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The White Magic

The document discusses three examples of corporate turnarounds: 1) Travancore Cochin Chemicals in India turned losses into profits by focusing on plant maintenance, cost control, and improving employee relations under new leadership. 2) Lufthansa addressed intensive price competition and high costs through restructuring initiatives that cut costs and increased revenue, helping transition from losses to profits. 3) Chrysler reduced its accumulated losses through layoffs, plant closures, cost cutting, and improved marketing after appointing a new CEO, going from a $1.7 billion loss to breaking even within two years.

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47 views10 pages

The White Magic

The document discusses three examples of corporate turnarounds: 1) Travancore Cochin Chemicals in India turned losses into profits by focusing on plant maintenance, cost control, and improving employee relations under new leadership. 2) Lufthansa addressed intensive price competition and high costs through restructuring initiatives that cut costs and increased revenue, helping transition from losses to profits. 3) Chrysler reduced its accumulated losses through layoffs, plant closures, cost cutting, and improved marketing after appointing a new CEO, going from a $1.7 billion loss to breaking even within two years.

Uploaded by

vicky k
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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THE WHITE MAGIC OF

CORPORATE TURNAROUND
 MANY COMPANIES FALL TO THE GRANADES OF
COMPETITION, OR ECONOMIC RECESSION, OR
UNFRIENDLY ACTION, OR ADVERSE
TECHNOLOGICAL OR SOCIAL CHANGE
 MANY FALL DUE TO INTERNAL WEAKNESSES
 SHOULD WE LET SICK COMPANIES DIE AND
SHOULD SOCIETY SUFFER CONSEQUENCES?
 AT STAKE ARE THOUSANDS OF JOBS, HUGE
CAPITAL, USEFUL PRODUCTS & RARE SKILLS
TURNING AROUND COMPANIES

 TURNING ORGANIZATIONS AROUND CAN BE


LIVELY, CREATIVE
 PEOPLE CAN BE VERY INTENSELY INVOLVED

 PEOPLE CAN BE CREATIVE, HEROIC, FRIENDLY,


GENEROUS, CARING AS ALSO NASTY
THREE EXAMPLES FROM
THREE CONTINENTS
TRAVANCORE COCHIN CHEMICALS
 SINGLE-LOCATION COMPANY IN KERALA WITH 10%
MARKET SHARE
 TO PRODUCE CAUSTIC SODA AND OTHER CHEMICALS
 PRIVATE COMPANY TAKEN OVER BY STATE GOVERNMENT
 FELL SICK IN 1970s
 SHORT-TERM CHIEF EXECUTIVE OFFICERS (CEOs)
PROBLEMS
 POOR PLANT MAINTENANCE
 DELAYS IN COMMISSIONING PLANTS – LARGE COST
ESCALATIONS
 LABOUR INDISCIPLINE/DEMORALIZED STAFF
 INDUSTRIAL STAGNATION CREATING BUYERS/ MARKET
TURNAROUND OF TCC
 MR MENON TOOK OVER AS CMD ON UNDERSTANDING OF
NO POLITICAL OR GOVERNMENT INTERFERENCE IN DAY-
TO-DAY OPERATIONS. HOWEVER, HE AGREED TO
SCRUPULOUSLY ADHERE TO STATE GOVT POLICIES
 NEW CMD INITIATED SERIES OF COMMUNICATION ON
POLICIES AND SUGGESTIONS FOR PERFORMANCE
IMPROVEMENT
 RESORTED TO QUICK SWOT ANALYSIS – IDENTIFIED KEY
RESULT AREAS (KRAs)
 MANAGEMENT DEVELOPMENT/TRAINING
 IMPROVEMENT OF PLANT OPERATIONS
 MAINTENANCE MANAGEMENT
 FINANCIAL DISCIPLINE/COST CONTROL
 IMPROVEMENT IN INDUSTRIAL RELATIONS
 MATERIALS MANAGEMENT
AFFIRMATIVE ACTION
 A CORRUPT SENIOR MANAGER WAS FIRED AND ACTION
SUCCESSFULLY DEFENDED LEGALLY
 STRESSED ON COMPETENCE & TIMELY PERFORMANCE
 CUT DOWN NUMBER OF RECOGNIZED UNIONS
 PUNCTUALITY/PROMPT DECISION-MAKING/FAIR & QUICK
REDRESSAL OF GRIEVANCES; SERIOUS AND BUSINESS-
LIKE MEETINGS; FIXING INDIVIDUAL RESPONSIBILITY
 EDUCATIONAL CIRCULARS TO MANAGERS
 JOB ENRICHMENT OF MIDDLE & JUNIOR LEVELS
 OPEN MEETINGS ON COMPANY’S STRATEGIC PLANS;
MOVING EMPLOYEES AROUND
 MODERNIZATION OF THE PLANT WITH INTERNALLY
GENERATED FUNDS
 TRIPARTITE AGREEMENT WITH FINANCIAL INSTITUTIONS
AND BANKS WITH HUGE CONCESSIONS
 STREAMLINED MATERIALS MANAGEMENT; BUDGETING
& COST CONTROL SYSTEMS; & PRODUCTION INCENTIVE
SCHEME
 PROACTIVE MARKETING EFFORT AND CUSTOMER
ORIENTATION

RESULT: FROM LOSSES OF 45% ON SALES IN 1076 & 1977,


TCC BROKE EVEN IN 1070 AND IN 1981 EARNED 17% ON
REVENUES. SALES WAS NEARLY 300% OVER 1977 LEVEL
TURNING AROUND LUFTHANSA
 SUCCESSIVE LOSSES IN 1991 TO 1993
 INTENSIVE PRICE WAR IN AIRLINE INDUSTRY
 EXCESSIVE FOCUS ON TECHNICAL EXCELLENCE
 UNCOMPETITIVE WAGE COSTS (30%^)
 JURAN WEBER TAKES OVER AS CEO IN 1993
 HIS INITIATIVES WERE:
 HIGHLY PARTICIPATIVE
 CASE FOR LUFTHANSA’S RESTRUCTURING
 123 KEY ACTIONS AIMED AT CUTTING COSTS AND RAISING
REVENUE
 REDUCE LOSSES BY DM 1,300 MILLION
 NEW AGENDA LAID STRESS ON ENTREPRENEURIAL
VALUES, CUSTOMER ORIENTATION AND HIGHER
PRODUCTIVITY
 AMBASSADOR OF CHANGE
 BOARD MEMBERS HELD ‘TOWN MEETINGS’
 MANY-SIDED DIGNOSTIC-CUM-MOBILIZATION EFFORT
RESULTED IN WIDE RANGE OF TURNAROUND ACTIONS

RESULT: A 1991 LOSS OF DM 426 MILLION ON REVENUES OF


DM 16 BILLION WAS TURNED INTO A DM 312 MILLION PROFIT
IN 1994 AND DM 2,155 MILLION PROFIT IN 1995 ON REVENUE
OF DM 28 BILLION
THE CHRYSLER EXPERIENCE

 CHRYSLER’S ACCUMULATED LOSSES BY 1981 WERE USD


3.5 BILLION
 COSTS WERE OUT OF CONTROL; INEFFICIENCY WAS
RAMPANT AND PRODUCTIVITY WAS BELOW CHRYSTLER’S
COMPETITORS
 JAPANESE COMPETITION AND RECESSION WERE OTHER
BARBS
 LEE IACOCCA AS CEO INITIATED FOLLOWING:
 INDUCTED 15 TOP EXECUTIVES FROM OUTSIDE
 CREATED OVER 20 EXECUTIVE TEAMS TO DEAL WITH
IMPROVEMENT TARGET AREAS
 WENT ON A RAMPAGE OF CLOSURES AND LAYOFF
 CUT TOTAL EMPLOYMENT FROM 160,000 TO 80,000
AFFIRMATIVE ACTION

 SLASHED OVERHEAD COSTS BY USD 1 BILLION


 ONE-THIRD OF 60 PLANTS WERE CLOSED OR CONSOLIDATED
 A THOUSAND DEALERS DISPENSED WITH
 CUT CAR-REPAIR COSTS BY IMPROVING QUALITY OF SUPPLIES
 SOUGHT BETTER TERMS FROM VENDORS AND WORKERS, AND
LOWER INTEREST RATES FROM LENDERS
 MANAGED CUT USD1 BILLION FROM OVERHEADS AND ABOUT
USD 200 MILLION IN REPAIR COSTS
 HARPED ON A STRONGER MARKETING ORIENTATION AND
HEAVIER PUBLICITY
 MANAGED STAKEHOLDER RELATIONS SKILLFULLY – GOVT,
BANKERS, LABOR AND SHAREHOLDERS
 INSPIRED STAFF WITH HIS OPTIMISM, OPENED UP CHANNELS
OF COMMUNICATION WITH MANAGERS AND STAFF

RESULT: FROM A PEAK LOSS OF USD1.7 BILLION IN 1980,


THE COMPANY BROKE EVEN IN 1982, & WENT ON TO EARN
USD 2.4 BILLION IN 1984 ON REVENUE OF USD20 BILLION

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