Not all companies can be turned around. Its scope depends on individual strengths and weaknesses.
Sick industries are not solely an Indian phenomenon though the number of such firms in the country as a percentage of the total number of industrial units is far above the world average. Other than the well-known economic factors, what contributes to this is a culture characterised by preservation, nonabandonment of any material object, and an emotional bond with possessions.
Organisations, like organisms, have a life cycle. They are born, grow, attain maturity, and ultimately decline and move towards extinction. However, unlike living beings, organisations do not have any standard life expectancy. Some die prematurely just because their sickness is not attended to on time. Here lies the importance of an appropriate diagnosis not only to ascertain the cause of sickness but also to assess whether a company can be effectively turned around. The word ‘effective’ refers to the cost of turnaround and its sustainability. An organisation is sick when it cannot sell its product(s) in the market with a margin of profit. If there is no market for what a company produces or is capable of producing, then it loses the significance of its existence. Availability of a market is therefore an important factor that has to be assessed before a company is revived. In India, many traditional organisations came to be known as sunset industries because the market gradually shifted away from their products.
In order to overcome the problem of inadequate demand, a company can produce alternate products that will find takers. However, this will require investment in new technology and availability of manpower capable of carrying forward the technological shift. In sick companies, these initiatives are neither easy to take nor workable on cost-benefit analysis.
This story is from the May 18 edition of Indian Management.
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This story is from the May 18 edition of Indian Management.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 9,000+ magazines and newspapers.
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