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
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Strategic Options
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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.
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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.
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