Turnarounds: A stage theory perspective

Canadian Journal of Administrative Sciences, Sep 2002 by Shamsud D Chowdhurry

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-ended. 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 requirementsincidents, events, and concepts-the 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 of the turnaround of Chrysler Corporation provides preliminary support for the model. The model's implications for theory, research, and practice are also given.

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 emphasis on the content of turnaround. The explanation for such discrepancy in emphasis is not difficult 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 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; Thietart, 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).