Magazine article Management Today

Turnaround Tricks Are a Short-Term Solution for Firms

Magazine article Management Today

Turnaround Tricks Are a Short-Term Solution for Firms

Article excerpt

The turn of the turnaround man has come round again. After every boom, the bust leaves a trail of corporate nearcorpses for somebody to revive. This time, however, the tasks are larger and more complex - maybe too big for the good old turnaround trick to work.

That sleight of hand results from simple arithmetic. If profits have collapsed from pound 100 million to below zero, pushing them back to pound 50 million will be hailed by shareholders and commentators as near-miraculous. Merely eliminating the worst incompetence of the previous incumbents and cutting out a few thousand workers will achieve a precipitous recovery from the abysmal to the merely inadequate - but that is well short of success.

A spirited discussion took place at a recent seminar over whether David Dworkin, until recently the chief executive of Storehouse, had made a success of the group's major entity, BhS. His recovery programme had become a Harvard Business School case study. However, sharp questions were raised about the depth of his changes, the vitality of the BhS brand, and the extent to which .the bottom line, as opposed to the business, had been transformed.

The hard truth is that in 1991 BhS made pound 21.6 million operating profit on pound 617.7 million of turnover - or a niggardly 3.4%. That is far better than the projected pound 12-million loss towards which the stores were heading when Dworkin arrived; but the whole Storehouse collection made over 11% in 1987 and clearing that number, rather than simply entering the black, was the true target in front of the turnaround man.

From a personal point of view, the treatment worked fine. Dworkin was recruited for a top job in US retailing, and the success (or failure) of his work will fall to his successors. That is often the case with turnaround men: they move on, sought for their demonstrated skills, before their policies have paid off (or not). Lou Gerstner has thus been recruited by IBM from RJR Nabisco to rescue the company after only three years' demonstration of his talents: the results of which, like Dworkin's, are open to debate. True, the easiest part of RJR's turnaround - disposing of costs, jobs, businesses and debts - has been performed with efficiency. But profits have stuck on a plateau (far lower, note, than earlier levels), tobacco market share has fallen significantly, and Gerstner's strategic plan, with much left still to unfold, will have to be realised (if at all) in other hands. Three years sounds like a long time - but it is not long enough to remake a vast corporation. …

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