Flevy Management Insights Q&A

What role does digital transformation play in the turnaround process, and how can companies leverage technology to accelerate recovery?

     David Tang    |    Turnaround


This article provides a detailed response to: What role does digital transformation play in the turnaround process, and how can companies leverage technology to accelerate recovery? For a comprehensive understanding of Turnaround, we also include relevant case studies for further reading and links to Turnaround best practice resources.

TLDR Digital Transformation is critical in organizational turnaround, driving Operational Efficiency, Innovation, and Customer Engagement to accelerate recovery and sustain success.

Reading time: 5 minutes

Before we begin, let's review some important management concepts, as they relate to this question.

What does Digital Transformation mean?
What does Agility in Organizational Structure mean?
What does Data Analytics for Decision-Making mean?
What does Digital Culture and Skills Development mean?


Digital transformation plays a pivotal role in the turnaround process for organizations seeking to recover from financial or market position setbacks. By leveraging technology, organizations can accelerate recovery, enhance operational efficiency, and create new value propositions for their customers. This transformation involves not just the adoption of new technologies but also a fundamental shift in culture, processes, and business models to fully capitalize on the digital opportunities.

Understanding the Role of Digital Transformation in Turnaround

Digital Transformation in the context of a turnaround strategy is about more than just technology—it's about reimagining the organization's business model, processes, and customer interactions to drive significant improvements in performance and competitive positioning. A report by McKinsey highlights that organizations that have successfully undergone digital transformation report up to 45% revenue growth from new digital offerings and services. This underscores the potential of digital initiatives to not only contribute to the recovery process but also to fuel growth and innovation.

At the core of digital transformation in a turnaround is the ability to leverage data analytics and digital technologies to make informed decisions quickly. This includes identifying underperforming areas, optimizing operations, and uncovering new revenue streams. For instance, predictive analytics can help organizations anticipate market trends and customer needs, allowing them to adapt more rapidly than competitors. Similarly, digital platforms can enable more efficient resource allocation, reduce costs through automation, and improve customer engagement through personalized experiences.

Moreover, digital transformation facilitates a more agile and flexible organizational structure. This agility is crucial during a turnaround, as it enables organizations to pivot strategies, enter new markets, or adjust operations in response to changing market conditions or customer preferences. The shift towards a digital-first approach also necessitates a cultural change within the organization, promoting innovation, continuous learning, and a willingness to take calculated risks.

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Leveraging Technology to Accelerate Recovery

To effectively leverage technology in the turnaround process, organizations must focus on several key areas. First, the adoption of cloud computing technologies can provide the scalability and flexibility needed to support new business models and processes. Cloud platforms enable organizations to scale their IT resources up or down based on demand, significantly reducing costs and improving the speed of deployment for new applications or services. According to Gartner, by 2022, up to 60% of organizations will use an external service provider's cloud-managed service offering, which is double the percentage of organizations using these services in 2018.

Second, organizations should invest in enhancing their digital capabilities, particularly in areas such as artificial intelligence (AI), machine learning, and the Internet of Things (IoT). These technologies can drive significant improvements in operational efficiency, customer experience, and decision-making. For example, AI can automate routine tasks, freeing up employees to focus on more strategic activities, while IoT devices can provide real-time insights into operational performance, enabling proactive maintenance and optimization of assets.

Finally, digital transformation in a turnaround context requires a focus on building a digital culture and upskilling the workforce. This involves not only providing training on new technologies but also fostering an environment that encourages experimentation, collaboration, and digital literacy. Organizations that prioritize digital skills development and cultural change are better positioned to implement and sustain digital initiatives, thereby accelerating their recovery and future-proofing their business.

Real-World Examples

One notable example of successful digital transformation in a turnaround scenario is General Electric (GE). Facing significant challenges across its business units, GE embarked on a digital transformation journey, focusing on leveraging its Predix platform to optimize its industrial processes, improve productivity, and develop new digital services for its customers. This strategic pivot towards digital innovation has been instrumental in GE's ongoing recovery, demonstrating the transformative power of technology in revitalizing traditional industries.

Another example is Netflix, which transformed from a DVD rental service into a global streaming giant. Through its focus on digital technologies, data analytics, and customer experience, Netflix was able to rapidly adapt to changing consumer preferences, disrupt the traditional entertainment industry, and emerge as a leader in the digital age. This transformation has not only enabled Netflix to recover from its early challenges but also to sustain long-term growth and innovation.

In conclusion, digital transformation plays a critical role in the turnaround process for organizations facing challenges. By leveraging technology to enhance operational efficiency, innovate business models, and improve customer engagement, organizations can accelerate their recovery and position themselves for sustained success in the digital era. The examples of GE and Netflix illustrate the transformative potential of a well-executed digital strategy in driving organizational turnaround and growth.

Best Practices in Turnaround

Here are best practices relevant to Turnaround from the Flevy Marketplace. View all our Turnaround materials here.

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Explore all of our best practices in: Turnaround

Turnaround Case Studies

For a practical understanding of Turnaround, take a look at these case studies.

Organizational Restructuring for a Global Technology Firm

Scenario: A global technology company has faced a period of rapid growth and expansion over the past five years, now employing tens of thousands of people across multiple continents.

Read Full Case Study

Operational Excellence in Healthcare: A Restructuring Strategy for Regional Hospitals

Scenario: A regional hospital is undergoing restructuring to address a 20% increase in patient wait times and a 15% decrease in patient satisfaction scores, with the goal of achieving operational excellence in healthcare.

Read Full Case Study

Luxury Brand Retail Turnaround in North America

Scenario: A luxury fashion retailer based in North America has seen a steady decline in sales over the past 24 months, attributed primarily to the rise of e-commerce and a failure to adapt to changing consumer behaviors.

Read Full Case Study

Turnaround Strategy for Luxury Hotel Chain in Competitive Market

Scenario: The organization in question is a luxury hotel chain grappling with declining revenue and market share in a highly competitive industry.

Read Full Case Study

Restructuring for a Multi-Billion Dollar Technology Company

Scenario: A multinational technology company, with a diverse portfolio of products and services, is grappling with a bloated organizational structure and inefficiencies.

Read Full Case Study

Turnaround Strategy for Underperforming Real Estate Firm in Competitive Market

Scenario: The organization, a mid-sized real estate company, has been facing declining sales and profitability amidst a fiercely competitive market.

Read Full Case Study


Explore all Flevy Management Case Studies

Related Questions

Here are our additional questions you may be interested in.

How do you measure the success of a turnaround strategy, and what key performance indicators (KPIs) should companies focus on?
Success of a turnaround strategy is gauged through Financial, Operational, and Market-Driven KPIs like Revenue Growth, Profit Margins, Cash Flow, Inventory Turnover, Customer Satisfaction, and Market Share, aligning with strategic goals for sustainable growth. [Read full explanation]
How is artificial intelligence shaping the future of organizational restructuring?
AI is revolutionizing Organizational Restructuring, driving Operational Excellence, enhancing Strategic Planning and Decision Making, and transforming Talent Management and Workforce Dynamics. [Read full explanation]
What are the best practices for integrating acquired companies during a restructuring phase?
Successful integration of acquired companies during restructuring demands thorough Strategic Planning, Cultural Integration, and Systems and Processes alignment, guided by best practices like due diligence, communication, and Operational Excellence. [Read full explanation]
How can companies ensure that reorganization efforts align with long-term sustainability goals?
Discover how Strategic Planning, Change Management, and Culture ensure reorganization aligns with Sustainability Goals, boosting resilience and competitiveness. [Read full explanation]
What are the implications of insolvency proceedings on a company's operational continuity?
Insolvency proceedings disrupt an organization's Operational Continuity, necessitating shifts in Strategic Planning, impacting Stakeholder Relationships, and requiring comprehensive Operational and Financial Restructuring to mitigate negative effects and potentially emerge stronger. [Read full explanation]
How can restructuring initiatives be designed to enhance customer experience and satisfaction?
Restructuring initiatives aimed at improving customer experience and satisfaction should integrate Strategic Planning, Digital Transformation, and Operational Excellence, focusing on customer-centric approaches to drive revenue growth and increase loyalty. [Read full explanation]

 
David Tang, New York

Strategy & Operations, Digital Transformation, Management Consulting

This Q&A article was reviewed by David Tang. David is the CEO and Founder of Flevy. Prior to Flevy, David worked as a management consultant for 8 years, where he served clients in North America, EMEA, and APAC. He graduated from Cornell with a BS in Electrical Engineering and MEng in Management.

To cite this article, please use:

Source: "What role does digital transformation play in the turnaround process, and how can companies leverage technology to accelerate recovery?," Flevy Management Insights, David Tang, 2025




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