Four months is the absolute longest that any turnaround leader has to imbue a company with a new sense of direction and lay a comprehensive rescue plan on the table - otherwise it is unlikely that the company will show the resilience to see the tough turnaround period through, which may last two to three years, says Herman Marais, CEO of corporate restructuring and turnaround specialists, Strategy Partners.

"Only the naïve would expect conclusive turnaround results within three months, as, typically, the problems from which the business is suffering have been too long in the making," Marais says.

 "However, by the start of the fourth month the business must have a clear understanding of where it is going, and a new spirit must be evident throughout the organisation." It is therefore vital for turnaround leaders to produce a credible business (survival) plan within the first 100 days and to forge productive relationships with key stakeholders: bankers, investors, suppliers, key customers and distributors.

"This is also the period within which to form the core of the leadership team that will see the process through to its conclusion - this implies that the deadwood has to be pruned as well," he says.

Centralise Control

"Effective leaders learn to adapt their style to their context, but the initial stages of a turnaround process is a time for centralising control, even though it may appear to be in conflict with fashionable organisational theory or existing reporting structures," Marais says.

This entails that:

	The turnaround leader needs to be in effective control of all key functions, approval of even formerly approved expenditure, budgets and capital projects, purchase orders above a determined level, salaries and hiring.
	The turnaround leader needs to intervene in all these areas, to scrutinise each material transaction and to probe for explanations.

Marais points out that there are powerful reasons for this approach:

	There is typically no time to wait for information flowing through normal reporting channels. People with vested interests will filter the flow of information to the turnaround leader, and he will only open up these filters through direct, face to face, contact. These contacts and confrontations are also opportunities to build information about the qualities of the team and to test first impressions.
	Direct contact and communication also creates the opportunity for repeating the message of turnaround and change over and over. This is necessary to change attitudes and to rebuild morale and shared vision in the organisation.
	The outside world is also waiting for signals of change and direction. Effective communication is needed to deal with the expectations and concerns of customers, bankers, suppliers and vendors. Such effective communication originates best from a single, controlled source

Cash, Cash, Cash

"More often than not, cash flow problems trigger turnaround initiatives," he continues.

Logically, re-establishing sustainable cash flow is the acid test for survival of the business.

"Immediate cash-flow modeling should be undertaken, providing for several different business scenarios, with each line of the model being subjected to stringent reality tests," Marais says, adding that ideally, several cash flow improvement avenues should be pursued simultaneously.

Internal cash flow improvement strategies can consist of the following:

	There should be a focus on turning balance sheet items such as debtors and inventory into cash as quickly as possible.
	In the case of a deteriorated debtors book, it is important to dedicate a task group to the recovery of the bad part of the book, a function which should be carried out separately from rebuilding the business and establishing sound credit practices for the future. Selling the book in part or as a whole to a third party through factoring or securitisation should be considered.
	Assets should be turned into leases through sale and leaseback transactions where possible.
	Inventory management should be tightened.
	Other internal actions should include a focus on expense reduction, including important symbolic cuts into special benefits and perks.

Externally, the focus should firstly be on restructuring the near-term cash commitments of the business. This should be done through:

	negotiating extended terms;
	conversions of debt into equity;
	opening possible new credit, financing and investment lines.

"Arguably, such relief from external parties should be a pre-condition for the turnaround campaign to start in earnest," Marais says. "Once the above-mentioned emergency measures have been implemented and the business has been stabilized, the task of organising the medium and longer term funding of the business can start."

Neglect Marketing At Your Peril

"This is necessarily so," Marais says. "However, these avenues should not be pursued at the risk of neglecting marketing solutions. Low-risk, low cost, cash-generative opportunities should be thoroughly explored."

Such opportunities could include:

	extended operating hours;
	increasing sales to existing customers;
	strategic promotional campaigns.

"The benefits could be immeasurable in terms of reducing the space for competitive vultures, maintaining confidence with customers, building staff morale and, above all else, easing the cash flow constraint," he says.

The risk of neglecting marketing solutions during turnaround is, that once the cost cutting and restructuring have been successfully completed, the core business and its customers may have gone away. 

It's About Leadership

Their solutions are also often not unique - such as getting the basics of the core business right.

Unsurprisingly, the business issues being faced in turnaround situations are seldom unique. Causes such as mismanagement of growth, weak cash-flow management, lack of strategic vision and weak corporate governance feature in virtually every turnaround case. Their solutions are also often not unique - such as getting the basics of the core business right.

Why do turnaround situations then arise and why do some work out and others not?

"A big part of the answer to these questions lies in the quality of turnaround leadership," answers Marais. "Successful turnarounds depend on a leadership team's ability to recognise the need for change, to envision a new course, to persuade disbelieving internal and external stakeholders, and then to have the resilience to drive the changes through to their logical conclusion, despite inevitable resistance and interim failures," he concludes.

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