The central premise from which turnaround management began is best summarised by Altman (Altman, 1993)
“If an entity’s intrinsic or economic value is greater than its current liquidation value, then from both the public policy and entity ownership viewpoints, the firm should attempt to reorganise and continue. If however, the firm’s assets are worth more dead than alive - that is, liquidation value exceeds economic value – liquidation is the preferable alternative”.
Although it can be said that turnaround management has been around as long as commerce itself, the treatment of turnaround management as a separate academic discipline from the strategic management discipline did not begin until the late 1970’s/early1980’s in the United States.
Chronologically Bibeault’s (Bibeault, 1998) work in 1982 created a cohesive model of turnaround management broken down in to five stages. The focus of his work was on creating a turnaround management process to be used out in industry. At the time these processes had not been discussed in an academic sense. Bibeault’s (Bibeault, 1998) study focused on the major conglomerates of the nineteen seventies, working to formulate a manageable process that could handle the turning around of large corporations.
In the early 1990’s the focus turned to the strategic underpinnings of turnaround management. Robbins and Pearce’s (Robbins & Pearce II, 1992, 287-309) study moved the bias away from a process-based view alone to a strategic investigation of the cause and effect of turnarounds. This resulted in their creation of a two-stage model based on the firm’s retrenchment (the cause) and recovery (the effect). The central tenet being that management of the first stage was considerably different than what was required in the second stage, and due to the wide variety of industries and bushiness a more generalised approach was needed.
However, Barker and Mone (Barker III & Mone, 1994, 395) argued with the casual influence of Robbins turnaround process, debating that the causal influence was the decline of the firm itself, rather than the retrenchment. Further they maintained confusion was added over whether efficiency improvements found in turnaround firms were the result of retrenchments, sales improvements or both. Likewise the retrenchment itself, could put the firm in a worse predicament by sapping employee morale, encouraging the best and brightest to leave (genetically, the rats that jump ship first are the best swimmers) and that other problems would not be solved by asset and cost reductions.
By 1995, the focus of academic literature had returned to a process view, but tempered with the strategic underpinning brought on by the previous authors. Arogyswamy, Baker and Yasai-Ardenkani (Arogyaswamy & Barker III, 1995, 493) paper defined a two-stage contingency approach which maintained that firms first exhibit decline stemming strategies to reverse the dysfunctional consequences of decline and then move in to recovery repositioning strategies so that the firm can then compete better in its industry.
With the Asian financial crises in 1997/1998, the rise of globalisation and the global recession in the year 2000, the focus of turnaround management research turned toward Asia and China.
Practitioners and researchers found the existing models needed to be adapted or changed completely to work in the differing cultural, commercial and legal environments. Likewise, an international business focus began to evolve as growing cross-border commercial distress issues raised the awareness of the need for turnaround management processes to handle these difficult questions.
Bruton, Ahlstrom and Wan (Bruton, Ahlstrom, & Wan, 2001, 146) identified a number of historical issues in Asia that make turnarounds longer and more difficult. Many firms required strategic retrenchments (rather than operational ones). Having the added problem of a high proportion of owner/managers meant that it was harder to replace existing management; and even if this was possible, there was a significant lack of turnaround specialist’s in the Asian region. Most commonly, firms required a “white knight” to buy in to the company, assume control of the board with majority equity and then remove the Chief Executive Officer (CEO). However, the length of time between when problems were recognised and the CEO removed, could be up to 18 month’s resulting in prolonged losses and risk exposure.
It is from these circumstances that present research has refocused on the need for a turnaround management process in Asia[1].
From the historical discussion above, it can be seen that the focus of academic thinking has been to divided up in to two areas.
A process based view of turnaround management, that sought to create a turnaround management model which could be applied to organisations in order to rehabilitate them and;
A strategic management view, which sought to evaluate the implications, pitfalls and successes of these processes on the organisation and the local culture in order to see if they were effective.
Although the academic discipline of turnaround management is relatively young (Arogyaswamy et al., 1995), the creation of different theoretical processes has been a major focus. Academics have sought to maximise the economic benefits of corporate renewal while trying to avoid some of the costs that resulted from major restructurings and retrenchments (Barker III et al., 1994). Moreover, as each process has been developed, issues have been addressed or contingencies developed (Bruton et al., 2001).
It is at this point then, that focus of this paper turns from the historical development of the academic discipline to an evaluation of the ACTP methodology against the first turnaround method by Joseph Scanlon (i.e. “The Scanlon Plan”) and last turnaround methodology developed namely Teng’s Patient Model. The methodologies are completely different, but from a historical perspective provide an insight in to how much turnaround management has changed; from starting off as an emergency plan to save one company, to a fully fledged profession.
[1] Note: There is a process model being researched in Asia by Falkenberg and Chong. “Turnaround Strategies in South-East Asia", will be presented at the 24th Strategic Management Society Annual International Conference 'Strategic Balance: Driving Innovation and Maintaining Performance', San Juan, Puerto Rico, in October 2004.
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