Session 9- Turnaround Strategy

Picking the Right Transition Strategy

Stages of the Industry Life Cycle
 Industry Life-Cycle Strategies
Maturity stage
 The third stage of the product life cycle,
characterized by (1) slowing demand growth,
(2) saturated markets, (3) direct competition,
(4) price competition, and (5) strategic
emphasis on efficient operations.
Reverse positioning, breakaway positioning

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Turnaround Strategies in the Life Cycle
Turnaround strategy
 a strategy that reverses a firm’s decline in
performance and returns it to growth and
profitability.
 Asset and cost surgery
 Selective product and market pruning
 Piecemeal productivity improvements

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TURNAROUND REASONS AND
MECHANISMS
 Nissan
• From seven out of eight years of operating losses to profitability within the
first 12 months. Since 1999, Nissan has shown four consecutive semi-annual
operating profits, and the year 2001 was marked by the best-ever, full-year
earnings at Nissan. The current operating margin is 7.9%, over 3% greater
than commit- ted to in the NRP.
• Net automotive debt is the lowest it has been in 24 years (down from $10.5
billion to $4.35 billion).
• The company developed eight new car models to be launched by late
2002/early 2003, including the award- winning, revamped Altima, and the
new 350Z.
• Supplier costs were reduced by 20%, as per the NRP, mainly through
sourcing and other strategies to minimize exchange rate issues, as well as
the reduction of the number of parts suppliers by 40% and the number of
service providers by 60%.
• Five plants have been closed, according to the NRP.
• Headcount was reduced by 21,000, according to the
NRP, mainly through natural turnover, retirements,
• pre-retirement programs, and by selling off non-core
businesses to other companies.
• The number of car models that were profitable
increased to 18 of 36 models from 4 of 43 models.
 Broken Hill Proprietary (BHP) Company
Limited: Turnaround Strategy
Discussion Questions
• Assess the key, macro-economic forces that directly affect and
drive the resource industry.
• Identify, from both financial and management perspective, the
symptoms and causes of the decline in performance of BHP over
the period 1995 to 1999?
• Assess the sequence and timing of the steps that Anderson and his
management team have taken in 1999 to reposition the company?
• Evaluate BHP’s future steel strategy and discuss and evaluate
possible growth strategy for the minerals and petroleum divisions
of BHP?
 Causes of decline of BHP
• Poor management- poor investments in form of projects and acquisitions- sudden
resignation of for senior management
• Working capital management- safe no evidence from the table 1
• High cost structures-the CEO has been trying to reduce the cost structures of the
company
• Lack of marketing effort- case mentions that there is significant opportunities in Japan
and the Asian economy for LNG and iron ore sales and Anderson suggests that more
intensified marketing efforts to be made to penetrate these markets
• Big project acquisitions- significant case for BHP problems. Large projects and
acquisitions like magma copper, hartley platinium, beenup minerals and the asset write
down of new zealand steel
• Excessive leverage- Table 1 shows the company's gearing ratio increases significantly
from 31.3% in 1995 to 54.2% in 1999. indicates pressure on the company and the
reduced ability to provide its own retained earnings to stimulate and finance growth
• Poor remuneration system- andersons remunerations linked to goals achieved and
aligned to shareholder value
• Changes in market demand/adverse movement in commodity prices; copper 1 cent-
$16m; oil i$- $47m effect; currency 1 cent-$26m effect
 Sequence of steps taken by Anderson
• Phase 1- crisis management
– Consolidation of companys operating division from 8 to 3
– Formation of a small management team of which only one member had been with the
company longer than 4 yrs
– Small project review committee and tighter project selection and assessment criteria
– Selling off those assets bleeding cash from operations, also cost structure reductions and
improving efficienceies
• Phase II- Business Plan
– Addressed the remuneration system first and began at the senior management level
– Team looked for future opportunities and financial debt restructuring
– Continued communication with stakeholders be they employees, shareholders or
investment analysts
• Phase III- Future strategy
– Announced future steel strategy
– Strategy for company’s mineral and petroleum division