Turnaround Actions and Performance: Strategies for Underperforming Firms in Growth Industries
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Organizational turnaround has been an important facet of management research for decades. It has been examined from a variety of perspectives; however, findings remain equivocal as to which actions are associated with positive results. Research has been shaped by an ideology, perhaps owing to roots in firm failure, that a firm needs to deteriorate for years and face a crisis in order to recognize and react to a performance decline. What if these concepts erected unnecessary hurdles, contributing to ambiguous results? Perhaps the lengthy period utilized to measure a performance decline and the ensuing turnaround period contribute to the lack of clarity. To minimize the impact of internal and external environmental effects, I examine turnaround performance within a condensed timeframe. Rather than the average period of three years, I analyze performance declines that range from as little as three quarters to three years. I use life cycle theory to guide this study. It serves as both the theoretical grounding in addition to providing a framework for selecting an industry stage—growth. I examine turnarounds by measuring the association between two predominantly studied turnaround actions-¬-operational and strategic actions--and firm performance. The data indicates that underperforming firms in a growth industry are able to recognize and react to a performance decline within a short timeframe. Although a layoff is the only action significantly associated with performance, the situational variable of firm size indicates a significant, negative association with performance. Post hoc analyses indicate that decline severity is also significantly related to turnaround performance in a growth industry.