If businesses never had to be turned round, perhaps there would be no such thing as management consultancy. But as businesses and organisations are forever needing emergency surgery and radical repositioning, we had better put any tantalising thoughts about the disappearance of the consultants to one side.
Indeed, it is arguably at the height - or depth - of a crisis that strategy firms and the like really earn their money. It is at this point that clarity of thinking and wide experience of similar situations can prove most valuable.
But really turning a business round is not just a question of stemming the outflow of cash, or slashing and burning until hardly anyone is left standing. As Mark Horwitch, a partner with Bain Consulting, says: "It's a flawed view of turnround to say that this is mainly about cost-cutting and balance sheet restructuring. That can help you to survive, but it is only a turnround if there has been a transformation of the organisation."
As Mr Horwitch points out, the "recidivism rate" of US businesses that have been through a Chapter 11 (a kind of protected bankruptcy) process, and still ended up going bust later on, is as high as 40-50 per cent - a telling statistic.
Bain takes a holistic view of the concept of turnround. There are usually financial, operational, organisational and strategic elements to consider. Each area has to be acted upon.
This is a view shared by Jacques César, managing director of Mercer, the management consultants, in London. "Of course, there will be necessary financial and operational engineering to be done," he says. "That earns you the right to offer alternative ways forward. But there has to be revenue and margin engineering as well."
In short, the business has to recover as well as merely survive. "Very few business leaders are good at both repairing the balance sheet and growing the business," Mr César says.
"It is harder to find revenue growers: people who fundamentally reinvent the offer - the pricing, the service levels," he adds.
Steve Frobisher of PA Consulting agrees that turnrounds are not simply a question of pulling a business back from the brink of bankruptcy.
You first need to understand in clear terms exactly how well different business units are performing. Even if a firm is still some way short of actually collapsing - if it is underperforming, - it needs to be turned round.
You can even be profitableand still need to be turnedround, if you are falling short of your shareholders' expectations.
"The question is, which business units are really creating or destroying value? What are the product lines, customers or contracts that are creating or destroying value? Many companies simply do not know," Mr Frobisher says.
PA Consulting's approach involves looking not at basic profits, which are not the most useful measure in this context, but at what the firm calls "economic profit" - what is the profit performance relative to the expectations of shareholders. If shareholders are expecting a 9 per cent annual rate of return, 7 per cent is not good enough.
Then there is the question of return on capital. Two companies may be recording similar levels of profitability, but one may be spending far more capital to achieve that.
"The bottom line profit and loss does not reveal that difference," Mr Frobisher says.
"We find that managers are often very surprised when we show them whether a business unit is really creating value or not," he adds. "And the business units that they say are 'strategically important' are invariably not creating any value at all."
How will PA's diagnosis help turn round the business? "One way to create value is to stop destroying value," he adds. "Get out of businesses or product lines that are there for historical or sentimental reasons."
And how to turn round performance fast? "We find that devolving accountability to managers can be very effective," Mr Frobisher says. "Give them clear performance metrics and a remuneration scheme that rewards good performance. They won't do things just because head office says it is a good idea. Incentives work and they get to the heart of what managers are really interested in."
A more sceptical note about the role of consultants in turnround situations is sounded by Eddie Obeng, director of learning at Pentacle, a "virtual business school" that also offers consultancy advice.
Prof Obeng does see a positive - if limited - role for consultants in a turnround. "When an organisation sees a team of consultants coming in, it does get their attention. People will start focusing on the CEO's agenda. The problem is that it can be disruptive to relationships internally. Some of the best managers may go off to join new task-forces, and they are taken away from the front line.
"The other risk is that the consultants become a paper machine, producing beautiful reports that are just a bit too tidy. It's the execution of the strategy that reveals whether it will work or not, and you don't need consultants to do that.
"But once they are with you, it can be hard to get rid of them, even though it is not always clear how much of the learning they leave behind in the organisation. At the end of the day the business has to be managed by the managers."
