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When the plane goes into a spin: crisis management and turnaround design strategy.

When the plane goes into a spin: crisis management and turnaround design strategy.

Comercial y Ventas | Artículo
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  • Enero 2020
Fernando Castelló Sirvent

Fernando Castelló Sirvent

Profesor en ESIC y Director de CASTELLÓ CONSULTING. Economista; consejero de empresas.

The forecasts published by the International Monetary Fund (IMF) and other institutions of economic analysis show a rapid deterioration of western economies with scenarios representing the post-COVID19 economic crisis in Spain as a broad-based U characterized by a slow recovery.

The way out of this crisis will depend on the sectoral mainstreaming of the recovery and in particular on the effectiveness of the measures implemented.

The economic policies adopted in this initial phase must fulfil a dual purpose: the first is to try to minimize the destruction of the business fabric, paying particular attention to sectors that are seriously affected such as the hotel and catering industry, tourism and other supplementary services. These important areas of economic activity represent nearly one in four euros of our gross domestic product (GDP).

Moreover, as a consequence of the first, the second aim of public policy is to stop the increase in unemployment. In the most conservative scenario proposed by the Bank of Spain in its forecasts, the unemployment rate would rise to 21.7% in 2020 and would barely fall to 20% in 2021.

From an approach focused on business governance, the design of turnaround strategies constitutes one of the main tools that make business survival possible in crisis contexts.

Businessmen and managers cannot stand still. They must apply the contingency plans drawn up together with the design of the strategy before the crisis and now deploy all kinds of turnaround strategies that are as agile as they are accurate.

Over the past few weeks we have been working with various boards of directors to prepare risk analyses and clear guidelines to enable their respective management committees to carry out the correct assessment of present and future risks.

The elaboration of recovery strategies includes an adequate evaluation of possible reduction and stabilization plans, emphasizing the adoption of technological and innovative structures that are linked to processes and cost minimization, and that ultimately allow the generation of cash flow in the short or medium term.

If the plane goes into a spiral, the first priority is to stabilize its altitude, trajectory and speed, to end the descent spiral. It is only when the aircraft is back under control that it is possible to design strategies to recover the previous flight path.

Following the aeronautical simile, entrepreneurs and managers must be aware that turnaround strategies encounter a high implicit risk during the first stage of stabilization, resulting from the possibility of a sudden drop in speed and, in particular, from a pilot response that is late or wrong. If this is not remedied in time, there is a risk of the aircraft falling to the ground and crashing.

As responsible pilots of the aircraft, management teams can prevent the aircraft from stalling and the spiral rotation from eventually crashing. In a competitive market, the first companies to make strong and responsible decisions are the ones that will have more chances to survive and improve their strategic position in the long term.

Analysis of the risks and exit barriers of each business unit allows decisions to be taken that minimize long-term risks and open up clean-up options linked to the partial divestment of business units, even with financial support from third parties, as part of harvesting strategies.

The immediate sale of the parts of the business may be recommended in the medium term, but their proper preparation must be undertaken at this time, even though the segregation may result in the loss of some of the company's goodwill.

The recovery plan must consider, as strategic options, the design of protocols, for abandonment and bankruptcy, addressing, where appropriate, the determination and planning of the end of the activity. In this respect, it is of vital relevance to consider the framework of possibilities opened up by the insolvency proceedings, especially for negotiating with creditors and designing a viability plan. Doing so early, in a realistic and professional manner, can help to secure the acceptance of the majority of creditors in order to overcome the bankruptcy and boost the company once the crisis is over.

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