turnround

a situation where a firm or a division of a firm that has been experiencing a protracted decline in profits is able to institute measures which not only halt the decline but form the basis of a sustained recovery in its profitability A turnround situation reflects something more than a downturn in profits associated with the BUSINESS CYCLE which affects to a greater or lesser degree most companies operating in a particular activity In essence it is a crisis situation which is firm-specific, reflecting various internal problems: ineffectual management (an autocratic chief executive, an unbalanced management team, lack of attention to the formulation of BUSINESS STRATEGY), poor financial structure (an inappropriate capital GEARING level), poor financial control (unsystematic allocation of overhead costs, lack of information on which products are generating cash and which ones are making losses) etc. All these factors can contribute to a lack of efficiency, higher costs, loss of competitive vigour and a failure to respond adequately to the changing needs of the market.

Recovery can only be achieved if there is a willingness and ability to identify the major sources of the firm's problems, followed by the initiation of action programmes involving managerial, administrative and financial reorganization, cost reduction and better directed marketing efforts aimed at re-establishing COMPETITIVE ADVANTAGE over rival suppliers. A tardiness or failure to implement appropriate turnround measures may well end in insolvency. However, before this point is reached the firm may well be TAKEN OVER, or in the case of a division, divested. See DIVESTMENT, ENDGAME STRATEGY.