Page 133 - DCOM506_DMGT502_STRATEGIC_MANAGEMENT

Unit 7: Corporate Level Strategies

The turnaround process is difficult because it involves perceptual and attitudinal changes at all Notes
levels as far as employees are concerned. These human change processes tend to become very
sensitive when the firm is in a crisis situation. Therefore, many a time, a change in the leadership
or even an active intervention from outside is suggested for bringing about such changes in the
organisation.
As soon as the parameters of corporate performance are indicative of unsatisfactory corporate
performance, it becomes necessary to immediately tighten the controls within the organisation.
Effective controls have a positive impact on cost-reduction, that is, profit improvement and also
on the net cash-flows of the firm. But this tightening of the financial and administrative control
do not guarantee a stable turnaround process. In fact, controls coupled with poor quality image
of the product may hasten the process of corporate failure. So while the controls are being
effected, it is necessary that the strategic posture of the company may also be overhauled. This
involves major changes in the product-mix, customer-mix and the pattern of resources
deployment in the company. These two stages of change further need to be complemented by
changes in top management and many organisational processes. If these changes produce early
results which are satisfactory, then for long-term effects it is necessary to reinforce these changes.
Prahlad and Thomas have presented ten propositions for turning around sick units. These
propositions are:
1. Revival of a sick unit requires the formulation and implementation of a new strategy.
2. Localising problems and sequencing the corrective actions helps in the revival of the sick
unit.
3. The successful implementation of the turnaround strategy requires appropriate
organisation structure, a participative type of decision making environment, effective
administrative and budgetary controls, training, performance evaluation, career
progression and rewards.

4. The turnaround strategy must focus on profit generation and profits must be regarded as
a legitimate goal.
5. The acceptance and the commitment of managers and employees of the organisation
towards revival measures must be high if not total. Openness in management processes
helps in gaining commitment and thus facilitates the implementation process.

6. Openness in the change process leads to confidence in the top management and its strategy.
7. Understanding of technical processes and problem-solving attitude in overcoming
technical snags is essential for turning around sick companies.

8. Consultants can play a vital role in objective analysis of problems as well as in
implementing innovative changes.
9. The active support given to the chief executive by the appointing authorities is critical for
the implementation of turnaround strategy.
10. Leadership provides the focus for action in sick units.
Thus, from these propositions, it is evident that in any turnaround process, the important issues
are strategy, the management process, the technical competence and the leadership.

7.2.2 Divestment

Selling a division or part of an organisation is called divestiture. This strategy is often used to
raise capital for further strategic acquisitions or investments. Divestiture is generally used as a

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