business-v7-i4-Article 1 – KKG PUBLICATIONS

Effects of Rapid Environmental Change and Speed of Decline on Distressed Firms and Turnaround Outcomes

Volume 7, Issue 4
John D. Francis, Ashay B. Desai, Tim Pett

Published online: 13 August 2021

Article Views: 20

AbstractReferencesCite

This paper examines the effects of two specific contextual factors: environmental velocity and decline speed, and timing of response on a firm’s turnaround performance. We conducted a 12-year longitudinal study on a sample of U.S.-based, publicly traded firms that experienced a significant decline in performance. We find that environmental velocity impacts the swiftness and nature of the response to performance decline, and that, in turn, affects turnaround outcomes. Firms in high-velocity environments undergo rapid declines and are more likely to undertake a retrenchment strategy. Speed in implementing a retrenchment strategy is linked to turnaround for firms experiencing rapid declines. These results further our knowledge of the nature of the multifaceted association between the nature of change in the environment, managerial action, and performance outcomes. One of the few longitudinal studies to include both industry- and firm-level variables in advancing interpretations of strategic turnarounds.

Abebe, M. A. (2012). Executive attention patterns, environmental dynamism and corporate turnaround performance. Leadership & Organization Development Journal, 33(7), 684-701. doi:https://doi.org/10.1108/01437731211265250
Abebe, M. A., Angriawan, A., & Liu, Y. (2011). CEO power and organizational turnaround in declining firms: Does environment play a role? Journal of Leadership & Organizational Studies, 18(2), 260–273. doi:https://doi.org/10.1177/1548051810385004
Agustí, M., Velasco, F., & Galán, J. L. (2021). The dynamic slack-performance relationship from an efficiency perspective. Managerial and Decision Economics, 42(4), 850–862. doi:https://doi.org/10.1002/mde.3277
Alatrash, A. (2018). Impact of using total quality management on the financial performance of companies listed on the Palestine exchange. International Journal of Business and Economic Affairs, 3(6), 244-252. doi:https://doi.org/10.24088/IJBEA-2018-36001
Arogyaswamy, K., Barker, V. L., & Yasai-ardekani, M. (1995). Firm turnarounds–an integrative 2-stage model. Journal of Management Studies, 32(4), 493-525. doi:https://doi.org/10.1111/j.1467-6486.1995.tb00786.x
Barbero, J. L., Di Pietro, F., & Chiang, C. (2017). A rush of blood to the head: Temporal dimensions of retrenchment, environment and turnaround performance. Long Range Planning, 50(6), 862–879. doi:https://doi.org/10.1016/j.lrp.2017.02.004
Barbero, J. L., Martínez, J. A., & Moreno, A. M. (2020). Should declining firms be aggressive during the retrenchment process? Journal of Management, 46(5), 694–725. doi:https://doi.org/10.1177/0149206318811563
Bar-Ilan, A., & Strange, W. C. (1996). Investment lags. The American Economic Review, 86(3), 610–622.
Barker, V. L., & Mone, M. A. (1994). Retrenchment: Cause of turnaround or consequence of decline? Strategic Management Journal, 15(5), 395–405. doi:https://doi.org/10.1002/smj.4250150506
Barker III, V. L., & Duhaime, I. M. (1997). Strategic change in the turnaround process: Theory and empirical evidence. Strategic Management Journal, 18(1), 13–38. doi:Billings, R. S., Milburn, T. W., & Schaalman, M. L. (1980). A model of crisis perception: A theoretical and empirical analysis. Administrative Science Quarterly, 25, 300–316. doi:https://doi.org/10.2307/2392456
Bourgeois III, L. J. (1985). Strategic goals, perceived uncertainty, and economic performance in volatile environments. Academy of Management Journal, 28(3), 548–573. doi:https://doi.org/10.5465/256113
Chen, B.-W., & Wei, T.-H. (2017). An empirical study on the relationship among slack resources, resource deployment, turnaround strategy, and turnaround performance. International Journal of Organizational Innovation (Online), 10(1), 210.
D’aveni, R. A. (1989). The aftermath of organizational decline: A longitudinal study of the strategic and managerial characteristics of declining firms. Academy of Management Journal, 32(3), 577–605. doi:https://doi.org/10.2307/256435
Eisenhardt, K. M. (1989). Making fast strategic decisions in high-velocity environments. Academy of Management Journal, 32(3), 543–576. doi:https://doi.org/10.2307/256434
Eisenhardt, K. M., & Bourgeois III, L. J. (1988). Politics of strategic decision making in high-velocity environments: Toward a midrange theory. Academy of Management Journal, 31(4), 737–770. doi:https://doi.org/10.2307/256337
Eisenhardt, K. M., & Tabrizi, B. N. (1995). Accelerating adaptive processes: Product innovation in the global computer industry. Administrative Science Quarterly, 40(1), 84–110. doi:https://doi.org/10.2307/2393701
Francis, J. D., & Desai, A. B. (2005). Situational and organizational determinants of turnaround. Management Decision, 443, 1203-1224. doi:https://doi.org/10.1108/00251740510626272
Garri, M., Spicer, L. A., Pereira, V., Temouri, Y., Malik, A., & Tarba, S. (2020). Building dynamic capabilities for high margin product development: A corporate control style perspective. International Studies of Management & Organization, 50(1), 91–106. doi:https://doi.org/10.1080/00208825.2019.1703380
Gilang, A., M., F., Pradana, M., Saragih, R., & Khairunnisa, R. (2018). Good corporate governance towards employee performance at Indonesian energy company. International Journal of Business and Economic Affairs, 3(2), 48-56. doi:https://doi.org/10.24088/ijbea-2018-32001
Hambrick, D. C., & Schecter, S. M. (1983). Turnaround strategies for mature industrial-product business units. Academy of Management Journal, 26(2), 231–248. doi:https://doi.org/10.5465/255972
Harrigan, K. (1980). Strategies for declining businesses. Lexington, MA: Lexington Books.
Hermann, C. (1969). Crises in foreign policy: A simulation analysis. Indianapolis, IN: Bobbs-Merri. doi:https://doi.org/10.2307/1953476
Hofer, C. (1989). Strategies for business turnarounds. In L. Fahey (Ed.), The strategic planning management reader (p. 164-173). Englewood Cliffs, NJ: Prentice-Hall.
Judge, W. Q., & Miller, A. (1991). Antecedents and outcomes of decision speed in different environmental context. Academy of Management Journal, 34(2), 449–463. doi:https://doi.org/10.2307/256451
Lee, S., & Kim, S. H. (2006). A lag effect of IT investment on firm performance. Information Resources Management Journal (IRMJ), 19(1), 43–69. doi:https://doi.org/10.4018/irmj.2006010103
Liang, X., Barker, V. L., & Schepker, D. J. (2018). Chief executive cognition, turnaround strategy and turnaround attempts of declining firms. Journal of Change Management, 18(4), 304–326. doi:https://doi.org/10.1080/14697017.2018.1464046
Lim, D. S., Celly, N., Morse, E. A., & Rowe, W. G. (2013). Rethinking the effectiveness of asset and cost retrenchment: The contingency effects of a firm’s rent creation mechanism. Strategic Management Journal, 34(1), 42–61. doi:https://doi.org/10.1002/smj.1996
McCarthy I. P., and Plangger, K., and Robson K., and Kietzmann J.H., and Pitt, L. (2019). Dynamic game plans: Using gamification to entrain strategic renewal with environmental velocity . In A. Tuncdogan, A. Lindgreen, H. Volberda, & F. van den Bosch (Eds.), Strategic renewal: Core concepts, antecedents, and micro foundations (p. 391-405). London, UK: Routledge. doi:https://doi.org/10.4324/9780429057861
McCarthy, Ian P and Lawrence, Thomas B and Wixted, Brian and Gordon, Brian R. (2010). A multidimensional conceptualization of environmental velocity. Academy of Management Review, 35(4), 604–626. doi:https://doi.org/10.5465/AMR.2010.53503029
Morrow Jr, J., Johnson, R. A., & Busenitz, L. W. (2004). The effects of cost and asset retrenchment on firm performance: The overlooked role of a firm’s competitive environment. Journal of Management, 30(2), 189–208. doi:https://doi.org/10.1016/j.jm.2003.01.002
Morrow Jr, J., Sirmon, D. G., Hitt, M. A., & Holcomb, T. R. (2007). Creating value in the face of declining performance: Firm strategies and organizational recovery. Strategic Management Journal, 28(3), 271–283. doi:https://doi.org/10.1002/smj.579
Nadkarni, S., & Barr, P. S. (2008). Environmental context, managerial cognition, and strategic action: An integrated view. Strategic Management Journal, 29(13), 1395–1427.
Ndofor, H. A., Vanevenhoven, J., & Barker III, V. L. (2013). Software firm turnarounds in the 1990s: An analysis of reversing decline in a growing, dynamic industry. Strategic Management Journal, 34(9), 1123–1133. doi:https://doi.org/10.1002/smj.2050
Nguyen Huy, Q. (2001). Time, temporal capability, and planned change. Academy of management Review, 26(4), 601–623. doi:https://doi.org/10.2307/3560244
Pearce, J. A., & Robbins, D. K. (1994). Retrenchment remains the foundation of business turnaround. Strategic Management Journal, 15(5), 407–417. doi:https://doi.org/10.1002/smj.4250150507
Porter, M. E. (1980). Competitive strategy: Techniques for analyzing industries and competitors. New York, NY: Free Press.
Revilla, E., Prieto, I. M., & Prado, B. R. (2010). Knowledge strategy: Its relationship to environmental dynamism and complexity in product development. Knowledge and Process Management, 17(1), 36–47. doi:https://doi.org/10.1002/kpm.339
Richardson, B., Nwankwo, S., & Richardson, S. (1994). Understanding the causes of business failure crises: Generic failure types: Boiled frogs, drowned frogs, bullfrogs and tadpoles. Management Decision, 32(4), 9-22. doi:https://doi.org/10.1108/00251749410058635
Rico, M., Pandit, N. R., & Puig, F. (2021). SME insolvency, bankruptcy, and survival: An examination of retrenchment strategies. Small Business Economics, 57(1), 111–126. doi:https://doi.org/10.1007/s11187-019-00293-z
Robbins, D. K., & Pearce, J. A. (1992). Turnaround: Retrenchment and recovery. Strategic Management Journal, 13(4), 287–309. doi:https://doi.org/10.1002/smj.4250130404
Robert Mitchell, J., Shepherd, D. A., & Sharfman, M. P. (2011). Erratic strategic decisions: When and why managers are inconsistent in strategic decision making. Strategic Management Journal, 32(7), 683–704. doi:https://doi.org/10.1002/smj.905
Schendel, D., Patton, G. R., & Riggs, J. (1976). Corporate turnaround strategies: A study of profit decline and recovery. Journal of General Management, 3(3), 3–11. doi:https://doi.org/10.1177/030630707600300301
Schmitt, A., Barker III, V. L., Raisch, S., & Whetten, D. (2016). Strategic renewal in times of environmental scarcity. Long Range Planning, 49(3), 361–376. doi:https://doi.org/10.1016/j.lrp.2015.08.004
Schmitt, A., Raisch, S., & Volberda, H. W. (2018). Strategic renewal: Past research, theoretical tensions and future challenges. International Journal of Management Reviews, 20(1), 81–98. doi:https://doi.org/10.1111/ijmr.12117
Schoenberg, R., Collier, N., & Bowman, C. (2013). Strategies for business turnaround and recovery: A review and synthesis. European Business Review, 25(3), 243-262. doi:https://doi.org/10.1108/09555341311314799
Schweizer, L., & Nienhaus, A. (2017). Corporate distress and turnaround: Integrating the literature and directing future research. Business Research, 10(1), 3–47. doi:https://doi.org/10.1007/s40685-016-0041-8
Shahri, M. H., & Sarvestani, M. N. (2020). Business model innovation as a turnaround strategy. Journal of Strategy and Management, 13(2), 241-253. doi:https://doi.org/10.1108/JSMA-08-2019-0154
Siggelkow, N., & Rivkin, J. W. (2005). Speed and search: Designing organizations for turbulence and complexity. Organization Science, 16(2), 101–122. doi:https://doi.org/10.1287/orsc.1050.0116
Snyder, N. H., & Glueck, W. F. (1982). Can environmental volatility be measured objectively? Academy of Management Journal, 25(1), 185–192. doi:https://doi.org/10.2307/256033
Trahms, C. A., Ndofor, H. A., & Sirmon, D. G. (2013). Organizational decline and turnaround: A review and agenda for future research. Journal of Management, 39(5), 1277–1307. doi:https://doi.org/10.1177/0149206312471390
U.S. Census Bureau. (1999). Economic census. (Tech. Rep.). Washington, DC, WA: U.S. Census Bureau.
Walcott, R. (2017). Speed is not a strategy: Foresight, strategy, and speed in a world of rapid change. Retrieved from https://bit.ly/3Am0pTh
Wang, J., & Bai, T. (2021). How digitalization affects the effectiveness of turnaround actions for firms in decline (in press). Long Range Planning, 102140. doi:https://doi.org/10.1016/j.lrp.2021.102140
Wholey, D. R., & Brittain, J. (1989). Characterizing environmental variation. Academy of Management Journal, 32(4), 867–882. doi:https://doi.org/10.2307/256572
Zammuto, R., & Cameron, K. (1985). Environmental decline and organizational response. In L. L. Cummings & B. M. Staw (Eds.), Research in organizational behavior (p. 223-262). Greenwich, UK: Jai Press.

Francis, J. D., Desai, A. B., & Pett, T. (2021). Effects of rapid environmental change and speed of decline on distressed firms and turnaround outcomes. International Journal of Business and Administrative Studies, 7(4), 54-67. Doi: https://dx.doi.org/10.20469/ijbas.7.10001-4