6. Turnaround

Phase four marks the end of the road. Although directors realize the firm is in acute danger and drastic measures are called for, they often resort to half-measures: restructuring, acquisitions, superficial strategy changes. They may try to stem the tide with creative financial ‘solutions’, such as reassessing the value of assets, sale and lease back constructions and such-like. But if the core of the firm is in decay, these measures will offer no way out.

A director in a phase four situation might define his situation as follows:

“We’re still up and running, but we’ve had a few setbacks. The financial climate, fickle consumer behavior… We’ve had to reappraise our stock in order to stay in the black. However, what I consider to be our greatest worry is that so many people have trouble sustaining confidence. Quite a few good people have left in the past year, and we’ve had a few casualties along the way. However, an incentive trip to the mountains will set them straight now. Some skiing, and the newest management guru by the fireside…How to motivate people for change.

“How do you view the prospects for the business?”

“As I said, we’ve had a run of bad luck lately, so I’m expecting our luck to turn. The market is there, we have a good name, but lately others have beaten us to the post. McKonsult is designing a new business strategy for us, we need to team that up with a promotion effort. Maybe we should take over one of these new start-ups, what with the stocks at an all-time low..”

“And if that does not work?”

“It must work! We have been active players in this market for thirty-five years now. We can’t let it all go to waste.”


A turnaround strategy is necessary if an organization has gone into decline to the point where it can no longer make use of the market potential. The firm lags behind its competitors and its existence is threatened (either directly or within the foreseeable future). Here the only option is a rigorous one, a form of shock therapy.

In order to survive phase four it is not enough to move to an earlier phase: to build up the necessary vitality again, one must move to a phase that is at least one phase earlier than the one that is ultimately aimed for. So if the goal is to end up with a phase two organization, the move from four must aim for phase one.

The organizational climate can be described as “sail or sink”.

The business strategy is no longer directed at the survival of the organization as a whole, but at the survival of viable entities – it is every business for itself. In the words of Sumantra Goshal (1997): ‘don’t move at the speed of the slowest snail, but free the rabbits’.

This principle needs to become clear in the structure: the –often diffuse- total structure is split into separate units, each with their own responsibility, mission and entrepreneurial assignment. The ‘dream of synergy’ – which by now anyway has proved to be an illusion – is let go.

Goals are usually focused on immediate financial results.

Management is structured so that the separate units come under the responsibility of one director, the ‘new pioneer’.  The staff is reduced to a minimum and positioned directly under line management; head office is reduced to bare bones.


Moving out of phase four