Do you know what is meant in economic jargon with "comeback kids"? Those companies that, after having had a period of crisis, have managed to successfully complete a turnaround, coming out strengthened. In Italy, according to the Boston Consulting Group analysis “The Italian Comeback Kids. Lessons from successful turnaround”, these companies that recorded a drop in Ebitda for two consecutive years, only to then return to strong growth in margins, are 32: they recorded an increase in Ebitda of at least 28% (compared to the average +6% of the sample analysed) and the average annual total shareholder return (a metric that includes both earnings and dividends) was also 7%, compared to -3% for companies that missed their turnaround window.
But is 32 a lot or a few? BCG's research analyzed the financial performance from 2010 to 2017 of 200 companies from various sectors with over 500 million euros in turnover (excluding banks, insurance companies and energy companies), from which it selected those with a drop in margins for two consecutive years: it came out that among the companies that showed difficulties, about a third was able to complete their turnaround with a surprising (therefore not simply positive) performance improvement.
The research also highlights how the preventive measures for change, started before the clear state of crisis, produce a much higher long-term value than the reactive ones: "A moment of discontinuity or downturn is part of the life cycle of a company , However it is crucial to be able to understand this, manage it, and above all anticipate it” comments Francesco Leone, Managing Director & Partner of BCG, head of the TURN unit in Italy, Greece and Turkey and first author of the research.
“Only a third of Italian companies in difficulty – adds Leone – completes a turnaround; in other countries the percentage is higher. The typical medium-sized Italian company, often family-run, does not have the tools or the aptitude to identify the signs of the crisis over time, does not invest sufficiently in monitoring tools, but has good reaction capabilities when stimulated”.
The sectors. The research compared the turnaround performance of Italian companies to that of other countries: Italian companies show average results, with no factors specific to the national market that could favor or inhibit management efforts in carrying out a turnaround. Sector-by-sector performance was then compared: industrial goods and distribution/retail companies are more likely than average to be successful in a turnaround; those of healthcare and consumer goods less so. Listed companies have a significantly better ability to make a turnaround than unlisted ones: one possible explanation is that external shareholders are able to lobby management teams for necessary changes.
The levers
BCG identifies four main recurring levers in the Italian Comeback Kids' journeys for a successful turnaround (most include at least one aspect of all four, albeit with varying degrees of importance and during different phases of the journey):
1 – Portfolio adjustment, typically to sell non-profitable or non-strategic assets and refocus on core products, markets and businesses;
2 – The redesign of the operating model to generate sustainable gains in terms of efficiency and cost reduction;
3 – Growth in new geographic markets and product segments;
4 – Innovation in areas such as digitizing internal processes, creating omnichannel customer journeys, developing new products to meet customer needs and moving to new service models.
Case history
BCG has selected some success stories from Italian turnarounds, such as ERG, Autogrill, Ferretti and Piazza Italia, which tell the story of the different levers on which to act. “These are cases of companies that, in different situations, faced the crisis and overcame it using different levers – explains Leone -: some by changing their portfolio, some by modifying their operating model, some by innovating, some by diversifying the markets. In fact, there is no single recipe for overcoming a moment of decline in performance, but the common thread that unites these and many other turnaround cases is the decisive role of management, in the ability to read the moment and decide to act".
