Immediate Survival or Long-term Growth, What should be the focus now?

On a January morning in 2014, Mr Amit Kapoor, the Managing Director (MD) of Automotive Equipment Manufacturing Limited (AEML)1—a state government enterprise in India—was found in serious discussions with his senior management officials about the deteriorating condition of the company and how to devise a turnaround blueprint while working through many bottlenecks. The team seemed to be unable to reach any concrete decision about the future course of action.

Just the previous day, Kapoor was told in the Board of Directors’ meeting that the state government was unable to continue providing financial support to the sinking company, which had been incurring losses since 2008 (Exhibit 1). It was decided in the meeting that funds for employee salaries for the next six months would be provided by the government only under the condition that a revival plan would be produced to the Board within the next three months. The Board would decide the future course of action after evaluating the proposed plan and the financial condition of the company.

So far, the company had managed to focus only on immediate survival like earning next month’s salaries for the employees. This put the long-term survival of the company in question. The crisis management team had an idea for the revival of the organization, but that would essentially require capital flow for immediate breathing. The organization was already in adverse financial leverage condition. The only option to acquire working capital was government support. The condition of the organization would worsen if no relief fund was allotted to AEML in the next state government budget. Kapoor and his team were appointed to the organization with the objective of bringing about a turnaround of the company. The financial health of the state government did not allow it to continue financial support to the organization. However, neither the state nor the union government, led by the ruling party of the state, was in favour of divestment due to hidden political agendas. Thus, the crisis team faced a new challenge of redesigning the revival plan under the provision of minimal external financial assistance. The state government did promise Kapoor that it would provide minimum support for the company revival if the turnaround blueprint was realistic.

A host of external and internal factors had led to the decline, and Kapoor and his team understood that some of the root causes required immediate focus. However, if the crisis team focused on these root causes, it would hold back the long-term strategy since finances would get redirected. Therefore, the team was in a dilemma about what to focus on in designing the revival plan—the immediate survival or the long-term growth of the company.

What according to you should be their focus now?

Click here to read this full Case Study from the Journal ‘Vikalpa’.