggra-vated these crises. Besides the style of manage-ment, inappropriate or excessive diversifications were also root causes of sickness in several cases. At Searle, EMI, and Litton, sickness appeared to be due to excessive diversification and the attendant loss of management control. At ARBED, British Steel, and Bullova, on the other hand, excessive dependence on a single vulnerable product was a major cause of sick-ness. In several cases, growth mania was a major cause of sickness, as at Bullova, EMI, and Litton. In at least one case, (NCR), management complacency begotten by mono-

292 Vikalpa

Table 2 Causes of sickness of the

companies

Contributors to sickness Company Root cause External General

management Finance & R & D

control Operations Personnel

Arkala Gas Company was Government Old-fashioned Long term debts — Old and obso- High labour Company turning sick control on stubborn CEO increased due lete machinery. turnover.

due to policies pricing to unnecessary Poor Talent wasfollowed by the diversification maintenance leaving theold politician companyCEO who had lost interest in

the company American Previous owners — — High debts — Excess capacity. — Safety Razors Colgate emphasi- Mass produced

zed on volume products incon-being a large sistent withcompany company image.

Wrong choice ofchannels cateredto money losingmarkets

ARBED Excessive Single product Highly centra- — Lack of Production — dependence on a highly vulnerable lized and auto- innovation facilities quitesingle product to cyclical fluc- cratic. Lack of outdated

tuations professionalmanagement

techniques Autobar Demand for Stiff competi- — — — Plant and —

vending mach- tion machineryines going down quite old due to closure of factories that. were main customers

British Bureaucracy — ' Bureaucratic, Control in — — Chronic labour European common in conservative. both financial problemsAirways (BEA) public sector non- innovative & managerial

undertakings. aspects was nil.Sluggish per- No informationformance due existedto lack of

competition British Leyland Professional — Planning (in No management — Obsolete plant —

management all aspects) control systems and machinerymissing for this was absent nor formathighly expanded financialcompany management

British Steel Excess capacity. Competition from — Heavy severance Old techno- Excess Strikes. Corporation low productivity small, lower cost pay to retrench logy. High capacity. 3-month

units and from 1 ,40,000 workers, costs of low loss in produc-foreign suppliers. Fear of production productivity tion. LowPolitical nationalization morale of staffinterference deprived the and executives

company ofsolely neededinvestment

Contributors to sickness Company Root cause External General

management Finance & control

R & D Operations Personnel

Bullova Dogmatic authori- Stiff competition Centralized, Poorly assessed Product obsole- Expansion of Widespread tarian CEO who arbitrary and investments. scence. Company operations to discontentwas obsessed non-professional High costs due lagged behind in 1 27 countries about CEOwith an expansion decision-making to poor cost new product without priormania. Failure to control development and market studiesrecognize environ- technical know-

mental changes how Burroughs Lack of techno- — Too much of Financial & Outdated tech- Lack of coordi- —

logical abilities decentralization. management nology. Failure nation betweento fight competi- Absence of control systems to transform engineering andtion critical staff absent. No MIS product concepts management.

departments into reality Obsolete anddefective produc-ts; too wide a

product range Carey Energy Hostile environ- Stiff competition Bad public Rising debts and — — —

ment and bad from lower cost relations with high interestplanning by competitors. suppliers. Gamb- paymentmanagement stoppage of raw ling on supplies

material supply contract EMI Excessive Stiff price Inability to Expansion, huge — — —

expansion and competition foresee the debts, highdiversification from cassettes future. Blind interest payment.

manufacturers acquisition spree increase incosts

FIAT Low productivity Sluggish demand Excessive High costs of R & D lagging Lowest Deteriorating and product due to oil crisis. diversification. labour, increasing behind, product productivity in industrial rela-obsolescence price under- main line debts outmoded the industry. A tions. Hit by

cutting by the forgotten. Product wide range of terrorism. 35 Japanese development parts. Compli- long strike

neglected cated production Helena Previous owners __ _ _ High Excess capacity. __Rubenstein Colgate empha- debt Mass produced

sized on volume products inconsi-being a large stent with com-company pany image.

Wrong choice ofchannels cateredto money losing

markets Litton Excessive _ Too entrepre- Excessive debt _ Production Over-confident Industries diversification neurial. Exces- due to diversifi- schedules executives who

which was not sive risk taking. cation. Lack of slipping due to believed theyconsistent with Over-confidence. touch with lack of coordi- could manageinternal Acquisition operations in nation between everythingresources mania, loss the field management and

making diversi- production force.fication Excessive diversi-

fication contribut-ing to loss ofcontrol

polistic position caused trouble when competi-tion became rougher.

To be sure, mismanagement was not the only cause of sickness. In several cases staff competition caused difficulties as at Searle, Olivetti, Bullova, British Steel, Fiat, American Safety Razors, EMI, and Autobar. Price regula-tion by the government caused problems at Arkala Gas, and stoppage of raw materials supply caused difficulties at Carey Energy. Political interference was an aggravating factor at British Steel. But as Hall's research indi-cates (6), an appropriate management response in a hostile environment could have prevented sickness, as indeed demonstrated by the turn-arounds at the very same enterprises that had fallen sick due to unfavourable environment.

Figure 1 summarizes the major models of sickness that emerge from the case studies.

Turnaround strategies The turnaround action of 18 companies is summarized in Table 3. Table 4 provides an analysis of turnaround mechanisms. Several points emerge from Tables 3 and 4.

1. In the majority of the cases, the turn around agent or team was a newcomer to the corporation. This accords with the Indian experience of turnaround (9).

2. In several cases, notably of American Safety Razors, EMI, BEA, and Toyo Kogyo, the turnaround was effected by a team rather than by an individual.

3. In many companies, heavy lay offs were effected to trim the fat. This happened at Burroughs where 4,000 were fired as also at NCR (17,000), Fiat (23,000), British Leyland (5,000), Searle (500), Toyo Kogyo (10,000), Helena Rubenstein, British Steel, and Olivetti. This kind of massive lay off is much less experienced in India, where courts can be moved to restrain it. The ability to fire people freely may imply much less emphasis on staff motivation strategies. Nurturance seemed much less in evidence in Western turnaround cases than in Indian cases (9).

4. Rapid shuffling of product/plant port folios was another feature of Western turn around cases. Many products were given up or plants were sold off or closed at Bullova, Arkala Gas, Burroughs, Litton, Helena Ruben- stein, Autobar, and Searle. In fact, the ease with which corporations can diversify (as compared to India where many governmental hurdles have to be crossed for diversification) also may make for much careless diversifica tion which then becomes an albatross round the company's neck. Thus it is that divestiture is a much more common turnaround mecha nism in the West as compared to India (9).

Equally, several companies introduced new products. Bullova and Helena Rubenstein ex-tended the product lines they retained; NCR entered into integrated computer systems; ARBED integrated forward steel using pro-ducts; BEA diversified into hotels; Autobar, Olivetti, and Searle introduced new products. These diversifications were much more selec-tive and careful, following a period of hectic diversification and growth mania. The diver-sification was usually of the related kind, or if occasionally unrelated, it was ventured into with much more care than before. In India too, turnaround cases exhibited a tendency towards selective related diversification, al-though possibly on a smaller scale due to government restrictions.

5. There was much evidence of technolo gical cranking up through either greater or more focussed R & D effort. R & D was re- focussed and/or enlarged at Bullova, Burroughs, NCR, Litton, Olivetti, Searle, and Toyo Kogyo. This kind of greater selectivity and/or greater emphasis on R & D was largely missing in the Indian turnaround cases (9). In India, in any case, very few companies engage in R & D.

6. Selective strengthening of management systems was often encountered in these organizations. Burroughs, BEA, and British Ley- land, for example, added critical departments like planning and MIS; NCR established more cost and profit centres; Fiat introduced more professional management and cost centres;

296 Vikalpa

Table 3 Analysis of turnaround actions at the Western companies

Turnaround action

Company Major strategy followed

Structural changes

Divestiture and/or diversification

Technological changes (R & D)

Personnel policy

Marketing and operations

Costs/finance

Arkala Gas Change agent installed _ Closed down/ Main thrust New leadership. Cut price to gain over Entered into a long Company at the top who sold losing into oil Increased competitors. Good PR term contract to

brought in a series of operations exploration. A incentives to efforts to loosen ensure supply at lowpolicy changes team was built stop brain government grip on cost. Paid off long

and funds were drain pricing policy. term debts by sellinginvested Secured raw material losing operations

supply on a longterm basis

American Executive team bought Diversified into __ Sold products with Safety Razors the Company and new lines and good margins. Good

removed the obsession changed the product mix.of competing with present product Concentration onGillette, the industry line to soap. limited productsgiant industrial blades.

etc.ARBED Emanuel Tesch, Decentralization Downward Modernized — Changed the product —

a change agent took integration. production mix. Entered intocharge and diversified (diversification facilities internationalthe company into into final operationsmany related products products whichto remove excess used steel asdependence on one basic material).product Entered into

joint venturesAutobar An entrepreneurial Formal Cut down losing — New breed of Changed the product —

buyer of management operations. professional line according toMonocontainers and control Entered into managers market trendbrought in formal systems more profitable recruited professional installed. business.management when the Delegation diversification

business expanded for survival BEA A new board set up Decentralization Diversified into — Industrial A more commercial Profit centres

to take over of operations. related relations orientation. More established to controlmanagement. Gave New department supporting problems solved. packages to customers coststhe Company a more (MIS and areas like Merit got offeredcommercial, innovative planning) hotels, etc. rewarded, andoutlook while keeping added (integration) poor the basic service performancenature intact punished.

Recruitment stopped British J. Barber took over Decentralization. Investment into Retrenchment Demand forecasting Profit and costLeyland the Company and Planning and new plant and (5,000). was done and centres established

brought in strict MIS departments machinery Manpower production linked withfinancial discipline. established planning market trendsGained the confidence introduced

of all the employees

Company Major strategy followed

Structural Divestiture changes and/or diversification

Technological changes (R&D)

Personnel policy

Marketing and operations

Costs/finance

British Steel A veteran American, _ _ _ Retrenchment of Aggressive price Cost control by cutting Corporation experienced and excess labour. policy. New market down on excessjlabour

dynamic, made CEO. Negotiations development. Negotiat- and by increasingActed as a change with unions to ed with competitors to productivityagent to raise morale improve produc- take a soft approach.and productivity. tivity. Incen- Good PR jobA more commercial tives for goodorientation was performance. created Made employees

realize thattheir jobs dependon survival ofthe Company

Bullova Removal of the CEO Decentralization. Losing subsidi- Recognized the No Concentration on Cost cutting by who was responsible New responsi- aries closed technological retrenchment restricted product line. divestiturefor the sickness. bility given to down changes and Introduction of newfollowed by decent- old hands. More R & D changed products in the sameralization and delegation of accordingly. restricted linedivestiture of losing authority R & D supportproducts from the parent

companyBurroughs New dynamic CEO Critical depart- Closure of Poured huge Change at the Concentration on Cost reduction by

took over and ments like losing sums into R&D. top (outsider mini computers payroll trimming andassumed the role of planning and factories Discontinued brought in). where company still divestiturethe change agent MIS added to the develop- Executives at had an edge

the organization. ment of a the top changed.Centralization of product which Retrenchmentdecision-making was a white of 4.000

elephant workers Carey Energy Company was taken Merged with an — _ __ Neutralized threats Good financial

over by James Mason outside company from external management skill.who turned around which had very environment Settled long termthe Company with good skilled debt in a skillfulgreat negotiating finance mannerskills. He settled the managersdebts issue by paying a premium on each barrel of oil supplied and at the same time ensured supply of crude for many years

EMI Taken over by Thorn — — — Increased — — Industries and productivity byconverted into Thorn building greaterEMI. Now the largest commitment group in industry

FIAT Old president took Introduced — Poured money Refused to charge from his sons professional into R 8- D. yield to unionand renovated the management. Every two pressure. MadeCompany to cope Decentralization. months a new workers returnwith changing Clear line of model was to work. environment demarcation in brought out. Retrenchment

executive duties Automation of (23,000). shop floor by Agreements onusing robots. productivity.Standardization Rotating lay offsof parts because of

excess capacityHelena Cut down losing Change in Closed old — Retrenchment Rubenstein operations management. plants and sold

Acquired by them to realizea new owner funds

Litton New CEO with more Centralized de- Closed/sold los- Investment Talents spotted Indu stries pragmatic approach cision-making ing operations. made in R & D and rewarded.

towards business in an executive Entered field Executives madeacted as a change committee. Plan- where Litton's to travel andagent. Established ning gained technical superi- keep in touchcontrol over 100 importance. ority could be with field staffdisparate operations used, and block-

ed entry of com-petitors. Carefulacquisitions

NCR A hard driving, tough. Departments Company enter- R&D strengthen- Change at the innovative boss took reorganized. ed a new field. ed. Production top and at exe-over and acted as a Planning centra- i.e., from cash decentralized. cutive levels.change agent lized. Bureau- registers to inte- Small complete Retrenchment

cracy cut down. grated computer units were (17,000). Sales-Innovative systems produced men trained foratmosphere electronic selling.created. Team New workersbuilding for electronic

assembly recruited

Olivetti A new CEO, Bendetti Decentralization Diversfied into R&D strength- Retrenchment took over and acted of operations. new products ened. New of excess as a change agent Decision-making products labour

delegated to a developedBoard of Execu-tives

Searle The CEO, Ransfield Sold off around R&D rebuilt to Corporate staff made the Company 30 losing busi- protect the firm's of about 500return to its pharma- nesses. Careful long term dropped ceutical base and acquisitions viabilityconcentrate on the stronghold segments of its market

Toyo Kogyo The bank (Sumitomo) — — New models Retrenchment assumed control and developed. (10,000) to trimintroduced series of Heavy invest- the payroll. changes. Partnership ment in R & D Increased pro-with Ford (S 441 million) ductivity through

union negotia-tions

Changed product policy. New model every two months. Low pricing. Marketed cheap and low maintenance products

Concentration on a few high image product lines. Extended product line More sophisticated products

Clearly segmented market and allocated to salesmen. Change in product policy (inte-grated systems)

Aggressive sales policy. Change in the product line

Entered into collabora-tions. Concentrated on product lines where the Company could do well

Collaboration with giants. Market segment identified properly. Reorganized sales force

Established cost centres. Reduced costs by trimming payroll and through automation

Cost reduction by divestiture and payroll trimming

Cost control by divestiture

Established cost and profit centres. Cost reduction by trimming the payroll

Rescheduling of debts

Cost control by divestiture and retrenchment

Trimmed the payroll. Liquidated the inventory

Table 4 Turnaround mechanisms

No. of companies

Organizational Change in the top management 17 Centralized decision-making 2 Decentralization 7 Formation of new departments (Planning, MIS, etc.) 7

Efficiency measures Divestiture 7 Retrenchment 9 R & D strengthening/Refocussing 9 Higher incentives , 4 Automation or renovation of plant and machinery 3

Dealing with external environment Diversification of new product lines 6 Aggressive marketing 4 Collaboration, joint ventures 3 New market development 3 Negotiation of settling debts 2

Litton emphasized planning more than before; at Autobar a formal management control system was installed. In strengthening the systems there was greater emphasis on plan-ning and control functions than before. At the same time, in several companies, there was greater decentralization, as at Bullova, Fiat, ARBED, BEA, British Leyland, Autobar, and Olivetti. There was thus evidence of a movement towards both greater centralized control (of an impersonal kind as represented by a performance reporting system) and opera-ting decentralization, an arrangement that afforded initiative to the managerial rank-and-file without loss of accountability. In India, too, this tendency was visible (9). Occasionally, in the Western cases, one encountered centrali-zation of decision-making, as at the excessively diversified Litton. But here too, while decision-making was centralized, it was done in a committee of executives, not in a single individual. 7. In many enterprises there was a stronger commercial orientation in the marketing function, and greater profitability orientation

in the production function. In other words, in enterprises, greater profitability became the watchword for most operations. Goals like growth, empire building, and so forth declined in their importance relative to profitability.

Thus, the turnaround strategies followed in the West have several points of resemblance to Indian turnarounds, but there are also in-teresting differences. As in India, the change agent was mostly an outsider; there was selec-tive strengthening of management systems; a rearrangement of the product portfolio; greater emphasis on profitability; greater decentrali-zation but also simultaneous increase in ac-countability. Unlike in India, however, mass lay offs and use of terror were far more frequent in the West, and there was much less emphasis on intrinsic motivators, mobilization of the rank-and-file, and modes of integrating them into a team through participative decision-making. The element of nurturance seemed much stronger in India. The range of product reshuf-fling appeared much greater in the West, as also the emphasis on enlarging and/or on refocussing of R & D. The model of turnaround process that emerges from Western cases is shown in Figure 2. By and large it is consis-tent with the findings of Schendel, Patton, and Riggs (17), based on their study of 54 American companies, that turnarounds are characterized by changes at the level of general management, more R & D and the introduction of new products; construction of new plant or expansion of the existing plant; diversification; attempts of new efficiency through such means as cost cutting pro-grammes, new budgeting and cost control systems, and plant modernization; and dives-titure.

Turnaround strategies and causes of sickness The linkages between causes of sickness and the use of mechanisms of turnaround are shown in Table 5. For each cause of sickness, a number of turnaround actions, some organ-izational in character (such as change in top

300 Vikalpa

Mechanisms used

Table 6 Sickness causes vs. turnaround

mechanisms

Sickness causes

Complacent management

Turnaround mechanisms Autocratic management

Conservative management

Growth mania

Lack of strategic planning

Neglect of critical areas

Change in the top management X X X X X

Centralized decision-making X X Decentralization with accountability X X X X Formation of critical staff departments (Planning, MIS) X X X

Divestiture X X Retrenchment X R & D strengthening/refocussing X X Higher incentives to staff X Automation, renovation of machinery X X Diversification, new product lines X X Aggressive marketing X X X New market development X X X Collaboration, joint ventures, etc. X X X Settling debts X

management or introduction of staff depart-ments), some strategic (divestiture, diversifi-cation, joint ventures), and some operational (aggressive marketing, automation, retrench-ment) were executed. The set of actions over-lapped to some extent but each also had its unique features, which tended to reflect an attempt to remedy the cause of sickness: diversi-fication, aggressive marketing, R & D, etc., if the sickness was caused by complacency or conservatism, greater accountability, con-trol, divestiture and retrenchment, and more careful planning where the sickness was due to growth mania; decentralization and financial incentives where the sickness was caused by autocratic management. The implications drawn from the table are that turnaround actions tend to be multi-dimensional, multi-pronged efforts; and turnaround strategy tends to be built around eliminating the cause of sickness. There may be no one best turnaround strategy for it may, at least in part, have to be tailor-made to each specific situation.

Prevention of sickness

Although turnarounds can be effected, it is certainly much better to prevent sickness than to cure it. A model developed by Ross and Goodfellow (see Table 6) suggests the kinds of management actions that can prevent sick-ness (4). These embrace finance, senior management, various stakeholders of the cor-poration, and technology. From the manage-ment angle, the authors suggest that a diverse, heterogeneous participative senior management is likely to prevent sickness while a narrowly specialized, homogeneous, cliquish senior management may precipitate it. The choice of technology may also be important. The more versatile, adaptable, and updated the tech-nology, the better its maintenance, and the lesser the probability of sickness. Finally, the better the rapport of management with the various stakeholders of the corporation (custo-mers, employees, government, suppliers, etc.), the lesser the chance of sickness.

302 Vikalpa

Table 6 Sickness

prevention model

Factors Sickness

Factor* contributing to Immunity from sickness

Financial Liquidity Debt structure

Low Heavily leveraged-poor credit worthiness

High High borrowing potential and good credit rating

Senior management Skills Composition Size of dominant group

of executives Age distribution

Narrow, specialized Homogeneous Small

About the same age

Diverse Heterogeneous Large

Well distributed by age

Constituents Customers and product Suppliers Employees

Government Communities

Other relations

Dissatisfied, narrow product range Irregular, few alternatives available Grievance ridden, underskilled top down communication, poor group process Suspicious, little consultation Hostile, poor economic infrastructure and unskilled labour pool Highly dependent on other volatile parties

Loyal, wide product range Reliable, alternatives available Well motivated, skilled, two way participative, healthy group processes Cooperative, consultative Cooperative, good infrastructure, and extensive pool of labour skills Low dependency, alternatives available

Technology Type Condition Options Vulnerability Utilization Production

Single, specialized Obsolete, poorly maintained No alternatives Fails catastrophically High breakeven point Standardized, cost controlled, inflexible

Multiple, adaptive Advanced, well maintained Many alternatives Fails gracefully Low breakeven point Flexible by-products and inputs

Vol. 7, No. 4, October-December, 1982 303

References

1. Ball, Robert, "A confident capitalist redesigns Oli vetti," Fortune, Vol. 100, No. 8, 22 October 1979, pp. 78-86.

2. Bernstein, Peter W., "Who buys corporate losers," Fortune, Vol. 103, No. 2, 26 January 1981, pp. 60-66.

3. Blanchard, Robert, "The rise and fall of EMI," Inter national Management, Vol. 35, No. 6, June 1980, pp. 21-28.

4. Ross, Gerald H. B., and Goodfellow, James L., "A 'fitness' approach to corporate survival," Business Quarterly, Autumn 1980.

5. Guzzardi, Walter Jr., "C. P. Wong makes Bullova tick again," fortune. Vol. 95, No. 4, April 1977, pp. 154-65.

6. Hall, William K., "Survival strategies in a hostile en vironment," Harvard Business Review, September- October 1980.

7 a. Hanlon, O'Thomas, "A rejuvenated Litton is once again of f to the races," Fortune, Vol. 100, No. 7, 8 October 1978, pp. 154-64.

7 b. Hayes Linda Synder, "How Charter Co. saved Carey Energy and got instantly rewarded," Fortune, Vol.100, No. 7, 8 October 1979, pp. 132-44.

8. Heller, Robert, "How money saved BLMC," Manage ment Today, August 1972, pp. 42-51.

9. Khandwalla, Pradip N., "Strategy for turning around complex sick organizations," Vikalpa, Vol. 6, Nos. 3 & 4, 1981, pp. 143-65.

10. Kumar, Rahul, "Increasing industrial sickness," Econo-mic Times, 2 August 1982, p. 4.

11. Lester, Tom, Management Today, February 1972.

12. Luber, Robert, "An American leads British Steel back from the brink," Fortune, Vol. 104, No. 6, 21 Septem ber 1981, pp. 88-108.

13. Martin, Linda Grant, "What happened at NCR after the boss declared martial law," Fortune, Vol. 90, No. 3, September 1975.

14. Neilsen, John, "The turnaround at Fiat," Time, Vol. 120, No. 6, 9 August 1982, pp. 42-47.

15. Newman, Nicholas, Management Today, October 1980.

16. Nutty, Peter, "Little Rock's hot cookin'gas company," Fortune, Vol. 104, No. 7, 5 October 1981.

17. Schendel, Dan, Patton, G. R., and Riggs James, "Corporate turnaround strategies: A study of profit decline and recovery." Journal of General Manage ment, Vol. 3, No, 3, Spring 1976; Bidani, S. N., and Mitra, P. K., Industrial Sickness (New Delhi: Vision Books, 1982), p. 26.

18. "Searle—A drug company rallies with new vitality," Business Week, No. 2725-56, 8 February 1982, pp. 59-62.

19. "Toyo Kogyo's spectacular recovery," BusinessWeek, 25 June 1982.

20. Uttal, Bro, "The blumenthol revival at Burroughs," Fortune, Vol. 104, No. 7, 5 October 1981, pp. 128-36.

21. Willat, Norris, "When ARBED sneezes," Management Today, July 1 972, pp. 54-59.

304 Vikalpa