When attempting to manage a situation in which the organisation needs to recover from a depressed situation, the strategic priorities will revolve around:
• Reducing costs to improve efficiency; and
• Improving competitiveness in order to increase revenue.
Initially, when an organisation encounters problems, and starts to decline in terms of revenue and/or profits, the typical management reaction is to assume the situation is a temporary requiring nothing more fundamental than some cost cutting. Costs can be reduced anywhere in the supply chain, but the most obvious and usual staring point is to reduce labour costs, At first, may simply involve altering working patterns to eliminate overtime or, as is increasingly the case, to replace full-time with part-time jobs.
If this does not produce sufficient savings the next step is likely to be voluntary or compulsory redundancies. The danger is the cuts are too severe there will be reductions in the quality of the product and services to customers; the impact on employee morale will also make it difficult to achieve the workforce commitment discussed in the previous chapter. Problems of employee morale will be particularly severe if there is a series of cost reduction exercises over a prolonged period; these will result in a loss of trust in management, an escalation in personal conflicts and increasing levels of political activity.
Other cost-saving measures might include improving purchasing policies and procedures, redesigning the product or service to reduce production costs, contracting out services that are not considered essential to the core business, organizational changes to reduce duplication, improving financial control systems, and so on. The difficulty is that certain types of cost-saving measures, such as improving factory layout, might require some initial expenditure, which is not possible if the organisation is already experiencing declining revenues. This exemplifies the problems caused by reactive management.
In some situations, this type of retrenchment, i.e. doing the same as before and cutting some costs, may not be adequate to ensure survival. Managers may then have to consider more fundamental strategic alternatives such as:
• turnaround, whereby the organisation will attempt to reposition itself for competitive advantage. Most commentators believe that replacement of the existing top management team is a precondition for successful implementation of such a turnaround strategy. Slatter has analysed the principal generic strategies for corporate turnaround and recovery and related them to the initial causes of decline.