Turning around Service Based Companies

This current financial fiasco and economic downturn will definitely leave two sets of people very rich and happy. 'Bankruptcy experts' and 'Turnaround Consultants'.

Turnarounds have been extensively researched but most of the management writing and thinking has been around manufacturing companies or businesses with their outputs having a large tangible component. However, there is relatively lesser work done for turnarounds for service based companies in which the traditional strategies might prove to be counterproductive. This entry focuses on turnaround strategies for service based companies and how they necessitate a different mindset.

Fortune’s list of the “most admired” service companies is one of the most dynamic of the published company rankings marked by most number of basis changes every year. Thus, it can be safely inferred that service based companies are somehow more vulnerable and exposed to internal and external stimuli than other industries. Moreover, the basic nature of a failing service based business is quite different than any other manufacturing based company which makes it more difficult to borrow best practices from previous turnarounds.

A 'turnaround situation matrix' proposed by Marius Pretorius in the 'Journal of Business Strategy' provides different situations in which a company (not necessarily service based!) might find itself and also provides strategic options for each scenario.

Situation Matrix

Click on image to enlarge

Strategic Options

Click on image to enlarge

Now, I do understand that service based companies are fundamentally different from other industries but if looked at a little more closely, most concepts and terminology from these industries have non-tangible cousins in the service industry for instance Capacity, products, inventory, assets etc. most of which are employees.

Therefore, in the global interest of presenting all service based industries with a more intelligible framework (which they all would probably need when the sun starts shining again!)for them to work with , I have tweaked the situation matrix to make it lean towards service industries and provide service specific actions that businesses can take.


Click on image to enlarge

of course, optimal capital structure for companies will now have to be revised considering various factors like future tax shields contributed by the current losses (No offense to anyone in particular!), high cost of debt, unavailability of funds etc.

Usually, combination of these strategies can be simultaneously pursued by the management to achieve the desired results. Application of a combination of actions suggested above can be usually seen in the’ last resort’ or the ‘forced repositioning’ preconditions.
As a disclaimer I would say that what follows after strategy is its implementation which is much more important and painstaking. Change is easier said than done and always leads to massive internal and external inertia. An entire discipline of change management is devoted to managing such obstacles. But as a general rule, we would advice all CEOs to make sure all key stakeholders are well informed of the process since their buy-in is indispensable to successfully carry out the effort.

Next on Strategy GCS!

Turning around Service Based Businesses: A practical framework

The Economic Downturn Brotherhood!

Desperate times, desperate measures. Competition is common in business but it is important to think of it in more granular terms. Strategic responses are different for each kind of competitive target, namely, companies or a line of products or maybe an entire industry.
Consider Slice, Frooty and Maaza. These are the top three mango drinks in India whose brand names have now become synonymous with the fruit. All the three drinks have been a favorite of children all over India and have been competing for market share since ages and many would agree that these are probably 3 drinks that are most similar in taste and smell, probably more than the colas. However, recently there has been a decline in the demand. Not just one product but for mango drinks in general.
As a common but effective response, all three have been airing new advertisements to boost demand. However, whats most imteresting is that all three campaigns have something startlingly common to them. Ads thats once targeted only children are now seen to target adults. In fact, one can actually imagine the three CEOs sitting together and agreeing to market their drinks in a way that increases the overall pie of the industry. Slice has come up with the 'aamsutra' campaign to give a romantic and sensuous touch to mangoes, a right which was until now reserved with strawberries or grapes. While, Frooty has a 'why grow up?' campaign showing adults making weird noises while sipping on a straw. Maaza shows an mango fanatic adult who cant sleep at night because of his obsession for the king of fruits. All three campaigns have been launched within days of each other.
As a response, we have always seen foes turning friends when an industry was attacked by any external market or non-market forces. Arch rivals Coke and Pepsi gave joint statements and hired common lobbyists to combat the pesticide problem and Wii attempted at extending the video game pie to families and adults (Nothing stops Sony or Microsoft fro launching family games and ride on the wave. These are just two of many examples. Some might argue that children will be ignored due to this new effort, but what is to be realized is that children will NOT stop drinking Mango drinks because the ads now focus on adults.
This can only increase the overall pie thus increasing total industry profits. Classical problem of the prisoners dilemma seems to have fit in perfectly in this situation and I am certain that game theory analysts were hired to figure out the potential of this move. I wouldn't be surprised if there was only one report circulated to all three.
Whether it was a coincidence or a pre-meditated move does not really matter now as it was an optimal response and would do only good. I only hope that this downturn makes businesses realize the potential of possible cooperation in some segments and regain some of the relatively easy profits they have been shooing away all this time.