Btot 14.08.2022

BUSINESS
TRANSFORMATION
ROLE OF MANAGEMENT AND LEADERSHIP
SIBM
PRABHAKAR NORI
27TH JANUARY , 2021
SYLLABUS AND
SESSION PLAN
SYLLABUS, TEACH PLAN & SESSION PLAN
Total of 30 hrs
Topic Details of the topic to be covered Teaching Tools Hours
The Corporate Reasons for corporate failure; Predictable organisational crisis; Most common
Lecture and Discussion 7.5
turnaround management errors; Early warning signals of decline
Role of Management and Management change; Turnaround leader characteristics; Stages in turnaround
Lecture and Discussion 10
Leadership cycle; Key factors in turnaround success
Turnaround strategies Structure of evaluations; Financial, competitive, organizational assessments;

Lecture and Discussion 6
and practices Planning strategies by stages
Asset redeployment; Financial, Operations and Marketing management in

Emergency stage and
Emergency stage, The Return-to-Growth stage; Financial, Operations and Lecture and Discussion 6.5
Stabilisation stage
Marketing management in Stabilisation and Return-to-Growth stage
TOTAL 30
Credits :2 (Assignments1 Regular+1 Experiential),4 Quizzes

Details of the topic to be covered Teaching Tools Hours
Stages in turnaround cycle. Key factors in turnaround

success. structure evaluation : financial ,competitive and Lecture and Discussion 2
organizational assesment
Today’s Agenda : Topics covered

Stages in turnaround cycle
Moment of truth stage
The management change stage
The evaluation stage
The emergency stage
The stabilization stage
THE STAGES OF A TURNAROUND ;
Based upon the experience turnaround leaders, the discrete

stages of a turnaround are the following:
1. Moment of truth stage
2. The management change stage
3.The evaluation stage
4.The emergency stage
5.The stabilization stage
6. The return-to-normal-growth stage

The Moment of Truth ::
Before a company can cure its problems, it must realize that it has major problems and make the decision
to do something about them. This is what I call reaching the moment of truth.
At the point where a company reaches its moment of truth and decides to make fundamental changes, it
has gone from absolute decline to potential turnaround. It may continue in a downslide after this point,
but basically there is now a new element in the corporate mix that has, at least potentially, begun a
turnaround process. Reaching the moment of truth is not an easy task or always well-defined, but at some
point the people in power decide to act.
There has to come a point somewhere along the line where the board and the president make the decision
that the company is in serious enough trouble to require Trojan measures to get it out.
Existing Management ::
Now the question is whether current management can make the necessary corrections to cope with the problems
confronting the company. In more than seven out of ten cases, management has to be replaced because they either
cannot cope with the problem or they themselves (or at least the CEO) are the problem.
Existing management is a problem because it lacks credibility and it cannot cope with the job at hand. It lacks credibility
because it was the cause of the problem. It did not recognize the problems early enough, and it didn’t want to do
anything about them. It cannot cope with the difficult step of firing lots and lots of people, an action which is almost
inevitable in a serious turnaround.
the cutting back of unprofitable operations is very difficult for existing management for emotional reasons.
Sometimes the chief operating officer is changed, but the CEO remains. In other cases, particularly where the top man
has a strong ownership position, top management change means simply a change of heart, a new thrust, or an ability to
make the tough decisions to save the business.
Most turnaround leaders believe that the problem lies with the top man himself, particularly in smaller
companies. The problem is different in larger companies, In a larger company, the CEO is thinking long
term and really away from it all. He’s not close to work on the bottom line, insofar as operations are
concerned. The chief operating officer gets it out on the bottom line and, in most cases, is the culprit. He
usually has some pretty competent people who are frustrated by him and his style of operation. Those
people leave and are easily replaced by the weaker people who will tolerate his style. The longer it goes
on, the weaker the organization becomes.
The new Leader ::

The New Leader When the board does decide to act to make a change, it does not always go to the
outside to find a new leader. An insider has both advantages and disadvantages. If he is familiar with the
operation and has run a division that has performed well, he may be superior to a rank outsider.
Larger companies often have that kind of management depth, but smaller companies do not. The problem
with choosing an insider is that the person may have been a party to past mistakes the company made.
Most turnaround leaders believe that the problem lies with the top man himself, particularly in smaller
companies. The problem is different in larger companies, In a larger company, the CEO is thinking long
term and really away from it all. He’s not close to work on the bottom line, insofar as operations are
concerned. The chief operating officer gets it out on the bottom line and, in most cases, is the culprit. He
usually has some pretty competent people who are frustrated by him and his style of operation. Those
people leave and are easily replaced by the weaker people who will tolerate his style. The longer it goes
on, the weaker the organization becomes.
The new Leader ::

The New Leader When the board does decide to act to make a change, it does not always go to the
outside to find a new leader. An insider has both advantages and disadvantages. If he is familiar with the
operation and has run a division that has performed well, he may be superior to a rank outsider.
Larger companies often have that kind of management depth, but smaller companies do not. The problem
with choosing an insider is that the person may have been a party to past mistakes the company made.
In really tough turnarounds, where survival is at stake, the board usually picks an outsider with few ties to
the past. An outsider has the advantage of objectivity in
An outsider has the advantage of objectivity in evaluating the situation and, subsequently, is more capable of
taking drastic measures.
Generally, companies that get into trouble in the first place are managed by “nice guys” and “good old boys,”
and it’s the good old boy who generally gets into more trouble than the “mean old son-of-a-bitch.” When
directors recognize the company as a turnaround candidate, they usually get an outsider. Often half the board
quits; who needs it—catching all this heat, all the bad publicity, and being Often half the board quits; who
needs it—catching all this heat, all the bad publicity, and being part of the decision-making team. The other
half will go out and bring in the Star. The Star is the guy who says, “Okay, here’s what we’re going to do.”
THE EVALUATION STAGE
THE EVALUATION STAGE The next stage is the evaluation stage, which focuses on the viability of the company and the
preparation of a survival and /or turnaround plan. The viability analysis cannot be performed unless the new leader
has taken charge of the company and shown that he means business. The organization must be yanked, symbolically
at least, in the first few days. A new leader who acts like a bull in a china shop the first day is making a mistake. He
should be aware of his ignorance of the company he has just joined. It is possible to take immediate action that
smacks of toughness without upsetting the applecart.
Action must be the result of “appropriate” study because the approach needed to turn a business around is
significantly different from managing a profitable company. Since speed is essential in any turnaround operation,
operation, it is vital that the executive have a proven framework for tackling the problem. Usually the new man is
under time pressure to show results. But no matter what the time pressure, he should resist change which lacks
evaluation. Evaluation under extreme pressure can be a quick study lasting just a few days. In view of time pressure,
he should do two things before making any major changes: (1) gain a sufficient understanding of the situation to
determine where to concentrate his efforts so as to get the greatest leverage in the shortest period of time;
and (2) develop his plan of action. A good understanding of the business before taking action is critical for credibility
and can allow a new leader to exercise more control. Every operation of the business has to be individually studied for
viability. Until a leader does a viability analysis, unless there is a defined problem that he knows about, he shouldn’t
act.
Identifying Problems Before a company can recover, it must recognize the nature and magnitude of its illness. As Robert
Di Giorgio says, “You have to find out first— ‘What have I got? Anemia or cancer?’ Then you can determine the cure.” In
turnaround situations, the magnitude of the illness is sometimes so great that action takes precedence over diagnosis.
Some companies need emergency treatement until their condition is stabilized and more refined evaluations can take
place. The turnaround leader must quickly determine whether the company faces short- or intermediate-term survival
questions, or less severe profitability performance problems. Less severe signs often are early-warning symptoms of a
sick organization and require turnaround effort as much as survival cases. The difference is in the types of cures and the
dispatch with which they are imposed. In many cases, the sick company is not treated until it’s almost too late and
Draconian measures are required. In cases of impending bankruptcy or severe cash flow problems, the probability of
survival must be determined quickly.
You must have the ability to quickly identify the viable segments of the business. You have to determine if there is a
place in the market for you and your product or service, with an adequate gross margin that permits you to compete
on a profitable basis. You have to have good guts and make judgments quickly. You are liable to liquidate good pieces
of the business; and you may keep bad pieces. Those judgments are terribly important, but they are intuitive and
based on experience. You don’t have time to run any McKinsey-like studies.
There is a common thread to both quick and slow studies, that is, a search for a viable company core and those
problems that have real turnaround leverage. There’s a danger in believing the conventional wisdom that there are
many problems and that you’ve got to tackle all of them for your turnaround effort to succeed. There may be many
problems, but adjustments in only one or two highly leveraged areas can make a dramatic shift. If the company has
made serious mistakes for so long that it is in a bad way, you will have trouble getting management to focus calmly on
the most important problems. Management often falls into a trap. It deals with the little problems it feels it can handle
—simple areas, easily corrected—and they all lack turnaround leverage.
Solutions With the major problems identified, the next step is deciding how to solve them. There are usually a
readily apparent and limited number of options available. Don’t be too critical of the solutions available. The
worse the situation, the more likely that any strategy will work. You should not take courses of action that require
extensive justification; stick to the critical problems that have turnaround leverage and are the cornerstones of an
action plan. You should not try to cover every problem, or relate problems without pointing out solutions. It is
more important to solve 80 percent of the problem with imperfect solutions than to go after the last 20 percent
and take three times as long to produce results. There is a temptation to jump in and start fire righting without an
action plan—I advise against it. During the initial weeks, there is normally a quiet period—often called the
honeymoon—which is ideal for planning purposes. The board of directors often takes a hands-off approach and
wants to see what you do without prodding. Generally, your subordinates will also be wary of coming to you with
their problems until they have a chance to “read you” and determine how you react to them. Take advantage of
this moratorium to develop your plans.
The Action Plan ::
Once the company’s problems are understood and the appropriate amount of analysis is completed, a written
action plan should be prepared. This is the game plan that will take the corporation from its current poor
performance through at least one additional stage in the cycle. In serious situations the game plan is a cash flow
plan because almost by definition serious situations are negative cash flow situations. Remember, a corporation
can sustain itself if it has only one dollar more coming in than is going out
Obviously, the first thing you have to do is stop the bleeding. That means that you lay out a cash flow and
say, “Here are the businesses, these are the incomes, and these are the disbursements from those
businesses. Here are the negative pieces. Now, how do we stop the negative cash flow and get it turned
around to positive cash flow short term?” You do that before you do anything.
Time is of the essence in a bleeding situation. No more than thirty days should be required to do this, even
in large companies. In small companies, ten days to two weeks “max” is required. In contrast to the
survival situation in some companies, others have less severe, but often more complex, malignancies.
Further studies should be carried out if the company’s financial status will allow it.
In most cases a plan of action should not be deferred for more than ninety days after an executive takes
over. The type of operating plan appropriate for the early stages of a turnaround is a great deal less formal
than many of the massive planning studies prepared in large organizations that do not face operating
difficulties.
Communicate the Plan ::
The action plan should be communicated in two directions: upward to the board for approval, and downward to the
key management team. If the plan calls for less-than-Draconian measures, the board may have given prior authority to
implement change. To get as much backing as possible, however, it’s a good idea to communicate a cohesive plan,
regardless. In addition, if lenders are in on the act, they should be informed of your intentions. Sideways
communication is also important where outside parties, like banks, have an abiding interest. The team management
should be assembled at an outside location so that the plan can be reviewed without interruption. They must be
involved in the act, and out of the meeting must come a consensus on action. This should include assignments, with
deadlines, to subordinates. The basic strategy in communicating the plan in any direction is to get commitment from
the parties concerned. Don’t discuss the plan with anyone without real power in the situation or anyone without a
stake in its implementation. Get commitment from those who are needed, and no more. Rely on those people and
push the plan through the organization. Develop a plan and stick to it.
THE EMERGENCY STAGE
THE EMERGENCY STAGE In the emergency stage a company does what is necessary to ensure survival. Emergency usually
means surgery. If time and cash are available, surgery may be only mildly traumatic. In most cases, however, corporate
surgery is as traumatic to the corporation as medical surgery is to the human body. In this stage the corporation moves
beyond problem recognition and boldly into action. As Jeffrey Chanin indicates: “If you see the problem and you’re
satisfied with the solution, why wait around? Do it!” At this point in the turnaround the priority is to stop the bleeding.
Unless you stop the overflow of cash, the business will die. Cash is king in this phase of the turnaround.
Stop the Bleeding ::
The way to get your cash flow in order is similar to emergency room procedures. First you stop the bleeding with a
tourniquet, then operate, to stop those internal actions that caused the bleeding.
THE EMERGENCY STAGE
The cash flow plan carries with it what I call purchase-order surgery and manpower. You first put a hold on the corporate
structure. Stop anything from coming in. Put a freeze on the payment of all accounts payable until you can analyze where you
stand. You have to control what goes into the pipeline in order to control what comes out. Automatically freeze all purchase
orders and take control of purchasing. After you have put moratoriums on payments, perform surgery on payroll. Lop people
off in a wholesale fashion, not arbitrarily, but by analyzing the segments of the business and relating income to outgo. You
work fifteen, eighteen, twenty hours a day during that period, because in many cases you have to ask somebody for a payroll
on Friday and you have to have a good check to clear that account. The computer is useless to me in a critical situation. A
sharp pencil and a good mind is what I need at that point in time.
A cash flow plan does not always mean drastic cuts. In well-financed companies that sense trouble brewing, other actions are
taken, including borrowing to see the company through its rough period.
Companies that have moderately serious but not alarming cash flow problems also engage in surgery in order to trim the fat
away and provide funds for more productive uses that keep the company competitive.
THE EMERGENCY STAGE
The best way to motivate big cuts is to make one big list of all the alternatives. The preparation of the list will
involve so much analytical effort that the management team will become unified in the need to act and the
direction to take.
Unloading a Loser ::
In a crisis situation, trying to unload a loser can be difficult. If you can’t afford additional cash flow losses,
liquidation may be the only alternative. Divestment is an orderly approach to getting rid of a loser, while
liquidation is more an act of desperation. You can expect a substantial haircut from book value in a liquidation. A
company should try to straighten out a loser by quick surgery and then attempt to sell it as a going concern.
Borderline situations are given only a few months to shape up. If they don’t perform in the specified time, face up
to liquidation. Grisanti says: “The question is, ‘How do we get rid of it?’ Set a target date that says, ‘Okay, if I
haven’t sold it as a going concern by this date certain, than I should liquidate it. It’s cheaper for me to start
liquidating than to try to make it a going concern.’” Expect losses when you are liquidating, because you are
selling parts that are unsuccessful and you will have a hard time finding a buyer for them. Investors Diversified
.
THE EMERGENCY STAGE
Out of the Wringer
When all these moves are accomplished, many companies come out of surgery. smaller revenuewise, but no longer
losing cash. Restoring profitability and stabilizing operations generally means shrinking back to those segments of
business which have achieved, or can achieve, good gross margins.
THE sTABILISATION STAGE
THE STABILIZATION STAGE Eliminating losses is only part of the turnaround executive’s job. That is only the first
step, and often the easiest one. The second stage is achieving an acceptable return on the funds invested, or
divesting the business as a going concern. Despite the effective implementation of head-count reduction,
improved operational management, and the elimination of loss subsidiaries, the anticipated return from the
funds invested may be unacceptable in the medium term, even though operating losses have been eliminated. As
Jeffrey Chanin says: After you’ve cut out the cancers and identified plans for the renovation of the company, you
still have a sick patient recovering from surgery and you’re not sure yet how he’s going to be affected in the long
run. You’ve got to find out if your remaining corporations are capable of long-term survival—not just can they
produce a decent cash flow right now, but are they worthy of being kept over the long haul?12
.
THE STABILISATION STAGE
Looking beyond Today During this period, the corporation begins to look beyond the day-to-day problems and the
requirements of survival. It knows it can survive, but doubts it can perform again. Right between surgery and stabilization
comes a kind of gray area, and good management teams usually start addressing that prior to or at the very early
commencement of stabilization. Stabilization, by definition, implies a settling-down process that allows time to give the
future more thought, since now nearly everyone believes there will be a future. How dark or how bright that future will be
for the corporation is not yet known. Stabilization is a settling down after the trauma of the emergency stage. During the
surgery stage, corporate executives concentrated on cash flow and survival. During stabilization, the emphasis shifts to a
three-pronged strategy: first, concentrating on profitability in addition to cash flow; second, running existing operations
better; and third, reposturing the company to provide a sound platform for medium-term growth. Cost cutting and
divestment can solve short-term cash flow problems, but only sustained profitability can make available the long-term cash
required for healthy growth. In addition to cutting costs by economizing measures rather than surgical cuts, the stabilization
period allows a company to look at profit margins and profitability in more detail. The emphasis is on profit improvement
rather than cost cutting. It is not enough to know the company’s total cash flow situation or which division must be cut to
save the company. Decisions now are a refinement process.
.
Protecting the Motherlode Everything is examined in more detail, and thus puts strain on the longer-term systems
requirements. At this point the company makes investments in running its current businesses better. Of particular
concern is the main core business of the company that must be protected, cultivated, and purified. It is the core that
will finance the turnaround and provide a platform for the future.
During the stabilization period, when things are settled down, the building of long-needed control systems is begun
or refined. The lack of such control systems was one major reason the company had prior difficulties. I have to point
out, however, that in critical situations a control system is not the key to the turnaround. It is executive action based
upon a sharp pencil and a good mind. It doesn’t do very much good to spend a lot of effort on systems during the
surgery stage unless you know you’ll be around and in what form you’ll be. During stabilization a great deal more
effort on these areas is expended and usually yields a high payoff.
Reposture the Company :- If the need for achieving a turnaround has resulted from long-term changes in the market
place of the company, then it will almost certainly be necessary to reposture the business. This involves a planned
withdrawal from unprofitable products, services, market segments, and territories and the development or
acquisition of alternative business— attractive from the standpoints of both profitability and future growth. The
reposturing of the business may be relatively simple. For example, either the company should look for future growth
in Europe, or it should concentrate on developing a higher- quality, higher-priced product range, or it should
recognize that it has the ability to sell custom-made products profitably and devote more resources in this direction.
It is equally possible that reposturing the business may require a modest degree of diversification, involving either a
joint venture or an acquisition. A detailed definition of the future is usually not possible during the stabilization
period, but general direction and reposturing are definitely possible.
THE RETURN TO NORMAL STAGE
THE RETURN-TO-NORMAL-GROWTH STAGE The emergency stage concentrates on retrenchment, the

stabilization stage concentrates on controlled profit growth, and the final phase of a turnaround
concentrates on development and revenue growth. This time around, margins are not sacrificed at the
expense of revenue growth. If a management has learned its lessons, it will position itself in fast-growing,
high-margin businesses. The emphasis is now on internal and external development. Internal
development emphasizes new marketing thrusts, finding ways to broaden the base of the existing
business, and finding ways to increase market penetration. Revenue growth again becomes a corporate
priority. In order to facilitate revenue growth, new products are selectively added, additional markets
developed, selling effectiveness increased, and customer service improved.
.
THE RETURN TO NORMAL STAGE
Creating a Sound Financial Platform ::
Producing sustained growth requires investment for future growth, and investment requires a strong
balance sheet. From a financial standpoint the emphasis shifts to the balance sheet and return on
investment. Jeffrey Chanin discussed this: The last stage is positioning the company for ten or fifteen years.
You’ve got to look at your balance sheet. Is your capital structure messed up, now that you’ve done all
these things? What do you have to do to the capital structure to get it in line again? Do you want it simple,
do you want it complex, do you want to get rid of your debt? How do you build back the credibility of your
company? What you do to your balance sheet is as important as what you do to your operations.
.
WHEN THE COMPANY TURNED AROUND
WHEN IS THE COMPANY TURNED AROUND? At some point in time, the turnaround leader feels that his company has
been turned around. The feeling can change, but most turnaround leaders look for definitive signs that things have
indeed changed.
The turnaround becomes a turnaround at that point in time when your financial partners begin to treat it as such. In
most large businesses, the turnarounds are involved in partnerships of the company and its banks, and obviously the
attitude of the banks in relation to the type of loan agreements and the type of stranglehold they have on the
company is very direct measurement of when they have accepted the fact that a turnaround exists. When your
financial partners begin to treat the company as a customer again, rather than the bank feeling like it’s the customer,
that’s the point in which the turnaround has been effected.
Key Factors in Turnaround Success
There are three factors which affect all business, but which are more noticeable in a turnaround. There are
people aspects; there are the business aspects of total competitiveness; and there are financial resources.
When you start to look at these three factors, you can tell a lot about decline, turnaround, and sustained
growth.
THE ELEMENTS :: There are certain key elements that lead to turnaround success. In their absence, a turnaround
effort is highly risky. It is tempting to say that turning a company around involves such a multiplicity of factors that
their enumeration would fill a dictionary and it might be easier to list them in alphabetical order. Indeed, there are
many factors, but certain ones stand out above the others and appear time and again in turnaround situations. In the
most general sense there are key elements that apply to any business situation, whether it be a turnaround or not. My
favorite summary of the key turnaround factors was presented by Bob Brown:
You have to have four key elements to make the turnaround work. You’ve got to have the willingness. This means that
the new man who is brought in to do the turnaround has to have absolute control. He has to report directly to the
board, but he has to have the maximum flexibility that is given to any management. You cannot manage a turnaround
by committee. It is strictly a star business, and you have to have a board that is willing to go along with that. The
second thing is that he has to have something to work with. There has to be an economic reason for the business to
be there. In other words, if you are making buggy whips, you can be the most efficient buggy-whip maker in the world;
but, if there is no demand for buggies, you should recognize that, get out
of the business, and get into something else. The third key element is the money and resources
to turn around, to become a competitive entity. And the final ingredient is the motivation of
people. You have to be able to attract and motivate top people in the key areas in which you
are making the turnaround.
In its simplest form the four principal keys to a turnaround are:
1.New competent management with full authority to make all the required changes
2.An economically and competitively viable core operation
3.“Bridge” capital from external and internal sources to finance the turnaround 4.A positive
attitude and motivated people so that initial turn around momentum
.
IMPROVING MANAGEMENT PROCESSES ::
As we saw earlier, seven out of ten turnarounds are

management process turnarounds,
If you've faced difficulties and failures in your life, these words
by former chairman of Tata Sons will nothing but inspire you to
work harder. He once said, "Ups and downs in life are very
important to keep us going, because a straight line even in an
ECG means we are not alive."
Back ground of Tata Motors
• Tata Motors was earlier known as Telco , which started in the year 1945. Tata Motors Limited is a leading global
automobile manufacturer of cars utility vehicles buses trucks and defence vehicles.
• In 1988 it launched it’s first passenger vehicle –Tata Mobile.
• In 1991 It launched Sierra
• In 1994 SUV Tata Sumo
• In 1998 It launched SUV Safari and Hatchback Tata Indica.
• In 1999 Tata wanted to sell it’s car division to Ford motors. The story we all know.
• In 2008, Tata motors bought Jaguar Land Rover for Rs 10,000 crores and they decided to turnaround this company.
• As India's largest automobile company and part of the USD 113 billion Tata group Tata Motors has operations in the
UK South Korea Thailand South Africa and Indonesia through a strong global network of 76 subsidiary and associate
companies including Jaguar Land Rover in the UK and Tata Daewoo in South Korea.
• The company's manufacturing plants are situated at Jamshedpur (Jharkhand) Pune (Maharashtra) Lucknow (Uttar
Pradesh) Pantnagar (Uttarakhand) Dharwad (Karnataka) and Sanand (Gujarat). Through their subsidiaries and
associate companies the company has operations in the UK South Korea Thailand and Spain.
Country
Chinese 70% MI/oppo VIVO One plus
Korea 20% Samsung
USA 4% Iphone
Others 6%
Total 100%
%
6
4
20
Similar situation you find in other electronic appliances
also-TV/Refregirators/Washing machines/Dishwashers etc..
You don’t find any Indian product.

70
Chinese Korean American Others

Profit/loss in Rs crores
Market share
16 2022
-11234
14.17
2021
14 13.7 -13016
13.1 13.1
2020
-10975
12
2019
-28933
10
2018
8.99 6813
8.2
8 2017
6063.56
6.3 2016
5.8 11579
6 5.7
5.3 5.2
4.8 2015
4.6 13986
4
2014
13999
2 2013
9892
-40000 -30000 -20000 -10000 0 10000 20000
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Market share
JLR is the primary Revenue driver of Tata motors. % contribution of JLR in total Revenues
% CONTRIBUTION OF JLR
90%
80%
70%
60%
50%
40% 82% 82% 80% 79% 80%

78%
71% 72%
30% 61%
55%
20%
10%
0%
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
• Few important facts about Automobile industry
1. Whenever an automobile company comes up with a new model of a car, the company spends hundreds
of crores in setting up the factory floor, buying the machinery ordering of parts and
deploying labour.
2. Even if you built a great car, there is always a risk that it will sell because automobile sector is not
only effected by comprtition but also by
1. Geo-political issues
2. Government regulations
3. After the exit of united Kingdom from the European union on 31 st January 2020, the pound dropped and
lost 10% to the Euro , JLR lost Rs 2300 cr and their profits were proportiantely hit as a result of tariffs.
4. Pandemic would adversely affect the trade besides the OLA and UBER like companies, whose model is
based on decreasing car ownership.
5. After spending long years and huge money in research in designing a extraordinary efficient petrol car,
suddenly the market will push you to a hydrogen or a EV format and the industry has to spend huge sums of
money and time to R&D again.
So in Automobile Industry, The bankruptcy Is always At Your Door Step
Problems faced by the company
Problem with JLR in China
• JLR’s main business is not in India, It mainly sells in China and European countries
• From 2015-17, 33% of the revenue of JLR was coming from China.
• Tata motors realised China was imposing 25% tariff on imported vehicles.
• Tata motors to avoid this tariff of 25% , formed a joint venture with an Automobile company from China
“Cherry Automobiles” in 2014
• Till 2017, Tata motors was selling nearly 1,50,000 units in China.
• As the sales increased, the technical problems started coming in. Concerns raised about the product quality .
• As a consequence to this, JLR had to call back 106,000 vehicles
• Various types of defects noticed- Engine defects,instrument panels, Airbags, Battery
• As a result of these defects, revenues from China dropped from 33% to 10%.
Problem with JLR in Europe
• Volkswagon emission scandal surfaced.
• After this European countries imposed taxes on the diesel variance of vehicles for reasons of emissions. So
that they focus on Electric Vehicles.
• 90% of vehicles of JLR were Diesel variant.
• JLR had to clear their stock, so they sold them on a heavy discount, resulting in huge losses.
• As a result of this, cos debt started going up. Reached Rs 120,000 crores in FY20.
• Covid lockdown in March 2020, the sales fro April to June were NIL.
Tata Motors utilised this time to plan and intiate actions to make a complete turnaround of the organisation.
Tata Motors Debt has been the source of concern
(figs in Rs
Debt crores)
140000
120000
100000
80000
60000 120000
105000
88000
40000 79000 75000 80000
70000
58000
20000 39000 42000
0
Debt
• Tata motors has been a struggling company in the Indian automobile industry
• The company was in a terrible condition drpped it’s market share from 13.7% in 2010 to 4,6% in
2016
• All their brands like Indica, Safari, Sumo failed in the long run and the losses were piling up.
• In the last quarter of 2018, it incurred a huge loss of Rs 26961 Cr, which was the highest loss in a
quarter reported by any company in the history.
• The company made a huge turn around in the following six years and became the 3 rd largest
Automobile company in India with
• a market share of 14.71 in the FY 21-22.

• 80% Market share in the Indian EV segment
• Made more money per car than maruti for the first time in a decade
Turnaround story
• How did Tata Motors achieve this turnaround
• What exactly has been their business strategy

1. Global to Local
2. The GB Effect
3. Future Focus
4. Brand Positioning of Safety.

Employee alignment
• From a mega re-organisation to ramping up collaboration with academia
• After nearly two years of deliberations and decisions, the restructured organisational processes have been
implemented. Today, there are five management levels below the Executive Committee. This number stood at
14 before the organisational restructuring.
• it is on a drive to make the entire organisation agile and more competitive to not only realise its business goals at
home but also overseas.
• Looked at various aspects including our structure, cost and our governance structure, among other
things," "revamp/ revitalise/re-energise the organisation".
• Mini business units with full P&L responsibility, from product conceptualisation till the end of the
lifecycle have been created. This helps in better tracking of the project with quantifiable results and
better utilisation of resources.
• These units have been decentralised and empowered to take decisions in areas like quality, purchase and
supply chain, for example. Engineering, on the application side, has become part of the units while a
central team exists to take care of core developments and developing next generation technologies.
• "From a ship, we are making it into a war frigate," They had over 190 different kinds of initiatives and teams and
committees which were working on different aspects of management. Today there are twenty. "And these are also
very specific projects with the deadlines with the definitive resources and definitive outcomes, not open ended in
terms of time or resources. Very specific and it must contribute to the business competitiveness directly into our
strategy and business plans,“
• Ever since the organisational restructuring started, Tata Motors has started becoming leaner. It has "3,000-4,000"
lesser employees (blue and white collared) than it had two years ago, due to a mix of reasons. Around 300-400 jobs
became redundant as a result of the exercise, while some retired and some left the organisation. Also, there were a
lot of people on contracts/ temporaries who exited the company after their contracts expired. Recruitments are
frozen at Tata Motors, except very crucial ones.
Launching New models and phasing out of old models :: Innovation
Tata Motors turnaround strategy
1. Focussed on Innovation and starting new models into the market and phasing out of old models from the
market.
2. Launched new models Tata nexon, Tata Altroz, Tata Harrier and Tata Punch with JLR technology.
s.no Model Sale Sale 2020 Diff % Growth %share
2021
1 Nexon 108577 48842 59735 122.30 32.79
2 Altroz 69744 49486 20258 40.94 21.06
3 Tiago 64944 47070 17874 37.97 19.61
4 Harrier 28038 14071 13967 99.26 8.47
5 Punch(October 22571 0 22571 6.82
2021)
6 Tigor 18900 10213 8687 85.06 5.71
7 Safari 18358 0 18359 5.54
3. Many older models like sumo,Aria,Zest, Bolt, hexa and Indica have been discontinued.
Success mantra in Automobile Industry
Success Mantras in the success of Automobile Industry
1. Keep Manufaturing and fixed costs extremely low and margins per car high without making the car unaffordable
to the customers. This is easy to say but very difficuilt to achieve.
This particular strategy Tatas have mastered very well. How did they achieve it.
Platform strategy
1. Platform is the mechanical base that a car is based on. It consists of Axels, Suspension,Steering columns,
peddle box , Engine mounting and floor pan.
Platform strategy
For ex : The platform strategy has been applied in the case of Virtus and Slavia models of SKODA.
SKODA Virtus SKODA Slavia

Platform strategy
1. If you design cars with various platforms, the costs go up as each and every platform has specific requirements of parts .
New unique parts

New common parts
Minor modified parts
Carryover parts Most economical
Economies of scale
Less wastage
You manufactured 10,000 cars, but sold
only 8000 cars. The remaining 2000 cras
parts can be used for other models as they
are made on the same platform.
In 2017, Tata motors had six platforms and had 10 products. Number of carry over
parts were less, manufacturing cost per car is high and wastages were also high.
Profit was less
No of platforms reduced to two. Now they manufacture 8-10 models with these
two platforms,
1.6 models/platform 4 to 5 models/platform
This platform is alpha platform meant for smaller cars

Platform strategy
Omega platform meant for bigger cars
Omega platform
4.3 mtrs to 4.8mtrs

1. Fewer parts for the company to 1. Same seat position
manage 2. Same wsteeering wheel
2. Fewer design changes for new Platform strategy position
models. 3. Same pedal box position
3. Less wastage. Alpha platform
4. More profit
Tata Hornbil Tata Tigor Tata Nexon

Tata Altros Tata Tiago
70% carry ove

carry over parts increase carry over parts increase carry over parts increase
30% carry over parts
Even incase of any failure of any model, the parts can be salvaged and the platform is not altered,
huge savings on this account.
Since the no of suppliers are less,the defective parts per million have sharply
reduced.
Waranty costs have reduced from 1.14% of revenue in FY16 to 0.9% in

revenue in FY 21nearly double that of Maruti.
Tata per car profitability rose to Rs 45810 in 2022

Entry into EV space.
1. Hundred EVs per day
2. First mover advantage.

• Tat Motors biggest quality is their proactive approach.
• Maruti Suzuki’s chairman, R.C, Bhargav’s view that they would not launch Electric
vehicle before 2025. They intend to check how people respond to that and they
would take a call after that.
• Because of the proactive approach, Tata Motors have captured 82% market share in
the EV space and Tata nexon alone captured 64% market share.
• The then CEO of the company, Mr Butcheck has a fantastic track record of
turningaround companies. He had turned around Air Bus also.
• In march 2020, the share price was Rs 70/-, now it is around Rs 400/-
• The company is also benefitting from vocal for local ( Kia and Hyundai motors’s posts
not going in their favour)
Great team work of group companies
TCS Aided Tata power to establish charging stations :
300 charging stations in just 12 weeks

TATA ELXI joined hands with Tata Motors for developing vehicle platform
TATA capital joined hands with Tata motor finance Vehicle finance and
insurance
TATA power joined hands with Tata motors to establish 10,000 stations in next 5
years.
TATA chemicals makes lithium cells , TATA Auto comp systems assembles
batteries.
When companies of same family
Come together and compliment their
resources, They produce high quality product
At affordable price. That is what Tata is
doing with Nexon and Tigor
1. Tata Altroz becomes the only India-made Hatchback to
score full 5star crash test safety rating.
2. Tiago and Tigor score 4 star rating NCAP crash test safety
rating.
JLR is the primary Revenue driver of Tata motors. % contribution of JLR in total Revenues
90%
80%
70%
60%
50%
40% 82% 82% 80% 79% 80%

78%
71% 72%
30% 61%
55%
20%
10%
0%
Thanks for your time
BRIEF
INTRODUCTI
ON
 Founded in 1948 by Charles Lazarus
 Well known and successful toy retailer for
offering unique shopping experience
 People described it as 'buying an experience
and not a product’
 2018- Filed for bankruptcy and shuttered its
stores
Reasons for Business Failure
Toys R Us no longer offered the "experience" it once did. Late to introduce new technologies with subsequent low
 Consumers seek shopping trips that are experiential. Similarly, Toys R Us was impact
known for offering a unique shopping experience that required you to be  Toys R Us responded by creating a new aisle in a world where youngsters can
present. It was floor-to-ceiling toys. It was a destination to go. In recent years, distort their faces or transform into superheroes with a smartphone app.
however, an excess of product, messy shelves, fewer unique events, and near- Essentially, it did not adapt to new technologies; instead, it simply incorporated
nonexistent customer service have defined the store. Toys R Us had them into the traditional store. There is no single cause, but rather a chain of
essentially become a place to visit that was old and nostalgic rather than a events ranging from failure to adapt to the continuously changing retail market
cool place to visit. to failure to incorporate critical technical improvements into the user
experience.
Failure to innovate allowed competitors to gain a Vendors became apprehensive
competitive advantage  Nervousness is contagious in the retail industry. Despite the lack of specifics,
 Because Walmart and Target focused solely on toys for profit, they were able
Toys R Us stated that it had "unanticipated delays and disruptions" in goods
to provide the same things at a lower price. Products R Us was unable to supplies during its bankruptcy.
compete when competitors offered aggressive online shipping choices and  Vendors were evidently concerned that the company would not make good on
priced toys at low margins or as loss-leaders during the Holiday shopping payments it had pledged as the company teetered. That's a recipe for a retail
season. Toys R Us was also vulnerable to Amazon's rise due to its inability to crisis to spiral out of control.
respond to a major market shift to ecommerce. They were pushed out of the
market since they didn't have a strong internet presence.
Reasons for Business Failure
Nearsighted Management Failure to embrace the community in the age of

e-commerce and social media
Toys R Us management were still believing Toys R Us was the center
On the backs of social media and community, e-commerce has risen. The
of the toy industry and nothing bad could happen to the company. In
essence of great companies is building a community and garnering brand
the case of Toys R Us, store employees manipulated customer
love, loyalty, and trust. Brands drive long-term income by connecting with
surveys which served as an important performance metric to the
their consumers' stories and assisting them in achieving their objectives.
retailer’s home office.
Toys Aren’t Top Sellers Anymore
 Toys has been a weaker category; there hasn’t been much growth. Kids are interacting more digitally, so there’s just
not as much demand. This is an industry that has struggled for years in terms of design, product development, and
wholesaling, and now the retail network that has sustained it has mostly shifted to Walmart, Amazon, and Target.
 Toy retailers are also under pressure from competition from both online and big-box stores, which offers aggressive
discounts. They can't earn a full profit on their items any longer.
Things to avoid which Toys R Us got wrong
Focus on the child from Cradle to Truly own your owned Wean off the big Label
Commencement brand brands
Long-term success in retail demands a Toys ‘R Us had an aggressive owned Big brands offer retailers lots of positives
holistic view that takes into account brand. But the chain failed to build its —huge advertising budgets, significant
changing education and personal needs program in the same way Costco has name recognition and “must-have”
from cradle to commencement. For a toy grown its Kirkland brand, whose items products. But an overdependency on a
store, the 2-year-old boy looking for a represent to customers a level of quality relative handful of national or global
stuffed animal will soon be a 5-year-old in often far above national brands. A brands can be dangerous. Big brands
love with Legos and later a 15-year-old stronger strategy for its owned brand may often have big problems of their own and,
devoted to PlayStation games. not have saved Toys ‘R Us, but it could because of those problems, are often
Understanding the customer's evolution have helped with eroding sales and easily seduced by the Amazons,
can help build loyalty and increase the loyalty. Walmarts, and Alibabas of the world.
potential lifetime value of a customer.
INTERNAL ENVIRONMENTAL
FACTORS
 Not transitioning into a modern store and

Marketing environment continuing with the old layout which was
expensive to maintain
Components:
1. Internal environment  Shedding money on lawsuit with Amazon
2. Microenvironment and delaying going public
3. Macro environment.  Toys R Us were not prominent on online

platforms
 Partnering with Amazon and not receiving

exclusivity on its products
Marketing environment Components
MICRO ENVIRONMENTAL MACRO ENVIRONMENTAL
FACTORS FACTORS
 Emergence of specialist competitors like PC

 Competitors like Walmart & Target
games and video games. There was a much
used toy discounting to “loss lead” and
wider choice of “toys” (e.g. gaming) for kids
win customer traffic
 Kids were not viewing TV media or
 Competition in the babies segment
advertising, instead were concentrated on
from Diapers,com & BedBath&Beyond
YouTube and social media
 Toys R US were operating with a high
 Many retailers were trying to make their
level of debt. The financial owners of
stores a “destination” and make shopping
the retail chain were “investors”, not
exciting. On the other hand, they had made
really retail experts
limited enhancements to their in-store
experience over time
Financial Impact & Losses
Capital raised from private investors Low Profit Percent and High Debt
Toys R Us became the target of a leveraged buyout. This The total debt to capital ratio was 82.7 percent! Interest rates on
means the corporation purchased all of the existing shares that debt were around 7.25 percent at the time of the deal,
from current shareholders. The price paid for the company resulting in a cash outflow of $450 million each year solely to pay
was $6.6 billion. Because the corporation lacked cash reserves, interest on the loans. Toys R Us was barely making a 2% profit at
the majority of the money utilised to purchase the company the time, therefore the debt was more than double the
was borrowed from a private equity consortium led by KKR company's net income. Toys R Us had a $5 billion debt, according
and included Bain Capital and Vornado Realty Trust to current estimates.
Filing for Bankruptcy Asset Liquidation

Due to continuous and unmanageable debt servicing payments,
Toys R Us stated in March 2018 that it would liquidate and
a perfectly good company with 15% market share had been
permanently close all of its 700-plus locations across the United
forced to the brink of bankruptcy. In September 2017, the
States, after its dreams for financial salvation were crushed. Tru
company filed for Chapter 11 bankruptcy protection in the hopes
Kids Brands bought the toy business in 2019 and has since
of reorganising its increasing debt. Because of these massive
established festive pop-up shops.
debt payments, Toys R Us was not able to allocate enough
money towards its online presence.
Aftermath
2018 2019
Toys "R" Us's bankruptcy in 2018 Toys r us tried to work on a comeback

after being acquired by Tru Kids Brands
was devastating both for its loyal in 2019, even 2 years post the filing for
customers, as well as for the bankruptcy. Tru Kids Brands obtained
the rights to Toys R Us as well as its
almost 30,000 staff who ended up
Geoffrey the Giraffe character in
losing their livelihood. It also February 2019, with ambitions to
resulted in closing down of its resuscitate the firm. While it did try to
make a comeback briefly, later its retail
735 retail stores. A pain point for
outlets were used as Halloween
customers gift cards unredeemed, accessory shops or “Haunted House”
later announced could be experiences. It did go online but website
purchase links would be redirected to
redeemed at bed, bath and
the website of Target.
beyond stores.
Fig: Last message on the website
Aftermath
The American Dream mall's Toys R Us could be
0
1
capable of capturing the spending of hurried
WHP Global, the brand
parents trying to get items purchased and 0
acquisition and management 3
packaged in time for Christmas, and those who
organization which bought a
yearn for the memories of millennials who did
majority stake in Toys "R" Us'
grow up purchasing at the toy store chain.
parent company in March 2021.
Toys R Us, on the other hand, has a

The very next stage in Toys R Us' collaboration with Macy's that has rejuvenated
latest resurrection strategy is a 2 0
the retail store's online presence and
0 4
level, 20,000-square-foot shop at the 2
introduced the former's items to the latter's
American Dream mall in New Jersey, ecommerce website. As part of a partnership,
which will launch 2 weeks before Macy's plans to open 400 Toys R Us storefront
Christmas. starting this year.
Business Transformation and Organizational Turnaround
HISTORY OF GENERAL MOTORS
• 1908: General Motors was founded by Willian C. Durant.
• 1916: The company is reincorporated a General Motors Corporation.
• 1918: Chevrolet auto company joins General Motors.
• 1920s- 1930s: GM corporation followed a philosophy of ‘a car for every purpose’ and expanded its customer base.
Expands with overseas assets like Opel, Vauxhall, and also acquired the company that would later become
GMC trucks.
• 1930s-1940s: The company became the world’s largest auto conglomerate. GM changed production from cars to goods
ranging from airplanes to tanks, trucks, machine guns and shells to help the US govt. in the WW2
• 1950s-1960s - GM’s success is unparalleled as the American economy booms. One of every two cars sold the in US
carried a GM brand name.
• 1970s-Things start to get tougher as Japanese car companies like Toyota begin to make waves with their cheaper
substitute goods.
• 1980s-Expansion into data companies and Hughes Aircraft.
• 1990s- GM debuted the General Motors EV1 (Impact) concept, a battery electric vehicle
1938 2021
GM logo Revamps logo with • 2000s- The combination of rising fuel prices and debt eventually push General Motors, along with many other
launched “everyone in”
tagline. automakers, to the brink of bankruptcy. The company also sold off assets within its financial services, to create capital
Focused on
Advertising
stability and and remove liabilities
campaign
authority focused on EVs.
• 2008-GM loses its status as the world’s largest car company to Toyota.
Lots of people--including President Obama--have
trumpeted their role in the success of the government-
backed turnaround plan that saved General Motors, the
most important industrial company in the history of the
United States.
Author Jay Flix one of the most respected experts on

corporate bankruptcy in America, was the architect of
that plan, and now, for the first time, he reveals How
General Motors Was Really Saved.
With car sales in a free fall from the worst economic
downturn since the Great Depression, GM was losing
billions and running out of cash. By the time the company
closed its books on 2008 it would be in the red by a
staggering $30.9 billion. Chief executive Rick Wagoner led
the auto delegation in Washington seeking government
funding to save the industry and keep GM out of
bankruptcy.
Five years later, after an unprecedented government

equity investment, GM is thriving and the Treasury plans
to sell its remaining stake in the coming months. With
countless articles and books now written about the GM
restructuring and turnaround--not to mention three years
of trumpeting by the Obama Administration taking full
credit for the turnaround's success--the most startling
aspect of the prevailing narrative is that the core of how
the restructuring really happened, inside GM, is yet to be
fully told.
In the popular version of the company's turnaround story,
as GM teetered toward liquidation in 2009, an Obama-
appointed team, led by financier Steven Rattner, swept in
and hatched a radical plan: Through a novel use of the
bankruptcy code they would save the company by
segregating and spinning out its valuable assets, while
Washington furnished billions in taxpayer funds to make
sure the company was viable.
GM split into two very separate parts before filing:

"NewCo," a new company with a clean balance sheet,
taking on GM's best brands and operations; and "OldCo,"
the leftover GM with most of the liabilities. All of the
operational restructuring to make the new company
profitable would also occur before a bankruptcy filing so
GM could go through bankruptcy in a matter of days--not
months or years with creditors and other litigants fighting
over the corporate carcass while the revenue line crashes
Seeking funding from the government, or any source, we
would use Bankruptcy Code Section 363, which allows a
company to sell assets under a court-approved sale.
Typically, 363 is used to sell specific assets, from a chair
and desk to a factory or division, but not the entire stand-
alone company. Under this strategy GM could postpone
filing a plan of reorganization and a disclosure statement,
which consume months and fuel a blizzard of litigation
while market share and enterprise value bleed away.
About Issues Faced Strategy Impact Learning
Brands of the Company
• Chevrolet 1911
• GMC 1900
 The world’s largest auto manufacturing company, situated in the
• Cadillac 1902
United States with its head quarters in Detroit, Michigan 1902
• Pontiac
 About 209,000 people are employed in the company in the major 1907
• Oldsmobile
region
• Hummer 1992
 Presence across 120 countries in the world 1985
• Saturn
• 1945
Saab
• Holden 1856
• Vauxhall 1857
General Motors Company in Different Continents
1. North America
 GM is Primarily focusing on Chevrolet, Cadillac, Buick, and GMC in North America which are its core brand
2. Asia
 The Buick brand has a strong market in China

 In 2004, the Cadillac brand and Chevrolet in 2005 were exported to China.
 GM and the Chinese company SAIC had a joint venture on March 25, 1997 and the company manufactured the vehicles locally in
Shanghai
 But the Shanghai GM plant officially opened on December 15, 1998 and the first Chinese build Buick came off the assembly line
 The sales were increased by GM in China in March 2010 by 68% to 2,30,048 vehicles. Besides, GM increased the sales in US by 22%. And
it was noticed that company would be able to sell more than 2 million vehicles in China in 2010
3. Africa
 In 1920, GM was established in Egypt with the purpose of assembling the cars and light pickup trucks for the local market
 At about the mid of 1950, the GM withdrew from the Egyptian market. But the year later, the Ghabbour Brothers, till 1990, started to
assemble Cadillac, Chevrolet and Buick models
 The General Motors Egypt was founded in 1983 by GM and Al-Monsour Automotive Company
Very high labour costs :
• Unmanageable proportion of the costs of contracts that provide lifetime benefits to the members.
• Inability to keep the company afloat
Rising competition from foreigner car makers:

• Toyota took away part of GM’s market share and built faster at lower rates
• Significant drop of sales
Bad Financial Policies :

• In 2006, liabilities have exceeded it assets at its balance sheet
• Financial situation gets worse year after year
Failure to innovate:
• General Motors focussed too much on finance and not on innovation
• Didn’t innovate in quality and value giving competition the way to beat them
The collapse of American Economy:

• No more confidence from banks to customers
• Companies like GM found it almost impossible to raise funds or borrow
Rising Fuel Prices:

• Oil prices rise Less consumers are prone to buy cars
WHAT WENT WRONG WITH GENERAL MOTORS
• In the run-up to the 2009 bailout, GM recorded one of the worst corporate performances in American history. General Motors alone lost
almost $40 billion in 2007 and another $31 billion in 2008.
• When the Great Recession began in late 2007, it had a catastrophic impact on the automakers. Auto sales plummeted in 2008 and again in
2009 to below 10 million, from a peak of mover than 17 million just a few years earlier
• The ratio of cars-to-population and the fraction of auto buyers stretching their credit by using subprime auto loans were both at record highs
• Auto credit had been unsustainably inflated by the same housing and credit bubble that led to the economic crisis in 2008
• By fall 2008, the financial situation of the domestic auto-makers led by GM was so dire that they would soon be unable to make their wage
and supplier payments.
• When critics highlighted the U.S. auto industry's decades-old problems of high cost, questionable quality, and the like, the executives argued
that they had already done the restructuring necessary to fix those problems.
• In reality, though, GM’s problems had built up over many years, and were certainly not solely a result of the economic downturn.
REASONS FOR THE DOWNFALL OF GENERAL MOTORS

• Several factors had taken a toll on the demand for cars from the manufacturers over time: the widespread perception of perennial
quality and reliability issues, lower resale values, poorly received new models and a lack of low-gas mileage cars at times of rising fuel
costs.
• Moreover, the “transplant” car factories – that is, domestic U.S. production of foreign owned companies like Honda, Toyota, Nissan,
and others – were expanding employment and production in the U.S. using predominantly non-union plants in the American South,
even as the Big Three automakers had struggled
• GM also made an attempt to offload some of its assets. However, the market for loans was tight. Hence, no company found itself
interested in purchasing GM assets.
• The labor union in Detroit had cost the company a lot financially and estimates stated that these were increasing the prices by as $1500
per car
THE GENERAL MOTORS CHAPTER 11 REORGANIZATION AT A GLANCE

 The 2009 General Motors Chapter 11 sale of the assets of automobile manufacturer General Motors and some of its subsidiaries was implemented
through Chapter 11, Title 11, United States Code in the United States bankruptcy court for the Southern District of New York.
 The United States government-endorsed sale enabled the NGMCO Inc. ("New GM") to purchase the continuing operational assets of the old GM.
Normal operations, including employee compensation, warranties, and other customer services were uninterrupted during the bankruptcy
proceedings. Operations outside of the United States were not included in the court filing.
 The company received $33 billion in debtor-in-possession financing to complete the process. GM filed for Chapter 11 reorganization in the
Manhattan New York federal bankruptcy court on June 1, 2009, at approximately 8:00 am EDT. June 1, 2009, was the deadline to supply an
acceptable viability plan to the U.S. Treasury. The filing reported US$82.29 billion in assets and US$172.81 billion in debt.
 After the Chapter 11 filing, effective Monday, June 8, 2009, GM was removed from the Dow Jones Industrial Average and replaced by Cisco
Systems. From Tuesday June 2, old GM stock has traded Over the Counter (Pink Sheets/OTCBB), initially under the symbol GMGMQ and
subsequently under the symbol MTLQQ.
GENERAL MOTORS 5-YEAR BAILOUT AND TURNAROUND
Bush Administration GM received 13.4 B Additional 4B 2B Working Capital

plans to bail out GM 2B Working Capital
through troubled added to working Loan GM files for
and Chrysler Group Loan
Asset Relief Program Capital Loan Bankruptcy
reorganization
GM repurchased all GM becomes a Final loan

of treasury’s public company repayment. Govt GM exited the
30.1 B debtor in
preferred stock again. US Treasury holds 61% stake in Bankruptcy
possession loan
reduces its stake to common and
33% referred stock
GM repurchased 200 US Treasury sells all

M shares of common of GM shares to
stock from Treasury open market
Focused areas for re-invention: Turnaround Strategy for North America:
1. Reorganization of leadership 1. Increasing Operating Margins and Profit Margins

2. Killing off unprofitable brands (Saturn, Saab, Pontiac, Hummer) 2. Increasing focus on the luxury market
3. Production of fuel efficient cars and trucks 3. Introducing new Cadillac Models
4. Change in cost structure 4. Adding 4G LTE connectivity in GM Cars
Measures Taken: Implementation:

1. Adopting Modular/flexible strategy to reduce core Capex in
1. Introduction of new models of cars like Chevy Camaro, All longer term
electric Chevy Bolt and truck model Colorado 2. Modular strategy achieved through product simplification, longer
2. Investment of $500 million in ride sharing service Lyft architecture life cycle and footprint efficiencies
3. Acquisition of Cruise Automation to accelerate automation of 3. Multi-billion dollar investment on emerging markets for
vehicles Chevrolet cars globally
4. Customer Centric innovation 4. Strengthening brands and focusing on restructuring and
5. Quality and Safety first approach transforming operations
6. Cost efficient plan to fuel sustainable growth 5. Enhancing products, manufacturing rationalizations, local
7. Establishment of Operational excellence operating philosophy sourcing of parts, cost reductions in China market
6. Exiting from markets where there is no path for acceptable
return
Management
• New executives were brought in to overhaul the company. Previous

management was held responsible for misfortunes of GM
• Barra and Suryadevara were the only female CEO-CFO duo in the
industry
Greener Shift
• President Obama declared that GM was to become a greener company

with a focus on hybrids, fuel cells, and other clean technologies.
• carmaker plans of rolling out 20 new electrified vehicles by 2023 - the
biggest transformation in the company's history.
Worker Benefits
• Retired workers and their families were no longer eligible to participate

in the Salaried Health Care Program. This change helped in reducing the
expenses associated with its retired employees
Focussing on Increasing
profitable core financial service
brands (like provision
Rapid R&D on
Chevrolet and (Leveraging
BS6, CNG and
Ford) to current expertise
electric vehicles.
generate of GM Financial
Decrease share
sustainable for EMI
of liabilities
future revenues on Re-launch of Investing
services)in
balance sheet by value building in-
monetising automobiles like house smart car
defunct/underpe Cruze, Beat etc. interfaces
rforming assets
GM TURNAROUND STORY AND IMPLICATIONS
• Proposed that GM split into two very separate parts before filing: "NewCo." a new company with a clean balance sheet, taking on GM's
best brands and operations, and "OldCo," the leftover GM with most of the liabilities.
• Seeking funding from the government, or any source, they would use Bankruptcy Code Section 363.
• Since taking over as CEO in 2000, working closely with Fritz and vice chairman Bob Lutz, Rick orchestrated large, dramatic changes at
the company. They closed GM's quality, productivity and fuel-economy gaps with the world's best automakers, winning numerous car
and truck awards. They built a highly profitable business in China, the world's biggest potential car market.
• They reduced the company's workforce by 143,000 employees, to 243,000.
• They reached a historic agreement with the UAW that cut in half hourly pay for new employees and significantly scaled back the
traditional retiree henesit packages that had been crippling the company, while also funding over $100 billion in unfunded retiree
obligations.
• Under the Newco gave up brands like Hummer, Hummer, Saturn, Saab and Pontiac and kept brands likes Chevrolet, Cadillac, GMC and
Buick.
• Informed debate and deep analysis of structural costs led to decisions about projects, factories, brands and countries.
• The assets and liabilities had been selected. The NewCo legal entities and $45 billion tax-loss strategy had been developed.
CONCLUSION
General Motors submitted a Plan that is aggressive, comprehensive and doable, and also one that is responsive to changing economic and industry conditions, since
December 2. The Plan achieved a positive NPV under the Baseline volume assumptions demonstrating support that GM will be viable for the long-term. Funding
requirements were addressed in this Plan, with negotiations of the conversion of GM‘s debt obligations to equity and working to a timeline that has the bond
exchange offer commencing before the end of March.
There were some key risks undertaken by the company that were crucial:
1) Supply Chain
2) Delphi
3) Bond Exchange
4) VEBA Restructuring
5) Section 136 Loans
6) Asset Sales
7) GMAC
8) Foreign government support
The Company believed this Plan put its business, both in the United States and around the world, on sound, sustainable and competitive footings. It built on
demonstrated, world class capabilities in design, engineering, fuel efficiency, purchasing and manufacturing, importantly closing competitive cost gaps and
resolving long-standing legacy cost issues that have contributed to unsupportable debt levels.
LESSONS LEARNT
• Failure to innovate costs companies more than just revenue. It has the potential of permanently surrendering market share and perception among customers
• GM believed consumers would continue to accept multiple brands with lacklustre performance and features, and homogenized designs because they owned the
market. Their failure to recognize that better quality, performance and features would allow foreign competitors to undermine their market was one of their
biggest mistakes.
• If a company reaches the maximum potential of its product innovation, it should look to other industries and products for greener pastures. Decreasing shares
of their liabilities by monetizing underperforming assets.
• Invested amount of money in smart car interfaces for better product portfolio
THANK YOU
Why do you think GM collapsed? A company which was started in 1909 went on to stay well ahead in the automobile industry
for 100 years collapsed. I understand it is not all of sudden. What happened to their financial management?
GM is a very interesting case. Yes, it is certainly one of the great titans of U.S. industry and it’s not any fun to see them go into
bankruptcy.
There have been several opinions put forward at to why this all happened:
•GM makes cars people don’t want
•GM is too slow to innovate because of its size
•GM is too bureaucratic and unable to adjust to changing markets
•GM’s dealer network is too large
•GM sold off its formerly profitable financing business GMAC
To us the problem with GM is very simple. GM stopped making a profit. The reason any company exists is to make a profit.
When companies stop making a profit they fail. We measure profit using the income statement. The income statement simply
takes what you sold in a period and subtracts the costs in the business during the same period. If sales are greater than costs or
expenses then there is profit. If sales are less than costs then there is a loss.
GM stopped making profit in 2005. Since that time GM lost more than $90 billion through the 1st quarter of 2009. As Joe says in
his classes, “In finance we learn that losing money is bad.” GM has been very, very bad for several years. The next question,
then, is, “why did those losses happen?” From our perspective, even though all of the above may be good points, the key to
GM’s losses has to do with sales and fixed costs.
I (Joe) have owned a small business with partners for several years. We have learned that to survive in tough times (BTW the
definition of tough times in business is a drop in sales) we had to cut costs. Cutting cost is the most painful thing you have to do
as an owner because it usually means having to cut jobs.
The problem for GM was that when the sales slowed down, they had trouble cutting costs because most of
their costs were fixed. In other words, a lot of their costs did not go down as their sales went down. In most
manufacturing companies, when sales go down, some of the bigger costs go down as well (if you aren’t selling as
much of your product, then you cut back on manufacturing through layoffs, through reductions in material purchases,
and so on). GM has tremendous fixed costs related to their union contract. Closing a plant, for example, did not
necessarily mean the workers lost their jobs. Company pensions and legacy health care costs were fixed as well. So
when sales went down, many costs stayed fairly constant. And that led to losses.
As the losses mounted and the economy struggled, these losses became so significant that GM could not survive as a
viable business. In spite of billions of dollars of government support, the only solution for GM is to declare
bankruptcy and try to lower those fixed costs through a court process.
The transformation is described in three parts.
• The first part deals with the changing nature of interactions between the company and its customers. It is
described as the changing nature of business models, from "make-and-sell," to "sense-and-respond," toward
"anticipate-and-lead."
• The second part is about the impediments such organizations face in changing the way the company thinks and
acts.
• The third part is about building a new approach-a "state of mind“that balances creativity and intuition with
analytics and science. This presents a unique and interesting progression of ideas for thinking about the
transformation of a large and established firm.
The critical starting point in the story is the changing nature of the
• customer-company company interaction.
• The relative roles of the two are morphing and changing.
• The grafting of the most advanced technology to the traditional automotive business creates a new
relationship between the company and the consumer.
• The OnStar system becomes a "trusted friend in the sky" that makes "my trip" on the highway
or in the neighbourhood safer and enjoyable.
• This process of dialogue provides the company with unique insights into the way consumers
use GM's products.
• For the first time, GM can have an ongoing relationship with consumers who use its cars and
trucks. Before OnStar, the relationship was mediated by dealers and was at best episodic.
• While OnStar changes the relationship between the consumer and the company after the purchase
of the product.
• Auto choice adviser represents GM’s approach in helping the consumer in his or her decision-
making process.
• The AutoChoiceAdvisor provides a transparent and easy-to-use system for the consumer to
identify the product that best suits his or her needs.
• The focus is not just on GM products but on the entire portfolio of products available to the
consumer, including those of GM's competitors. T
• This willingness to expose the entire choice in automobiles to the consumer is an act of
courage.
• As the consumer starts to trust GM as a company that will do the best for him or her, GM also
learns what consumers are looking for-an invaluable input to its own product development
strategy.
• Both GM and the consumer benefit from this process of open access and transparency. This
is an example of firms' voluntarily giving up the benefits of "asymmetric information"
between the consumer and the company. In return, firms learn first hand consumer
preferences and competencies.
The second part of the book outlines the impediments. Transformations demand that managers accept that the
existing isting ways of thinking and acting are dysfunctional.
• Large systems such as GM are complex. Given the multiple "perches" that managers occupy-functional,
regional, and business unit-their perspectives on problems can be very different.
• The old saying "What you see depends on where you sit in the organization" holds true even today.
• Therefore, making assumptions explicit is critical for an effective dialogue and arrival at "consensus about
practice."
• In large organizations, compliance is easy to get, but commitment based on a clear and unambiguous set
of assumptions about the future and opportunities is difficult.
• Managers are also socialized to think in some predictable ways. The dominant logic is like the genetic code.
The discussion in partII focuses on the nature of complex problems and the implications of misspecification
in transformation.
• The type III errors (solving ing the wrong problems)
• type IV errors (behaving as if we understand the problem when the environment is in flux and the problem
is also evolving)
• Part III moves the reader into an important domain, one not well dealt with in management literature: the
subtle mixture of intuition and imagination with analytics and information-the art and science of managing.
• This book is about transformation. It tackles transformation from a unique angle.
• It is not about restructuring and performance evaluation or training programs: grams:
• it demonstrates that by changing selectively how we do business-by changing our interactions with customers, by
changing the way we formulate problems internally, and by changing the way we imagine a future-we can make a
difference.
• The author combines a deep understanding of analytics, systems thinking, and organizational insights to build a
theory of transformation that is refreshingly new.
• The focus on "how managers think and formulate problems and how this process impacts what they do" is well
illustrated. One is left with a hunger for more detail about every case discussed in the book. The purpose of the case-
lets, lets, however, is to illustrate the concepts, not to provide a "how to do it." The book is rich in theory and practice.
• This case study describes some of what was learned from General Motors's experiences in its attempt to
transform itself between 1992 and 2003. A legitimate question is, Why should a reader who is not in the
automobile business expect to learn from the GM transformation experience? The answer is simple: GM has had
a long history with a prolonged era of success.
• Today, it appears to be coming ing out of a phase of diminished expectations. GM's actions
during this ten-year period have resulted in significant improvements:
• Profits went from a negative $4.8B to a positive $3.5B;

• productivity measurements went from among the least productive to among the most productive;
• measurement of customer perception of quality went from below industry average to above industry average;
• share of market went from continuing losses to market share increase;
• and approach to innovation went from acquisition of technology firms Hughes Electronics and EDS to introduction of
new business designs (OnStar, Downstream Revenue, and AutoChoiceAdvisor) and renewed leadership in
vehicle design and development.
• Learning what went right or wrong during this period is valuable.
• Revealing why events went right or wrong adds to that value.
• The learning process is as important as the outcome, because most enterprises are facing significant
changes in the environments in which they operate.
• For most enterprises, relying on what worked in the past or waiting for change to occur is a strategy for
possible disaster.
• It is no longer a question of whether these environments become more complex or whether the rate
of change accelerates.
1. Minimizing or avoiding the "zone of discomfort" felt by employees when your enterprise is required to
change from where you are to where you need, or want, to be
2. Thinking about your current business as the extended enterprise system it has the potential to be-
starting with your destination
3. Getting to a destination after you have determined where it is
4. Developing an effective dialogue with selected customers, using the latest technology
5. Staring a complex and uncertain future directly in the eye-and developing a business design that
increases the chances of favorable future conditions
6. Creating and nurturing a strong and effective relationship between and among information providers
(market researchers) and information users (decision makers)
7. Identifying "the right problem" to be working on rather than finding out later that you solved the wrong problem
8. Developing teams that sort out the conflicting issues underlying the multiple ple perspectives of functional
organizations
9. Creating awareness of the interaction of the parts of the system, in order to anticipate ticipate whether the
outcomes of decisions will differ from initial expectations
10. Understanding the encompassing environment in which your enterprise operates and determine how you want to
interact within that system
11. Revealing the implicit assumptions of your plans and how you can assess the likelihood of their actually occurring
12. Ensuring that the knowledge of what is known (and what is unknown) by your enterprise is made available to all
who need access to it 13. Determining your destination in the face of an uncertain future and identifying fying ways to
think about getting your enterprise to that destination
The old competitive world was epitomized by fixed boundaries: country markets; industrial classification of
businesses; and the choice to be
(1) low-cost producer, or

(2) specialized in specific products and services, or
(3) focused on meeting specific customer needs for specific purchase occasions, or
(4) focused on customers who can be reached through specialized distribution channels. The enterprise
distinguished itself from its competitors by how well it managed (1), (2), (3), or (4).'
The new competitive world is epitomized by few boundaries: global markets; difficulty in classifying
businesses; and
(1) attempting to be most efficient and effective producer, and
(2) providing the range of products and services required by customers, and
(3) being focused on meeting customer needs for specific purchase occasions more efficiently and effectively
than any competitors, and
(4) being focused on customers and on reaching them in ways they want to be reached. The enterprise
distinguishes itself from its competitors by how well it manages the interaction of(1), (2), (3), and (4).
The increased complexity compounded by the rapidly expanding rate of change that characterizes the new
competitive world requires management to find an appropriate balance between make-and sell, sense-and-respond,
and anticipate and lead.
Background
• By 1997, Apple was to be a bankrupt. Gil Amelio was ousted from the CEO
position due to the past financial losses on 4th July and Steve Jobs took over
as CEO.
• Reasons: Failure of product (Newton, Lisa and Macintosh TV), acquisition
of new ventures (NeXT)
• Result: Unsustainable cash flow
• Apple had a conventional structure for a company of its size and scope
which hampered its growth.
Lewin’s Change Management Model was
brought in by Steve Jobs
If we want to move forward and see Apple healthy and prospering again, we have to let go of a few things here. We have to let
go of this notion that for Apple to win, Microsoft has to lose – Steve Jobs, CEO Apple Inc.
Management change stage
Decentralization to Centralization of
CEO Changed Management Centralization of Management
Steve Jobs joins As is often the case with decentralized business units, Put the entire company under one P&L, and
back at Apple managers were inclined to fight with one another, over transfer combined the disparate functional departments of
prices in particular. the business units into one functional organization.
Mar
1
3 5 1998
July For the first time since

1995, Apple returned to
1997
profitability. According
to FundingUniverse.com,
the company turned a profit
of $309 million in 1998.
4 6
2
Company Analysis Conventional management Failed New Management Structure

Conventional structure for a company of its Laid off the general managers of all the Centralized and Inclusive. Looking for
size and scope. It was divided into business business units (in a single day), the unique design – Simple, yet different
units, each with its own P&L responsibilities. that creates experience
Evolution
• Apple was a loss making company for almost 12 years after they
removed Steve Jobs from company.
• When Steve jobs joined the Apple again in 1997, company was on the
verge of being bankrupt.
• Apple had a lot of products, but not all of them were profitable.
• They didn't have a flagship product that could dominate the market at
the moment.
• They required a large sum of money to rebuild their business.
Evolution
• Apples deal with Microsoft was a great move by Steve Jobs as they
were in a dire need of funds at that time.
• Gates and Jobs announced a five-year contract and investment of
$150 million in apple by Microsoft.
• Jobs reduced the Apple produces by 70% and focus only on few
produces. Moving forward Job’s strategy was to produce only four
products: one desktop and one portable device aimed at both
consumers and professionals.
• They introduced iMac in 1998, this product helped Apple to return
into profitability for the first time since 1995.
Evolution
• The next phase of apple was completely based on innovation and how to
create new products which are ahead of their time and which can actually
attract maximum audience.
• They introduced products like iPod, iTunes and Apple store.
• In 2007 Apple introduced their first ever mobile phone called iPhone, it was
the result of Apple’s innovative thinking and it soon became the most
desired mobile phone around the globe.
• All these revolutionary changes could happened because of the Steve Jobs
who always had a futuristic approach and he implemented his vision with
the help of all the employees of Apple by motivating them for giving him
best results.
EMERGENCY STAGE
• Apple's Emergency Stage began in the year 1995. Apple fired one of
its co-founders, Steve Jobs, due to a power struggle between Jobs
and then-CEO John Sculley.
• The board of directors felt Steve Jobs to be too dangerous. He

introduced untested items and spent more money than he had
planned.
• For the following ten years, Apple released expensive goods such as
John Sculley the Itunes phone, which originally was unsuccessful, and as a result,
the company battled to stay in the market and compete with
organizations such as Microsoft.
EMERGENCY STAGE
• Apple's shares fell to an all-time low of $6 per share as a result of the damage.
• Apple refused to close its doors. Their strategy was to keep inventing and launching
new items until they got it perfect, and therefore to be persistent in their efforts.
Stabilisation Stage
During the stabilisation stage, Steve Jobs Made a few decisions which completely changed the outlook of Apple
Restructuring Silos
• All the business unit general managers were fired on the same day, and the company's P&L was consolidated
• Merged the business units' widely divergent functional departments into a single functional organization
• Apple's long-term success has demonstrated that its business model can be applied to businesses of all sizes
• Three aspects are required for Apple’s Leaders which are:
o Deep expertise
o Immersion in details
o Willingness to debate (collaboratively)
Deep expertise Immersion in details Collaborative Debate
― Apple became a company where general ― Apple expects its executives to understand the ― One of the main requirements for Apple’s leaders:
managers do not supervise managers; intricacies of their team's functions in order to willingness to participate in a collaborative debate
rather, experts lead experts make better decisions ― Leaders are expected to have strong, well-founded
ASPECTS ― Steve Jobs identified that hiring professional ― As Apple grew it saw that the leaders did not opinions and to advocate vehemently for them,
In management who lacked expertise was a have enough time to immerse themselves into but they must also be willing to change their
mistake and so he hired experts who could the details of each and everything and so Apple minds if evidence suggests that others' opinions
Detail manage rather than managers who were encouraged its leaders to decide which activities are superior
not experts demand their full attention and then delegate the ― As a result, discussions emerge in which
― He assumed that it is easier to train experts less important work to the rest of the team participants are free to disagree, push back, and
how to manage rather than train a manager ― This allows leaders to create teams of specialists promote or reject ideas, all in the interest of
to be an expert while also training members to become experts improving one another's work and finding the best
solutions.
The Return to Normal Stage
• At this stage, revenue growth & creating financial platform becomes a priority Timeline
• In order to improve the revenue, Apple selectively added new products & services • 1997: The Founder Returns, but as
such as iBook, iPod, iLife Suite, iPhone, Tablets, Siri Voice Assistant an adviser (Jobs would call himself
• Apple kept its product and marketing simple, they don’t overwhelm their targeted iCEO)
customers with too many choices increased the selling effectiveness • 1997: 5 year alliance with Microsoft
• New marketing thrust–When a customer visits the websites they have to scroll past in order to have the office software on
the beautiful designed product images and large font telling them about the products Mac
benefits. While apple advertisements show happy people having a great time with the • 1998: The iMac Says "Hello“, it
simplicity of their iPads. launched the first "all-in-one"
• A well appreciated customer experience - The retail store are designed with warm Macintosh, the iMac
lighting, monochromatic color, and layout of store features all appeal to the shopper’s • 1999: Going Portable, it decided to
requirements. make a laptop version (iBook)
• Apple created mystery and hype around the product - Apple takes a new and unique • 2000: Officially CEO, co-founder
approach, creating excitement by withholding information around new products decided to start delving into music.
• Value of the product- Customers were willing to pay a higher price because they • 2001: Tunes, OS X and the iPod
deem the brand to be of a high quality or a higher status symbol. This gets to the • 2002: Computers Go Flat
heart of Apple's continued success over its competitors. • 2003: New Software, iLife suite was
• Walled Garden (Apple Ecosystem)- Apple product-wide integration that makes for released, iPhoto, iMovie, iTunes and
better user experience if you have multiple Apple products in your possession Safari—apps we still use in 2022.
• 2004: Apple introduced the iPod mini
• 2007: Apple Makes a Phone
• 2010: Tablets (iPad)
• 2011: Cloud & Hello, Siri (Voice
Assistant)
Apple 1 iMac iPod iPhone

Traditional and Emerging trends in the business environment
Traditional Emerging
Stable economy Uncertain economy
Economic
Stable markets/suppliers Fluid markets/suppliers

Assembly line production Personalised delivery of services
Domestic competition International competion
Brawn power Brain power
The scope and scale of these

Traditional Emerging emereging trends require
Acceptance of authoritarian/heirarchial roles Rising expectation of employee involvement leaders of organisations to
Social/Cultural
adopt to transformational style.

Growing birth rates Decreasing birthrates
Externally driven material values Internally driven quality of life values
Corporate drift from dominant social/economic Reaffirmation of dominant social/economic values

values
Traditional Emerging
Technical
Mechanical/Electron Highly sophisticated computer technology
Predictable technology innovation(10Yrs) Rapid,unpredictable technological innovation(18

months)
Management Change stage- Moment Of Truth
• Before a company can cure its problems, it must realize that it has major problems and make the decision to
do something about them. This is what is called reaching the moment of truth.
• At the point where a company reaches its moment of truth and decides to make fundamental changes, it
has gone from absolute decline to potential turnaround.
• It may continue in a downslide after this point, but basically there is now a new element in the corporate
mix that has, at least potentially, begun a turnaround process. Reaching the moment of truth is not an easy
task or always well-defined, but at some point the people in power decide to act.
• There has to come a point somewhere along the line where the board and the president make the decision
that the company is in serious enough trouble to require Trojan measures to get it out.
• Then suddenly somebody makes the decision that you are going to do whatever is necessary to get this
company back on its feet.
• Somebody is authorized to either take the steps or prepare the plan necessary for those steps to take place.
Problem with existing management
• Now the question is whether current management can make the necessary corrections to cope with the
problems confronting the company.
• In more than seven out of ten cases, management has to be replaced because they either cannot cope with
the problem or they themselves (or at least the CEO) are the problem.
• Existing management is a problem because it lacks credibility and it cannot cope with the job at hand.
• The fact is existing management did not recognize the problems early enough, and it didn't want to do
anything about them. It cannot cope with the difficult step of firing lots and lots of people, an action which
is almost inevitable in a serious turnaround.
• Top management change does not always mean changing the top man. Sometimes the chief operating
officer is changed, but the CEO remains.
• In other cases, particularly where the top man has a strong ownership position, top management change
means simply a change of heart, a new thrust, or an ability to make the tough decisions to save the
business.
• The changes in direction are rare, however, because most turnaround leaders believe that the problem lies
with the top man himself, particularly in smaller companies.
Problem with existing management: Finding a new leader
• When the board does decide to act to make a change, it does not always go to the outside to find a new
leader. An insider has both advantages and disadvantages.
• Larger companies often have that kind of management depth, but smaller companies do not.
• The problem with choosing an insider is that the person may have been a party to past mistakes the
company made. The management reputation of insiders, a function of confidence plus credibility, has been
tainted.
• The insider has been a party to those elements that caused the decline and now must draw upon those
people involved to act instantly under his direction. The normal reaction is: "Well, what does he know; he is
as much responsible for getting into the hole as we were.
• In really tough turnarounds, where survival is at stake, the board usually picks an outsider . An outsider has
the advantage of objectivity in evaluating the situation and, subsequently, is more capable of taking drastic
measures.
• Generally, companies that get into trouble in the first place are managed by "nice guys" and "good old
boys," and it's the good old boy who generally gets into more trouble.
Problem with existing management: Finding a new leader
When directors look out for a turnaround candidate, they usually get an outsider. Often half the board quits
because of all the heat, bad publicity. The other half will go out and bring in the Star. The Star is the guy who
says, "Okay, here's what we're going to do.
Management change Decisions
• The corporation has reached it’s moment of truth and decides something out of ordinary is required to save
the enterprise or get it back on track .
• The period of self doubt and hesitation can be costly if it is prolonged.
• In seven out of 10 cases, management has to be replaced because either they can not cope with the
problem or they themselves are the problem.
• Board of directors have to decide who will lead the turnaround.
• Management change can mean either changing the management or management changing it’s approach
• In most of the cases change in management is most common.
• Sometimes board decides to ride with the current management, if the principal problem of a company are
external, that is beyond management control. In this case board decides thae change is inapproriate
Problem with existing management
• It is extremely difficuilt to face your own mistakes and do the surgery it takes to correct.
• In order to do the surgery, you have to break commitments to people that you hired in good times when
everything is up.
• It is difficuilt to tell the insider to cut down the budget, secondly cut your staff and thirdly to say that you
are terminated.
• Where the company is regulated one, government agencies force a change.
• Too often current management will blame series of lapses on specifics and give the following excuses.
a. The lapse was due to our sales manger was ill, on leave for 3 months
b. Productions was hampered due to our plant was shut down
c. Now, the management assumes, everything would be fine , so there is no problem
• Taking drastic action is difficuilt with public companies, which are concerned more with the gains in
quarterly earnings than with the fundamentals( where new directors come, fear of results getting affected)
Quantitative views in management change
• Surprisingly, vast majority of turnarounds are not performed by outsiders
• 3 out of 4 times, a new CEO was appointed for turn around
• Contrary to the general perception 56% of turnovers by insiders and 44% by outsiders
Change needed in management thought and practice
• Many companies and their managers are not transforming with trends. For
example,
• our society values democracy, yet most companies practice
autocracy.
• Our society has shifted to pluralism, many companies seek

homogeneity
• The most fundamental need is to understand the comprehensive nature of

the customer. Customer has evolved as given below.
NEED MATAPHOR PARADIGM PRINCIPLE

Physical/economic stomach Authoritarian fairness
Social/emotional Heart Human relations, Kindness/good
treatment
Psychological Mind Human resource Use and development
of talent
Spiritual Whole person Transformantional Meaning/sense of
leadership transcending purpose
Ever evolving customer needs triggered the shift in the role of a transformational leader
Order giver Decision maker

Hero v
Commander
Value
Developer Consultant mentor clarifier/exemplar
Confrontational collaborative
Empathic dialogue
dialogue relationships based
Adversarial
relationships on mutual
trust(Win/Win)
Retaining power Sharing power
Transormational/Turnaround leadership characteristic
Builds on man’s need for meaning

Purposes, values, morals and ethics are fresh in his mind
Is oriented in meeting longterm goals without compromising values and principles
Separates causes and symptoms and works at prevention
Values profit as the basis of growth
Is proactive, catalytic and patient
Focuses more on missions and strategies for achieving them
Makes full use of Human resources
Identifies and develops new talent
Recognises and rewards new contributions
Designs and redesigns jobs to make them more challenging
Releases human potential
Leads out in new direction
Aligns internal structures and systems to reinforce values and goals
Main aspect of a leadership in a turnaround
1.He is the architect of the turnaround strategy. As architect he requires entrepreneurial skills, broad business
experience, analytical ability, creativity and self awareness. They also require sensitivity to society’s expectations
regarding social responsibilities
2. Second most important thing is the turnaround leader is an implementer of strategy.
a. He must adhere to organisational strategy

b. He must promote and defend it
c. He must integrate the conflicting interests
d. He must ensure organisational essential needs are met
e. He must be tough minded and have objective orientation
f. Self confidence, decisiveness, good negotiating skills, good interviewing skills, coaching skills
g. He should be impatient to get things done.
3. Thirdly, the turnaround leader is a personal leader, someone distinctive from all other in the organisation.
h. He evolves his own leadership style.
i. How the leader’s personal style contributes to company’s performance.
j. Turnaround leaders are likely to be characterised by drive, intellectual ability,initiative , creativity,
social intelligence and flexibility.
Four levels of Transformational leadership :
1. Personal ( relationship with self)

2. Interpersonal ( relationship and interactions with others)
3. Managerial ( responsibility to the job done with others)
4. Organisational ( need to organise people- to recruit them, train them,
compensate them,build teams, solve problems and create aligned
structure, strategy and systems)
Each level is necessary but insufficient. The leader has to work at all levels on
the basis of certain everlasting master principles.
Four levels of leadership :
Trustworthiness at personal level.
• This is based on character-what you are as a person and what you can do-your competence
Trustworthiness
• If you have faith in the leaders character and not in competence-you wouldn’t trust him.
• Many good, honest gradually lose their professional trustworthiness because they allow
themselves to become obsolete inside the organisation.
• Without character and competence the leader wont be considered trust worthy and his
choices and decisions will reflect much needed wisdom.
Trust at the interpersonal level :
• Trustworthiness is a foundation of trust.

• Trust is the emotional bank accountbetween two people that enables them to have a win-
win performance agreement
Trust
• If the interaction is based on the trustworthiness, they can enjoy clear communication,
empathy,synergy and productive interdependency.
• If one is competent, training and development can help. But the leader has a character flaw,
he or she must make and keep promises to increase internal security, improve skils and
rebuild relationship of trust.
Four levels of leadership
Empowerment at managerial level.
• If the turnaround leader has low trust , how will he manage people. If the leader thinks, the
employees lack character or competence, how will he manage them. Control is the only way, when
the leader has no trust in his employees.
• If the leader has high trust in his employees, he doesn’t have to supervise them. They supervise
Empowerment
themselves. The leader becomes a source of help.
• The leader has to Set up a performance agreement so they understand what is expected. The leader
overlaps their need with organisational need. Employees judge themselves because their
knowledge transcends any measurement system.
• If you have low trust culture , you have to use measurement becausebecause people will tell the
leader what he wants to hear.
Four levels of leadership :
Alignment at the organisational level.
• What would an organisation look like in a low trust culture with control style of
management. Very hierarchial with a small span of control.
• You resort to gofer delegation. You prescribe and manage methods. You use the carrot and
stick motivation system. Such primitive systems may enable you to survive against soft
A competition, but the organisation is easy prey for tough competitors.
li
g • If there is high trust in organisations, the structure would be very flat and flexible. The span
n of control would be very large. Employees supervise themselves.
m
e • They are doing their jobs cheerfully without being reminded because the leader built an
n emotional bank account with them.
t
• In this case leader has built the culturearound a common vision on the basis of strong
principles and the leader strives constantly to align strategy,style,structure and systems in
line with mission.
• If the organisation low trust culture , you have to use measurement becausebecause people
will tell the leader what he wants to hear.
Characteristic of turnaround leaders
Turnaround leaders are continually learning
1.Constantly educated by their experiences. They read, They seek training, they listen to others, they ask questions
and curious.
2. They continually expand their competence, their ability to do things. They develop new skills, new interests.
3. They discover that more they know the more they realise they don’t know.That as their circle of knowledge grows, so
does its outside edge of ignorance . This learning and growth energy is self initiated and feeds upon itself.
4. They develop abilities faster by learning to make and keep promises.

Turnaround leaders radiate positive energy::
1. The countenances of turnaround leaders are cheerful, pleasant, happy. Their attitude is optimistic,positive, upbeat.
their spirit is enthusiastic,hopeful,believing.
2. This positive energy is like an energy field or an aurathat surrounds them and that similarly charges or changes
weaker, negative energy fields.
3. When they come into contact with strong negative energy sources, they tend either to neutralise or to side step this
negative energy. Some times they will simply leave it, walking away from it’s poisonous orbit. Wisdom gives them a
sense of how strong it is and a sensense of humourand of timing in dealing with it.
Turnaround leaders believe in other people::
1. Turnaround leaders don’t over react to negative behaviours,criticism or human weaknesses.
2. They don’t feel built up when they discover the weaknesses of others. They are not naïve. They are aware of
weaknesses. They realise behaviour and potential are two different things. They believe in the unseen potential of all
people.
3. They refuse to label other people, to categorize and pre judge and focus on the process to help them.
Turnaround leaders see life as an adventure ::
1. Their security comes from within instead of from without.

2. They see old faces freshly.
3. They are like courageous explorersgoing on an expeditioninto unchartered territories. They are confident it will be
exciting and growth producing and that they will discover new territory and make new contributions.
4. Their security lies in their initiative, resourcefulness,creativity,willpower,courage,stamina, and native intelligence
rather than in the safety,protection, and of their comfort zone.
Turnaround leaders Synergistic
1. Synergy is the state in which the whole is more than the sum of the parts. They are change catalysts.
2. They are amazingly productive, but in new and creative ways. They improve almost any situation they get into.They
work as smart as they work hard.
3. They refuse to label other people, to categorize and pre judge and focus on the process to help them.
4. In team endeavours they build on their strengthsand strive to complement their weaknesses with the strengths of
others.
5. Delegation for results is easy and natural to them, since they believe in others strengths and capacities.
6. When Turnaround leaders negotiate and communicate with others in seemingly adversarial situations, they learn to
separate people from problems. They focus on other persons interests and concerns rather than fight over
positions.Gradually others discover their sincerity and become part of creative problem solving process. Together they
arrive at synergistic solutions, which are usually much better than any of the original proposals, as opposed to
compromise solutions wherein both parties give and take a little.
Turnaround leaders exercise for self renewal
1. They regularly work on the four dimensions of the human personality : physical, mental, emotional, and spirutal.
2. They exercise their minds through reading,creative problem solving, writing and visualising.
3. Emotionally they make an effort to be patient, to listen to others with genuine empathy, to show unconditional love.
Asset Retrenchment Strategies
If a company is facing an issue of low performance, then it should follow the asset retrenchment strategy after the cost-
efficiency strategy. It’s such a strategy that allows companies to analyze their non-performing areas and remove them to
become efficient.
The utility of asset retrenchment and turnaround strategy is when the company has a better cash flow system. For instance, a
company earns cash by disposing of obsolete assets, and it allows the company to invest in new ventures with the same cash.
Focus on Your Business core Activities

The turnaround strategy allows you to focus on the core activities of your business. By concentrating on the main activities
mean adopting new measures, recognizing the products that could potentially increase the cash flow, and identify the
customer market.
For instance, a company focuses on the new product line and price-sensitive and loyal customer segment of the market. It
gives the company a clear competitive edge in the market.
Change of Leadership
Companies sometimes change their management and leadership as a turnaround strategy. They usually hire CEOs from
outside the company in order to inject new and fresh blood into the company to change the way of its thinking and
operations.
CEO has the complete responsibility and authority of company’s performance on its shoulder, when you hire someone from
outside, then it sends a signal of change. The new leadership and management mean change in the company’s strategies.
Example of Turnaround Strategy
Dell declared that it would implement the cost-cutting strategy in 2006, and the company did by removing the
middlemen and directly selling its products to the customers. The company had faced huge losses. In 2007, the
company followed the turnaround strategy and started selling its computers through retailers and middlemen,
and became the world’s largest computer retail brand.
Evernote is a software application that allows users to create lists, organize, and make notes. Stepan Pachikov
laid the foundation of the company in 2008, and he decided to shut down the company after one year. Just
before closing down, investors pledged to invest 500,000 dollars in the company in order to give it a chance. It
turned out a success and the company attracted 20 million users.

• The CEO of Apple, Steve Jobs left the company in 1985 due to the declining company position.
• The tech company kept on declining for the next 12 years and reached the level of bankruptcy. However, Steve
Jobs rejoined the company in 1997 with a new strategy and enthusiasm, and it became the world’s leading
Tech Company later.
• Frederick Smith established FedEx in 1971 with 4 million dollars of his inheritance money, and he borrowed
loans of 80 million dollars.
• He started the company based on his Yale University idea, and the company went under huge debt and close
to bankruptcy, in the initial two years in business.
• When funds were draining out, and he had 5000 dollars left in his pocket. He decided to gamble the last 5K in
Las Vegas on the verge of bankruptcy. He went there and gambled 5K and converted it into 27,000 dollars.
However, it allowed to save the company and raised 11 million dollars. FedEx delivered its first profit of 3.6
million dollars in 1976.
• The revenue of FedEx reached 1 billion dollars seven years later. It was the first US Company to touch the one
billion figure within its decade of a startup. The company has been growing and thriving since then.
Details of the topic to be covered Teaching Tools Hours
Stages in Turnaround cycle Lecture and Discussion 2
Today’s Agenda : Topics covered
Management change stage

Evolution stage
The emergency stage
The stabilization stage
The return to Normal stage
Case studies for the next class. : DELL,Apple, FEDEX….. Their turnaround strategy.
The Evolution stage
• The next stage is the evaluation stage, which focuses on the viability of the company and the preparation of
a survival and /or turnaround plan.
• The viability analysis cannot be performed unless the new leader has taken charge of the company and
shown that he means business.
• Employees in the organization must be upset as the leaders is from outside, symbolically at least, in the first
few days.
• Since speed is essential in any turnaround operation, it is vital that the executive have a proven framework
for tackling the problem. Usually the new man is under time pressure to show results.
• But no matter what the time pressure, he should resist change which lacks evaluation.
• In view of time pressure, he should do two things before making any major changes: (1) gain a sufficient
understanding of the situation to determine where to concentrate his efforts so as to get the greatest
leverage in the shortest period of time and
(2) develop his plan of action.
The Evolution stage
• A good understanding of the business before taking action is critical for credibility and can allow a new
leader to exercise more control.
• Every operation of the business has to be individually studied for viability. Until a leader does a viability
analysis, unless there is a defined problem that he knows about, he shouldn't act.
The Evolution stage : Identifying the problem
• Before a company can recover, it must recognize the nature and magnitude of its illness. Then you can
determine the strategy and action plan.
• In turnaround situations, the magnitude of the illness is sometimes so great that action takes precedence
over diagnosis.
• Some companies need emergency treatement until their condition is stabilized and more refined
evaluations can take place.
• The turnaround leader must quickly determine whether the company faces short- or intermediate-term
survival questions, or less severe profitability performance problems.
• Less severe signs often are early-warning symptoms of a sick organization and require turnaround effort as
much as survival cases.
• In many cases, the sick company is not treated until it's almost too late and Draconian measures are
required.
The Evolution stage : Identifying the problem
• Frank A. Grisanti, 67, a management consultant recognized as a national leader in leveraged buyouts, recognized for his
ability to resurrect ailing companies. He does not use swarms of analysts or charts and graphs. Grisanti often outlines a
new plan of action on the blackboard.
“You must have the ability to quickly identify the viable segments of the business. You have to determine if there is a place in
the market for you and your product or service, with an adequate gross margin that permits you to compete on a profitable
basis. You have to have good guts and make judgments quickly. You are liable to liquidate good pieces of the business; and you
may keep bad pieces. Those judgments are terribly important, but they are intuitive and based on experience. You don't have
time to run any McKinsey-like studies.”
• There is a common thread to both quick and slow studies . There's a danger in believing the conventional wisdom that
there are many problems and that you've got to tackle all of them for your turnaround effort to succeed. There may be
many problems, but adjustments in only one or two highly leveraged areas can make a dramatic shift.
• If the company has made serious mistakes for so long, you will have trouble getting management to focus calmly on the
most important problems. Management often falls into a trap. It deals with the little problems it feels it can handle—simple
areas, easily corrected—and they all lack turnaround leverage.
The Evolution stage : Solutions to the identified problems
• With the major problems identified, the next step is deciding how to solve them.
• There are usually a readily apparent and limited number of options available
• Don't be too critical of the solutions available.
• The worse the situation, the more likely that any strategy will work. You should not take courses of action that require
extensive justification; stick to the critical problems that have turnaround leverage and are the cornerstones of an action
plan.
• should not try to cover every problem, or relate problems without pointing out solutions. It is more important to solve 80
percent of the problem with imperfect solutions than to go after the last 20 percent and take three times as long to
produce results.
• There is a temptation to jump in and start fire righting without an action plan—I advise against it. During the initial weeks,
there is normally a quiet period—often called the honeymoon—which is ideal for planning purposes.
• The board of directors often takes a hands-off approach and wants to see what you do without prodding. Generally, your
subordinates will also be wary of coming to you with their problems until they have a chance to
"read you" and determine how you react to them. Take advantage of this moratorium to develop your plans.
The Evolution stage : Action plan
• Once the company's problems are understood and the appropriate amount of analysis is completed, a written action plan
should be prepared. This is the game plan that will take the corporation from its current poor performance through at least
one additional stage in the cycle.
• In serious situations the game plan is a cash flow plan because almost by definition serious situations are negative cash
flow situations.
• Remember, a corporation can sustain itself if it has only one dollar more coming in than is going out.
• As Frank Grisanti describes it: Obviously, the first thing you have to do is stop the bleeding. That means that you lay out a
cash flow and say, "Here are the businesses, these are the incomes, and these are the disbursements from those
businesses. Here are the negative pieces. Now, how do we stop the negative cash flow and get it turned around to positive
cash flow short term?" You do that before you do anything.
• Time is of the essence in a bleeding situation. No more than thirty days should be required to do this, even in large
companies. In small companies, ten days to two weeks "max" is required.
• In contrast to the survival situation in some companies, others have less severe, but often more complex, malignancies.
The Evolution stage : Communicate the plan
• The action plan should be communicated in two directions: upward to the board for approval, and downward to the key
management team.
• If the plan calls for less-than-Draconian measures, the board may have given prior authority to implement change to get as
much backing as possible.
• In addition, if lenders are in on the act, they should be informed of your intentions. Sideways communication is also
important where outside parties, like banks, have an abiding interest.
• The team management should be assembled at an outside location so that the plan can be reviewed without interruption.
They must be involved in the act, and out of the meeting must come a consensus on action. This should include
assignments, with deadlines, to subordinates and should be a comprehensive communication exercise.
• The basic strategy in communicating the plan in any direction is to get commitment from the parties concerned.
• Don't discuss the plan with anyone without real power in the situation or anyone without a stake in its implementation.
• Get commitment from those who are needed, and no more. Rely on those people and push the plan through the
organization. Develop a plan and stick to it.
The Emergency Stage
• In the emergency stage a company does what is necessary to ensure survival.
• Emergency usually means surgery. If time and cash are available, surgery may be only mildly traumatic.
• In most cases, however, corporate surgery is as traumatic to the corporation as medical surgery is to the human body.
• In this stage the corporation moves beyond problem recognition and boldly into action.
• At this point in the turnaround the priority is to stop the bleeding. Unless you stop the overflow of cash, the business will
die.
• Cash is king in this phase of the turnaround. Robert Wilson of Memorex sums up his feelings on the matter,
“To me, management liberation is spelled C-A-S-H. In early 1974, Memorex had barely enough cash to keep the doors open.
Every aspect of cash management was pursued on an urgent basis, and every employee was encouraged to participate.
Programs included such simple items as turning off lights as well as major efforts on such complex matters as lease-base
management.”
Stop the Bleeding

The way to get your cash flow in order is similar to emergency room procedures. First you stop the bleeding with a tourniquet,
then operate, to stop those internal actions that caused the bleeding.
The Emergency Stage
Stop the Bleeding
• The way to get your cash flow in order is similar to emergency room procedures. First you stop the bleeding , then operate
to stop those internal actions that caused the bleeding.
Frank Grisanti puts it:
“The cash flow plan carries with it what I call purchase-order surgery and manpower. You first put a hold on the corporate
structure. Stop anything from coming in. Put a freeze on the payment of all accounts payable until you can analyze where you
stand. You have to control what goes into the pipeline in order to control what comes out. Automatically freeze all purchase
orders and take control of purchasing.”
• After you have put moratoriums on payments, perform surgery on payroll. Lop people off in a wholesale fashion, not
arbitrarily, but by analyzing the segments of the business and relating income to outgo. You work fifteen, eighteen, twenty
hours a day during that period,
• A cash flow plan does not always mean drastic cuts. In well-financed companies that sense trouble brewing, other actions
are taken, including borrowing to see the company through its rough period.
The Emergency Stage
• Robert Di Giorgio, chairman of Di Giorgio Corporation, borrowed $28 million from eight banks to tide him over. "I didn't
want to take time to worry about cash; I wanted to study the problem, not just keep the patient alive." Companies that
have moderately serious but not alarming cash flow problems also engage in surgery in order to trim the fat away and
provide funds for more productive uses that keep the company competitive.
• If at all possible, surgery should be done in one step. It's a very emotional time, with people getting laid off or fired, plants
or departments closing, etc. When losses are stretched out, company morale sags ("When will the ax hit me?"). It's also
generally best to cut a bit too much, rather than too little. Roy Woodman says, "If you have to make cuts, make them all;
don't chuck ten people every week. Get it over with."
• The best way to motivate big cuts is to make one big list of all the alternatives. The preparation of the list will involve so
much analytical effort that the management team will become unified in the need to act and the direction to take.
• In more critical situations the CEO must bypass his organization, centralize authority, and rule by executive fiat. He
practically has to make the cuts himself. If you are faced with improving near-term profit performance, the critical skill is
determining where you can take action and achieve results fast.
• These actions might be taken in the absence of a well-formulated market or product strategy. Basically, you have to move in
and break the business down into segments, make value judgments on those segments, and divest the company of those
segments that aren't contributing to cash flow. Convert the losers to cash to reinforce your financial position.
The Emergency Stage -Unloading a Loser
• In a crisis situation, trying to unload a loser can be difficult. If you can't afford additional cash flow losses, liquidation may
be the only alternative.
• Divestment is an orderly approach to getting rid of a loser, while liquidation is more an act of desperation.
• A company should try to straighten out a loser by quick surgery and then attempt to sell it as a going concern.
• Borderline situations are given only a few months to shape up. If they don't perform in the specified time, face up to
liquidation.
• Grisanti says: "The question is, 'How do we get rid of it?' Set a target date that says, 'Okay, if I haven't sold it as a going
concern by this date certain, than I should liquidate it. It's cheaper for me to start liquidating than to try to make it a going
concern.'" Expect losses when you are liquidating, because you are selling parts that are unsuccessful and you will have a
hard time finding a buyer for them.
The Emergency Stage -out of wringer
• When all these moves are accomplished, many companies come out of surgery smaller revenuewise, but no longer losing
cash.
• Restoring profitability and stabilizing operations generally means shrinking back to those segments of business which have
achieved, or can achieve, good gross margins.
• Levitt Corporation is a prime example of what shrinking looks like; the "new Levitt" came through its emergency phase a
third of the size of old Levitt.
The stabilisation stage – Looking beyond today
• Eliminating losses is only part of the turnaround executive's job.

• That is only the first step, and often the easiest one.
• The second stage is achieving an acceptable return on the funds invested, or divesting the business as a going concern.
• Despite the effective implementation of head-count reduction, improved operational management, and the elimination of
loss subsidiaries, the anticipated return from the funds invested may be unacceptable in the medium term, even though
operating losses have been eliminated.
• As Jeffrey Chanin says: After you've cut out the cancers and identified plans for the renovation of the company, you still
have a sick patient recovering from surgery and you're not sure yet how he's going to be affected in the long run.
• You've got to find out if your remaining corporations are capable of long-term survival—not just can they produce a decent
cash flow right now, but are they worthy of being kept over the long haul?
The stabilisation stage
• During this period, the corporation begins to look beyond the day-to-day problems and the requirements of survival. It
knows it can survive, but doubts it can perform again.
• Right between surgery and stabilization comes a kind of gray area, and good management teams usually start addressing
that prior to or at the very early commencement of stabilization.
• Stabilization, by definition, implies a settling-down process that allows time to give the future more thought, since now
nearly everyone believes there will be a future.
• How dark or how bright that future will be for the corporation is not yet known
• Stabilization is a settling down after the trauma of the emergency stage. During the surgery stage, corporate executives
concentrated on cash flow and survival.
• During stabilization, the emphasis shifts to a three-pronged strategy: first, concentrating on profitability in addition to cash
flow; second, running existing operations better; and third, reposturing the company to provide a sound platform for
medium-term growth.
The stabilisation stage
• Cost cutting and divestment can solve short-term cash flow problems, but only sustained profitability can make available
the long-term cash required for healthy growth.
• In addition to cutting costs by economizing measures rather than surgical cuts, the stabilization period allows a company to
look at profit margins and profitability in more detail.
• The emphasis is on profit improvement rather than cost cutting. It is not enough to know the company's total cash flow
situation or which division must be cut to save the company. Decisions now are a refinement process.
The stabilisation stage : protecting the mother lode
• Everything is examined in more detail, and thus puts strain on the longer-term systems requirements.
• At this point the company makes investments in running its current businesses better.
• Particular business is the main core business of the company that must be protected, cultivated, and purified. It is the core
that will finance the turnaround and provide a platform for the future.
• As John Byers relates about a San Francisco company:
“The company had a heart as big as an elephant, but the appendages almost killed it. They had the obvious strategy of
keeping that heart alive, and going back to what they did best. They performed quick surgery, went into the stabilization
process, and devoted all their energies to the core. They did this by keeping the product and the quality as high as it had
always been, by treasuring the normal purchasers of the line, people they had dealt with for years. They had different policies
on their trade payables. They brought all the talent in the company in on and around that in order to keep it strong. They did
everything they could to protect the core because it was their bread and butter.”
The stabilisation stage : protecting the mother lode
• The pieces of the business that you've kept, you begin to purify. Now, this is a refinement process, totally different from
survival surgery. The people here are going to be here. Start to upgrade and create that environment of stability and
strength. "We are now going up—no more down." That's stabilization.
• Glenn Penisten, president of American Microsystems, calls his stabilization period "the year of consistency," as opposed to
his emergency phase, which he called "the year of corrections." During the stabilization period, when things are settled
down, the building of long-needed control systems is begun or refined. The lack of such control systems was one major
reason the company had prior difficulties. I have to point out, however, that in critical situations a control system is not the
key to the turnaround. It is executive action based upon a sharp pencil and a good mind. It doesn't do very much good to
spend a lot of effort on systems during the surgery stage unless you know you'll be around and in what form you'll be.
During stabilization a great deal more effort on these areas is expended and usually yields a high payoff. As Frank Grisanti
puts it:
Frank Grisanti puts it:

“We make sure that there are good cash, production, and planning-control procedures in place. We make sure there are
routines in place that get out the red flags and permit management to be sensitive to those problems that repeat themselves.
The key to good management is sensitivity and response. Any good management team must have in-place mechanisms that
will cause them to be sensitive to things that are going on—good and bad—and that will permit them to respond quickly to
take advantage of the good things and correct the bad things.”
The stabilisation stage : Reposture the company
• If the need for achieving a turnaround has resulted from long-term changes in the market place of the company, then it will
almost certainly be necessary to reposture the business.
• This involves a planned withdrawal from unprofitable products, services, market segments, and territories and the
development or acquisition of alternative business— attractive from the standpoints of both profitability and future
growth.
• The reposturing of the business may be relatively simple. For example, either the company should look for future growth in
Europe, or it should concentrate on developing a higher-quality, higher-priced product range, or it should recognize that it
has the ability to sell custom-made products profitably and devote more resources in this direction.
• It is equally possible that reposturing the business may require a modest degree of diversification, involving either a joint
venture or an acquisition. A detailed definition of the future is usually not possible during the stabilization period, but
general direction and reposturing are definitely possible.
When the turnaround fails
• If efforts made during the stabilization period do not get a company into an acceptable return position, the turnaround
executive may come to the conclusion that the business should be sold as a going concern to a company better placed to
make an acceptable return from the funds invested.
• If this is the case, he must have the courage to present the facts to his board for approval. This must not be seen as a
statement of failure. In the final analysis, the management of opportunity is more rewarding than the management of
problems from the standpoint of shareholders, managers, and employees alike.
• Once approval for divestment is given, then the turnaround executive should expect to be actively involved in, and probably
personally accountable for, identifying prospective purchasers and successfully negotiating the sale of the business.
• An example of such a strategy is the course taken by Overseas National Airways, which liquidated its jet fleet in 1968 for
handsome profits after sustaining operating losses of $27 million over five years.
Return to normal stage
• The emergency stage concentrates on retrenchment, the stabilization stage concentrates on controlled profit growth, and
the final phase of a turnaround concentrates on development and revenue growth.
• This time around, margins are not sacrificed at the expense of revenue growth. If a management has learned its lessons, it
will position itself in fast-growing, high-margin businesses. The emphasis is now on internal and external development.
Internal development emphasizes new marketing thrusts, finding ways to broaden the base of the existing business, and
finding ways to increase market penetration. Revenue growth again becomes a corporate priority. In order to facilitate
revenue growth, new products are selectively added, additional markets developed, selling effectiveness increased, and
customer service improved. Creating a Sound Financial Platform
• Producing sustained growth requires investment for future growth, and investment requires a strong balance sheet. From a
financial standpoint the emphasis shifts to the balance sheet and return on investment.
• The last stage is positioning the company for ten or fifteen years. You've got to look at your balance sheet. Is your capital
structure messed up, now that you've done all these things? What do you have to do to the capital structure to get it in line
again? Do you want it simple, do you want it complex, do you want to get rid of your debt? How do you build back the
credibility of your company? What you do to your balance sheet is as important as what you do to your operations.
Return to normal stage
• It takes a creative imagination, optimism, and forward thinking, which isn't the negative constructive thinking that goes on
in trying to stop the downslide. A guy who stops the downslide is always looking for bad things. You can't build a company
thinking about bad things. You have to look for good things, you have to be optimistic; it's a fully different personality.
Rebuilding momentum after a downslide can be a difficult chore and ultimately depends on transforming the negative
culture of a once moribund company. This means the skills and attitudes of a company's people must be transformed to
build a momentum for future growth.
When the company turned around
• At some point in time, the turnaround leader feels that his company has been turned around. The feeling can change, but
most turnaround leaders look for definitive signs that things have indeed changed.
• In a turnaround, there are problems everywhere you go —it's rare that there is just one problem. Surprises keep popping
up. In reality they are surprises only in the sense that a bad situation has finally surfaced. It always existed, just as America
always existed before Columbus discovered it. At some point these bad surprises seem to stop or attenuate, and you begin
to get good results. Then you get the feeling that the turn is beginning.
• Thaddeus Taube of Koracorp has a point of view that is shared by a lot of turnaround leaders:
I think that the turnaround becomes a turnaround at that point in time when your financial partners begin to treat it as
such. In most large businesses, the turnarounds are involved in partnerships of the company and its banks, and obviously the
attitude of the banks in relation to
The Greatest Comeback Story Of All Time: How Apple
Went From Near Bankruptcy To Billions In 13 Years
• Just 13 years ago, Apple was on the verge of bankruptcy.But then – worried that it would be viewed as a monopoly
without competition from Apple – Microsoft came to Apple's rescue with a $150 million investment
• Had that not happened the world may never have seen iPods, iPads, iPhones or iMacs. But that was just the start of
Apple's return to glory, the greatest corporate comeback story of all time.
• 1997 - Partnering with the enemy, Microsoft
• When Apple co-founder Steve Jobs returned to the company in July of 1997, it marked the beginning of Apple's
resurrection.
• After 12 years of financial loss, Gil Amelio was ousted from the CEO position. Jobs took the interim position and was
tasked with major restructuring, out of which a partnership with Microsoft was formed.
• One of his first decisions was to nix the Newton, a project that sucked $100 million out of the dying company, even
though it was a product ahead of its time.
• The Apple-Microsoft deal was revealed at the ’97 Macworld Expo. Gates and Jobs announced a five-year
contract that would release an updated Mac version of Microsoft Office and Microsoft's $150 million
investment in Apple.
• Jobs humbly explained to the audience: “If we want to move forward and see Apple healthy and prospering
again, we have to let go of a few things here. We have to let go of this notion that for Apple to win, Microsoft
has to lose.
• "So, the era of setting this up as a competition between Apple and Microsoft is over as far as I'm concerned.
This is about getting Apple healthy, this is about Apple being able to make incredibly great contributions to
the industry and to get healthy and prosper again.”
• As he spoke these words, Jobs was both booed and cheered.

• The Lesson: Jobs had a daunting task ahead of him, but he wasn't afraid to make difficult decisions to get the
company back on track. Cutting costly projects like Newton and aligning with known-competitor Microsoft
were controversial decisions that showed Jobs' authority, confidence, and smarts.
• Apple was still struggling, and they needed a good product to turn things around.
• The iMac, introduced in 1998, was the solution. The unique design, which resembled the Macintosh 128K, was
created by Jonathan Ive, designer of now iconic Apple technology, the iPod and the iPhone. Ive reinvented the
'boring beige box" and for the first time, you could actually see a computer's guts. The all-in-one iMac sold nearly
800,000 units within its first five months.
• Apple returned to the software space that year with an acquisition of Macromedia’s Final Cut product.
• For the first time since 1995, Apple returned to profitability. According to FundingUniverse.com, the company
turned a profit of $309 million in 1998.
The Lesson: Steve Jobs reportedly called a meeting at Apple, sat everyone down and said, "You know what's wrong
with this company? The products SUCK --." Jobs' decision to throw resources into a new, futuristic computer model
drew people's attention to Apple, and it paid off.
• 1999 - Apple stock reaches $99 per share, profits increase 94%
• Apple continued its resurgence, seeing healthier profits and thus healthier stock prices. In 1999, their sales grew
3.2%, and profits doubled to $601MM, a 94% increase from the year prior.
The Lesson: Apple began expanding its products beyond just computers with the release of Final Cut
Pro. They also noted what worked with the iMac, and built out new products based on proven success.
Each success showed Jobs was turning the company around, and the public grew more confident in
Apple's stability.
2000 - Jobs becomes permanent CEO of Apple, but Apple has its most unprofitable quarter in
three years
Apple announced a new strategy for tackling the Internet at the 2000 Macworld Expo. They unveiled iTools, Mac-
only internet applications. They also announced Earthlink as their recommended ISP. Having successfully gotten
Apple back on track, Jobs was able to drop "interim" from his CEO title and earned himself a permanent position.
Jobs also announced that the previous quarter, 1,350,000 Macs were sold - that's one product sold every six
seconds.
Later that year, Apple released new machines including The G4 Cube, a risky move that was an ultimate failure.
Apple-History.com writes, "The Cube was Apple's answer to those who wanted an iMac without a monitor, as well as
challenge to the computing industry to continue to minimize the size of computers while increasing their visual appeal.
The Cube was the biggest gamble Jobs had made since the release of the iMac. It would turn out to be a resounding
failure."
• In an attempt to right their wrongs, Apple cut prices on their PowerMac products.
The Lesson: Under the reign of Steve Jobs, Apple proved they weren't afraid to take risks and fail. They also
showed that when something wasn't working, they could adjust quickly, pulling plugs and changing strategy
as necessary. Jobs has said, "We're gambling on our vision, and we'd rather do that than make 'me-too'
products.“
2001 - The iPod, iTunes and the Apple Store are born
On May 15, 2001, Jobs unveiled the first Apple Store. They were such a hit that he later remarked, "We had
26 million visitors during the holiday quarter in retail stores. I mean think about it, this is more people than
live in any state in our union besides California.“
The Lesson: With multiple product hits, Apple's comeback was in full swing. Each product launch became
highly-anticipated events by media and the public alike. The company proved with the iPod that they could
execute ideas quickly, and successfully dominate other hardware besides computers.
The lesson: Jobs kept the company new and fresh by coming up with out-of-the-box concepts. He did this in
all aspects of Apple, in new products, and even in hiring decisions, drawing inspiration from everywhere. "Part
of what made the Macintosh great was that the people working on it were musicians, and poets, and artists,
and zoologists, and historians who also happened to be the best computer scientists in the world,"
Jobs has said.
2003 - The iTunes Music Store is released
The lesson: Think ahead, and connect the dots. Apple released products that were innovative in and of
themselves, but they also connected with other products. The integration of iPods, iTunes and the iTunes
Music Store prove how a sum can be greater than all of its parts.
2004 - iTunes leads to 70% market share, iPod mini released
The lesson: Simplicity is bliss. iTunes made downloading songs easy and legal. The iPod Mini was sleek and
simple, without any bells and whistles. Apple's designer Jonathan Ives confirms their strategy: "We are
absolutely consumed by trying to devlop a solution that is very simple, because as physical beings we
understand clarity."
• 2005 - Release of the iPod Shuffle, Mac Mini, and transition to Intel-based Macs begins
The lesson: Keep innovating and improving. Apple presents multiple forms of the same devices with entirely
different looks and packaging (the Nano versus the Mini). Even if improvements are slight, each product has a
new identity that gets people excited.
2006 - Apple passes Dell's market cap, and its Intel-based computers are significantly faster than ever
The Lesson: Sell dreams, not products. Customers first and foremost care about themselves, and if you help
them find out what it is they want, they will latch onto your brand. Jobs doesn't use focus groups or wait for
people to make demands. Instead, he releases must-have products before people even know they will want it.
2007 - The iPhone revolutionizes the mobile industry, Apple TV is announced

The Lesson: Steve Jobs is a relentless innovator, and Apple always seems to find a new way to produce
products that improve our lives. Thinking differently has been a key component to Apple's second coming.
2008 - The App Store is unveiled, along with trackpads with multi-touch technology
The Lesson: Apple is great at connecting separate products to one another. The App Store, for example, was made to
enhance both the iPhone and iPad. According to Jobs, "Creativity is just connecting things.“
2009 - Steve gets sick
The lesson: Trust your team. A company may only seem as great as one person, but if you hire smart people, they're
perfectly capable of stepping up to the plate.
2010 - The year of the iPad
The lesson: Innovation doesn't require focus groups. Steve Jobs doesn't believe in asking customers their opinions. You can
develop products people will want before they even know they want it. Sometimes, you can know customers better than
they know themselves
The key
•Think takeaways:
simple - The iPad is so simple 2-year-olds can use it.
•Be different - Like the iMac.

•Be a risk taker and make tough decisions - Jobs partnered
with Microsoft and nixed the Newton.
•Make great products, and package them even better - Show
customers what they want, like the iPhone did.
•Create an experience - Apple did this with their stores. And
hype, like Macworld does for the media.
•Be confident - don't hold focus groups and ask people what

they think.
•Be passionate - Steve Jobs said in his Stanford commencement
speech: "Have the courage to follow your heart and your
intuition. They somehow already know what you truly want to
become."
The key
•Think takeaways:
simple - The iPad is so simple 2-year-olds can use it.
•Be different - Like the iMac.

•Be a risk taker and make tough decisions - Jobs partnered
with Microsoft and nixed the Newton.
•Make great products, and package them even better - Show
customers what they want, like the iPhone did.
•Create an experience - Apple did this with their stores. And
hype, like Macworld does for the media.
•Be confident - don't hold focus groups and ask people what

they think.
•Be passionate - Steve Jobs said in his Stanford commencement
speech: "Have the courage to follow your heart and your
intuition. They somehow already know what you truly want to
become."
Jobs died October 5, 2011. ... Apple's founder and former CEO, Steve Jobs, died of pancreatic cancer on October
5, 2011. During his life, and especially during his time leading Apple, he became iconic for his attention to detail, his
sense of product design, and his ability to communicate and connect with an audience.
• Most large companies have formal corporate-planning procedures for at least ten years. One tangible benefit
from this should have been the virtual elimination of turnaround situations.... However, there is no evidence of
any noticeable improvement of this kind.'
• Most turnaround leaders interviewed agreed that the traditional approach to planning doesn't work in a
turnaround.
• Traditional corporate-planning efforts are too ponderous, have a basic reality gap, and concentrate on trends
rather than on the growth/decay packages that are the reality of corporate life.
• Turnaround executives are not antiplanning, but the name of the turnaround game is change. The challenge is to
keep the turnaround plans dynamic.
In a turnaround, "hard" questions such as the following are required:
1. Is the part of the company under review a drain on the company's cash? Will it be so in the future? How much
cash will be involved? Can the company afford the cash drain?
2. How much capital does the segment of the business tie up that could be freed for other uses?
3. Is a given product or division contributing adequate profits now? What are the prospects that it will do so in the
future?
4. What opportunities are there to utilize (at higher rates of return) resources made available through a divestiture?
Operating people are likely to spend a great deal of time trying to improve a product or business which they should
devote little time to or drop altogether.
5. Top management must channel valuable time and effort away from these unprofitable areas toward products
which have a future.
Turnaround Plan Characteristics
• A turnaround company needs more than plans of the "back-of-an-envelope" type. And more than any other type of
company, it must avoid the basic planning errors that make planning just lip service. Its plans must be simple and
realistic. They must involve line management and must concentrate on segmenting the business into its strong and
weak elements.
• The turnaround company must concentrate on decisions.
• Turnaround planning must be simple, not ponderous. It is not unusual for a division of a large company to
produce a corporate plan which is over 200 pages long. By definition, long-range plans are prepared by
senior managers and staff specialists, and the amount of time involved is frightening.
• Time is spent by individual managers preparing their contributions and subsequently rewriting them to
meet their superior's approval; then there are the inevitable briefing and coordination meetings. The trap
here is that these massive planning efforts often consume valuable time needed for action and reflection.
• "Ideally, the planning document should be so brief that the chief executive of the division has time to write
the whole narrative himself, following a planning meeting with his management team to establish
individual commitments. There is no reason why the divisional planning document should be longer than
20 pages."?
• Realistic Plans. The ponderous approach leads to the reality gap. Not surprisingly, in some instances the
divisional corporate plan is largely written by a business-school-educated staff man who has little real
product or customer knowledge in the particular markets involved.
• The real motive for the delegation of duty is to let the line managers concentrate on running and
developing the business.
• As one CEO remarked, "Strategic planning is just a plaything of staff men." Another said, "It's like a Chinese
dinner: I feel full when I get it, but after a while I wonder if I've eaten at all."
• The problem of reality stems from the plan preparers. In many cases there is a yawning chasm between the
broad scenarios of the staff men and actual company problems.
• In order to be meaningful, planning must get down to the line management level and must pay attention to
the concerns of the people actually running the business.
• This downward movement requires a push from the company's chief executive officer. It is part of the overall
cultural change required for a full turnaround.
• In a substantial number of cases, even where the top management has been actively involved in preparing
the plan, copies of the document are simply filed away after the review meeting with headquarters and not
referred to again.
• Plans that concentrate on hundreds of accounting exhibits and thousands of numbers usually substitute uncritical
forecasting for planning. If anyone still suffers from the delusion that man is able to forecast beyond a very short time
span, let him look at the headlines in yesterday's paper and ask which of them he could possibly have predicted a
decade ago. In fact, planning, by its very nature, is supposed to prevent managers from uncritically extending present
trends into the future.
• Sloughing off yesterday is a much more important element in companies going through a turnaround than it is in
more stable companies.
• Instead of numerical forecasts planning must concentrate on the strong and weak parts of the business. Finally,
observations of companies wrestling with planning suggest that the lack of real payoff from planning is almost always
the result of one fundamental weakness, namely, the failure to bring planning down to current decisions.
• All too often, the end product of present-day strategic planning activities is a strategic plan—period. Nothing really
new happens as a result of the plan, except that everyone gets a warm glow of security and satisfaction now that the
uncertainty of the future has been contained.
• Unfortunately, warm feelings do not produce earnings or capture market share. Neither do graphs of five-year
earnings projections, gap charts, or complex strategy statements.
• Most of us have seen companies face-to-face with survival properly analyze strategic issues, map out detailed
action plans, and then fail to act because the chief executive officer cannot bring himself to make some tough
decisions.
THE BASIC PLANNING ELEMENTS ::
• Any plan, whether it be a plan for a high-growth company or for a company in difficulty, should contain four basic
elements.
• objectives, strategies, tactical action plans, and provisions for follow-up review of implementation results.
• Objectives Without an objective, the organization is like a ship without a rudder, going around in circles. It's like a
derelict; it has no place to go. Developing and communicating an objective, a unified sense of direction, to which
all members of the organization can relate, is probably the most important concept in management for top-level
consideration, and yet it is frequently overlooked.
Objectives ::
• Unless the organization, its people and management, have an objective, a corporate identity, a philosophy of what they
are in business for—and some plans to achieve these objectives— then there is not unified direction that management
can use to relate to day-to-day decisions.
• The responsibility for setting objectives lies with the chief executive officer and the board of directors.
Strategies::
• The current methods of developing strategies have two fundamental problems that severely
limit the likelihood of good decisions coming out of the process.
• The first problem is that strategic planning requires reasonably accurate long-term forecasts, and yet such forecasts are
almost always impossible to produce.
• The second problem is that most strategic plans are, in practice, not much more than financial hopes filled with "nice"
numbers. Usually they are quantitative extrapolations of the past. Instead, they should center on pinpointing the strong
and weak parts of the business and spelling out what actions are to be taken to eliminate weakness and to build on
strength. In troubled companies particular caution must be exercised. strategies are appropriate in light of the limited
• Each company must decide for itself how much risk it wants to live with.
Tactical Plans ::
• The third element in any plan is to figure out how to "get from here to there." This requires tactical plans.
• Since only quantitative measures can be communicated without ambiguity to all managers involved in the planning
function, quantitative measures have become in practice the focal point of the typical business plan.
• Thus management's conception of the future of the company is in terms of financial needs. These financial needs are then
compared with the results of forecasts of sales and profits from the organization's existing products. Since the
needs/estimates usually are somewhat pessimistic, this comparison almost always discloses a disparity between the
bullish financial goals of top management and the best expectations of middle management about the future of current
products and operations.
• This disparity is often called the "strategic gap" and represents what strategic planning is supposed to contribute to
attaining the company's goals.
• When the future is analyzed in terms of alternative actions that the company can take to close the gap, the
odds favor diversification as the method. Diversification can be accomplished either by innovation through
internal development, by acquisitions, or by a combination of the two.
• However, as one examines the growing list of companies that have become entangled in financial misfortunes
because of decisions apparently made in accordance with the principles of strategic planning, it seems that
strategic planning may not always produce the expected results. Here are some well-publicized examples:
• General Foods attempted to diversify through acquisition (Burger Chef). The 1972 annual report indicates a
write-off of $39 million.
• Follow-Up Reviews Profitable growth doesn't just happen; the surest way to achieve it is to identify and
pursue specific business divestment and development projects and to make an individual executive
accountable for each.
• What business are we not involved in today which we should plan to enter by creating a new division or by
acquisition? Should any division be divested or closed down?
• The most important part of the corporate plan is the list of key milestones to be achieved along each major
projection within the next year.
• It is essential that each milestone be expressed in a measurable way and that a specific executive be accountable
for its achievement by a deadline date. For a typical division, there may be between five and ten key milestones
which are to be achieved during the year. The action plans should spell out:
1. What is to be done.
2. Who is to do it.
3. How it is to be accomplishe.
4. When it is supposed to be complete.
• The commitment to key milestones ensures that each member of the top management team has a specific
accountability to contribute to business development and that he or she is not allowed simply to concentrate on
operational problems and fire fighting. The addressing of accountability, that is, the periodic review of what is
actually done versus what was planned, is extremely important. Quarterly planning reviews are recommended
where managers develop a formal report card as a minimum requirement. Without accountability, planning is
just a gesture in the right direction.
PLANNING CONTRASTS BY TURNAROUND STAGE ::
• While the key elements of planning are common to most company situations, they take substantially different forms in a
turnaround company.
• They are shorter, more direct, and subject to more frequent revision. When a turnaround leader takes over a troubled
company, his objective is often very simple: survive and return to positive cash flow. He has simple objectives but very
limited resources. He suspects, but does not know for sure, that the company as a whole is viable.
• First, he must perform a viability analysis in order to ascertain whether the company is viable. This evaluation and the
subsequent plan that emerges from the evaluation are critical.
• There are three distinctly different plans during the turnaround cycle. The first is the emergency plan, which usually is
formulated in from five to ninety days after the turnaround leader arrives. Its objective is to get the company to positive
cash flow and thus ensure its survival.
• Next is the stabilization plan, which usually takes a company from the point of positive cash flow through its first year of
turnaround. The stabilization plan does not usually have a planning horizon of more than one year.
• Third is the return-to-growth plan, or redevelopment plan, which takes a company from its solid profit base back to
normal growth. This plan usually covers from one to three years.
• Not all turnaround companies require an emergency plan or a stabilization plan. Companies that are merely
declining in margins and market share probably will require only a redevelopment plan.
• By definition, a troubled company has a sizable performance gap between what the board of directors expects and
what the company actually achieves.
• It is useful to break this performance gap down further into two distinct types of gaps.
1. The first is a strategic gap. A troubled company is often in businesses (products or services) in which it
doesn't belong.
2. The root cause of this strategic performance gap is the inexperience of the company's management or its
inability to operate a given type of business, because of a lack of planning.
THE EMERGENCY PLAN ::
• An emergency plan is formulated from the information gathered during the evaluation stage.
• Usually in turnarounds there are a limited number of options available, and they are often readily apparent.
Stick to the critical problems that have turnaround leverage and are the cornerstones of your action plan.
Don't try to cover every problem.
• Don't bring up problems without pointing out solutions and corrective action. It's more important to solve
80 percent of the problem with imperfect solutions than to go after the last 20 percent.
.
THE STABILIZATION PLAN ::
• Stabilization planning is based on the premise that the corporation will survive and that it has proven it
can do so. During this period, the corporation begins to look beyond the day-to-day crisis and the
requirements of survival.
• It knows it can survive, but it does not know how dark or how bright its future will be. It has come in
from the rain, but dark clouds still are on the horizon. Stabilization, by definition, implies a settling-down
process that allows time for giving the future more thought—because now everyone believes there will
be a future. The overriding objective of the stabilization period is to provide a sound platform for future
growth.
Planning Strategies ::
This requires a stabilization plan, a definition of the future of the company over some time horizon (usually
one year). During stabilization, emphasis is on a three-pronged strategy:
1. Improving the profitability of retained operations by improving margins.

2. Running existing operations more efficiently by improved systems and techniques.
3. Reposturing the company to provide a stable platform for future growth.
• Profit improvement is done in a more deliberate and well-thought-out manner than was done in the
emergency stage.
• The emphasis is no longer purely on cash flow, but on profitability and on the relative return on assets
employed. A product, a division, or an operation must provide something more than just positive cash flow to
be retained;
• it must provide profits relative to the capital invested. In the emergency stage the basic strategies are
defensive, while in the stabilization stage ,the basic strategies as conservative. TABLE 18-8 Contrasting
THE RETURN-TO-NORMAL-GROWTH PLAN ::
• If a turnaround company successfully implements its stabilization plan, it should be ready to plan for
a redevelopment of its growth pattern on a sustained basis.
• One would hope that the lessons of overexpansion, overdiversification, and overleveraging, which
got the company into problems earlier, will not be repeated by management. The redevelopment
plan is a very useful step in ensuring that the modest growth objectives toward which the
turnaround company can now strive are balanced by its available resources.
• Usually this plan covers a period from one to three years long. During the emergency stage, a
turnaround company usually has both strategic and operational performance gaps of a severe
nature.
• During the stabilization stage, a turnaround company continues to have performance gaps, but these
are usually less severe and generally are operational gaps. This is especially true if the misfit
businesses have been divested or liquidated.
• In the return-to-growth stage, the turnaround company usually starts out by pushing internal
development efforts and later emphasizes external diversification efforts.

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BUSINESS

ROLE OF MANAGEMENT AND LEADERSHIP

Topic Details of the topic to be covered Teaching Tools Hours

Turnaround strategies Structure of evaluations; Financial, competitive, organizational assessments;

Asset redeployment; Financial, Operations and Marketing management in

Credits :2 (Assignments1 Regular+1 Experiential),4 Quizzes

Stages in turnaround cycle. Key factors in turnaround

Today’s Agenda : Topics covered

Based upon the experience turnaround leaders, the discrete

1. Moment of truth stage

2. The management change stage

3.​The evaluation stage

4.​The emergency stage

5.​The stabilization stage

6. The return-to-normal-growth stage

The new Leader ::

The new Leader ::

The Action Plan ::

Stop the Bleeding ::

THE RETURN-TO-NORMAL-GROWTH STAGE The emergency stage concentrates on retrenchment, the

Creating a Sound Financial Platform ::

In its simplest form the four principal keys to a turnaround are:

2.​An economically and competitively viable core operation

IMPROVING MANAGEMENT PROCESSES ::

As we saw earlier, seven out of ten turnarounds are

• In 1988 it launched it’s first passenger vehicle –Tata Mobile.

• In 1991 It launched Sierra

• In 1994 SUV Tata Sumo

• In 1998 It launched SUV Safari and Hatchback Tata Indica.

You don’t find any Indian product.

Chinese Korean American Others

40% 82% 82% 80% 79% 80%

• As a consequence to this, JLR had to call back 106,000 vehicles

• Various types of defects noticed- Engine defects,instrument panels, Airbags, Battery

• Volkswagon emission scandal surfaced.

• a market share of 14.71 in the FY 21-22.

• What exactly has been their business strategy

4. Brand Positioning of Safety.

SKODA Virtus SKODA Slavia

New unique parts

Carryover parts Most economical

1.6 models/platform 4 to 5 models/platform

This platform is alpha platform meant for smaller cars

Omega platform meant for bigger cars

4.3 mtrs to 4.8mtrs

Tata Hornbil Tata Tigor Tata Nexon

70% carry ove

Waranty costs have reduced from 1.14% of revenue in FY16 to 0.9% in

Tata per car profitability rose to Rs 45810 in 2022

2. First mover advantage.

TCS Aided Tata power to establish charging stations :

300 charging stations in just 12 weeks

40% 82% 82% 80% 79% 80%

Nearsighted Management Failure to embrace the community in the age of

Toys Aren’t Top Sellers Anymore

 Not transitioning into a modern store and

3. Macro environment.  Toys R Us were not prominent on online

3.The evaluation stage

4.The emergency stage

5.The stabilization stage

2.An economically and competitively viable core operation