Managing turnarounds in troubled times

Abstract

This paper builds a conceptual framework for the analysis of a corporate turnaround strategy. An analysis of the content of corporate turnaround strategies in the manufacturing sector specific to India is presented. The research began with a sample set of 3000 firms in the manufacturing sector, from which a total of 75 turnaround firms and 125 non turnaround firms were picked up for further analysis. Most prior work on the turnaround has examined industries in US, Japan or Europe. The research explained in this article expands on the above knowledge already existent about business turnarounds by identifying, understanding and profiling shifts in financial measures over four phases of the typical turnaround cycle. We begin the study by gauging the magnitude and the direction of changes in financial measures in each phase of a successful turnaround for which we track transitions across turnaround phases. We then identify the financial measures that discriminated between firms that succeed in achieving turnaround and those that do not. Further, the quality of the turnaround is also examined in the light of the factors chosen. Theory developed in past work is built to predict the content of turnaround strategies with the use of a four phase model. A combination of factor and discriminant analysis is used to test the predictions. The turnaround prescriptions are thus developed for the manufacturing sector in India.