Strategic management: turning around failing businesses

Evaluation of information needs

Whenever a business is faced with poor performance and imminent closure, the business executives need to be fully equipped with the right information. This information is necessary to make an informed analysis of the situation in order to facilitate informed decision making on whether a firm facing difficulties should consider pursuing alternative means of survival or simply close shop and withdraw from the markets in question (Hitt, Duane and Robert, 2001). Proper understanding in the stage in which an organisation is in the industry life cycle is crucial in determining the options available for the organisation. The evaluation can effectively be done through analysis models including:  the SWOT analysis, the Porter’s 5-Forces, and the PESTEL models which facilitate accurate internal and external analysis of organisations (Sheldrake, 2003).

The SWOT analysis helps outlines the firm’s capabilities by examining their strengths and weaknesses where strengths refer to the firm’s capabilities that could be exploited to provide the firm with a competitive advantage (Johnson, Scholes, and Whittington, 2005). Most organisations would ordinarily have a sizeable range of strengths that could provide a lease of life for them if put into good use. Weaknesses refer to the firm’s internal factors that put them at a disadvantage in the market. It is also important to analyse the external environment in order to determine opportunities and threats that the firm may be exposed to. SWOT analysis enables organisations to evaluate the possibility of matching their strengths to the opportunities available as well as try to convert their weaknesses and threats into strengths and opportunities. It also enables organisations to make a rational decision on how to counter arising threats in the environment (Johnson, Scholes, and Whittington, 2005).

The Porter’s 5-Forces analysis provides the required framework. This model estimates the level of rivalry in the industry by considering factors such as the threat of substitution, threat of entry of new industry players, the bargaining power of buyers, the bargaining power of suppliers and the level of rivalry posed by the competitors (Pearce and Robinson, 2005). Each of the factors is evaluated to determine the level of rivalry with higher levels being an indicator that organisations in the industry have lower prospects of survival or growth. This industry analysis helps shape the choice of generic strategies that an organisation can settle on to enhance its survival.

Business enterprises do not operate in isolation and are often subject to changes in the macro-environment. These changes can be traced through the use of the PESTEL model. This model provides a balanced approach to the analysis enabling the executives to focus on the most important aspects of the external environment. Focus on Political, Economic, Socio-cultural, Technological, Environmental, and Legal factors enable a balanced perspective that could provide the needed insight to guide the strategy for the organisation.

Common approaches to turning around businesses

Once the information needed to inform strategy has been gathered, the business executives are bound to make a decision on whether or not to stay in their current markets. Depending on the results of the analysis, the executives could resort to one or more of the following approaches to turn around their businesses: rebranding campaigns, redesigning and re-launching the failing products, cost cutting measures, restructuring, and the demand creation among non-consumers.

Cost cutting measures tend to be appropriate in industries where the level of rivalry is considerably high (Pearce and Robinson, 2005). This limits the ability of organisations to increase their pricing making it imperative to turn inwards to ensure profitability. The most commonly applied approach to cost cutting often touches on the reduction of the labour force where redundant workers are laid off with the remaining workers facilitated to increase productivity. Cost reduction may also relate to the cutting down on non-essential expenditures and concentrating the expenditure on only the areas that are considered central to achieving the firm’s objectives (Pearce and Robinson, 2005). Business processes can also result in unnecessary expenditure hence limiting the profit potential of such businesses. Businesses can opt to pursue a process restructuring program that ensures that the wastes associated with production are minimised. The option of recycling used product parts tend to be a cheaper option than the constant use of new materials. Cost cutting can also be done by pursuing alternative sources of raw materials. In the increasingly globalised world, raw materials can be sourced internationally where the savings tend to be higher than the cost of transporting the materials (Hitt, Duane and Robert, 2001).

Rebranding campaigns are often conducted to change the perception of the consumers in a bid to get them to consume the firm’s products (Pearce and Robinson, 2005). This method is commonly used where the brand image of a firm has been significantly eroded. Rebranding is often accompanied with re-packaging and re-launch of products, preferably after incorporating the features that address the changing needs of the consumers (Pearce and Robinson, 2005). For instance, Colgate could add a much desired component to their toothpastes and re-launch the product in the market. This can be done together with a well designed branding exercise that may be aimed at ensuring any undesirable brand image is shed off. Failure to rebrand upon the re-launch of products may prove to be ineffective since consumers may continue to relate the new products to the brand image they are used to.

When faced with poor prospects in the industry, a firm may opt to embark on demand creation among non-traditional clients. This strategy is known as the blue ocean strategy where a firm avoids the existing industry rivalry to chart unbeaten paths in segments that would enable them to increase their performance potential (Johnson, Scholes, and Whittington, 2005). For instance, Colgate Palmolive mainly serves the traditional consumer at the households. A blue ocean strategy could see the company try to create demand among non-traditional customers such as corporate organisations, hospitals and schools using well orchestrated marketing campaigns that focus on highlighting on the product features that best serve these segments.

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References

Hitt, M. A., Duane, R. ., Robert, E.H., 2001. Strategic Management: Competitiveness and Globalization. 4^th Ed. Cincinnati, Ohio: South-Western College Publishing

Johnson, G., Scholes, K., Whittington, R., 2005. Exploring Corporate Strategy. 7^th Ed. Harlow: Prentice Hall

Pearce, J., Robinson, R., 2005. Strategic Management. 9^th Edition. New York: McGraw-Hill

Sheldrake, J., 2003. Management Theory, Second Edition. United Kingdom: Thomson Learning Institute