Dr. Earl R. Smith II

Once the triage has stopped the bleeding and the emergency rescue plan implemented, the team turns its attention to the long-term structural changes that are necessary to put the company back on the track to sustainability and increasing profitability. Now that unprofitable divisions have been sold, and administrative costs have been cut, our turnaround efforts are directed toward making the remaining business operations profitable. We restructure the company to increase profitability and improve its return on assets and equity.

Unlike the earlier stages, the efforts at restructuring are more extended and much more challenging. In many ways, this stage is the most difficult of all. It is relatively easy to take the steps to eliminate losses - cutting is the easy part - but turning around the residual company, changing its culture, evolving a new and more attractive value proposition, repairing the damage to the corporate brand and achieving an acceptable return on the firm’s investment capital is quite another.

During this phase, the financial condition and resourcing of the company is particularly important. A damaged core business makes for a bleak outlook. If the remaining corporation is going to survive, we must concentrate on generating sustained profitability and the smooth operation of existing facilities. Solving this challenge takes a lot to hard discussions and planning.

During the turnaround, we may decide to change the product/service mix. I have worked with companies where this was extreme - with little relation between the starting and ending mix. Often I look to the core skill-sets of the team for guidance and direction and many time find that the right people have been doing the wrong things and not very well. It is usually necessary to require the company to do some repositioning. Core products neglected over time require immediate attention to remain competitive. In the new and leaner company, we close some facilities - the company may even withdraw from certain markets or target its products toward a different niche or market segment.

The ‘people mix’ becomes more important as the company is restructured for competitive effectiveness. We institute compensation and recognition programs that reinforce the turnaround effort and get people to think on terms of profits and return on investment. Survival, not tradition, determines the new shape of the business.