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Turnaround Strategy

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TURNAROUND STRATEGY
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TURNAROUND STRATEGY

AN OVERVIEW

Turnaround managementis a process dedicated to corporate renewal. It uses analysis and planning to save troubled companies and returns them to solvency. Turnaround management involves management review,activity based costing, root failure causes analysis, andSWOT analysisto determine why the company is failing. Once analysis is completed, a long term strategic plan and restructuring plan are created. These plans may or may not involve abankruptcyfiling. Once approved, turnaround professionals begin to implement the plan, continually reviewing its progress and make changes to the plan as needed to ensure the company returns to solvency.The concept or the meaning of turnaround strategy covers the following points: 1. The turnaround strategy means to convert, change or transform a loss making firm into a profit making firm.2. The main purpose of implementing a turnaround strategy is to turn a negative company from the positive one.3. It means to make the company profitable again.4. If this strategy is not applied to the sick company, it will close down.5. It is remedy for curing industrial sickness.6. Turnaround is restructuring strategy. Here a loss bearing company gets converted into profit earning company.7. It tries to remove all weakness of a sick company, once again become strong, stable and profit earning company.8. It tries to reverse the position from loss to profit, from declining sales to increasing sales, weakness to strength, and from instability to stability.INTRODUCTION

Often once highly successful companies find that they lose their competitive advantage, andrivals overtake them. As their sales stutter, they lose market share, and faced with excess capacity their costs rise. Profits evaporate and soon they report massive losses. Their decline is the stuff of headlines and dominates the business pages.Usually the incumbent CEO makes minor adjustments when a much more radical approach is required to restore the company to good health. Eventually the CEO who oversees this withering decline is sacked, and a new CEO is appointed. The new CEO is afforded a limited period to prove his/her worth. The new CEO has in fact been appointed to execute a successful turnaround strategy. This new CEO may often be an outsider because the company recognizes the need to appoint a dispassionate outsider who will tackle the "sacred cows" of the organization.DEFINITIONThe definition of turnaround strategy w.r.t. different senses is depicted below:

The financial recovery of a company that has been performing poorly for an extended time. In order to effect a turnaround, a company must acknowledge and identify its problems, consider changes in management and develop and implement a problem-solving strategy. In some cases, the best strategy may be to cut losses by liquidating the company rather than trying to turn it around.Possible characteristics of a troubled company in need of a turnaround include revenues that do not cover costs, an inability to pay creditors, layoffs, and salary cuts for officers and a significant decline in stock price. Poor management and/or social, technological and competitive changes may have caused the products or services the company sells to be perceived as subpar by consumers. A speculator may profit from a turnaround if he or she accurately anticipates the improvement of a poorly performing company.Turnaround strategy is a corporate practice designed and planned to protect (save) a loss making company and transformed it into a profit making one.In financial, commercial, corporate or from a business perspective, the turnaround strategy can be defined as follows.Turnaround strategy is corporate action that is taken (performed0 to deal with issues of loss making company like increasing of losses, lower return on capital employed, and continuous decreased in the value of its shares. Finally from academic point of view, it is an analytical approach to solve the root cause failure of the loss making company to decide the most crucial reasons behind its failure. Here, a long term strategic plan and restructuring plans are designed and implemented to solve the issues of a sick company.

TURNAROUND MANAGERSTurnaround Managers are also called Turnaround Practitioners in the UK, and often are interim managers who only stay as long as it takes to achieve the turnaround. Assignments can take anything from 3 to 24 months depending on the size of the organization and the complexity of the job. Turnaround management does not only apply to distressed companies, it in fact can help in any situation where direction, strategy or a general change of the ways of working needs to be implemented. Therefore turnaround management is closely related to change management, transformation management and post-merger-integration management. High growth situation for example are one typical scenario where turnaround experts also help. More and more turnaround managers are becoming a one-stop-shop and provide help with corporate funding (working closely with banks and the Private Equity community) and with professional services firms (such as lawyers and insolvency practitioners) to have access to a full range of services that are typically needed in a turnaround process. Most turnaround managers are freelancers and work on day rates, but there are a few very high profile individuals who work for very large corporations on an employed basis and usually get 5 year contracts.

STAGESStages in repositioning of an organization

The first stage is delineated asonset of decline. Factors that cause this circumstance are new innovations by competitors or a downturn in demand, which leads to a loss of market share and revenue. But also stable companies may find themselves in this stage, because of maladministration or the production of goods that are not interesting for customers. In public organizations are external shocks, like political or economical, reasons that could cause a destabilization of a performance. Sometimes an onset of decline can be temporary and through acorrective action and recoverybeen fixed.

Thereposition situationis the point in the process, where the minimally accepted performance is long-lasting below its limits. In empirical studies a performance of turnaround is measured through financial success indicators. These measures ignore other performance indicators such as impact on environment, welfare of staff, and corporate social responsibility. The organizational leaders need to decide, if a strategy change should happen or the current strategy be kept, which could lead on the other hand to a company takeover or an insolvency. In the public sector performances are characterized by multiple aims that are political contested and constructed. Nevertheless, are different criteria of performances used by different stakeholders and even if its use results in the same criteria, it is likely that different weights apply to them. So if a public organization is situated in a turnaround situation, it is subject to the dimensions of a performance (e.g. equity, efficiency, effectiveness) as well as its approach of their relative importance. This political point of view suggests that a miscarriage in a public service may happen when key stakeholders are ongoing dissatisfied by a performance and therefore the existence of an organization might be unclear. In the public sector success and failure is judged by the higher bodies that bestow financial, legal, or other different resources on service providers. If decision maker choose to take a new course, because of the realization that actions are required to prevent an ongoing decline, they need at first tosearch for new strategies. Question that need to be asked here are, if the search for a reposition strategy should be participative and decentralized or secretive and centralized or intuitive and incremental or analytic and rational. Here, the selection must be made quickly, since a second turnaround may not be possible after a new or existing poor performance. This means, that a compressed strategy process is necessary and therefore an extensive participation and analysis may be precluded. The same applies to the public sector, because the public authorities are highly visible and politically under pressure to rapidly implement a recovery plan. Is the fifth stage reached, theselection of a new strategy has been made by the company. Especially researcher typically concentrates on this one of the reposition process. Most of them focus on the structure and its impact on the performance of the strategy that was implemented. It is even stated by the scientist, that a commercial success is again possible after a failing of the company. But different risk-averse groups, like suppliers, customers or staff may be against a change or are sceptical about the implementation of the strategy. These circumstances could result in a blockade of the realization. Also the conclusion is conceivable, thatno escape strategy is found, as a result that some targets cant be achieved. In the public sector it is difficult to find a recoverable strategy, which therefore could lead to a permanent failure. The case may also be, that though a recovery plan is technically feasible, it might not be political executable. Theimplication of the new strategy ensues in the following sixth stage. It is a necessary determinant of organizational success and has to be a fundamental element of a valid turnaround model. Nevertheless, it is important to note, that no empirical study sets a certain turnaround strategy. The outcomes of the turnaround strategies can result in three different ways. First of all aterminal declinemay occur. This is possible for situations, where a bad strategy was chosen or a good strategy might have been implemented poorly. Another conceivable outcome is acontinued failure. Here is the restructuring plan failed, but dominant members within the company and the environment still believe that a repositioning is possible. If thats the case, they need to restart at stage four and look for a new strategy. Does an outcome of the new strategy turns out to be good, aturnaround is called successful. This is achieved, when its appropriate benchmark reaches the level of commercial success, like it was the case before the onset of decline. This is commonly measured in a timeframe between two and four year.

EXAMPLES OF TURNAROUND STRATEGY

TURNAROUND STRATEGY COMPONENTSThecomponents of turnaround strategyare Managing the turnaroundin terms of turnaround leadership, stakeholder management, and turnaround project management. Stabilizingthe distressed company by ensuring the short-term future of the business through cash management, demonstrating control, re-introducing predictability and ensuring legal and fiduciary compliance. Fundingandrecapitalizingthe distressed business. Fixing the distressed company in strategic, organizational and operational terms.

TECHNIQUESThere are 4 different techniques that can be applied to cause a repositioning/turnaround:

RetrenchmentThe Retrenchment strategy of the turnaround management describes wide-ranging short-term actions, to reduce financial losses, to stabilize the company and to work against the problems, that caused the poor performance. The essential content of the Retrenchment strategy is therefore to reduce scope and the size of a business through Shrinking Selective Strategy. This can be done by selling assets, abandoning difficult markets, stopping unprofitable production lines, downsizing and outsourcing. These procedures are used to generate resources, with the intention to utilize those for more productive activities, and prevent financial losses. Retrenchment is therefore all about an efficient orientation and a refocus on the core business.Despite that many companies are inhibited to perform cutbacks, some of them manage to overcome the resistance. As a result they are able get a better market position in spite of the reductions they madeand increase productivity and efficiency.Most practitioners even mention, that a successful turnaround without a planned retrenchment is rarely feasible.RepositioningThe repositioning strategy, also known as "entrepreneurial strategy", attempts to generate revenue with new innovations and change in product portfolio and market position. This includes development of new products, entering new markets, exploring alternative sources of revenue and modifying the image or the mission of a company.ReplacementReplacement is a strategy, where top managers or the Chief Executive Officer (CEO) are replaced by new ones. This turnaround strategy is used, because it is theorized that new managers bring recovery and a strategic change, as a result of their different experience and backgrounds from their previous work.It is also indispensable to be aware, that new CEOs can cause problems, which are obstructive to achieve a turnaround. For an example, if they change effective organized routines or introduce new administrative overheads and guidelines.Replacement is especially qualified for situations with opinionated CEOs, which are not able to think impartial about certain problems. Instead they rely on their past experience for running the business or belittle the situation as short-termed. The established leaders fail therefore to recognize that a change in the business strategy is necessary to keep the company viable. There are also situations, where CEOs do notice that a current strategy isnt successful as it should be. But this hasnt to imply, that they are capable or even qualified enough to accomplish a turnaround.Is a company against a Replacement of a leader, could this end in a situation, where the declining process will be continued. As result qualified employees resign, the organization discredits and the resources left will run out as time goes by.RenewalWith a Renewal a company pursues long-term actions, which are supposed to end in a successful managerial performance. The first step here is to analyze the existing structures within the organization. This examination may end with a closure of some divisions, a development of new markets/ projects or an expansion in other business areas. A Renewal may also lead to consequences within a company, like the removal of efficient routines or resources. On the other hand are innovative core competencies implemented, which conclude in an increase of knowledge and a stabilization of the company value.HURDLES OR CHALLENGESThree critical hurdles or challenges that management faces in any repositioning program1. Design: What type of restructuring is appropriate for dealing with the specific challenge, problem, or opportunity that the company faces?2. Execution: How should the restructuring process be managed and the many barriers to restructuring overcome so that as much value is created as possible?3. Marketing: How should the restructuring be explained and portrayed to investors so that value created inside the company is fully credited to its stock price?

FEATURES OF A TURNAROUND STRATEGY

Following picture in short explains vital options of turnaround technique.9 vitalcharacteristicsor options of turnaround strategy are:1. Turnaround entails restructuring the sick firm.2. its acceptable to a loss-making unit.3. It needs session of inner and exterior specialists.4. its a long and time-ingesting process.5. It includes in-depth planning with evidential checking out.6. its a capital intensive strategy.7. It helps to make the most of all available resources optimally.8. It leaves a everlasting impact on the structure of the ailing firm.9. It wants full co-operation of individuals related to the in poor health firm for its success. The next paragraphs discussed under lucidly explain all above-mentioned options of turnaround strategy.1. Includes RestructuringTurnaround includes restructuring the sick company. Restructuring manner rearranging the resources of the company for making improvements to its profitability and efficiency. Restructuring is usually a: financial restructuring, Technical restructuring, advertising restructuring, Personnel restructuring, and many others.2. Acceptable to a Loss-Making UnitTurnaround is a technique of converting a loss-making or an uneconomic unit into a winning one.1. its applicable to a loss-making unit.2. its finished (utilized or applied) via making systematic efforts.3. it is a way to remedy the problem of business illness.3. Needs Consultation of ConsultantsTurnaround may also be achieved by way of consulting firms own (interior) experts or via exterior consultants (employed consultants).These two kinds of experts have their own advantages and boundaries:1. Interior consultantsrecognize the corporates culture, resources, stage of expertise, and many others., significantly better. then again, they may be biased as a result of their pursuits are involved.2. Exterior consultantsalthough may be independent, however their suggestions is probably not practical and the emotions of the employees will not be regarded as.So, a ill firm should maintain a correct balance of session between the internal and external specialists.4. Long and Time-Consuming ProcessTurnaround technique is a protracted-term strategy:1. its not a one-day task.2. its a lengthy and a time-eating course of.3. In some circumstances, it may even take few years to show around a sick unit.5. Includes an In-depth PlanningTurnaround involves stages like analysis, planning, arranging, trying out, rearranging, and re-planning. It goes through the following tiers:1. Turnaround strategy first includes unique prognosis or learn about of the failed edition or structure of the ailing company.2. It starts with planning suitable, adaptable and end result-oriented methods to initiate the turnaround.3. The implementation of newly planned strategies takes place with the aid of arranging (orienting) the construction of the once failed adaptation. it is finished so as per instructions (orders) conveyed by way of a planning authority or committee.4. After this general arrangement, planning is put to a realistic check for some determined time period. Over a time, information is amassed and analysed statistically by way of experts to seek enhancements or screw ups, if any, in its performance.5. The plan is more desirable or tweaked even further if some enhancements are seen in its testing segment.6. In case of witnessing some disasters, the plan is corrected and again re-deliberate adopted through making correct rearrangements. Consequently, turnaround technique involves in-depth planning with evidential testing.6. Capital Intensive StrategyTurnaround is a capital intensive strategy. It primarily requires a large amount of dollars (money) to restructure the resources of a in poor health firm. For its initiation, firm wants an important group of expert consultants and mavens. along with utilising the expertise of its inner body of workers, firm also wants exterior beef up and/or consultations of different mavens. It desires more dollars to pay for the products and services of those mavens. furthermore, for the reason that period of time of a turnaround cannot be mounted it needs a continuous provide of money for its uninterrupted operation unless a sufficient success is executed. This general makes a turnaround technique a expensive affair. its not a possible possibility for these firms who cant manage to pay for its capital intensiveness.7. Optimal Utilisation of Instrumentsmost often, a unwell firm would not make an most useful utilisation of its all on hand instruments. These primarily include human instruments, financial tools, physical tools, and so forth. The turnaround strategy helps to utilise the resources optimally.1. Turnaround helps to restructure and reorganize all available tools of the corporate.2. It tries to channel (use) resources just for successful challenge and no longer for non-profitable ones.8. Leaves a Everlasting EffectTurnaround leaves a everlasting impact (mark or influence) on the structure and dealing of the company. It helps a sick company to forestall its all unproductive activities and pay attention to productive ones. It aids the corporate to vary its technology from a labour intensive (that involves many individuals working) to a capital intensive (that requires massive capital funding in up to date equipments, excessive-tech machines, and so forth. and therefore less individuals working) one. It may also help a sick company to amalgamate with any other company, thereby forming a completely new company.9. Desires co-operation of individualsFor turnaround to be successful, full co-operation of workers is necessary. it is because the turnaround strategy will contain the employees.

CASE STUDIES ON TURNAROUND STRATEGIES

Dells Turnaround Strategy in 2008

Dells new retail business and supply chain approachDell is taking steps to turnaround its business and recovering from losses and decline in its profit margins. Dell had first announced cost-cutting measures as early as May last year. In 2007, Dell changed its direct-sales model to offer computers in retail outlets, after losing the title of top PC maker to Hewlett-Packard Co (HP). Dell is now beginning to supply similar products to retailers like Wal-Mart, but as a smaller percentage of its business. Dell is currently the second largest computer retailer in the world behind HP.

Dells well-established direct-sales model allowed buyers to custom-build and purchase computers online or by phone. Customers could choose custom PCs (almost 500,000 configuration options or combinations that were assembled) direct from its factory. So Dell aims to make its retail computer business cost-effective by aligning (reducing) manufacturing costs (cost of goods sold) with its competitors. But this will be challenging since Dell does not have the same volume in retail globally (as competitors), and therefore a smaller fixed base to spread costs. Secondly, Dells supply chain had not exactly been designed for mass distribution. HP uses a diversified supply chain unlike Dells one supply chain approach. The return of Michael Dell and the Turnaround Plan Michael Dell, the founder of Dell returned as the CEO in January 2007, and the company has a turnaround plan which it promises will yield $3 billion in annual savings over the next three or four years. Dells plans include depending more on resellers and contract manufacturers to cut costs and boost sales of which the consumer personal computer business is expected to contribute more than the current 15 percent of total revenue. (At HP, consumer sales of PCs and printers account for about one-third of revenue. Industry-wide sales of consumer PCs are growing at about twice the rate of PCs for businesses.) Contract manufacturers who manage large volumes of orders for big PC makers like HP will be given more work. But apart from concentrating on designing and manufacturing to cut costs, supply chain and logistics (distributing PCs for retailers) are key focus areas as scale is less of an issue. The cost-cutting exercise would also include restructuring of its logistics network and outsourcing more of its manufacturing operations. Dell also announced its intentions to install a logistics hub in Dubai to cater to the emerging market regions and also into the east African regions. Developed economies like the US (though the biggest) are the slow in growth. Last year, the EMEA region made up less that 25 per cent of its total revenues (70 per cent growth) and is estimated to be $61 billion in 2008.Dells Turnaround Plan:Cutting costs: Cutting costs is very important because competitors like HP use the money from profitable printers operations and take more market risk with designing innovative products. Moreover the prices of computers keep going down. One can buy a Dell laptop cheaply.

Moving away from computers internally and outsourcing more of its manufacturing operations: Dell has manufacturing facilities in Texas, North Carolina, Tennessee, and in Malaysia, Penang, China and Poland. Its manufacturing operation in Austin, Texas will shut down. Also HP, IBM and Sun Microsystems already have long-standing partnerships with outside manufacturing partners. These partners offer customers bundles of computer hardware, software and services. Dell on the other hand is relatively a new player in this field and has traditionally depended on its own businesses to design and make computers.

STARBUCKS TURNAROUND STRATEGYUSING IT

INTRODUCTIONStarbucks Corporation is known for its world premium coffee. Over the past decades, the company has established a strong brand name, targeting trendy customers using information technology (IT). Consequently, the companys green logo has become one of the most recognized brands in the world. Starbucks was rated third in the Food Services category of the 2010 Americas Most Admired Company in Fortune magazine. On the other hand, the company has experienced unfavorable financial results in the last few years. In the fiscal year of 2008, the revenue grew by approximately 11 percent, but the stock price decreased by almost 50 percent, which indicates a negative sign of the company performance. Accordingly, its revenue has declined from $10.4 million in 2008 to $9.8 million in 2009. The U.S. revenue decline is caused by not only the economic downturn, but also the companys erroneous move to open too many stores too quickly. In order to revive the business in the U.S., Starbucks is relying on IT again as it did when the company worked its way up to establish the brand in the past. In this research post, I will examine how Starbucks are using IT to re-position itself as a trendy premium coffee company.BackgroundStarbucks Corporation (Starbucks) is primarily a retailer of specialty coffee. In addition to its premium coffee, the company offers tea and other beverages, complementary food, coffee mugs, brewing equipment, CDs and other products. With the mission statement:to inspire and nurture the human spirit one person, one cup and one neighborhood at a time.The company serves high-end trendy customers with high quality products and services. Starbucks was founded in 1971, with its initial site in Pike Place market in Seattle, Washington. Since then, the company has grown steadily until recent years to become one of the most admired companies in the U. S. As of September 2009, the company operated 16,635 retail stores in over 40 countries including Canada, the U.K., and Japan. Starbucks is headquartered in Seattle, Washington and has approximately 176,000 employees.ITs Role to Grow Business in the PastTo attract trendy customers who are willing to pay premium prices for the high-end coffee and other products, Starbucks has invested heavily on IT. As an example, the company has installed AT&Ts Wi-Fi service over 7,000 locations nationwide. Later, the company has made a partnership with Apples iTunes store to make music available via Wi-Fi hotspots. In result, the company has attracted the targeted age demographics and established a high-tech image. Additionally, Starbucks has strong relationships with its suppliers and IT played an important role to achieve operational efficiencies. Another example is that the company had strong real estate, location management and selection systems to help identify demographics, when the company was expanding.Business DeclineStarbucks' revenues of the last five years are $6.4 million in 2005, $7.8 million in 2006, $9.4 million in 2007, $10.4 million in 2008 and $9.8 million in 2009. The decline in the performance became obvious in 2009 as the revenue declined by six percent for the first time in the last five years. While the decline of the total revenue is not dramatic, that of the U.S. segment is more significant. It is hidden by the offset of the company growth in other countries. The stock prices of the same period were $106.10, $144.22, $110.97, $ 63.36, and $83.99 per share respectively. One major reason of the performance decline is the economic condition. The Financial Crisis of 2008/2009 is referred to as the worst financial crisis since the Great Depression by three notable economists - Nouriel Roubini, professor of economics and international business at New York University, Kenneth Rogoff, professor of economics and public policy at Harvard University, and Nariman Behravesh, chief economist and executive vice president for IHS Global Insight. During the recessions, people become more price sensitive and start to cut down spending on premium products such as a cup of coffee priced $3 to $4. Another major reason is that the company has expanded its U.S. locations too aggressively by overestimating the growth rate. It not only increased the operation costs, but also lost the unique atmosphere of high-end. Now is the time to mitigate the current issue. Howard Schultz, chairman, president and chief executive officer of Starbucks insists that IT will play a key role to revive the company.

Turnaround StrategyStarbucks continue to seek for operational excellence - from supply chain to back-end IT systems to store operations. More importantly, the company focuses on customer intimacy. Using digital media, the company has communicated with customers continuously to capture the customer needs. According to the CEO:Starbucks has been named the most engaged consumer brand, using communities such as Facebook, Twitter and My Starbucks Idea to connect with our customers outside the store environment.Starbucks is relying heavily on IT to implement a turnaround strategy. Recently, the company has introduced myStarbucks and Starbucks Card Mobile. While myStarbucks enables customers to find and contact stores, make drinks, and scan nutritional information, Starbucks Card Mobile allow customers to make mobile payments using a virtual Starbucks card. The latter service could transform the use of phone devices as financial transactional devices, which has been staggered in the U.S.Mobile Payment SystemsLatest Technology - Near-Field Communication (NFC)One of the most prominent transformations through the internet is the use of mobile phones as credit cards or wallets. Although it is not yet common in the United States, the use of mobile payments have become popular in the global markets. For example, in the U.K., over 80, 000 people use the Pay-by-Phone parking service in Birmingham City. Additionally, about 20 percent of Japanese consumers are currently using the mobile payments over the last five years. Near-field communication technology allows the Japanese customers pay for items by waving their cell phones over sensor devices.Near-Field Communication (NFC) is the technology used in contactless credit and debit cards. Headed by Visa Inc., many payments companies are pushing the idea of adding NFC capabilities to mobile phones, which could be used to make purchases using card account data stored on the handsets. Although many companies have tested the technology, it has not yet been widely adopted in the United States as the technology requires significant investments and cooperation among the device manufactures, network provides, and financial companies. As a matter of fact, handset device manufacturers need to include NFC chips in the mobile devices; wireless carriers need to make their networks compatible with the technology; and financial companies need to offer payments applications. Today, only few types of phones available in the U.S. are adequately equipped for NFC.Starbucks uses 2-D Barcode Technology Instead of waiting for the NFC technology becoming widely adopted, Starbucks has decided to move forward with the introduction of mobile payment system called Starbucks Card Mobile, using the technology offered by mFoundry Inc. The payment system uses a blocky two-dimensional bar code-like image that is displayed on phones screens. Users wave the image under a scanner at the point of sale to access funds store on a gift card. According to Wolfe, Starbucks is:the first company to use a bar-code payments system from mFoundry Inc.mFoundry Inc. claims the 2-D barcode technology has several advantages over NFC, as it does not require the efforts to upgrade the existing handset devices or networks. The simplicity of the 2-D barcode technology was suitable for Starbuck to mitigate the current issue rapidly. The roll out of the technology by Starbucks will likely to increase mFoundrys opportunities by spreading the use of the technology to other retail companies. Although it is not a high technology like NFC, this could accelerate the transformation of phones into payment devices in the United State.

How Mobile Payment System Helps Starbucks Revive Starbucks started testing the mobile payment system at its 16 locations in Seattle and Silicon Valley in September 2009. In March 2010, Starbucks has deployed the mobile payment system over 1,000 locations. While it simplifies the payment to the customers, the mobile payment system help Starbucks obtain the customers buying behaviors through data mining. This will allow the company to analyze what promotions to offer as well as which new products to introduce. Wolfe believes that Starbucks made a wise selection to pay attention to the iPhone as they are popular among their customers. ConcernsThe major concerns using the old technology is whether it is going to be obsolete as soon as the NFC technology is developed. Inside Contactless, the NFC chip manufacturer, is offering an open source version of the programming interface to other developers, which could accelerate the latest technology. Although it may take longer than most companies desire, the technology seems to be promising. Another concern is the use of the 2-D technology in other countries, which could take long time for adoption like NFC. The countries, which are already making a progress in the use of NFC would less likely to adopt the older technology.TURNAROUND OF INDIAN RAILWAYS

On 15th April 2006, a story in Washington times created a stir in Indian Politics. It carried a story about Indian Railways turnaround story. It stated that the then Union Railways Minister Mr. Lalu Prasad Yadav has created a turnaround of Railways from a loss making public serving entity to a profit generating enterprise. Though the former railways minister Mr. Nitish Kumar and others objected to it and found loopholes in the stated facts and figures.The questions arise here are: Whether it really was a turnaround? What factors leads to turnaround Good Luck, good management or both? What were the strategies and key processes leading to a turnaround? Is this turnaround sustainable in future?Whether it really was a turnaround?The determinants of a turnaround are Increase in revenue, Segmental earnings, Freight revenue increase and Passenger revenues increase.There was a significant increase in revenue for the year 2005-2006 from 2004-2005 i.e. Rs 5509 crores. The increased good earnings were obtained from good earnings from transport of commodities such as Coal, iron ore, stones, sugar, salt, cement, fertilizers, pig iron and raw materials. It accounted for 92% increase in the revenue. The increase in earnings from coal and other goods were due to the increased loadings and increase in freight rates. Extra income was also earned from initiatives such as busy season surcharge, busy route charges, priority assignments of rakes while transporting the goods.The improvement in rake availability was also seen during this period mainly due to better wagon turnaround time, use of covered wagon rakes which go empty.Many lucrative offers were provided to various classes of customers. Some of them were:Different size of rakes for different customers, loyalty discounts, high volume discounts, and discounts for providing traffic in empty directions, wagon investment schemes etc.In Passenger segment the freight was maintained at same level for sleeper class and reduced by 10% for AC II and 18% for AC III class. This was done in order to ccompete with low cost airlines. Superfast charges, cancellation charges, the facilities like booking a ticket from some station and boarding from some other were started.Tatkal Scheme for the customers who book tickets on last minute was introduced. Differential charges were applied on the basis of time of booking of tickets. Thus generation of extra revenue was made possible. Emphasis was also laid on betterment of services provided to travellers. The growth in no of passengers in 2005 -06 was 7.5% from 2004-05.The increase in other earnings like Parcel services, catering and advertising also increased significantly. The efficiency of leasing concept in the parcel services was introduced. Open competitive bidding was introduced in catering contracts and thus efficiency was improved. Easier and innovative ideas of advertising were placed to increase the revenue from advertising.Thus the Indian Railways achieved a turnaround.What factors leads to turnaround Good Luck, good management or both?Both good management and good luck helped in the turnaround in about five years. The base for the turnaround was prepared by Mr Nitish Kumar, which Mr Lalu Yadav accepted in his budget speech. It goes to the credit of Mr Yadav that he continued with those policies and ensured proper implementation of those to produce results. This demonstrates the organisation moved away from lethargic functioning and politicisation of decision making and policies, to a more result oriented environment.What were the strategies and key processes leading to a turnaround?The key strategies and processes that were used in the turnaround management of Indian railways were like Retrenchment (cost cutting initiatives), Eliminating the business not generating value to the organization (leasing out of catering and parcel services), efficiency improvement (introduction of modern signal system, introduction of freight operating information system, computerisation of control office, introduction of coach operating information system etc), Downsizing (the total no of employees was brought down from 1.672 million in 1991 to 1.412 million in 2006), Outsourcing (other than catering and parcel services, advertising was also outsourced done through public private partnership), Product innovation (Introduction of double stack container trains between Pipapav port to Jaipur, thus increasing the overall capacity), Product differentiation (In order to compete in the passenger market segment, with other modes of transport viz., road, aviation, coastal shipping, the Indian Railways embarked on a program of improving passenger amenities)Is this turnaround sustainable in future?The increase in axle load may not be carried forward in the years to come as infrastructural issue may come up with Indian Railways. Serious rail fractures, increased instances of rail derailing, failure of various electric locos have come up after the increase in axle load was carried out. If mentioned technical factors remains with railway tracks then a substantial capital has to be invested in modernisation of tracks and addition in infrastructure, thus depleting the financial position of Indian railways. The commencement of Sixth pay commission is also an issue which will further deplete the financial position. Also the macroeconomic condition will also play an important role in the sustainability of the turnaround and the strategies implemented.

BAJAJ AUTO LIMITED TURNAROUND

INTRODUCTION TO THE COMPANYRecently, Bajaj Auto Limited (BAL) has overtaken Hero Honda in net profit sweepstakes. While BAL recorded a net profit of Rs 207.9 crore for the quarter ended June 08, Hero Honda recorded a net profit of Rs 204.5 crore for the same period. Also, BAL has increased its market share in Q1 08 to 31%, while the market share of Hero Honda has fallen from 54% in Q1 08 to 49%. BAL sales grew at a much faster clip than Hero Honda in Q1 08. BALs net sales, in value terms, grew by 33% in Q1 08. Hero Hondas net sales grew at a subdued 15% over the same period. BALs motorcycle sales, in volume terms, grew by 53% as against the industry growth rate of 25% in April-June 08 over the corresponding period last year. Hero Hondas motorcycle sales volume grew by 13% during the same period. However, it must be noted that while comparing sales growth rates of the two companies, Hero Hondas growth is on a larger base, compared to BALs growth.

THE INDUSTRYThe two-wheeler Industry in India is dominated by a very few players. The leading among them are Bajaj Auto Limited, Hero Honda (a joint effort of Hero of India and Honda of Japan) with other small players like TVS etc. Bajaj was initially considered giant only in the scooter segment whereas the motorcycle segment was dominated by Hero Honda. Also, the gearless segment had competition from TVS. The major players in the domestic two-wheeler industry have announced robust growth in volumes for the month of December 2008. The total motorcycle sales of the top three players registered a 54.1% growth to 437,974 units. The major contributor to the growth was Bajaj Auto, which registered a 100.7% growth in volumes for motorcycles.WHY TURNAROUND?

Increasing competition by the entry of foreign players with greater quality and more efficient products made turnaround essential. Five years ago the company was at the bottom of the heap in the motorbike market, with Hero Honda, TVS and Yamaha far ahead in terms of market share.PROCESS OF REVIVALIn 1997, the Aurangabad was ordered to shut down. Referring to this Sanjiv Bajaj, one of the Bajaj brothers says, It was unimaginable and against everything Bajaj had stood for. In 40 years we had never shut production anywhere. But we realized that a shock needed to go through the system." When the brothers discovered that they had over 1,000 vendors supplying them components, many of which were plain bad, Rajiv Bajaj decided to prune them down to a realistic 200. And the labour force was trimmed down from 23,000 to virtually half that through a VRS scheme. "We had studied in the local school within the premises, had played with many of them, some were our friends," says Sanjiv, "suddenly, we had to let them go." RESULT OF TURNAROUNDBajaj Auto hopes to end the financial year (2007-08) having revved up 1.5 million bike sales, a growth of over 50 per cent in volume over the last year. It has also grabbed a larger share of the market from its rivals, up from 23 per cent in January 2007 to 28 per cent in January 2008. And the yawning gap between its chief rival Hero Honda (its market share dropped from 53 to 50 per cent in the same period) has already been filled.

Complacency: The Bajaj brothers felt the ground move after realizing the importance of motorbikes which was only because of the entry of foreign players. However, now the company was ready for the NEXT BIG THING: MOTORBIKES, NOT SCOOTERS

Operational inefficiency: This was clearly evident from the fact that the Pune Plant was required to shutdown. Hence, Japanese techniques for operational techniques were adopted

Internal Benchmarking: The company had set up internal benchmarking in order to get good quality at a reasonable price. (i.e. the Chakan plant)

RECOMMENDATIONS FOR BUSINESSES INVOLVED IN TURNAROUNDS

Find Managers Who Understand the Business:Don't assume that being smart is a qualifying asset in the long term. Successful management during a turnaround is partly a matter of domain. Key people should understand the business and the company's individual business in particular. The most successful turnaround agents were those who had experience in the industry being served.

Be Respectful of the People Who Were Involved in the Company: People who were involved in the company when the problems developed may have done some things very well. The turnarounds that succeed often involve an appreciation of past accomplishments. The firms that have difficulty often run roughshod over old values and bring in too much new management. Some of the best turnaround agents are from within the company.

Ensure That the Entire Organization Is Part of the Turnaround process :The process of turnaround is one of organizational learning. The entire organization must develop together and in parallel. It is not simply the task of selecting the appropriate leader. Though the leader is important, so are the other members of the organization. The entire organization must progress in order to become an effective competitor in the modern industrial world. Get Efficient First Sell Later: Efficiency is crucial to turnaround success. Without efficiency, incremental costs eventually consume incremental revenue. In order to succeed, the first priority of the troubled firm should be to improve efficiency, conserve precious resources, and use those resources to differentiate products. After these steps are taken, additional revenue will help restore corporate profits.

Concentrate on the Basic Business: Don't get diverted. The track record of turning around a company by entering a new field is very poor particularly when the company shows no capacity to manage its old field.

CONCLUSION


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