Recently, Standard & Poor’s announced that companies in the media, entertainment and high-tech industries are the highest ranked for credit downgrades -- in part because of the volatility of the sector. To address the instability in the technology sector, Huron Financial experts Ray Anderson and Stuart Walker created a framework for situational analysis, turnaround strategies, and tactics to aid businesses.
Huron Financial’s framework offers a two-pronged approach:
Situational analysis: Identify the root causes of distress and build a strategy to increase probability of short-term survival and long-term viability. It is critical to pinpoint the product’s position in the technology life cycle and assess competition. Remember, turnarounds are rarely linear, and strategy and tactics must evolve as the process progresses.
Strategy & Tactics: Effective turnaround plans focus on people, tactics and timelines. Several tried and true strategies exist, including:
- Niche Strategy: Focus on core products and customers. Sell or eliminate non-core activities.
- Harvest Strategy: Maximize cash flow in the short term by avoiding additional investment in the business, greatly reducing operating expenses, and raising prices.
- Leapfrog Strategy: Sell the business or place all bets on products in the ascendant phase of the technology life cycle.
“In the past, cell phones replaced landlines; today, apps take the place of consumer software; and tomorrow, it is all but assured that streaming video will dominate cable television,” said Stuart Walker, senior director, Huron Financial. “Disruptive innovations are inherent to the technology industry, which is why focusing on the remaining ‘useful life’ of products is one of the most important and difficult aspects of turnaround.”
Click here to read the full article, “Technology Turnarounds: Where Moore’s Law Meets Less Cash Flow.”