Turnarounds - A Stage Theory Perspective

Turnarounds: A Stage Theory Perspective
Shamsud D. Chowdhury*
Dalhousie University
Abstract In strategic management, an impressive body of literature on turnaround has accumulated over the last three decades; however, the topic remains largely idiosyncratic and open-etided. Based mainly on the tenets of the life-cycle family of process theory, this paper presents a composite four-stage model that unfolds the dynamics of turnaround and provides a basis for the development of a theory on which to draw further. By categorizing the elements of turnaround as three critical requirements incidents, events, and conceptsthe model explains how the elements germane to each stage, when combined, facilitate the progression from a crippling deterioration in performance to an enduring success or to an eventual death. An analysis ofthe turnaround of Chrysler Corporation provides preliminary support for the model. The model's implications for theory, research, and practice are also given.
Resume Au cours des trois demieres decennies, un nombre impressionant d'etudes portant sur le redressement des entreprises otit ete menees en gestion strategique. Toutefois, ces etudes demeuretit dans I'ensemble tres subJectives et manquent un encadrement methodique tres rigoureux. La presente etude, en prenant pour base certains postulats de la theorie du processus de la famille du cycle de vie, propose un modele a quatre etapes pour analyser le processus de redressement d'entreprise. Ce modele pose les premiers Jalons d'une theorie qui peut faire I'obfet d'etudes ulterieures plus approfondies. En definissant les trois etapes constitutives d'un redressement, a savoir les incidents, les evetiements, et les concepts, notre modele expUque comment les elements propres ci chaque etape, une fois combines, facilitent le passage d'une performance mediocre a un succes stable, ou a une mort eventuelle d^ I'entreprise. L'etude du redressement de la compagnie Chrysler constitue I'illustration preliminaire du modele. Enfin, nous discutons I 'apport possible du modele pour la theorie, la recherche et la mise en pratique des redressements d'entreprise.
Because turnaround deals with reversing organizational performance, it is of considerable importance. Paralleling the growth of research on decline in organizational science, an impressive body of literature on turnaround, both in terms of quantity and quality, has accumulated in strategic management over the last three decades. However, as with most research areas in organizational science, the literature is confusing, uneven, and noncumulative, due largely to an overwhelming
School of Business Administration. Dalhousie University. Halifax, NS, Canada B3H 1Z5. E-mail: Shamsud.Chowdhury@dal.ca A condensed version of this paper was presented at the 1995 Annual Meeting of the Academy of Management (Business Policy and Strategy Division) in Vancouver. British Columbia. The author wishes to thank Cynthia Hardy, Ann Langley, and Andrew Van de Ven for their constructive comments on an earlier draft of this version. The author also gratefully acknowledges the helpful suggestions of three anonymous CJAS reviewers. The author was at the School of Business, Athabasca University, during the preparation and revision of this article.
emphasis on the content of turnaround. Tbe explanation for such discrepancy in emphasis is not dift'tcult to comprehend. Because methods for examining the relationships between inputs and outcomes are well developed (Van de Ven & Huber, 1990) and more voluminous (Pettigrew, 1992), secondary published data are easy to access (Chakravarthy & Doz, 1992), and processes are messy and costly to research (Burgelman, 1983; Langley, 1999), it is understandable that most research on turnaround has focused on its content. Mainly rooted in the tradition of industrial economics, the content approach usually entails a "variance theory" (Mohr, 1982) explanation for turnarounds in terms of statistical relationships among dependent and independent variables. This approach represents static descriptions of a set of turnaround strategies to explain variations in performance outcomes, or to explain the influence of certain contextual factors on the degree of turnaround success. As this rather sweeping description of a variance
Canadian Journal of Administrative Sciences Revue canadienne des sciences de I'administration 13(3), 249-266
ASAC 2002
249
TURNAROUNDS: A STAGE THEORY PERSPECTIVE
CHOWDHURY
approach may be misleading, it requires some qualification. In addition to containing difficulties with directions of causality, variance approaches also fail to reveal complex interrelationships among the explanatory variables (Langley & Truax, 1994). Therefore, the content approach is most useful for a cross-sectional analysis of the reasons for variations in the degree of turnaround outcomes among a number of firms. It is from this perspective that insights involving the actions and characteristics associated with turnarounds have resulted from a large body of content research (e.g.. Barker & Duhaime, 1997; Castrogiovanni & Bruton, 2000; Chowdhury & Lang, 1996; Hambrick & Schecter. 1983; O'Neill, 1986; Pant, 1991; Robbins & Pearce, 1992; Schendel & Patton, 1976; Schendel, Patton, & Riggs, 1976; Thi^tart, 1988). However, in comparison with this disproportionately high emphasis on content, the process of turnaround, that is, how firms move away from crippling deterioration in performance to enduring success or eventual death, has received almost no attention.' Both content and process are equally important for a good theory (Bacharach, 1989; Van de Ven & Huber, 1990; Whetten, 1989); thus, a deep appreciation for the process of turnaround is essential for a theory of turnaround, which is currently either nonexistent (Pearce & Robbins, 1993) or inadequate (Barker & Duhaime, 1997). By definition, a process theory provides explanations in terms of the sequence or progression of events leading to an outcome (Mohr, 1982). In other words, it is a narration or story of how a sequence of events unfolds to cause a dependent variable to respond to an independent variable (Van de Ven & Huber, 1990). Therefore, implicit in a content approach is the essence of a process approach. It is in this sense that both content and process are linked (Van de Ven & Huber, 1990) and inseparable (Pettigrew, 1992). This linkage or inseparability between content and process lies at the heart of a good theory, which establishes empirically observed patterns and explains why certain relationships exist "between units observed or approximated in the empirical world" (Bacharach, 1989, p. 498). A theory of turnaround is lacking because of a wide separation between empirical findings (based either on large samples or on case descriptions) and work done toward systematically uncovering the causal structure of events from the onset of a firm's decline to its ultimate recovery or death. Using Meyer's (1988) comment in reference to the bankruptcy of U.S. businesses in the 1980s, it can be concluded that turnaround researchers are "a long way up the empirical creek without a theoretical paddle" (p. 413). Because it deals with the survival of organizations, turnaround is viewed as a performance issue in strategic management. Accordingly, we define turnaround to
occur when a firm perseveres through an existencethreatening performance decline; ends the threat with a combination of strategies, systems, skills, and capabilities; and achieves sustainable performance recovery. The obverse of performance recovery is failure and eventual death. It is to be noted here that this broad definition of turnaround includes, implicitly or explicitly, four key attributes. First, stimuli for turnaround actions stem from a protracted performance decline that the firm has been experiencing. Second, turnaround constitutes a series of activities involving endogenous and exogenous contexts. Third, the activities are undertaken and executed decisively and purposively. Fourth, the combination of the first three attributes typically spans a period of years. The intent of this paper is to present a theoretical model that can guide future research on turnaround. To accomplish this, we argue the use of a stage theory, which can elucidate the sequence of events that culminate in a declining firm's survival or failure and, thus, complement the causes and contexts of such an eventuality. The skeleton for the model comes mainly from the work of Bhave (1994), Krueger and Willard (1991), and Weitzel and Jonsson (1989). We then derive the elements from a disparate literature on decline and turnaround, place them in their respective stages, and, finally, amalgamate the stages into a composite model. This approach is consistent with Weitzel and Jonsson (1989), who linked "approximate sets of characteristics of decline to its various stages for providing a useful framework for additional research" (p. 97). The paper is organized as follows. In the first section, we define process as used in this paper and identify the requirements of a stage theory. In the second section, we advocate the use of a stage theory for the study of turnaround and propose a four-stage model. The four stages parallel the four key attributes of turnaround, as identified earlier. In the same section, we also identify the elements of each stage through a review of the extant literature on turnaround. We then apply the model to the well-known turnaround of Chrysler Corporation. The third section synthesizes the review and highlights the connection between the elements of all stages. The final section discusses implications and draws conclusions.
'Rirnaround Process Meaning of Process In organizational science, the term process is used in many different ways. From an extensive interdisciplinary review of literature involving change. Van de Ven and Poole (1995) have found about 20 different process theories that vary either in terminology, or in substance, or
Canadian Journal of Administrative Sciences Revue canadienne des sciences de I'ad ministration 12(3), 249-266
250
CHOWDHURY
in both. Therefore, it is important to specify the exact meaning of process in a particular study (Chakravarthy & Doz, 1992; Van de Ven, 1992). For example. Van de Ven and Poole (1995) argue that process is used in three different ways: (a) as a logic to explain a causal relationship between independent and dependent variables in a variance theory; (b) as a category of concepts referring to actions of individuals or organizations; and (c) as a sequence of events describing how things change over time and why they change in this way. They again classify the 20 different process theories into four basic families of theories: life-cycle, teleology, dialectics, and evolution. In this classification, they treat stage theory as a variant of the life-cycle process theory. Of the three types, only the third focuses on the sequence of actions, incidents, or stages changing or unfolding over time (Monge, 1990; Pettigrew, 1992; Van de Ven, 1992). Implicit in this view is the need to identify stages in the sequence and to specify the condition of movement from one stage to the next (Monge, 1990). According to this theory, a subsequent stage is prefigured in the present stage (Van de Ven, 1992), and the present stage serves as the fulcrum or springboard on which the subsequent stage rests. Although this meaning of process is rooted in embryology, where each successive stage in the development of a fetus evolves from the previous one (Van de Ven, 1992), organizations can also demonstrate such a process (Nisbet, 1969; Van de Ven & Poole, 1995). Many stage models illustrate this perspective in different streams of literature in organizational science. For example, in a model of organizational development, Kimberiy and Miles (1980) propose that organizations proceed through the stages of emergence, growth, maturity, decline, and death. According to the innovation process theory (Van de Ven & Poole, 1990), innovation passes through emergence, development, growth, or termination over time. In this paper, we use the third meaning of process. Turnaround is not a single event or state; it is a process composed of a sequence of events that, when combined, describe the occurrence of performance improvement over a particular span of time. A stage theory seems particularly appropriate for the study of turnaround for two reasons. First, turnaround involves change, which, by definition, is dynamic. Any dynamic phenomenon is a combination of sequential events over a period of time and can therefore be fruitfully viewed as a process rather than as a state of affairs. Some underlying generative mechanisms or laws must have the power to cause such events to happen sequentially in real life (Tsoukas, 1989). Nisbet's (1969) notion of developmentalism, according to which "development is driven by some genetic code or prefigured program within the developing entity" (Van de Ven, 1992, p. 177) is in harmony with
the power of generative mechanisms or laws for the causation of events, Developmentalism, as applied to turnarounds, can be likened to the progression of circular rounds in a spiral, where each loop pushes the next. This analogy of circular rounds, which Mintzberg, Raisinghani, and Theoret (1976) articulate in relation to unstructured decisions, comes from Pfiffner's (1960) conceptualization of decision making. Consistent with this analogy, a firm may require "activation and nourishment from external agencies" (Nisbet, 1969, p. 7) for turning around, but the fundamentals for this daunting task are crafted, guided, and executed by forces within the firm. Forces outside the firm can, to some extent, influence how the turnaround outcome eventually unfolds, but are mediated by strategic manoeuvring within the firm. This assumption is in keeping with the strategic choice perspective (Child, 1972), wherein "purposeful enactment" involves the processes, practices, and actions of key players. The second rationale stems from Tsoukas' (1989) contention that the operation of the generative mechanisms or laws varies, depending on the circumstances or contingencies at a given point in time. The interactions between a firm's internal and external contexts, which may be enabling, or constraining, or neutral, account for such variations. This rationale is also consistent with one of Pettigrew's (1992) key precepts of process. [S]trategic choices and changes in the firm (have] to be embedded in an analysis of the inner and outer context of the organization. Outer context includes the economic, social, political, competitive and sectoral environments in which the firm is located. Inner context refers to the inner mosaic of the firm; the structural, cultural and political environments which, in consort with the outer context, shapes features of the content and process of strategic development. (p. 9) The second qualification reinforces the expectation that no similar sequencing of events is likely to be observed in all turnarounds because of its idiosyncrasies. Therefore, we argue that any process study of turnaround should be based on a stage theory perspective because such an approach can explain how and why a chronology of occurrences play out over time and ultimately lead to a firm's survival or failure. Consistent with the four key attributes of turnaround, the stages we propose are decline, response initiation, transition, and outcome. Requirements ofa Stage Theory There are three critical requirements of a stage theory: incident, event, and concept. We elaborate briefly on these requirements as follows.
Canadian Journal of Administrative Sciences Revue canadienne des sciences de 1'administration 12(3), 249-266
251
CHOWDHURY
Incident. According to Van de Ven (1995), an incident is defined as a "recurrent activity," which can be empirically observed in one or more stages of the model. It can be conceived of using terms such as actions, indicators, occurrences, or raw datum. A change in an incident in terms of form, direction, quantity, quality, or state must be amenable to direct observation. Shifts in criteria for the distribution of bonuses from volume to margins and from individual performance to team performance are two examples of incidents. A meeting of top level managers to minimize entanglements associated with an imminent plant closing is another example of an incident. Event. An event is an abstract conceptual entity that explains the pattern of critical incidents and their temporal order (Van dc Ven, 1995). More specifically, an event is a construct that does not lend itself to direct observation (Bacharach, 1989). Events cannot be seen, heard, or felt; rather, they are inferred. Organizational atrophy, environmental entropy, culture, and reward structure are examples of events. As an abstraction, an event is expressed by a number of actions, indicators, or incidents. To indicate that an event has taken place, a number of reliable and valid indicators or incidents are needed (for a thorough discussion of the reliability and validity of incidents and events, see Van de Ven, 1995). Therefore, it is important to require, at the very least, two incidents to represent an event, and this is the approach taken in this paper. Moreover, because there are many levels of events (Langley, 1999), the number of incidents chosen to represent an event may vary across situations. However, the preceding definition is relaxed in certain cases. A construct can be deliberately adopted for a special purpose and, therefore, "it is so defined and specified that it can be observed and measured" as well (Kerlinger, 1973, p. 29). In this sense, for example, a bad year is an event (Langley, 1999) because it can be measured in terms of sales decline, asset sell-off, sliding profits, share price drop, surplus inventories, negative media publicity, and so on. Concept. According to Bhave (1994), a variable that epitomizes a phenomenon under consideration by being sequentially present through all stages ofthe phenomenon is called a core concept. Core concepts must link the stages and, thus, describe the progression ofthe entire phenomenon. Simply put, besides facilitating the narration of a story, the summation of the concepts provides a unified meaning to the phenomenon under consideration (Woiceshyn, 1997). For the identification of events to be observed and incidents recorded, it is important to identify a core concept that represents each corresponding stage of the model. Therefore, implicitly or explicitly, the process of turnaround requires a set of
concepts to describe its movement from one stage to another. In summary, multiple incidents constitute an event. Because an event is multidimensional, a large number of incidents needs to be recorded on all its dimensions to sufficiently indicate that it has taken place (Van de Ven, 1995). Again, because an event is a conceptually relevant dimension of a core concept, it indicates the latter. More than one theoretically meaningful, complementary, or conflicting event generally constitutes a core concept. The definitions ofthe three critical requirements suggest that a stage model of turnaround has an underlying hierarchical structure. In each stage, numerous incidents are compressed into theoretically meaningful events, which, in turn, are compressed into a few core concepts whose sequential linkage facilitates the explanation of how turnaround occurs. Despite this hierarchical structure, there are different types of relationships between these requirements of the model. Whereas both incidents and events operate at many levels of analysis, core concepts invariably reside only at one. Although some incidents are nested within a particular event on one level in one stage, others may be nested within another event on a different level in the same stage. Because incidents and events may occur simultaneously at different levels of analysis, it is difficult to determine their exact relationships across the hierarchy in any given stage. Another requirement of the model is the specification of a generative mechanism that propels the movement of one stage to the subsequent stage. For simplicity, we postpone a discussion of this requirement until the synthesis of the paper is presented.
A Stage Model of Turnaround Figure I shows a four-stage process model of turnaround. We mentioned earlier that the four stages of the model parallel the four key attributes of turnaround. Although various labels have been loosely applied to the stages of turnaround, according to the literature the stages are, in substance, decline, response initiation, transition, and outcome. The model is based on the basic tenet of developmentalism; that is, although the external forces, such as competitive dynamics of immediate competitors and/or pressure from key stakeholders, greatly influence how the turnaround outcome unfolds, top management is able to control that influence to a large extent. Recall that the omnipotent role of top managers is one of the four attributes in our definition of turnaround. This treatment of top managers is consistent with the su-ategic choice paradigm (Child, 1972), according to which the choices of top managers "make a difference in their organizations and environment" (Rowe, 2001, p. 82).
Canadian Journal of Administrative Sciences Revue canadienne des sciences de I'administration 12(3). 249-266
252
CHOWDHURY
Figure 1 The Turnaround Process*
Stage 1
Stage 2
SXage 3
Stage 4
Decline
Response Initiation
Transition
Outcome
u C
s
3.
k-
Nadir
t
Indeterminale
Time
Firm Equilibrium Firm Performance
*The vertical scales on this figure are purely illustrative. In fact, it is difficult to develop accurate interval scales for all four stages of turnaround as their duration varies considerably across situations.
More specifically, by expanding their discretion through various managerial functions, top managers are able to change and influence the culture and environment of their organizations for the accomplishment of performance. Recent investigators (e.g., Hambrick, 1987; Rowe, 2(X)1; Thomas, 1988) have concluded that managers do make a difference to organizational performance, and it is because of this positive role that the progression of the prescribed stages in the model is unlikely to be totally disrupted. As the model shows, during the first stage, decline starts from firm or industry equilibrium and reaches a nadir. The nadir prompts management into corrective actions, which constitute the second stage of the process. The third stagethe period of transitionis by far the most intricate of all the stages. Complex interplay
between strategy, structure, culture, technology, and human variables occurs during this stage. The fourth stage shows the outcome of the interactions taking place during the third stage and can be described as either a success or a failure. The discussion of the stages focuses on the set of events that each stage involves.
Stage J: Decline
Decline is the first stage of a turnaround process. Two theoretical perspectives explain the sources of decline. K-extinction. The "resource dependence" (Pfeffer & Salancik, 1978) tradition tends to emphasize macro or external factors as causes of decline. According to this perspective, decline can be considered a property of the
Canadian Joumal of Administrative Sciences Revue canadienne des sciences de ['administration iS(3). 249-266
253
CHOWDHURY
environment (Harrigan, 1980; Zammuto & Cameron, 1985). This decline, which Wilson (1980) refers to as "kextinction", occurs because an organization is part of a macroniche inhabited by a population of firms, or part of an industry, that is shrinking or shifting in size or munificence. Because the carrying capacity ofthe macroniche is exhausted, all firms belonging to the niche face a depleted resource pool and an intense interflrm rivalry. The asbestos and tobacco industries exemplify such a decline. R-extinction. Consistent with this perspective, which Wilson (1980) dubs "r-extinction", decline is a property ofthe organization (Cameron, Whetten, & Kim, 1987; Freeman & Hannan, 1975). This decline, alternatively labelled organizational decline, refers to reduction in resources within an organization independent of the changes in the environment. This decline occurs when an organization is operating in a stable or growing macroniche, but is fraught with self-induced problems. Both decline types are likely to result in the deterioration of financial performance and level of resources in any organization (Barker & Duhaime, 1997). However, the magnitude and duration of decline are likely to vary, depending on whether this is externally or internally induced. Therefore, it is important to identify the incidents belonging to each decline typek or rand the way this decline type approaches the nadir. Since k and r involve industry and firm levels of analysis, respectively, the different trajectories of development of incidents at these two levels and their wide spectrum of interactions become the crucial determinants of the length and speed of decline. Stimulus. Another event in the duration of decline is the source of intervention that triggers actions. Although an early recognition of failure and a change or initiation of actions are likely to yield better chances for turnaround success, the influence of the involved parties such as banks, creditors, government, press, stockholders, union, and so on greatly determine how the situation is perceived by the management and acted on. As Gopinath (1991) demonstrates through cases, more than one source of interventions or stimuli operates in a turnaround situation, and these interventions can be either complementary or conflicting. It is largely the pressure of one or more sources of trigger that brings about a change in management, including the ouster of the incumbent CEO (Bibeault, 1982; Fortune, 1987; Gopinath, 1991; Hofer, 1980; Schendel & Patton. 1976). Stage 2: Response Initiation Turnaround responses are typically categorized as strategic and operating (Bibeault, 1982; Chowdhury & Lang. 1996; Hambrick, 1985; Hofer, 1980; Schendel et
al., 1976). Strategic turnarounds focus on changing or adjusting the business the firm is currently engaged in, and consist of major, long-term moves such as diversification, vertical integration, new market share initiatives, and divestment. Operating turnarounds focus on the way the firm currently conducts its business and involve short-run tactics geared toward cost cutting, asset reduction, and revenue generation. The general conclusion from this dichotomy is that turnaround actions must match the cause of a firm's decline. In other words, if decline stems from structural shifts in markets, the response should be strategic turnaround. If the underlying cause is internal inefficiency, the firm should engage in operating turnaround (Hofer, 1980; Schendel et al., 1976). This dichotomy Is somewhat misleading and cannot be universally applicable. Untangling this questionable dichotomy brings into focus three events, which we refer to as domain definition, scope overlap, and strategic contours. Domain definition. Many ofthe strategic cures such as diversification, divestment, and vertical integration have limited applicability at an independent business or at the business unit level of a multibusiness corporation. Similarly, product/market refocusing involving geographic expansion, concentric diversification, and acquisition programs is generally feasible only for firms with a broad range of business portfolios. Although large, single-business firms may consider diversification and vertical integration as ways out of decline in their core businesses, these options may be somewhat restricted for their small counterparts. For example, R. J. Reynolds' acquisition of Nabisco exemplifies a classic diversification strategy to compensate for a declining macroniche. Such a major shift in competitive position would be almost impossible for a small, single-business tobacco firm. Beatrice Foods, CBS, General Electric, and Gulf & Western divested major holdings during the early and mid-1980s. Single-business firms simply cannot participate in a sell-off of this magnitude. Moreover, turnaround strategies even differ across different types of single-business firms, such as an independent single business and the business unit of a corporate parent (Castrogiovanni & Bruton, 2000). For example, as Castrogiovanni and Bruton illustrate, although capital infusion may indeed be an option for a single business within a corporate portfolio, financially distressed independent single businesses may not have this access to outside capital. So, the type of business and its exact strategic and operational domain can only determine the appropriateness and efficacy of a particular strategy or a set of strategies. Scope overlap. Even though the business domain is clearly defined, the real difficulty may lie in the isolation of the effects of a chosen turnaround strategy, or a comCanadian Journal of Administrative Sciences Revue canadienne des sciences de I'administration 12(3), 249-266
254
CHOWDHURY
bination of strategies, that may be appropriate for a particular type of business. Paraphrasing Pettigrew's (1992) terminology, because strategies have "fluid" characters that spread out over both space and time, a clear-cut delineation of strategies, or of their effects, proves difficult. Castrogiovanni and Bruton's example may be expanded to reinforce this point. A multibusiness corporation may acquire a distressed business to turn it around and then gain valuable synergies between the acquired business and the existing businesses in its portfolio. In such a case, for strategic coherence, changes in corporate-level strategy bring about corresponding changes in business-level strategies of all affected business units, including the newly acquired unit. This correspondence involves multiple levels of analysis and, as a result, it becomes difficult to separate strategies pertaining to one level from those pertaining to others. Strategic contour. Decline itself entails a process, and corrective actions are possible at each stage except the last one, dissolution (Weitzel & Jonsson, 1989). Therefore, it is important to align the stage of decline with the contours of turnaround actions that are initiated. It is easier to reverse decline at its earlier stages through tactical measures, such as cost-cutting, enhanced employee productivity, and asset parsimony. Also, these strategies can be pursued in different ways at an early stage. For example, cost-cutting can be accomplished by the introduction of new technology through improved productivity. When the decline is one of k-type, the organization can add some knee-jerk, revenue-generating measures such as aggressive price competition and increased advertising. These measures allow breathing space and may provide a basis for the ultimate survival of the organization through long-term strategies such as diversification, vertical integration, and product/market initiatives. For BankAmerica, a balanced, simultaneous execution of both short- and long-term measures paid off substantially in terms of its sales and market share measures (Clausen, 1990). If the short-term measures occur too late, decline can turn into an "ever-descending spiral." This happened in the case of Woodwards, a now nonexistent leading department store chain in western Canada. On the other hand, if short-term measures occur too soon, the initiation of long-term measures can be avoided in some situations. When decline deepens, major shifts in strategic posture involving product/market refocusing are necessary. Product/market refocusing has two seemingly opposite directions: contraction and expansion of existing product/market niches. Contraction involves planned withdrawals from unprofitable products, services, and market segments. By dropping less profitable areas. Woodwards concentrated on fashion, accessories, and home fashions.
areas where it used to have a competitive advantage in the western Canadian market. RCA redefined its business and withdrew from TV manufacturing, selling it to Thompson of France. Both Woodwards and RCA illustrate contraction. Expansion involves development or acquisition of more business, attractive from the standpoints of profitability and growth. Contraction and expansion could be mutually exclusive or complementary. BankAmerica refocused on retail and wholesale banking in the western United States, where it enjoyed a distinctive strength (Clausen, 1990). Because BankAmerica never played a premier role in peripheral financial services, Charles Schwab, its discount brokerage subsidiary, was jettisoned. However, at the same time, BankAmerica refocused on its existing strength through the creation of new and improved products and services in its major market, the western United States. BankAmerica exemplifies simultaneous contraction and expansion. There is another dimension to strategic contours. Some key stakeholders, such as banks and unionized employees, may dictate the selection of turnaround strategies, determine their priority and modes of implementation, and even rule out certain strategies (Slatter, 1984) in this stage. For example, although cost cutting can be accomplished both through improved technology and retrenchment, it is difficult to lay off employees in a tightly unionized organization. Stage 3: Transition A substantial amount of time has to pass before the results of turnaround strategies show. As Pant (1991) notes. Ford's response to its dwindling market share involved a four-year effort to introduce its successful Taurus/Sable line. Similarly, Schendel et al. (1976) fmd that performance improvement occurred over an average of 7.7 years with a range from 4 to 16 years. Despite the critical nature of the transition period, most turnaround studies (e.g., Chowdhury & Lang, 1996; Hambrick & Schecter, 1983; O'Neill, 1986; Robbins & Pearce, 1992; Schendel & Patton, 1976; Thietart, 1988) implicitly treat turnaround responses and improved financial results as almost simultaneous events. In other words, this treatment tends to suggest that turnaround actions produce immediate results. In reality, because this transition constitutes the real black box of the entire process of turnaround, it is temporally separated from both Stage 2 and Stage 4. Elapsed time. The length of transition for successful turnarounds is important as this choice has implications for the final delineation of turnaround and nontumaround firms. If the time is too short, selected strategies may not produce any improvements in performance and
Canadian Journal of Administrative Sciences Revue canadienne des sciences de I'adniinistration ), 249-266
255
CHOWDHURY
certain potential candidates for turnaround may be prematurely categorized as failures. If the time period is too long, the effects of some short-term strategies are likely to be masked by those of long-term strategies deployed later in the transition. Clearly, a variation in transition span could lead to variations in the explanation of the relative effectiveness of certain response types. Substantive levers. Because implementation encompasses a wide range of approaches from which one can choose one or more depending on the situation, a common set of substantive levers must permeate through these approaches. Given that these substantive levers neatly capture the contexts of and intricacies around each implementation, we consider each of the levers as events in this stage. As a growing body of literature (e.g,, Hoffman, 1989; O'Neill, 1986; Schendel & Patton, 1976) suggests, it is the process through which turnaround strategies are implemented, not their content per se, that explains the difference between successful and unsuccessful turnarounds, A host of variables, some of them concrete, some involving power and politics, requires serious consideration in this stage. The management style, governance structure, strategic orientation, industry experience, culture, and leadership qualities of the top managers combine with individual actions, characteristics, and skills of the employees as well as with the tangible and occult properties of the organization during implementation. Because context and action are always interwoven whenever human beings shape outcomes {Pettigrew, 1992), the configurations of, and interactions between, the soft and hard factors assume enormous complexity during implementation. Human capabilities and organizational properties relate to one another in many different ways (Ropo & Hunt, 1995), and their interplays tend to create information overioad for the implementers that exceeds their cognitive ability (Mintzberg et al., 1976), Although the number and type of implementation levers are largely situation specific, resource commitments, subunit policies and programs, structure, rewards, and people represent a reliable identification of these levers in the implementation of turnarounds (Hambrick & Cannella, 1989), Changes along the full array of moves forming each lever can be considered as its representative incidents. Because all these levers are related and overlapping, it is important to address them simultaneously with a full understanding of their nuances and interplays. Stage 4: Outcome In the fourth stage, a cut-off point of the performance measures determines whether a turnaround has
been accomplished. The measures used to determine outcomesuccess or failureare the same as those used to define decline at the first stage ofthe turnaround process. It is possible to conceive of both success and failure taking place at the same time, in that two measures may portray a contradictory picture of a firm's situation, at least in the short-term. For example, when rumours circulated that Samsung Aerospace of South Korea had agreed to buy Fokker, a Dutch regional aircraft manufacturer, its share price rose immediately by 34% {Economist, 1996). Fokker's accounting indices did not reflect this inflated stock value, however. Similarly, there may be a time lag between improvements in competitiveness and profitability of a firm (Baden-Fuller & Stopford, 1992), Managerial resources, which involve changes in the number of prestigious top managers, may have positive and inverse relationships with the market- and accounting-based measures of a firm, respectively. Therefore, a more balanced view of outcome is only possible through a series of measures that capture different dimensions of performance. Different measures are likely to give a better reflection of the role and interplay of different incidents that represent the speed and depth of recovery or failure. Moreover, for the selection of an arbitrary cut-off point from a composite score of the chosen measures, the inclusion of certain stringent requirements in this selection is necessary. As Krueger and Willard (1991) note, the cut-off points selected must provide an "unequivocal signal" that success has been accomplished. For the delineation of success from failure, performance improvement should also stretch over a long period of time to allow for recovery, lest firms be prematurely considered successful or unsuccessful. A discussion of each of the four stages leaves the impression that the model is a composite of four disparate, stand-alone stages. In fact, the stages are not disparate; rather, they are sequentially linked and mutually reinforcing. For the sake of convenience, we will return to a discussion of such links and adjustments later, and will, when appropriate, draw on the Chrysler case. Illustrative Case: Chrysler Corporation A number of different longitudinal methods can be used to observe the process of turnaround. Although there are both advantages and disadvantages to each of the methods, one limitation that seems to permeate all of them is the sheer intensity of labour combined with a tremendous commitment of time on the part of the research team. This problem aside, some of the longitudinal methods, such as real time study of events, would seem inappropriate for studying the process of turnaround, which is an ex post facto phenomenon. We decided, therefore, to use a comprehensive case with sufCanadian Journal of Administrative Sciences Revue canadienne des sciences de I'administration 12(3), 249-266
256
CHOWDHURY
ficient detail to see the extent to which it supports our theoretical tnodel. Although such an analysis is less rigorous than a retrospective case reconstruction based on document analysis and periodic interviews (see Denis, Langley, & Cazale, 1996; Maritan, 2001), it holds the potential to provide, at the very least, some preliminary support, or lack thereof, for the model. We decided to reconstruct the turnaround of Chrysler Corporation to illustrate our model. There were at least three reasons for the selection of Chrysler. Being the third largest automobile manufacturer and the tenth largest industrial corporation of the U.S., Chrysler is definitely well known. Second, over the years, there was a widespread belief in many quarters ofthe U.S., especially the federal government, that Chrysler was doomed to bankruptcy. Third, because ofthe famous, widely-debated "The Chrysler Corporation Loan Guarantee Act of 1979" involving $1.5 billion, Chrysler's turnaround efforts were under meticulous scrutiny by all levels of government and the press. For the reconstruction of the case, we have primarily drawn from Iacocca's (1984) iacocca: An Autobiography, about half of which is dedicated to the turnaround of Chrysler Corporation. We could rely on the fact that the case is based on the firsthand account of Iacocca, who became a corporate folk hero for turning Chtysler around, and whose activities were always under the scrutiny of a hostile press. When needed, we also drew from Miesing's (1993) "The Chrysler Corporation Loan Guarantee Act of 1979", a marginally related published case. To indicate the extent to which the case was supporting the elements under each stage, we keyed the reconstruction to the stages discussed earlier and indicated in Figure 1. In the late 1970s, Chrysler Corporation found itself in a grave situation. Despite having a respectable past with a solid dealer organization and remarkable engineering prowess, the onset of Chrysler's decline can be traced back to the early 1970s. Its market share of the American car market had plummeted from 16.1% in 1970 to 9.6% in 1979. With sales of close to 5.4 and 2.6 million cars, respectively, both GM and Ford reported record sales and profits in 1978, whereas Chrysler sold less than 1.2 million cars in the same year. Even worse, during 1978-1979, in relation to GM's 70% owner loyalty rate and Ford's 54%, Chrysler's dropped to 36%. The Michigan State Fairgrounds was jammed with thousands of unsold, rusting Chryslers, Dodges, and Plymouths. At one point, the number reached as high as 100,000 units, representing about $600 million in finished inventory. At a time of dwindling cash and high interest rates, the costs of carrying this inventory was prohibitive for Chrysler. Its loss of over one billion dollars in 1979 was the largest in U.S. corporate history, and was expected to be followed by a loss of another half a billion dollars in 1980.
Therefore, all measures of performance vividly characterized a company that was sinking into bankruptcy. Chrysler's prolonged decline could be attributed to both internal and external factors. On the one hand, Chrysler was plagued with self-induced problems, especially the inefficiency of its top management. Chrysler's top management did not have a comprehensive grasp of the strategic direction of the company, or of the dynamics of the industry in which it was competing. Serious top management errors such as production of cars on speculation, poorly conceived overseas expansions, and participation in the used car business contributed to Chrysler's erosion of competitiveness and, thus, to its protracted r-extinction. Internally, Chrysler was a collection of many mini-empires. There were 35 vice-presidents, each with his or her own turf. "There was no real committee set up, no cement in the organizational chart, no system of meetings to get people talking to each other" (Iacocca, 1984, p. 152). It was difficult to identify anyone in Chrysler with a specific responsibility for anything. The k-extinction was manifested in factors such as excessive government regulation, the recession, and the energy crisis. Although a set of severe U.S. antitrust laws and the worst recession in 50 years hurt Chrysler badly, it is really the Iranian crisis that brought the company to the verge of collapse. Never before in the history of car business had there been such a violent change in the market as the one that occurred in the spring of 1979. Following the departure of the Shah of Iran on January 16, 1979, the price of gas doubled in the U.S. As a result, over the following five months, the small car share of the market rose from 43% to nearly 58%, an increase of 15%, which proved to be catastrophic for the U.S. automobile industry. As Chrysler was a leader in recreational vehicles (RVs) and motor homes, this shift had an especially devastating effect on the sale of its huge gas guzzlers. By June of 1979, the chassis and engine Chrysler was supplying to the RV industry had virtually stopped selling. Demand for its vans, another successful line of Chrysler's operation, fell by 43% in only one month in 1979. Therefore, although an interplay of both internal and external factors culminated in Chrysler's near bankruptcy, it was actually the Iranian crisis that was the stimulus for immediate and drastic response initiation for decline reversal. In fact, it was this grave situation that prompted John Riccardo, then chairman of Chrysler's board, to recruit Lee Iacocca for turning Chrysler around. Following Riccardo's sudden retirement on September 20, 1979, Iacocca moved up to become Chrysler's chairman and CEO with a full mandate to nurse Chrysler back to health. Chrysler's turnaround demonstrates, in varying degrees, the presence of all three eventsdomain definition, scope overlap, and strategic contourin this stage
257
CHOWDHURY
of the process. The domain of its business dictated the selection of the strategies, both strategic and operating, that Iacocca and his team initiated. Further, the scope and contour of these strategies encompassed all three rungs of the decision-making hierarchycorporate, business, and operatingat Chrysler. Chrysler was scrambling for cash to meet its day-today obligations. To raise cash, it divested its tank operation to General Dynamics for $348 million. With a solid reputation as the best battle tank manufacturer in the world, the Defense Division was virtually guaranteed an annual profit of $50 million by the U.S. government. Besides closing down two of its marginal plants in Michigan, Chrysler sold all the dealership real estate it owned, including a couple of hundred strategic downtown locations. It either trimmed or divested some of its overseas operations in Argentina, Australia, Brazil, and Venezuela. In return for $230 million and a 15% stake, it struck a deal with Peugeot for its European operations. To reduce fixed costs by almost $66 million a year, it lowered the salary of its top 1700 executives,^ suspended all merit pay increases, cut its employee stock option plans, and eliminated dividends on its common stock. Against these large-scale divestments, wholesale asset pruning, and drastic cost-cutting measures, Chrysler also initiated an expansionary move. For improved quality control alone, it set up a new department and staffed it with 250 new people. It would seem clear from the response initiation stage that only because Chrysler wanted to stay alive in its core car business did it divest itself of its cash cow, the tank division. It is this core business focus that prompted the divestment of a very profitable but peripheral business. Again, an overriding concern for the quality of cars led to the creation of a new quality control department. The other operating strategies, such as massive firings of both white- and blue-collar employees and drastic paring of fixed costs, occurred at multiple organizational levels and were intertwined and consistent with Chrysler's corporate-level strategies. Chrysler also demonstrates the key events in transition, as set out in the model. There was a gap of about five years between Iacocca's joining Chrysler in November 1978 and the official announcement on July 13, 1983, of its intention to repay the entire amount of a $ 1.5 billion government-backed loan by the end of 1983. Many quarters, including the New York Times, found it hard to overstate the magnitude of such a quick turnaround for such a desperately sick company. In this case, the elapsed time of about five years is consistent with the observations of Pant (1991) and Schendel et al. (1976). The case also illustrates how the management style, governance structure, leadership focus, and both individual and collective qualities and skills of the team mem-
bers affected the substantive levers listed in the model. In the process of turnaround, the topmost priority for Iacocca was to bring some cohesion and unity into the company. Toward this end, he had to put a capable team together before it was too late. He recruited some brilliant incumbent and retired Ford executives for areas such as financial control, marketing and dealer operations, and quality control for design and manufacturing. He also discovered a lot of bright, young talent, who had been passed over by the previous management, and put them on the team. As bills were being paid from about 35 different locations, the accounts payable had to be centralized immediately. There was no financial control mechanism in place to evaluate what management was doing, nor could the controller's office project the consequences of Chrysler's corporate decisions. Over a three-year period, 33 of the 35 vice-presidents were fired, which translated into one firing a month. As Chrysler had been remarkably top heavy, this axing was long overdue. Massive firings at the other levels also took place. In 1979 and 1980, a total of 15,500 workersblue- and white-collar alikewere laid off, which saved Chrysler about $500 million in annual costs. A large pool of planning staff was eliminated. The ubiquitous presence of a huge planning staff seemed to be aggravating the haemorrhage Chrysler was trying to survive. With all firings, Chrysler ended up stripping out several levels of management, with a much flatter vertical hierarchy. Over time, fewer levels made the running of Chrysler easier. To cut costs further, Chrysler set up a just-in-time inventory system so that parts would be shipped at the last possible moment. In 1979, a brief document printed with black ink on plain white recycled paper replaced Chrysler's glorious full-colour annual report, and was distributed to its 200,000 shareholders. Savings from the above measures were reallocated to a full line of cars and light trucks. This reallocation was necessary because Chrysler could not survive as a one-product company. A profit margin of about $750 on each subcompact car could not keep Chrysler alive; hence, emphasis was placed on a full line of cars and trucks. This stage also demonstrates the virtue of successful coalition, cooperation, and communication among people in bad times. Hundreds and thousands of managers and workers had to be convinced of the rationale for drastic pay cuts and massive layoffs. During 1980, Iacocca visited every single Chrysler plant, conducted sessions with plant supervisors, spoke directly with the workers, and thanked them for sticking with Chrysler during its bad times. He had to further convince them that bad times would be over soon and that the light would finally beam. Direct communications at the highCanadian Journal of Administrative Sciences Revue canadienne des sciences de I'administration
258
12(3), 249-266
CHOWDHURY
est level made everyone in Chrysler feel part of what Iacocca was doing and finally preserved the company. Enormous personal sacrifices by thousands of employees eloquently bore out the rather unusual fact that people can really act serenely in a crisis. Following the initiation of these prompt but decisive steps, Chrysler gained new and important commitments from its other key stakeholders such as suppliers, bankers, dealers, and state and local governments. Because Chrysler's problems were truly intricate, and an inherent gap generally exists between turnaround actions and the end results, all new actions and stakeholder concessions proved insufficient, and the possibility of a bankruptcy was still far from over. However, fearing serious ramifications in terms of large-scale unemployment and public outcry in a recession associated with Chrysler's bankruptcy, the federal government was finally willing to consider a long-debated $1.5 billion rescue package for Chrysler. This famous aid package, which later came to be known as "The Chrysler Corporation Loan Guarantee Act of 1979," provided the much-needed breathing space for Chrysler's ultimate survival. The outcome of the transition stage was clear in many performance measures. The signs of a healthy Chrysler began to emerge in 1982. According to Iacocca, record profits, repayment of the entire governmentbacked loan, and the introduction of minivans were the hallmarks of Chrysler's triumph. Modernization of plants; adaptation of a state-of-the art technology; an efficient, fuel-economy fleet of cars; high-quality vehicles; and, above all, a motivated work force dedicated to the revival of Chrysler brought down its break-even point from 2.3 million to I.I million units. At the end of 1982, Chrysler generated a modest profit, and in 1983 again made an operating profit of $925 million the best by far in Chrysler's history. By the spring of 1983, when Chrysler offered 26 million shares, its stock was selling at $I6-'*'l Within a few weeks, there was so much demand for those stocks that they were selling for $35. Another startling outcome was that, following the stock sales, Chrysler was able to pay off $400 million, or one-third, of its guaranteed loans. The most startling outcome, however, was its decision to pay off the entire loan of more than $800 million on July 13, 1983, immediately after the first payment. Thus, Chrysler paid off its entire loan seven full years before it fell due. The New York Times regarded this triumph as "Chrysler's Sharp Turnaround" (Iacocca, 1984). The ability of a troubled company to pay off an outstanding debt of such magnitude so far before its scheduled payment could justifiably be interpreted as an "unequivocal signal" that Chrysler really had accomplished turnaround.
Synthesis To get a holistic perspective of an entity, one has to be able to visualize all of its dimensions and comprehend the relationships between these dimensions. Therefore, the three dimensions and their underlying relationships, which are of crucial importance for a more comprehensive meaning of turnaround, are synthesized as follows. Given that any number of incidents can be chosen to represent an event, and that their number and nature may vary across situations, a somewhat hypothetical listing of very many incidents was impossible, and hence ignored in this paper. Even in the illustrative Chrysler case, we avoided a listing of incidents. Because the case was reconstructed from the part of an autobiography where, for obvious reasons, every incident could not be recorded in a systematic and chronological fashion, we could not list them. The situation, however, would be different if the case could be reconstructed carefully from an analysis of all original and relevant documents for 14 years (1970-1983), the time span Chrysler needed for its turnaround, as well as from interviews with selected people involved throughout the process. However, for illustrative purposes, some incidents are included here from the case. Inappropriate use of telephones by executive secretaries for their personal calls; visits to banks by the treasurer to keep the outstanding loans intact; arrangement of frequent go!f tournaments at the initiative of the executives; and the leakage of photographs of future cars to competitorsall indicating the inefficiency of top managementcan serve as incidents of the event rextinction in Stage 1. Frequent jokes about Chrysler on prime time TV shows, the departure of the Shah of Iran, pictures of gas lines in California, cover stories in the business press on the dwindling demand of RVs, proposals for gas rationing by Congress, a sharp rise in gas prices, and so on were the indicators of stimulus generation, an event in Stage I. Examples of incidents abound in other stages as well. The review of the literature on turnaround has identified a fairly comprehensive set of events in each stage. Accordingly, k-extinction, r-extinction, and stimulus in decline; domain definition, scope overlap, and strategic contours in response initiation; elapsed time, resource commitment, policy and programs, structure, rewards, and people in transition; and success and failure in outcome are the events in the process of turnaround. An analysis of Chrysler also bore out the presence of these events in the four successive stages of turnaround. The discussion of events in each stage of a turnaround highlights a core concept that is capable of representing that stage. Because concepts are embodied in a careful definition of the phenomenon under consideration, they constitute the central factors of concern to the
Canadian Journal of Administrative Sciences Revue canadienne des sciences de I'adniinistration 12(3), 249-266
259
CHOWDHURY
Figure 2 Key Events and Core Concepts in Turnaround
researcher. Although three events have been identified in Stage I, performance is at the heart of all events in this stage. Therefore, we consider performatice as the core concept in the decline stage of the process of turnaround. Because outcome is the obverse of the first stage, performance is the core concept of the fourth stage as well. Response initiation, the second stage, is the most visible of all four stages. As we highlighted earlier, all events in this stage centre on the unit of analysis for different turnaround strategies, their fluid nature across different levels, and the appropriateness of their combination in relation to the decline type. Therefore, strategy is the core concept in this stage. In the third stage, the focus is on the translation of physical, human, financial, and informational resources, which cut across many complex substantive levers, into viable results. Therefore, implementation is the key concept in this stage. In summary, these three core concepts (performance for Stages 1 and 4, strategy for Stage 2, and implementation for Stage 3) serve to link the four stages of the process of turnaround and are sequentially present through these stages. As Chrysler demonstrates, the entire story of its turnaround
could be narrated in a unified way in terms of performance, strategy, and implementation. The key events and core concepts are imposed on Ihe hierarchy of dimensions in Figure 2. The chronological recording of recurring incidents representing several related events, when tied to the core concepts, facilitates the story of turnaround from the onset of decline to ultimate recovery or dissolution. For each stage to move forward to the succeeding stage, all events belonging to the preceding stage may not be equally instrumental. They may be reinforcing or complementary. They may act in isolation or in combination. For example, both r-extinction and k-extinction may be mutually exclusive sources of decline; they may cause decline in combination as well. The voluntary initiation of actions by managers makes stimulus, an event in Stage 2, redundant. On the other hand, the reluctance of top managers to initiate actions makes the source of external intervention a crucial stimulus. In the case of Chrysler, however, the inability of top management to stop its haemorrhage as well as the effects of a few forceful exogenous factors, such as a severe recession and an
Canadian Journal of Administrative Sciences Revue canadienne des sciences de i'administration 12(3). 249-266
260
CHOWDHURY
acute energy crisis, served as stimuli for immediate and drastic actions. On the other hand, in the widely known case of Allegis Corporation, the most powerful stimulus that led to the ouster of its CEO, Dick Ferris, was the Allegis board (Fortune, 1987). Therefore, the nadir that marks the end of Stage 1 is a function of the severity of decline that brings about pressure from external stimuli to change existing strategy or initiate new strategies. Although the locus of the nadir and, therefore, the span of Stage 1 is largely an outcome of the perception of the affected stakeholders, it is easy to determine, as the illustrative case suggests. In Chrysler, a sharp decline in operating profitability (in fact, its loss was mounting every year), market share, and owner loyalty, coupled with massive losses from the inventory build-up of finished cars, reached such a low ehb that there had to be an inflection following the nadir if Chrysler wanted to avoid immediate bankruptcy. This inflection point served to link Stage 1 and Stage 2. Although Iacocca had initiated a few impromptu moves prior to reaching the nadir, these moves did not seem to produce any noticeable results. It seems difficult to delineate Stage 2 and Stage 3, in that strategy fomiulation and itTiplementation occur almost simultaneously in real life. However, because strategies spread out over both space and time (Pettigrew, 1992), there has to be a temporal gap between their formulation and implementation. Consider a few examples from Chrysler. The dismissal of 33 vice-presidents, a cost-cutting measure, took over three years. Similarly, a decision to start a quality control department, taken In Stage 2, took a long time to implement as the department had to be staffed with 250 qualified people from other places. A decision to replace its two advertising agencies representing a $150 million account change spanned both stages. Similar intertwining involved almost all strategies that Iacocca and his team considered necessary. Despite these apparent links and adjustments between these adjacent stages, the two stages could be delineated, in that all or some dimensions and trajectories of the strategies changed during their passage from Stage 2 to Stage 3. For example, even though vice-presidents known for their golfing ability were axed first, others later followed suit because a large pool of planning staff had to be eliminated for a much flatter organizational structure. Although the initial reason for replacing two advertising agencies was to send a signal to the key stakeholders that Chrysler was serious about turning itself around, the justification later turned out to be one of effective product planning and marketing. Kenyon and Eckhardt, the newly recruited advertising agency, later proved to be an integral part of the turnaround of Chrysler. Therefore, the incidents that indicated each strategy in Stage 2 could not be the same in Stage 3. Changes along an anay of moves that affected each
implementation lever also mirror changes in representative incidents. Although a few common incidents may be nested in Stage 2 and Stage 3, their frequency and temporal order vary substantially. Therefore, despite a somewhat blurred boundary between Stage 2 and Stage 3, they can be delineated. The substantive levers of implementation are connected to the subsequent stage in terms of a set of performance measures through which decline was measured. Therefore, following the implementation of strategies and the elapse of a reasonable time, there have to be noticeable changes along the chosen set of performance measures. Because of a variation in the nature of performance measures, although their inflection points occur at different times following implementation, on balance there should be a coherent pattern among them. In the case of Chrysler, the inflection points were noticed, first, in a record operating profit of $925 million; second, in an unprecedented surge in its stock price; third, in a strong cash position; and, finally, in the respective introduction and reintroduction of new or once-abandoned cars. Following implementation, for the sake of simplicity, we have indicated only one inflection along performance in Figure 1. Although there is a likelihood of multiple inflection points along different measures of performance, it is possible to delineate Stage 3 and Stage 4 based on a coherent pattern created by such points. Following the identification of sequential stages in a process model, it is necessary to specify the generative mechanism that propels the movement from one stage to the next (Van de Ven & Poole, 1995). As the review of the stages suggests, the number of incidents, their frequency of occurrence, their degree of embedded ness in multiple levels, and the pattern of their interplay combine into what is referred to in physics as amplitudethe maximum extent of a vibration or oscillation from the position of equilibriumof an event. Mintzberg et al. (1976) describe the strengths of different stimuli prompting management into decision-making action in terms of amplitude. Implicit in Ropo and Hunt's (1995) expression of momentum for human and organizational capabilities in terms of circular spiral is an amplitude. Accordingly, the interplay of reinforcing or contradictory incidents in each stage creates an amplitude for each event, and when amplitudes of all events in a stage cumulate into a mega amplitude, one stage moves to the subsequent stage. In other words, the cumulative amplitude of all events in a stage reaches a threshold, creates a momentum, and then pushes that stage forward. The amplitude of a stage can be likened to a roller-coaster ride with several rounds, each round giving rise to the next (Ropo & Hunt, 1995). Although the physical movement of one stage to the succeeding stage is difficult to
Canadian Joumal of Administrative Sciences Revue canadienne des sciences de I'administration 12(3), 249-266
261
CHOWDHURY
Figure 3 The Turnaround Process'
Stage J
Stage 2
Stage 3
Stage 4
Decline
Response Initiation
Transition
Outcome
\
^s\
\
NadirW
\
Indeterminate Time
Firm Equilibrium Firm Performance
The vertical scales on this figure are purely illustrative. In fact, it is difficult to develop accurate interval scales for all four stages of turnaround as their duration varies considerably across situations.
mark, it is possible to delineate each stage through its functions (Van de Ven & Poole, 1995). Superimposing this roller-coaster metaphor on Figure 1, a refined fourstage model is presented in Figure 3. It may be argued on two grounds that the path created by the successive pushes can be different from the one presented in Figure 3. First, each stage of the model is defined in terms of incidents and events, which vary in relevance, nesting, frequency, and pattern of interactions in the respective stage of a different turnaround. As a result, the amplitude of each event varies, and the way multiple amplitudes combine into a circular loop differs. Second, another component from a related process theory of change, teleology, also adds to this explanation for variation. As an adaptive entity, when an organization strives to reach its end state, individual and/or group goal
structures of its human elements change (Van de Ven, 1992; Van de Ven & Poole, 1995). When, in response to individual, organizational, or environmental stimuli, goal structures shift in a stage or in the passage of a stage, such shifts are enacted or reconstructed. This enactment or reconstruction creates a variation in both amplitudes and tbe way they connect to each other for creating a push. BankAmerica's mammoth reduction of assets by $21 billion with a simultaneous introduction of its innovative Alpha Account over a period of slightly more than a year and Chrysler's procrastinated implementation program under a tumultuous political debate represent two different enactments of team goals. Tbe path connecting BankAmerica's implementation and success is different fi-om that connecting Chrysler's implementation and success. Therefore, although the
262
TURNAROUNDS; A STAGE THEORY PERSPECTIVE
CHOWDHURY
Stages of turnaround are sequential, the tracks running through them may be different.
Discussion and Conclusion Although in the last three decades there has been a burgeoning interest in the study of turnaround, sufficient knowledge has not yet accumulated on the phenomenon, which remains idiosyncratic and open-ended. Conflicting vocabularies and perspectives have obstructed the development of a unifying theory on which to draw. This paper argues that a four-stage process view of turnaround is capable of unfolding the dynamics and interplay of the nature, sequence, and duration of incidents and events from the onset of decline to the ultimate reversal of performance. Possible elements of turnaround from the extant literature are grouped into four stages of a composite model, where each stage combines a variety of roughly related events. A review of the literature identifies the key events in each stage that were incorporated into the model. The model also highlights a set of core concepts germane to turnarounds, unifying and linking the stages in a sequential fashion. The model contributes to strategic management and organization theory in at least three respects. First, it provides a comprehensive mechanism for developing elements classifiable into incidents, events, and concepts from the onset of decline to the ultimate recovery of performance to dissolution. In each stage, numerous incidents are compressed into theoretical events, which, in turn, are compressed into a few core concepts, whose sequential linkage facilitates the story of how turnaround occurs. A provision for insight into the clusters of problems and issues at different stages ofthe process and the transition of the stages can serve as a valuable aid for the managers (Whetten, 1987). Besides serving a narrative purpose, the model also offers the potential for flexibility, because it can accommodate variations in the level of specificity and the temporal duration of incidents. By increasing the number of incidents and associating them with short units of time, the events can be refined, the concepts enriched, and the overall approach finegrained. As a result, the contexts under which the incidents occur are likely to assume correct meaning, thus adding to the degree of realism that the story of turnaround unfolds. The degree of realism, in turn, may better uncover the "dynamic nature of contextual variables, as well as the interactions between them" (Langley & Truax, 1994, p. 646). Second, because different organizations proceed at greatly different rates through a stage of turnaround, variation is likely in the span of a stage and in the elements that make it up in even two turnarounds. Despite
this variation, it is possible to discern the same stages in all turnarounds, although the stages may not be physically discrete. The proposed framework includes a mechanism for comparing stage models designed to unfold different turnarounds. Such comparison is useful for a meaningful understanding of a truly complex phenomenon (Van de Ven, 1995; Van de Ven & Poole, 1990, 1995) and for a verification of the generalizable relationships embedded in the mode! (Burgelman, 1983). For a first-order comparison, different turnarounds can be juxtaposed on core concepts representing each stage. For a refined comparison, in line with Mintzberg et al.'s (1976) description of 25 strategic decisions in terms of 12 elements, the juxtaposition can be made on the events in a stage. Because events are theoretical constructs derived from representative incidents, comparison of the broadest possible range of turnaround situations on the events under each concept can eliminate the risk of generalizations from a single turnaround. By measuring the events and concepts in each stage for a number of turnarounds, the dominant patterns across the board can be identified. Implied in this identification is an opportunity for both comparison of tracks created by the mega amplitudes across different turnarounds and examination of whether these configurations fall into certain distinct groupings. Third, as a composite of multiple process theories of change, any model is "useful to remedy the incompleteness of any single model of change" (Van de Ven & Poole, 1995, p. 527), Ropo and Hunt (1995), for example, empirically demonstrate the benefit of such composition in their explanation of "virtuous" and "vicious" spirals in the process of entrepreneurship. Within an overall life-cycle progression from serious performance decline to ultimate success or liquidation, our model provides for an interplay of life-cycle and teleological perspectives. One of the simplest illustrations ofthe virtue of this interplay is the explanation of why two turnarounds may have different tracks. Implicit in this explanation is an opportunity to identify the contingency factors (Burgelman, 19B3), or the dynamic nature of contextual variables and the interactions among them (Langley & Truax, 1994), or the inner or outer contexts (Pettigrew, 1992), which may have produced variations in the tracks or path configurations across different turnarounds. Based on the components of turnaround as gleaned from the literature and consistent with the tenets of developmentalism, we specified a sequence of four stages in turnarounds. Although the events and concepts in a stage are identified from a review of the literature, the incidents germane to a particular stage are left open for empirical consideration, subject to their occurrence in a particular turnaround. Therefore, the proposed model lends itself to refinement or elaboration based on
Canadian Journal ofAdministralive Sciences Revue canadienne des sciences de 1" administration 12(3), 249-266
263
CHOWDHURY
additional empirical findings. With such refinement or elaboration, the explicative power of the model can be realized to its fullest possible extent. To our knowledge, this is the first comprehensive process model in the stream of literature on turnaround, which may serve as an integrative framework to bring about cohesion among the disparate bodies of research on the phenomenon. Because great variations in firms and environments to which they respond result in variability in tracks leading to ultimate success or liquidation, no single stage theory can capture all turnaround situations (Krueger & Willard, 1991; Pearce & Robbins, 1993). Despite the variations in tracks, the tracks should be amenable to classification into certain distinct groupings. Given this possibility, our purpose was to find an evocative framework that can lead to significant generalizations about some turnarounds, not to suggest universal generalizations about all turnarounds. With respect to two of the components of the modelevents and conceptsthe Chrysler case has lent some preliminary support for the model. Because of some inherent constraints in our construction of the Chrysler case, it was not possible to explore whether events germane to each stage, especially transition, could be expanded further and refined along finer lines. Because at times implementation involves a complete change of an organization's business philosophy or its established culture and values, the substantive levers might not have adequately tapped what the autobiography had not recorded. Based on more parsimonious empirical findings, other research may clarify, elaborate, and refme this stage model of turnaround.
10%. Similarly, over a nine-month period, an average worker in Chrysler gave up close to $10,000 (Iacocca, 1984).
References Bacharach, S.B. (1989). Organizational theories: Some criteria for evaluation. Academy of Management Review, 14,496515. Baden-Fuller, C. & Stopford, J.M. (1992). Rejuvenating the mature business: The competitive challenge. London: Routledge. Barker, V.L. & Duhaime, I.M. (1997). Strategic change in the turnaround process: Theory and empirical evidence. Strategic Management Journal, 18, 13-38. Bhave, M.P. (1994). A process model of entrepreneurial venture creation. Journal of Business Venturing, 9, 223-242. Bibeault, D.G. (1982). Corporate tumaround: How managers turn losers into winners. New York: McGraw-Hill. BurgeIman,R.A. (1983). A process model of intemal corporate venturing in the diversified major firm. Administrative Science Quarterly, 28, 223-244. Cameron, K.S., Whetten. DA., & Kim, M.U. (1987). Organizational dysfunctions of decline. Acadetny of Management Journal, 30, 126-138. Castrogiovanni. G.J. & Bruton. G,D. (2000). Business tumaround process following acquisitions: Reconsidering the role of retrenchment. Journal of Business Research, 48, 25-34. Chakravarthy. B.S., & Doz, Y. (1992). Strategy process research: Focus on corporate self-renewal. Strategic Management Journal, 13, 5-14. Child. J. (1972). Organizational structure, environment, and performance: The role of strategic choice. Sociology, 6,122. Chowdhury, S.D. & Lang, J.R. (1996). Tumaround in small firms: An assessment of efficiency strategies. Journal of Business Research, 36, 169-178. Clausen, A.W. (1990). Strategic issues in managing change: The tumaround at BankAmerica Corporation. California Management Review, 32 (2), 98-105. Denis, J.L., Langley. A.. & Cazale, L. (1996). Leadership and strategic change under ambiguity. Organization Studies^ 17, 673-699. Economist, (1996). February 3-9, 19. Finkin, E. (1985). Company tumaround. Journal of Business Strategy, 5 [A), 14-24. Freeman, J., & Hannan, M.T. (1975). Growth and decline processes in organizations. American Journal of Sociology, 40,215-22S. Fortune (1987). How Dick Ferris blew it. July 6. 42-46. Gopinath.C. (1991). Tumaround: Recognizing decline and initiating intervention. Long Range Planning, 24 (6), 96101. Hambrick, D.C. (1985). TXimarotind strategies. In W.H. Guth (Ed.), Handbook of business strategy (pp. 270-298). Boston: Wanen. Gorham, and Lamont. Canadian Journal of Administrative Sciences Revue canadienne des sciences de I" ad ministration 249-266
Notes Some researchers (e.g., Bibeault, 1982; Finkin, 1985; Hambrick, 1985, Krueger & Willard, 1991; and others) refer to tumaround as a composite of a few stages. There are two noteworthy problems in such references. First, given that process can be used in many different ways (Van de Ven & Poole, 1995), these researchers do not defme the meaning of process in their references. Therefore, the loose references are subsumed under an individual researcher's unknown perception of process. Second, because no researcher justifies the number of stages of turnaround he or she is proposing, the number varies from one to another. Therefore, their references to such stage models provide us with no opportunity to compare our model with theirs. With his own salary reduced to $1 a year, Iacocca permeated the salary reduction down through the ranks. He started with his executives and cut their salaries by up to
264
CHOWDHURY
Hambrick, D.C. (1987). The top management team: Key to strategic success. California Management Review, 30 (1), 88-108. Hambrick. D.C. & Cannella, A.J. (1989). Strategy implementation as substance and selling. Academy of Management Executive, 3, 278-285. Hambrick, D.C. & Schecter, S.M. (1983). Tumaround strategies for mature industrial-product business units. Academy of Management Journal, 26, 231-248. Harrigan. K.R. (1980). Strategies for declining industries. Lexington, MA: D.C. Heath. Hofer. C.W. (1980). Tumaround strategies. Joumal of Business Strategy, / ( I ) , 19-31. Hoffman, R.C. (1989). Strategies for corporate turnarounds: What do we know about them? Joumal of General Management, 14 (3), 46-66. Iacocca, L. (1984). Iacocca: An autobiography. New York: Bantam Books. Kerlinger, KN. (1973). Foundations of beliavioral research (2"^ ed.). Nevt' York: Holt, Rinehart. and Winston. Kimberiy, J.R. & Miles, R.H. (1980). The organizational life cycle. San Francisco : Jossey-Bass. Krueger. D.A. & Willard. G.E. (1991). Turnarounds: A process, not an event. Academy of Management Best Paper Proceeding, 26-30. Langley, A. (1999), Strategies for theorizing from process data. Academy of Management Review, 24, 691-710. Langley, A. & Truax, J. (1994). A process study of new technology adoption in smaller manufacturing firms. Journal of Management Studies, 31, 619-652. Maritan. C.A. (2001). Capital Investment as investing in organizational capabilities: An empirically grounded process model. Academy of Management Joumal, 44, 513-532. Meyer, A,D. (1988). Organizational decline from the organizational perspective. In K.S. Cameron. R.I. Sutton. & D.A. Whetten (Eds.), Readings in organizational decline (pp. 411-416). Cambridge, MA: Harper & Row. Miesing, P. (1993). The Chrysler Corporation Loan Guarantee Act of 1979. In XL. Wheelen & J.D. Hunger (Eds.), Selected cases in strategic management and business policy (pp. 423-450). Boston: Addison-Wesley, Mintzberg, H., Raisinghani, D.. & Theoret, A. (1976). The structure of "unstructured" decision processes. Administrative Science Quarterly, 21, 246-275. Mohr. L.B. (1982). Explaining organizational behavior: The limits and possibilities of theory and research. San Francisco: Jossey-Bass. Monge, PR. (1990). Theoretical and analytical issues in studying organizational processes. Organization Science, I, 406-430. Nisbet. R.A. (1969). Social change and history. Neu* York: Oxford University Press. O'Neill. H.M.(1986). An analysis of the tumaround strategy in commercial banking. Joumal of Management Studies, 23, 166-188. Pant, L.W. (1991). An investigation of industry and firm structural characteristics in corporate tumarounds. Journal of Management Studies. 28, 623-643. Pearce, J.A. & Robbins, D.K. (1993). Toward improved theory
and research on business tumaround. Joumal of Management. /9. 613-636. Pettigrew. A.M. (1992). The character and significance of strategy process research. Strategic Management Joumal, 13, 5-16. Pfeffer, J. & Salancik, G.R. (1978). The extemal control of organizations. New York: Harper & Row. Pfiffner, J.M. (1960). Administrative rationality. Public Administration Review, 20, 125-132. Robbins, D.K. & Pearce, J.A. (1992). Tumaround: Retrenchment and recovery. Strategic Management Joumal, 13, 287-309. Ropo, A. & Hunt, J.G. (1995). Entrepreneurial processes as virtuous and vicious spirals in a changing opportunity structure: A paradoxical perspective. Entrepreneurship:
Theory and Practice, 19 (3), 91-111,
Rowe, W.G. (2001). Creating wealth in organizations: The role of strategic leadership. Academy of Management Executive, /5 (I), 81-94. Schendei. D. & Patton, G.R. (1976). Corporate stagnation and tumaround. Joumal of Economics and Business, 28 (3), 236-241. Schendei, D., Patton. G.R., & Riggs, J. (1976). Corporate tumaround strategies: A study of profit decline and recovery. Joumal of General Management, 3 (3), 3-11. Slatter, S. (1984). Corporate recovery: SuccessJUl tumaround strategies and their implementation. Harmondsworth, UK: Penguin Books. Thi^tart, R.A. (1988). Success stories for businesses that perform poody. Interfaces, 18 (3). 32-45. Thomas, A.B. (1988). Does leadership make a difference to organizational performance? Administrative Science Quarterly, 33, 388-400. Tsoukas. H. (1989). The validity of idiographic research explanations. Academy of Management Joumal, 14, 551-56!. Van de Ven, A.H. (1992). Suggestions for studying strategy process: A research note. Strategic Management Joumal, 13, 169-188. Van de Ven, A.H. (1995). Longitudinal research for studying the process of entrepreneurship. In D.L Sexton & J.D. Kasarda (Eds.), The state of the art of entrepreneurship (pp. 214-242). Boston: PWS-Kent Publishing. Van de Ven. A.H. & Huber, G.P (1990). Longitudinal tield research methods for studying processes of organizational change. Organization Science, I, 213-219. Van de Ven. A.H. & Poole. M.S. (1990). Methods for studying innovation development in the Minnesota Innovation Research Program. Organization Science, I, 313335. Van de Ven, A.H. & Poole, M.S. (1995). Explaining development and change in organizations. Academy of Management Review, 20, 510-540. Weitzel, W, & Jonsson, E. (1989). Decline in organizations: A literature integration and extension. Administrative Science Quarterly, 34, 91-109. Whetten. D.A. (1987). Organizational growth and decline processes. Annual Review of Sociology, 13, 335-358. Whetten. D.A. (1989). What constitutes a theoretical contribution. Academy of Management Review, 14, 490-495.
Canadian Jouma! of Administrative Sciences Revue canadienne des sciences de Tad ministration 12(3). 249-266
265
CHOWDHURY
Wilson, E. (1980). Sociobiology. Cambridge, MA: Harvard University Press. Woiceshyn, J. (1997). Literary analysis as a metaphor in processual research. A story of technological change. Scandinavian Journal of Management, 13,457-471.
Zammuto, R.F. & Cameron, K.S. (1985). Environmental decline and organizational response. In L.L. Cummings & B.M. Staw (Eds.), Research in organizational behavior (pp. 232-262). Greenwich, CT: JAI Press.
266

Turnarounds - A Stage Theory Perspective

Transféré par

Informations du document

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

Turnarounds - A Stage Theory Perspective

Transféré par

Droits d'auteur :

Formats disponibles

Turnarounds: A Stage Theory Perspective

TURNAROUNDS: A STAGE THEORY PERSPECTIVE

TURNAROUNDS: A STAGE THEORY PERSPECTIVE

TURNAROUNDS: A STAGE THEORY PERSPECTIVE

TURNAROUNDS: A STAGE THEORY PERSPECTIVE

Figure 1 The Turnaround Process*

TURNAROUNDS: A STAGE THEORY PERSPECTIVE

TURNAROUNDS: A STAGE THEORY PERSPECTIVE

TURNAROUNDS: A STAGE THEORY PERSPECTIVE

TURNAROUNDS: A STAGE THEORY PERSPECTIVE

TURNAROUNDS: A STAGE THEORY PERSPECTIVE

TURNAROUNDS: A STAGE THEORY PERSPECTIVE

TURNAROUNDS: A STAGE THEORY PERSPECTIVE

Figure 2 Key Events and Core Concepts in Turnaround

TURNAROUNDS: A STAGE THEORY PERSPECTIVE

TURNAROUNDS: A STAGE THEORY PERSPECTIVE

Figure 3 The Turnaround Process'

TURNAROUNDS; A STAGE THEORY PERSPECTIVE

TURNAROUNDS: A STAGE THEORY PERSPECTIVE

TURNAROUNDS: A STAGE THEORY PERSPECTIVE

TURNAROUNDS: A STAGE THEORY PERSPECTIVE

Vous aimerez peut-être aussi