Academic journal article Journal of Business Strategies

A Capability-Driven Turnaround Strategy for the Current Economic Environment

Academic journal article Journal of Business Strategies

A Capability-Driven Turnaround Strategy for the Current Economic Environment

Article excerpt

Abstract

Many Businesses were prompted to reevaluate their products and services as a result of the recent economic downturn. Changes were made to their business models to realign capabilities and performance in some cases. Businesses need to provide better products and faster services while faced with more discerning customers, emerging markets, and dynamic regulatory environments. In a turnaround situation, businesses need to reinvent strategies and position themselves to meet short-term goals, while functioning in a competitive landscape for the long-term. The capability-driven model leverages core business and operating capabilities to optimize the entire value chain; innovation and Corporate Social Responsibilities are integrated carefully for long-term sustainability. The proposed framework is based on careful studies of companies that returned to profitability from a failing situation.

Introduction

Businesses evolve all the time. However, the recent economic downturn (Survey of Current Business, 2009, 2010; IMF Sees Major Slowdown for Global Economy, Calls for Strong and Coordinated Policies to Support a Turnaround. October, 2008) accelerated this market dynamic and many businesses found themselves floundering for survival. Changes in customer behavior (Annual Retail Trade Report, 2008, 2009, 2010) and competitive pressures, along with blind spots that companies develop over time (dwindling profitability) stagnates revenue growth and loss of market capitalization (Consumer Trend Data, 2009-1010; Annual Retail Trade Report, 2008, 2009, 2010; and All Times Bankruptcy, P1995-2010). Companies once regarded highly in terms of shareholder value and market share fail to recognize changing market conditions; these firms need a strategy for turnaround. Several studies suggest numerous factors influencing turnaround including managerial changes, improvement in financial instruments, and tactical changes such as operational efficiency and competitive improvement (Barker & Duhaime, 1997; Moulton, Thomas & Pruett, 1996). These studies examine declining firms in the context of decline sources and organizations' responses to the decline (Barker & Duhaime, 1997; Moulton, Thomas & Pruett, 1996; Castrogiovanni & Burton, 2000). It is argued that turnaround strategies are not applicable to all firms because most retrenchment activities are a consequence of decline and not a necessity to achieve turnaround (Barker & Mone, 1994). Typical retrenchment activities are cost reduction and fixed asset reduction. The influence of typical retrenchment strategies in turnaround is understood poorly. Cost cutting measures are important, but an important question still remains unanswered, how to influence a declining firm toward turnaround other than adoption of a mere balance sheet approach?" This study examines the turnaround approaches of companies that did not file bankruptcy and took measures to address declining profitability.

Several companies, from various industries, fallen victim to market blindness were studied. These companies emerged stronger and with long-term viability, by implementing a holistic turnaround strategy. This study contributes to the emerging trend that suggests against the simplistic and standard approach to turnaround situations for companies in need of changing from non-profitability to profitability. This study reveals pertinent and repeating adaptable capabilities that every business in most industries can execute for long-term growth and profitability-at the heart of which is returning to core.

To formulate an adaptable strategic framework for successful turnaround in the wake of recent changes in economics and customer behaviors and preferences, a study to test the following research questions was conducted:

(1) Does sustainable tumaround require a holistic approach with a strong focus on core business capabilities?

(2) Is an effective operational strategy, with a coordinated approach, spanning the entire value chain of a business, more critical for a successful turnaround, rather than a finance focused approach? …

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