The definition of turnaround is an administrative strategy sought to “turn around”, enabling an important resumption of growth. HR’s role is to reduce the impact of change and motivate employees to participate in this process. In practical terms, it indicates a planned effort to turn things around , common especially when the company’s financial situation is not going well and real change needs to be made.
This move can save a company and help it reach higher levels in its market . It is something that has the direct interest and involvement of senior management, but that also depends on other sectors, such as HR.
This is because the turnaround , even when necessary, represents a challenge that can cause strain that affects the organization’s human capital .
The turnaround can be understood as a restructuring and recovery strategy for the company to significantly improve its performance, especially in the face of a crisis.
This means that we are talking about an administrative measure , but it is essential to emphasize that the turnaround has an impact on the most different fronts of an organization .
For the process, the company’s mission, vision and values need to be revised, as well as its strategic planning and even the services or products offered.
All of this with the objective of seeking new solutions, optimizing processes and raising the organization’s growth potential. Something that involves operational, legal and HR, for example.
When do you know the company needs a turnaround?
Understanding turnaround is also about understanding when a company may need to adopt this strategy .
Going through this process is a challenge and, perhaps for this reason, many companies postpone the completion of the turnaround until the last moment, which increases the chances of failure.
Mergers and acquisitions aside – situations that do not always require deep restructuring or changes –, the turnaround must be carried out before the situation becomes truly critical .
During 2020, 690 thousand companies declared bankruptcy in the country . It is true that it was a year of extra challenges and that the cases had an increase of 13.4% compared to the previous year.
However, this does not change the fact that organizations make mistakes in seeking turnaround only in the pre-bankruptcy stage, when judicial reorganization is underway.
Under these circumstances, making this planned comeback effort successful is something more difficult.
Restructuring needs to be pursued before the cost becomes too high . What does that mean? We have some points to highlight, read:
- the pre-bankruptcy situation damages the organization’s image and this can increase the level of difficulty for the success of a recovery plan;
- the turnaround tends to be exhausting . If pursued only when the situation is practically no longer sustainable, it can pose challenges that will demand more time, money and investment in human capital .
Thus, there is no way to point out that the strategy should be adopted exactly when the financial statement indicates a negative X value, as if there were a rule.
However, it is possible to warn that the ideal is that the turnaround is not just an act of desperation , also because it is a process that needs to be very well planned .
How do you know if your company needs a turnaround?
It is necessary to be clear that each case is unique. Despite this, there are indications that a turnaround process may be necessary . Check out:
Internal factors :
- failure of financial planning ;
- loss of credibility in the market;
- difficulty in relating to customers (and other stakeholders );
- insufficient income;
- high indebtedness;
- loss of competitive advantage;
- lack of adequate and effective leadership ;
- absence of internal marketing strategies ;
- mismanagement of human resources;
- lack of efficiency in processes;
- failure in strategic projects;
- outdated products or services.
If several or all of these problems are present and your company is unable to resolve them, the situation is likely to be favorable for applying turnaround .
External factors :
- moment of economic crisis;
- health crises;
- government actions;
- natural disasters;
- competition from other large companies/businesses.
Keep in mind that internal and external factors should not be analyzed in isolation.
For example, an economic crisis certainly makes everything difficult, but it could be that your company is internally strong and prepared to deal with the situation.
What steps in the turnaround?
On average, a turnaround process takes about two years to have significant effects . However, the time can vary, also because there is no standard that defines how everything will be.
For having different possibilities, the turnaround may need the help of an external consultancy to happen.
Something that contributes to the company having a broader vision and perhaps “outside the box” to solve its problem.
Whether the organization has an outsourced team or not, there are some steps that are usually part of the process . Follow:
First, an in- depth mapping must be done to identify the company’s main issues .
This is an analysis that should consider all sectors of the organization, including those that appear or are actually functioning well.
The idea is to carry out a diagnosis that serves as a starting point or as a basis for the next stage of the turnaround : the design of the restructuring .
In order to plan the restructuring proposed by the turnaround, it is necessary to carry out a series of analyzes and arrive at a series of definitions that, later on, will take the idea off paper. Here are some points:
1-set the goal
Of course, it is not possible to solve all of the organization’s problems at once. Thus, it is necessary to choose priorities and be guided by them , using them as a compass so that the process does not become complicated;
2-Identify strengths and weaknesses
Identifying weaknesses helps to understand the origin of some problems and, consequently, to think about solutions.
In turn, finding the strengths is a strategy to use them in favor of the company in the pursuit of its main objective in the turnaround process .
There are different ways to do this analysis, SWOT analysis being a very common choice;
3-Finding points that can be resolved easily
Focusing on the big main objective is critical. But that doesn’t mean that the company needs to overlook small issues that can be easily resolved .
These small adjustments, in addition to contributing to the result, can also favor the process, reducing the strain on the workforce, for example. Something that interests HR in a special way;
Sometimes, the financial and market presence recovery sought through the turnaround requires a strategic change in the business focus .
For you to understand this better, we will use as an example two factors that we mentioned earlier, an internal and an external one: think of a scenario with outdated products and very strong competition in the market.
In this scenario, a change of focus may be the best solution to save the company and raise its potential;
5-redesign the structure
Also, it may be necessary to rethink the organizational structure to make it more effective. This means, among other things, evaluating the ideal type of leadership and having the right people in the right “places” within the company.
An internal recruitment process can be part of the organization’s choices to ensure the best use of human capital, gaining efficiency throughout this resumption;
6-Develop organizational culture
A turnaround process needs a culture that supports flexibility and openness to change , as well as innovation.
There is no way to restructure without this openness on the part of the people who make up the company from top management to the provision of services.
The organizational culture must be a pillar to facilitate the necessary changes to take place.
After mapping and designing the restructuring, the company needs to communicate to stakeholders that a turnaround process will be underway.
The idea is not simply to communicate, but to explain and engage in order to gain internal support, from customers and investors .
In other words, it is necessary to “sell” the change and have people willing to contribute.
Finally, it is time to implement the turnaround which, it is worth emphasizing once again, is usually accompanied by an external consultancy .
The objective is to guarantee the success of each strategy and the achievement of the main objective, defined in the first highlighted stage.