Turnaround Actions and Performance: Strategies for Underperforming Firms in Growth Industries
Date
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Abstract
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.