Description
The paper attempts to move this branch of strategic management closer towards a general theory of corporate turnaround by advancing knowledge in a local context characterised by rapid and discontinuous change the UK Computer Industry.
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
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Dr. Rolph N. S. Balgobin
Title: An Alternative Based View of High Velocity Corporate Turnaround
ABSTRACT
The paper attempts to move this branch of strategic management closer towards a
general theory of corporate turnaround by advancing knowledge in a local context
characterised by rapid and discontinuous change – the UK Computer Industry. With
existing findings lacking explanatory power, an initial framework integrating
concepts from the Resource Based View (RBV) of the firm was developed. This was
then iteratively matched against the experiences of purpose-selected firms (4
successful and 4 unsuccessful) to produce an empirically grounded conceptual
framework which could advance holistic understanding of how and why firms succeed
in recovery attempts.
The study found that decline could be explained in resource based terms and that the
resources used by firms to successfully turnaround are often intangible, under the
firm’s control at the advent of crisis and meet specific criteria for quality.
Turnaround firms leverage their resources effectively to ensure successful and
sustained recovery through concentration, accumulation, complementing,
conservation and recovery activities.
The field of corporate turnaround has received increasing attention over the last three
decades by academics and the practising management community. This has coincided
with a general slowing of the rate of global economic growth (Thurow, 1996) and an
increase in technological development. Since Nickolai Kondratieff first reported the
phenomenon of industrial cycles driven by innovation waves, it has been observed
that successive waves appear to be shortening (Economist, 1999). When combined
with the rapid and systematic reduction of costs of new technology, this has led to a
significant increase in the rate of technological change.
These developments have precipitated new challenges for firms in traditional sectors
as well as in high ‘velocity environments’ which are characterised by rapid and
discontinuous changes in technology, demand and competition (Eisenhardt, 1989b).
The latter set has been particularly hard hit by the recent devaluation of stock prices at
the end of the 1990s and the severe reduction in economic confidence which
followed. Despite this, research in the field of corporate turnaround has focused
largely on mature, durable product industries while placing relatively scant attention
on service industries or high velocity environments such as the biotechnology sector
and the computer industry (Hoffman, 1989; Swann and Prevezer, 1996; Pandit, 2000).
The slow progress in understanding the turnaround phenomenon is not from lack of
effort. Rather, it is the design of the research (Easterby-Smith, Thorpe and Lowe,
1991) that appears lacking (Chowdhury, 2002). Pandit (2000) argues that this
manifests itself in poor definitions, inconsistency of applied measurements, a lack of
using a priori constructs to guide turnaround studies and few examples of relating
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
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findings to extant literature, in particular theories of the firm, ex post. These issues
have serious implications for construct, internal and external validity (Yin, 1994); as a
consequence, despite the importance of the phenomenon being established in a
number of studies (Schendel, Patton and Riggs, 1976; Bibeault, 1982; Hambrick and
Schecter, 1983; Slatter, 1984; O’Neill, 1986; Chowdhury and Lang, 1996), a
generally accepted theory of corporate turnaround has not yet been developed.
This is unfortunate given the recent developments in theories of the firm such as the
resource-based view (RBV), transaction cost economics and agency theory (Penrose,
1959; Grant, 1991; Mahoney and Pandian, 1992; Miller and Shamsie, 1996). In
particular the RBV has emerged as a viable alternative to the industrial organisation
(IO) perspective for the explanation of firm financial performance. In the RBV, firm
performance is driven by heterogeneous resources which are optimally configured
rather than by market power. In explaining these performance differences,
researchers have tended to focus on resources which are valuable, rare, inimitable,
non-substitutable, strategically relevant and occurs within a system which is organised
to use it (Penrose, 1959; Conner, 1991; Miller and Shamsie, 1996).
Although several researchers have argued that the industry environment accounts for
relatively small variations in the profitability of firms (Schmalensee, 1985; Rumelt,
1991; Baden-Fuller and Stopford, 1994), their findings suggest that industry effects
are nonetheless significant, validating in part the IO approach which has buttressed
the dominant logic in strategic management since the 1980s (Porter, 1980; Scherer
and Ross, 1990; Conner, 1991; Foss, 1996). It is then disappointing that more
emphasis has not been placed on establishing relationships between turnaround
success and the industrial environments within which they occur (Slatter, 1994; Pant,
1991). Given the pace of innovation and the degree of technology proliferation, it is
important to understand how firms in high velocity fields respond to turnaround
situations.
Other aspects of inner and outer context also remain under-represented in turnaround
research questions. Few studies have assessed the impact on the turnaround
phenomenon of the macroeconomic environment (Bibeault, 1982; Slatter, 1984), the
historical strategy of the firm (Slatter, 1984; Slatter and Lovett, 1999), the attitude of
stakeholders (Slatter, 1984) or the causes and severity of decline (Slatter, 1984; 1992).
Using a chronological content-context-process logic for assessing the streams within
which turnaround literature may fall (Pettigrew, 1987, 1990, 1992), we find that
research in the field has largely focused on content issues which rely on accessible
data rather than on more challenging context and ontological process issues which
answer more difficult ‘how’ and ‘why’ questions.
‘It seems that simple questions focusing on easily available and
measurable data have been asked most often whilst more complex
questions requiring difficult to obtain and messy data have been
avoided. Thus, questions related to the content of turnaround
strategies are reasonably frequent, whilst those relating to the context
and process of turnaround are rare’ (Pandit, 2000, pp.38-39).
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
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A plethora of questions about the turnaround phenomenon therefore remain
unanswered, and existing knowledge remains unacceptably distant from a holistic
understanding of the phenomenon. In the absence of a general theory, more local
theory is needed (Eisenhardt, 1989) if we are to develop cross-context understanding
(Chandler, 1996) and come to an encompassing theory of turnaround (Balgobin and
Pandit, 1998).
As part of a wider study which sought to develop a holistic framework of high-
velocity turnaround, this paper reports on efforts to link the turnaround phenomenon
to extant theory by embedding turnaround concepts within the RBV. Thus, the
question this paper asks is ‘to what extent does the RBV help to explain successful
turnaround in a high-velocity environment’?
The rest of this paper is organised in the following way. In the next section, we
explore the RBV and marry some concepts with those of turnaround to develop an
initial conceptual framework to explain decline, failure and turnaround. Following
this, the methodology of the study is explained, including some definitions and a
priori constructs developed from the literature on turnaround and the RBV. Third, the
key findings are discussed. A final section concludes.
The Resource Based View of the Firm
Linking turnaround concepts to extant theory presents a viable opportunity to enhance
the relevance of existing constructs as well as broaden the range of applicability of the
RBV. Resources are assets or elementary entities which can serve as the foundation
of strategies for sustained competitive advantage
1
(Daft, 1983; Wernerfelt, 1984;
Barney, 1991; Miller and Shamsie, 1996; Pringle and Kroll, 1997; Moingeon, et al,
1998). In traditional strategy terms, resources are strengths which the organisation
can leverage in pursuit of its goals (DeWit and Meyer, 1994). As such, the RBV
treats with the firm as its primary unit of analysis rather than the industry as
evolutionary and IO approaches do (Foss, et al, 2000).
Resources owned or controlled by the firm are the products of prior organisation
activities or management decisions to bring together external resources in new
activity configurations (Hofer and Schendel, 1978; Barney, 1991; Porter, 1991;
Conner, 1991; Pringle and Kroll, 1997). Consequently, a firm’s unique temporal and
geographic position helps to determine which resources are available for exploitation
(Ruiz-Navarro, 1998; Minshall and Garnsey, 1999).
Within the RBV three broad resource classifications exist. At the broadest level,
resources may be tangible (property-based) or intangible (knowledge-based) (Godfrey
and Hill, 1995). Property-based resources have physical presence (e.g. contracts,
patents, buildings). Knowledge-based resources are intangible in nature and do not
lend themselves to precise measurement. A second classification views resources as
discrete or systemic. Discrete resources have value within or outside of the firm.
1
Defined as the ability of a firm to implement an inimitable value-creating strategy not simultaneously
being implemented by competitors or potential entrants (Barney, 1991).
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
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Having value in their own right, they are best viewed as stand-alone resources.
Systemic resources have value because of the context within which they operate.
A third, more detailed classification treats with resources as being physical, human or
organisational (Barney, 1991). Using this classification, physical resources
approximate tangible ones, while human and organisational resources are intangibles
(Pringle and Kroll, 1997). The distinction between human and organisational
resources is crucial, because it allows for a more exact positioning of the critical
elements on which firm competitiveness and success may be based. Human resources
include the experience, training, judgement capabilities and execution abilities of
individuals within the firm. They are therefore person-specific. Organisational
resources are firm-specific and can include reporting structure, environmental
scanning routines, cultural strength and informal relationships between groups in the
firm and its environment (Barney, 1991; Christensen, 2000). Human and
organisational resources manipulate physical ones to create value (Teece et al, 1997;
Galunic and Rodan, 1998).
Researchers have suggested that in environments characterised by rapid and
discontinuous change, intangible resources which are rare, inimitable, non-
substitutable, valuable, strategically relevant and occur within a system organised to
leverage them are best positioned to support a thrust for sustainable competitive
advantage (Itami, 1987; Mahoney and Pandian, 1992; Miller and Shamsie, 1996;
Pringle and Kroll, 1997). Which resources account for an organisation’s success is
not always clear, and even where a competitor can identify a resource, it may be
unable to recreate the causal chain which account for its creation (Grant, 1991).
Table 1 - Key Resource Properties
Property of Resource Definition
Valuable The market must place a premium on the resource and it must contribute
to the company’s efficiency or effectiveness, or neutralise threats in
some way.
Rare The number of firms seeking the resource exceeds the number that have
it, thus hindering the adoption of similar strategies in such a way as to
generate the dynamics of perfect competition.
Inimitable Firms that do not have the resource cannot get it. Inimitability can
derive from unique historical conditions, causal ambiguity and social
complexity.
Non-Substitutable There must not be another resource that could generate similar outcomes
without it being rare as well.
Strategically relevant The resource must relate to the firm’s strategic architecture, and
therefore bear some relation to the areas in which the organisation
wishes to compete.
Organised System The resource must occur within a system that is structured to take
advantage of its properties.
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
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Identifying the types of resources from which durable and successful strategies can
emanate does not provide clarity on how those strategies might be occasioned. Hamel
and Prahalad (1996) identify five ways in which resources are exploited in the pursuit
of competitive success.
Table 2 – Resource Leveraging
(Source: Hamel and Prahalad, 1996)
Leveraging Method Detail
Concentration • Resources converged on the same goals over a period of time.
• Resources focused on a challenge at a single point in time.
• Resources targeted at areas in which they are likely to have
greatest impact.
Accumulation • Resources mined through organisation features which allow it
to learn from its experiences.
• Resources are borrowed from beyond organisation borders to
augment its latent set.
Complementing • Functional integration skills blend different resource types
together
• Firms are able to manage their value chain through resource
balancing
Conserving • Resources are recycled by maximising their application
• Resources are co-opted by enrolling potential competitors as
allies against a more threatening major competitor.
• Using them to greatest effect, rather than wasting them on full
frontal competitive assaults protects resources.
Recovering • The faster resources are recovered in the form of new
revenues, the greater the impact of the resource.
In a firm enjoying sustained competitive advantage therefore, one would expect to
observe a clear relationship between historical strategy, resources available to the firm
and employed in the current strategy, and the performance of the firm. Business
results then find a place in historical strategy and become the foundation again for the
current resource stock (figure 1).
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
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Figure 1 – Relationship between resources, strategy, leveraging and performance
At least two interesting observations can be made in assessing the RBV in relation to
corporate turnaround. First, RBV researchers have used this emerging theory of the
firm to explain competitive advantage as an alternative to IO or evolutionary theories.
However, the theory has not been applied to explanations of poor firm performance
and existence-threatening decline. Second, researchers in the RBV and corporate
turnaround have largely ignored the potential value of the RBV to explain successful
performance recovery. As such, both fields have had their explanatory power
constrained by a lack of research effort which aims to position the turnaround
phenomenon within an extant theoretical framework to strengthen explanatory power
and improve generalisability.
An initial framework for analysing corporate turnaround
A rudimentary framework was developed by bringing together concepts from the
literature on corporate turnaround and the RBV. Central to this was reframing decline
perspectives in resource-based terms. Given that a firm’s resources are products of
prior organisation activities, later strategy options are enabled or constrained by prior
organisation activities, even though these may no longer be appropriate (Mone, et al,
1998). The tendency of prior organisation activities to establish a channel of
behaviour within which subsequent activity is likely to follow is termed path
dependencies (Teece, et al., 1992). Such dependencies can lead to the development
of core rigidities, which can impede effective adaptation to new and difficult
situations (Pascale, 1990; Sull, 1999). This is consistent with findings in the fields of
F i r m
P e r f o r m a n c e
S t r a t e g y
R e s o u r c e
B a s e
R e s o u r c e
L e v e r a g i n g
( E x e c u t i o n )
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
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on innovation, organisation learning and lateral thinking, which suggest that the seeds
of failure can often lie in success (De Bono, 1974; Senge, 1990; Christensen, 2000).
Thus, from an integrated perspective, poor performance can be explained by any one
or a combination of three factors: (a) poor resources, that is, resources which do not
meet the criteria for quality established in table 1; (b) poor strategy, which fails to
make optimal use of available resources; and (c) poor execution of strategy, which
inappropriately leverages available resources in the pursuit of organisation goals.
The means by which the firm will address its difficulties will be in part determined by
the availability and type of key resources. It is to be expected that the turnaround plan
will employ existing resources rather than new ones given the time required for key
resource creation (Galunic and Rodan, 1998).
By integrating these ideas, it is possible to develop a simple analytical template. This
is shown in figure 2.
Figure 2 - Initial Framework
Our assessment of the literature on RBV and corporate turnaround allows us to make
explicit some of our expectations of the case study data. These expectations were not
propositions to be tested; rather, they attempted to surface implicit expectations prior
to data collection, thus reducing the risk of subsurface assumptions limiting the rigor
of methodological application. This is consistent with the recommendations of
Eisenhardt (1989) who argues:
‘A prior specification of constructs can also help to shape the initial
design of theory building research. […] most importantly, theory
building research is begun as close as possible to the ideal of […] no
hypotheses to test. Admittedly, it is impossible to achieve this ideal of
a clean theoretical slate. Nonetheless, attempting to this ideal is
important because preordained […] propositions may bias and limit
further findings’ (p.536).
R e s o u r c e s S t r a t e g y E x e c u t i o n
T u r n a r o u n d
S i t u a t i o n
T u r n a r o u n d S t r a t e g y
S t r a t e g y
I m p l e m e n t a t i o n
R e c o v e r y
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
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Three key expectations should be noted. First, it is expected that decline can be
explained in terms of poor resources, poor strategy and poor execution or a
combination of these factors. Poor resource refers to resources which are not
endowed with the qualities identified in table 1. Poor strategy refers to a course of
action which is sub-optimal given the resource base to which the firm has access.
Poor execution refers to a situation where resources are not utilised effectively, thus
reducing their positive impact.
Second, we would expect that successful turnarounds would involve the development
and implementation of a turnaround plan which makes use of existing key resources,
whether core or peripheral, rather than create new buttressing resources. Because the
computer industry is largely knowledge-driven and operates at high velocity, we
would also expect most key turnaround resources to be intangible rather than
physical.
Third, we would expect that the turnaround firms would better leverage their
resources for successful recovery. That is, there should be evidence of effective
concentration, accumulation, conservation, complementing and recovery in successful
cases and evidence of less effective leveraging in unsuccessful turnaround cases.
Having made some of our expectations of the data explicit, we assessed the evidence
against the initial framework to develop an understanding of the extent to which the
RBV helps to explain successful turnaround in a high-velocity environment. The
methodology employed in this exercise is now described.
METHODOLOGY
Case Study Methodology
The choice of research strategy in the social sciences is dependent on 3 conditions as
identified by Yin (1994), as the type of research question posed, the extent of
researcher influence over proceedings and the degree of focus on historical events.
Given that the primary question for this project involved understanding how and why,
in integrated terms, firms successfully turnaround, case study methodology was
viewed as a valid means of gathering, ordering analysing and presenting data on the
subject matter.
There are several advantages to using case studies in this type of research. First, case
studies allow us to focus on a phenomenon while preserving temporally sensitive
causal chains (Pettigrew, 1990; 1992; Tellis, 1997a). Case studies also allow us to
consider the views of the players in the process rather than restrict us to historical
artefacts alone (Tellis, 1997a; 1997b). The use of case studies is ideal for making
analytic generalizations as opposed to statistical ones (Yin, 1994). That is, case
studies are excellent for theory building, where measurability and empirical validity
strengthen its ability to produce novel theory (Eisenhardt, 1989). Thus the argument
for the use of case studies to develop a holistic understanding of the turnaround
phenomenon is supported.
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
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The project employed a multiple holistic case design. This improves the ability of the
researcher to consider multiple critical cases and so build a better framework (Yin,
1994). This is consistent with replication logic, which strengthens findings by
comparing them with similar cases (literal replication) or dissimilar ones (theoretical
replication). Using this logic, firms are not selected for their representativeness of a
particular population. Rather polar types are chosen to gain a clearer conceptual view
of the event (Pettigrew, 1987; Dyer and Wilkins, 1991; Stoecker, 1991). This
approach, using conceptually driven, purposive case selection has been adopted
recently in the fields of turnaround and strategic management to strengthen research
designs (e.g. Collins and Porras, 1994; Baden-Fuller and Stopford, 1996; Sull, 1999).
Study Definitions and Case Selection
The turnaround field has been plagued by definitional inexactitudes, which have
hindered effective comparisons across studies, thus lowering external validity of
findings (Balgobin and Pandit, 1998). Turnaround consists largely of two cycles
which are temporally interconnected – a downturn cycle and an upturn cycle. And
definition of turnaround should encompass the reality of both and provide appropriate
performance measures. In this regard, researchers have adopted significantly varied
approaches to the definition and measurement of turnaround.
Some researchers have used pre-tax profits as the sole turnaround measure (Bibeault,
1998; O’Neill, 1986). Others have protected better for inflation and exchange effects
by using ROI, ROA and ROCE ratios to assess profitability. While there is merit is
using these measures, these ratios can be manipulated (Griffiths, 1992) and the
formulae used in their calculation can vary (Whiting, 1986).
More recent studies have used multiple methods of measuring decline and recovery
performance. Generally, studies have used multiple quantitative measurements of
financial performance (Robbins and Pearce, 1992; Barker and Mone, 1994). A more
balanced perspective triangulating qualitative and quantitative indicators is
appropriate (Pandit, 2000). Consistent with this recommendation, the study modified
the approaches of Pandit (1998) and Pearce and Robbins (1993) to select cases for
inclusion which met 6 criteria.
1. Study firms must experience an absolute and simultaneous downturn in profit
as indicated by the ROCE, ROA
2
and pre-tax margin for a period of not less
than two years, followed by an upturn in profitability as measured by these
indicators for at least 3 years, with at least 2 years allowed between downturn
and upturn, and stagnation and continued decline in unsuccessful cases.
2. All profitability measures are negative for at least one year in the downturn
period and exceed the return on long-term bonds in the upturn phase.
2
ROCE defined as profit before tax divided by capital employed. ROA calculated by pre-tax profit
divided by total assets. Both formulae derived from OneSource and ICC. ROCE and ROA provide
equity and entity based perspectives, allowing the firm to be compared to others within the same
temporal period and to itself across periods (Whiting, 1986).
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
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3. The firm generated more than 50% of its sales from business in UK SIC 30020
(computers and information processing equipment) prior to decline.
4. Senior management at the firm acknowledged the need for turnaround, that
one was attempted, and that it was successful or unsuccessful.
5. The firm agreed to grant research access.
6. There was sufficient public interest in the company to ensure the availability
of sufficient secondary data to generate critical incident charts and a detailed
timeline.
Small firms, as defined by Minshall (1997) were not included in the study as the
avenues available to them for turnaround are largely confined to efficiency actions as
opposed to strategic ones (Chowdhury and Lang, 1996; DeDee and Vorhies, 1998;
Michael and Robbins, 1998). Small firms also have less data available in the public
domain, and command less public interest than large firms.
Consistent with the recommendation of Christensen (2000), certain environmental
factors, such as the legal and political framework, currency type, state of public
institutions, quality of the national business environment and domestic market
structure were held constant by selecting the UK computer industry as opposed to the
European or global computer industry.
The Lotus OneSource database contains financial information on more than 1.7
million large and medium sized companies drawn from more than 2,500 sources.
This database was interrogated using the financial and SIC requirements for inclusion
in the study. Returned cases were then reviewed for public interest by scanning the
bibliographic database ABI/Inform, Reuters Business Briefing and the Economist Web
Archive. Once the availability of public information was deemed sufficient to
develop a case outline for secondary sources, discussions were held with research
colleagues, academics and members of the media to assess the general level of interest
a case on the company would generate. From the firms which emerged, senior
management was contacted for access. This list was further refined and reduced as
the research progressed and critical cases using replication logic were sought. All 8
cases met the 6 criteria for inclusion listed above.
Sources and collection of data
Yin (1994) identifies 6 sources of data, of which 5 were used for the purpose of data
triangulation. These were archival records, interviews, documents, observation and
physical artefacts. These fit into 4 broad data categories – primary and secondary,
internal and external. Such data triangulation has precedent in the strategy field
(Collins and Porras, 1994) as well as in the study of the RBV (Miller and Shamsie,
1996). This improves reliability and construct validity.
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
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Data collection occurred in 2 overlapping stages. First, a data collection protocol was
developed and a case study database was established. A research diary was also
implemented to track researcher thoughts as well as to improve reliability. Secondary
data was then collected from internal and external sources such as bibliographic
databases, market research studies, web pages, analyst reports and financial
statements. This was used to develop an outline of each case.
The second stage emphasised primary data sources. Initial unstructured interviews
were conducted on-site, where the case outline was presented as a starting point for
discussion. The emerging picture of the case was then used to develop a second set of
semi-structured interviews to ensure that gaps in data collection were filled. These
interviews were conducted in person, by email and over the telephone.
This approach allowed for iterative case development. Contradictory or
disconfirming evidence was explored, and thus added to the richness and detail of
each case. Qualitative and quantitative data was tracked through data accounting
sheets and accounting checklists, consistent with the recommendations of Miles and
Huberman (1996).
Data was ordered using the Atlas/ti qualitative data analysis software package. This
allowed for the deconstruction, conceptual ordering and analytic reconstruction of
cases while preserving ontological integrity (Bourgeois and Eisenhardt, 1989;
Pettigrew, 1990; Yin, 1994). Cases were built by first developing critical incident
charts to support analytical chronologies which were used a units of analysis in the
project.
Analysis
Analysis was performed on two broad levels. First, within case analysis was
undertaken by deconstructing raw data through textual analysis – open, axial and
selective coding - within Atlas/ti. Because several a priori constructs were drawn
from the field to generate an opening conceptual framework, emphasis was placed on
open and selective coding.
Case reconstruction involved a detailed write up of each case using a turnaround
process perspective to ensure temporal integrity and protect the validity of the cross
case analysis which represented the second phase of the analysis.
Cross-case analysis attempted to identify patterns across cases by looking at the data
in divergent ways. Cases were examined across dimensions such as size, ownership,
financial position and strategic objective of parent companies, where applicable. This
literal and theoretical replication thus allowed for the emergence of a new ,
empirically grounded conceptual framework which established a relationship between
corporate turnaround and the RBV, thus improving external validity.
Following the recommendations of Drucker (1999), findings were subjected to
academic review through the submission of papers to journals and conference
presentations.
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
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Key Findings
According to the initial model, decline may be caused by poor resources, poor
strategy or poor implementation of strategy, or a combination of any two of these.
The pattern of decline observed in all cases matched expectations, in that all 8 cases
demonstrated a combination of factors playing a role in their decline.
Table 3 – Decline Patterns
Theoretical Pattern Case Patterns
Case 1 Case 2 Case 3 Case 4
POOR RESOURCES
• Not strategically relevant ? ? ? ?
• Less valuable ? ? ?? ?
• Less rare ?? ?? ?? ??
• Substitutable ?? ?? ?? ??
• Not within an organised system ? ? ?? ?
• Imitable
? ? ? ?
POOR STRATEGY
• Diversification/International
expansion
? ?? ?? ?
• Ill-advised projects
?? ? ?? ?
POOR EXECUTION /LEVERAGE
• Poor resource concentration
? ? ?? ?
• Poor resource accumulation
? ? ? ?
• Poor resource
complementing
? ? ?? ??
• Poor resource conservation
?? ? ? ??
• Poor resource recovery
? ?? ? ?
?? - Strong
evidence
? - Some
evidence
? – Little
evidence
All the firms in the study experienced multiple causes of decline, and case
descriptions suggest that several of these causes were related. There is little to
distinguish turnaround firms from non-turnaround firms in their causes of decline.
That is, an examination of causes of decline alone might be insufficient to determine
whether the firm is likely to successfully recover.
However, firms were distinguished by the period of time during which they
underperformed prior to failure. Failed firms appeared to experience more protracted
declines, which were initiated by a trigger cause at an identifiable temporal point. For
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
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successful turnarounds, this trigger occurred when all other causes of decline were in
place.
The relationship between successful recovery, the positioning of the trigger and the
length of the decline period might be explained in terms of inertia. Because other
causes of decline were discernible prior to the experience of losses, the successful
turnaround firms may have had more time to generate - consciously or unconsciously
- the energy required to overcome inertial path dependencies and initiate change.
Thus, by the time the trigger problem manifested, the companies may already have
been awakening to the need for change. By contrast, the unsuccessful firms were not
expecting the trigger when it occurred. Once they were assured of survival after the
initial shock they may not have been able to marshal the further strength necessary to
complete a turnaround. This is consistent with the argument that drastic deterioration
in performance is more likely to evoke a turnaround response than consistent
underperformance.
Triggers for change
Three dimensions of change triggers were initially identified as being of potential
interest to firms facing turnaround situations - severity of decline, the source of
turnaround intervention and whether a new CEO initiated the changes deemed
necessary to recover (Table 4).
Table 4 - Triggers for change
Theoretical Pattern Case Patterns
S1 S1 F1 F2
Existence threatened Yes Yes Yes Yes
External intervention
(source)
Yes
(Parent)
No
(Management)
Yes
(Parent)
No
(Management)
New top management
Yes No Yes Yes
Results of the analysis of characteristics of triggers for change were mixed. As
intended in the study design, all cases supported the view that a threat to existence is
essential for the initiation of a turnaround attempt. The sources of intervention were
more ambiguous as the groups do not appear to be clearly distinguished by the origin
of the change trigger. Likewise, the need for new top management to initiate a
successful turnaround was not conclusively demonstrated. This finding counters the
established view that a change in top management is a prerequisite for the initiation of
a turnaround and supports the views of Grove (1997) and Sull (1999) that the mindset
of the executive management may be more important in determining when a
turnaround attempt starts.
Turnaround plans
The turnaround plans employed had several interesting dimensions which
distinguished the successful from the unsuccessful firms (Table 5). As predicted by
the initial model, successful turnaround plans were the products of an analysis-led
comprehension of the dynamics impacting the business (i.e. the causes of decline, the
strengths of the firm and the needs of the marketplace). The outcome of this was a
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
14
clear indication of the opportunities which could be pursued as well as an
understanding of what was required to capitalise on them. By contrast there was little
evidence of such planning preceding the launch of a turnaround initiative in failed
firms. Thus one company’s managers did not know what was expected of them while
another’s management found it easy to endorse ideas which did not have a clear
foundation in research.
Table 5 - Turnaround plan characteristics
Theoretical Pattern Case Patterns
S1 S2 F1 F2
Diagnostic review conducted ? ? X X
Objective of profitability set ? ? X X
Single turnaround plan developed ? ? X X
Plans communicated to stakeholders ? ? X X
Turnaround plan developed and implemented by a
turnaround team
? ? X X
Plans involve multiple actions ? ? ? ?
Addresses causes of decline ? ? X X
? - Yes X - No
A second interesting dimension of turnaround planning at the successful and
unsuccessful firms concerns the explicitly stated objective of profitability. In
successful cases, the knowledge drawn from the analysis was formalised and
communicated as a coherent turnaround plan which envisioned a desirable,
sustainable market position and a profitable end-point. In contrast, one failed case did
not clearly express the need for profitability in its turnaround plans at all while
another only added a mandate for profitability to its efforts 9 years after its initial
decline. This finding contradicts the hierarchical
3
arguments of some researchers (e.g.
Hofer, 1980; Robbins and Pearce, 1992) that the firm attempting to recover focuses
on survival and only considers growth issues when existence is assured. It also moves
the discussion beyond the traditional medical analogy used in corporate turnaround –
that the turnaround manager undertakes emergency room surgery and focuses on the
survival of the patient (e.g. Slatter and Lovett, 1999). The planning of the
turnarounds in the study clearly demonstrated that the successful firms did not
postpone thinking about ‘longer-term’ issues until survival was certain.
Another distinguishing feature in turnaround plan development is that the successful
firms were more likely to develop and articulate a single turnaround plan. The
unsuccessful cases took two different, and equally unsuccessful, routes to planning for
recovery, with one having no formal plan at all until it was too late and the other
having several. Both successful turnaround firms also appeared to communicate their
turnaround plans better than the unsuccessful ones. This may have served to increase
3
This logic can be related to Maslow’s hierarchy of needs, a criticism of which is that one need
becomes imperative only when another is satisfied.
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
15
stakeholder support in successful turnaround cases, while stakeholders in unsuccessful
firms may have been either more risk averse or less tolerant of the uncertainty
generated by the absence of information.
Finally, the study cases demonstrated the importance of consultation in the
development of turnaround plans. Both successful turnaround plans were the product
of team development although a dominant individual played a key role in raising the
profile of the recovery effort. In the unsuccessful cases, turnaround plans appeared to
be more individually driven and were not the product of inputs by multidisciplinary
teams. In fact, the unsuccessful cases did not have formal turnaround teams at all.
This supports suggestions in the literature that collaboration may assist in reducing
inertia, igniting change and gaining control.
Resource base for turnaround strategy
According to the initial framework, a successful turnaround strategy would be based
on existing resources (or recombinations of these), which meet the criteria for quality
identified in Table 2. The findings of the study are shown in Table 6.
Table 6 – Resources and turnaround plans
Theoretical Patterns Case Patterns
S1 S2 F1 F2
Turnaround plans based on existing resources ? ? ? ?
Resources meet criteria for quality set in Figure 3.2 ? ? X X
Emphasis on intangible resources rather than the
development of physical infrastructure
? ? ? ?
? - Yes X - No
In all cases, the turnaround plans developed were based largely on existing resources,
although at least 2 of the firms attempted to co-opt resources from other firms which
were tangential to their own and which allowed the exploration of new product or
service domains. In the other 2 cases there was an attempt to invest out of difficulty
through new product development and product-market reorientation using existing
skills to serve new markets. Therefore, although not all of the turnaround plans
devised were the products of analysis, it appeared that all the firms in the study were
implicitly aware of the resources at their disposal.
Whether these resources met the criteria for quality highlighted in Table 2 proved to
be a distinct feature of both groups (Table 7). In successful turnarounds, recovery
strategies were based on resources that were valued by the marketplace, rare,
inimitable, non-substitutable, occurred within a system configured to use them and
were strategically relevant to the recovery plan. For example, one company
leveraged its existing knowledge in systems design and deployment to provide a
solutions-led service to its customers, many of whom still preferred to deal with a
large and reputable firm. It was also able to leverage the knowledge of its staff and its
international knowledge network to enter new and more profitable areas of the
computer market. And it was able to draw from a talented and experienced pool of
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
16
resources for leadership in its time of crisis. Another successful turnaround leveraged
its R&D and brand strength as creator of the personal digital assistant to develop and
introduce new and very successful products in existing and new markets. The
company also drew on its leadership resources to provide guidance and resolve as the
turnaround effort progressed.
By contrast, in the unsuccessful cases, turnaround strategies were based on resources
which lacked some of the qualities identified as necessary to serve as the foundations
of sustainable competitive advantage. For example, one failed firm’s design
capability was widely respected and was a key factor in the purchase decision of an
acquiring multinational. However, despite its intrinsic value, this capability was
increasingly common as a result of open standards which emphasised knowledge
transfer over proprietary designs. The fact that design abilities occurred within an
organised system or were of strategic relevance could not compensate for their lack of
exclusivity. Another had a different problem, in that it possessed technology which
was rare and inimitable, but was substitutable and not valued by the market.
Table 7 – Quality of key resources for turnaround plans
Turnaround strategy resources Quality criteria
Successful firms Valuable Rare Inimitable
Non-
substitutable
Within
organised
system
Strategically
relevant
Stable turnaround team ? ? ? ? ? ?
Systems integration knowledge ? ? ? ? ? ?
Knowledge of microelectronics,
and low power software
? ? ? ? ? ?
Ownership of key architecture,
software and proprietary rights
? ? ? ? ? ?
Reputation as leaders in their
respective fields
? ? ? ? ? ?
Unsuccessful firms
PC design knowledge ? X X X ? ?
Proprietary architecture X ? ? X ? ?
? - yes X - no
Findings from several prior studies suggest that successful firms rely more on
intangible resources than on physical ones (e.g. Miller and Shamsie, 1996; Pringle
and Kroll, 1997; Moingeon et al, 1998 and Ruiz-Navarro, 1998). The importance of
intangible resources was demonstrated in the study, and all cases emphasised their use
in attempting to turnaround. Both successful firms reduced their physical resources in
several areas such as branches and distribution points, although this did not mean the
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
17
exclusion of physical resources in the development of recovery strategies. However,
the firms did demonstrate a tendency to build on or leverage existing intangible
resources rather than physical infrastructure. This supports the expectations of the
initial framework with regards to the nature of resources on which turnaround
strategies are based. It is important to note however, that both successful and
unsuccessful groups relied on intangible resources. Thus the use of these resources
alone is insufficient to ensure recovery.
Resources and turnaround
Two resource dimensions were addressed –reduction and leveraging.
Resource reduction and reconfiguration
Successful firms reduced their resource base in some areas where it was felt that
activities were no longer ‘core’. Thus one successful company outsourced several
functions and along with S2 reduced headcount, particularly in administrative areas.
By contrast the failed firms in the study were more likely to reduce or sell off their
most valuable resources which might have supported efforts at turnaround – one sold
its software and services arm, while another sold its chip design capabilities.
Both successful firms also changed the alignment of their resources to suit their needs.
These changes were augmented by ‘borrowed’ resources accessed through
development agreements, joint ventures and outright acquisitions. The successful
cases in the study developed strategies based on existing business models, while
failed firms did not appear to be supported by similar logic (Table 8).
Table 8 – Business models of study firms
Business Model S1 S2 F1 F2
Pre-crisis
Business to business ? ? ? ?
Business to consumer X X X X
Post-crisis
Business to business ? ? ? ?
Business to consumer X X ? ?
? - emphasis ? – some emphasis X – no emphasis
Thus execution within a new business model did not appear to assist firms in dealing
with a turnaround situation. One possible explanation for this is that the failed firms
did not successfully manage their transition to the new model in time or effectively
enough to prevent collapse, while the turnarounds did not have to refocus on radical
changes to their approach to market.
Resource leveraging
The manner in which existing resources were leveraged – that is, the quality of the
implementation of strategy - also distinguished turnaround firms from unsuccessful
ones. The leveraging of resources is examined across the dimensions identified in
Table 2 – concentration, accumulation, complementing, conservation and recovery.
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
18
Concentration
There were 3 aspects to concentration – converging, focusing and targeting (Table 9).
Table 9 – Resource concentration
Concentration dimensions S1 S2 F1 F2
Convergence – turnaround plan consistency over time ? ? X X
Focusing – emphasises a few key areas at a time ? ? X X
Targeting – dealing with areas with biggest impact on
performance.
? ? X X
Unlike failed cases, both successful turnarounds managed to concentrate their
resources first by developing a single and coherent turnaround plan. This ensured
resource convergence and minimised extraneous and unnecessary effort, thus
simplifying the management agenda. Second, the successful firms focused on areas
where the greatest impact could be made. This was reflected in the changing
emphases of the turnaround phases. In the unsuccessful firms, such focus was not
evident in that several actions were taken with few addressing causes of decline or
transforming the firm to face new competitive imperatives.
Finally, resources at turnarounds were targeted at particular areas that held the
potential for dramatic and sustainable performance improvement. This was in
contrast to one failed case, which persevered with its losing PC strategy and another,
which spread its resources across a wide range of opportunities. Neither failing firm
successfully addressed the causes of their decline while their successful study
counterparts systematically resolved the issues that caused their turnaround situations
and had the biggest impact on performance. Successful firms made their efforts
count, while unsuccessful ones did not.
Accumulation
The initial framework identified two dimensions of accumulation – mining and
borrowing (Table 10).
Table 10 – Resource accumulation
Accumulation dimensions S1 S2 F1 F2
Mining – feedback mechanisms in place and capacity for
learning explicitly developed
? ? X X
Borrowing – Effectiveness of alliances, partnerships etc. to
access unavailable resources
? ? X X
Both turnaround firms attempted to learn from their experiences and develop an
understanding of the resources which they lacked or needed to improve upon in order
to improve their performance. They implemented feedback initiatives, trained their
employees in the art of problem solving and emphasised teamwork. Both developed
review mechanisms which allowed them to channel feedback to the top of the
organisation, and both used highly visible leaders who were active in the field with
customers and users and so were in a position to learn first-hand about new
developments and criticisms. There was no evidence of feedback initiatives at
unsuccessful cases, nor were teamwork and problem solving emphasised. Finally,
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
19
neither firm used a high-profile CEO with whom stakeholders could relate. Thus the
turnaround firms appeared capable of mining more out of an experience than the
failed cases.
The findings on borrowing were also interesting. There was a mixed result to the
study question of whether turnaround plans were executed through borrowing, as all
the cases demonstrated clear examples of the activity. However, the effectiveness of
borrowing activities for market benefit distinguished turnaround firms from failed
study cases. One failed firm was unable to use its relationship with its new parent to
advantage, and the other had difficulty both with Olivetti and Apple in developing a
viable product. By contrast one firm’s work through its registered developers scheme,
retail channel and subcontractors, and another successful company’s marketing
relationships with other firms enhanced their abilities to serve their markets and
develop new ones.
Complementing and Conserving
According to the initial framework, complementing involves both blending and
balancing of resources. Blending refers to the ability to interweave disparate skills to
produce a successful product or service. Turnaround firms managed to blend
technical and functional skills via cross-functional turnaround teams and mixed
development teams to provide, for example, integrated services and the Series 3. In
contrast, both failed cases continued to function in operational chimneys and neither
managed to produce a successful product which could support their turnaround
efforts.
Balancing refers to the ability to ‘weight’ resources along the value chain – to design,
build and deliver products and services (Table 11).
Table 11 – Resource balancing
Balancing dimensions S1 S2 F1 F2
Strong design and development capability ? ? ? ?
Capacity to produce/deliver products/services ? ? ? ?
Marketing, distribution and service infrastructure ? ? X X
Both successful turnarounds demonstrated the balanced abilities to invent, build and
deliver. This was in marked contrast to one failed case, which generated new designs
faster than they could sell them, and another, which had a number of good long-term
product prospects but no immediate market demand in the interim. Thus while all the
study firms had the ability to design new products and the capacity to build them, only
the successful firms managed to balance these abilities with a marketing and
distribution infrastructure which allowed their products an avenue to market.
The successful turnaround firms were also better at using their resources
parsimoniously and to greater effect (Table 12).
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
20
Table 12 – Resource conserving
Conserving dimensions S1 S2 F1 F2
Working with other firms in pursuit of a common
objective
? ? ? ?
Internal agreement on key turnaround priorities ? ? ? X
Targeting accessible market segments ? ? X X
? - evidence of ? – uncertain X – no evidence of
In attempting to recover, S1 concentrated its service offerings under the ‘Know-How’
banner, and S2 focused on the new product and its software architecture (which
provided the software that is the foundation for a successful technology consortium).
While all the firms depended on external linkages for supply, market access or
distribution, in failed cases it was not clear that the firms and their partners were
working with a common objective in mind.
In the implementation of strategy, the turnaround firms also appeared to have clear
internal agreement on priorities as a consequence of effective turnaround plan
development and communication (already seen to be greater in successful firms).
There was less evidence of internal cohesion in the non-turnaround cases. One aspect
of strategy leveraging which appeared to be decisive however was the decision by
turnaround cases to pursue product market segments which appeared to be less
defended than those selected by failed study counterparts. This supports the earlier
conclusion that analysis is key to informing the turnaround plan, as unsuccessful firms
persevered with poor PC strategies or aimed for market segments which could not
support their involvement rather than target sectors which were lucrative but not
comprehensively addressed. As a result of this the firms expended resources fighting
larger competitors or trying to create a market segment which had not yet
materialised.
Recovering resources
Related to resource conserving is the ability of the firm to reduce the time to payback
from new initiatives (Table 13).
Table 13 – Resource recovery examples from study cases
Firm Initiative
Decision
date
Profit
impact
S1
Address services market through creation of knowledge
base
1991 1991
S2 Use of new software architecture to create Series 3 1990 1991
F1 New file server 1990 1993
F2 Media investment 1996 -
As demonstrated in the table above, key initiatives made a difference to the
profitability of the unsuccessful companies much later than they did at successful
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
21
firms, and proved either to contribute too little or nothing at all to the recoveries they
were intended to expedite. The successful cases were better at identifying lucrative
market segments and developing product or service offerings to profitably address
them.
Summary of key issues
The expectations of the initial framework for resource leveraging were largely
supported. The successful cases concentrated their resources in a single and
consistent turnaround plan, emphasised a few improvement areas at a time and
focused on areas which had a big impact on performance. They also had mechanisms
for feedback in place which were spearheaded by high-profile CEOs, allowing the
firms to increase learning through environmental interaction. This was augmented by
resource borrowing through alliances and partnerships, for example, where other
skills, abilities or assets not owned by the firm were accessed. In unsuccessful cases
there was less evidence of resource concentration, and accumulation efforts through
mining and borrowing were less effective.
The successful firms were also able to blend and balance resources in order to bring
products and services to market. With unsuccessful cases there was an imbalance of
skills, which led effectively to the negation of capabilities resident elsewhere in the
organisation. Resource conservation through parsimonious use, internal agreement on
turnaround priorities and the targeting of accessible segments also distinguished
successful cases from failed ones. Finally, the turnaround firms also demonstrated an
ability to implement profit-generating ideas which had a faster impact on
performance. These findings are of interest as they demonstrate that leveraging is
important not only for long-term development but also in turnaround situations.
Conclusion
There remains a great deal of work to be done, but clearly there is scope to augment
what is already known about corporate turnaround by positioning the field within a
broader stream of extant literature.
The RBV has been used in this study to assist in developing a theoretical framework
which could help to explain historical success, decline, turnaround plan development
and the implementation of turnaround strategy.
This emerging model may serve as the foundation for an integrated framework to
bring about greater cohesion in the field of turnaround study, and the cases employed
assisted in this regard by providing empirical grounding from preliminary
conclusions. It is expected that other research may clarify and refine this new,
integrated turnaround model.
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
22
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doc_663043088.pdf
The paper attempts to move this branch of strategic management closer towards a general theory of corporate turnaround by advancing knowledge in a local context characterised by rapid and discontinuous change the UK Computer Industry.
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
1
Dr. Rolph N. S. Balgobin
Title: An Alternative Based View of High Velocity Corporate Turnaround
ABSTRACT
The paper attempts to move this branch of strategic management closer towards a
general theory of corporate turnaround by advancing knowledge in a local context
characterised by rapid and discontinuous change – the UK Computer Industry. With
existing findings lacking explanatory power, an initial framework integrating
concepts from the Resource Based View (RBV) of the firm was developed. This was
then iteratively matched against the experiences of purpose-selected firms (4
successful and 4 unsuccessful) to produce an empirically grounded conceptual
framework which could advance holistic understanding of how and why firms succeed
in recovery attempts.
The study found that decline could be explained in resource based terms and that the
resources used by firms to successfully turnaround are often intangible, under the
firm’s control at the advent of crisis and meet specific criteria for quality.
Turnaround firms leverage their resources effectively to ensure successful and
sustained recovery through concentration, accumulation, complementing,
conservation and recovery activities.
The field of corporate turnaround has received increasing attention over the last three
decades by academics and the practising management community. This has coincided
with a general slowing of the rate of global economic growth (Thurow, 1996) and an
increase in technological development. Since Nickolai Kondratieff first reported the
phenomenon of industrial cycles driven by innovation waves, it has been observed
that successive waves appear to be shortening (Economist, 1999). When combined
with the rapid and systematic reduction of costs of new technology, this has led to a
significant increase in the rate of technological change.
These developments have precipitated new challenges for firms in traditional sectors
as well as in high ‘velocity environments’ which are characterised by rapid and
discontinuous changes in technology, demand and competition (Eisenhardt, 1989b).
The latter set has been particularly hard hit by the recent devaluation of stock prices at
the end of the 1990s and the severe reduction in economic confidence which
followed. Despite this, research in the field of corporate turnaround has focused
largely on mature, durable product industries while placing relatively scant attention
on service industries or high velocity environments such as the biotechnology sector
and the computer industry (Hoffman, 1989; Swann and Prevezer, 1996; Pandit, 2000).
The slow progress in understanding the turnaround phenomenon is not from lack of
effort. Rather, it is the design of the research (Easterby-Smith, Thorpe and Lowe,
1991) that appears lacking (Chowdhury, 2002). Pandit (2000) argues that this
manifests itself in poor definitions, inconsistency of applied measurements, a lack of
using a priori constructs to guide turnaround studies and few examples of relating
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
2
findings to extant literature, in particular theories of the firm, ex post. These issues
have serious implications for construct, internal and external validity (Yin, 1994); as a
consequence, despite the importance of the phenomenon being established in a
number of studies (Schendel, Patton and Riggs, 1976; Bibeault, 1982; Hambrick and
Schecter, 1983; Slatter, 1984; O’Neill, 1986; Chowdhury and Lang, 1996), a
generally accepted theory of corporate turnaround has not yet been developed.
This is unfortunate given the recent developments in theories of the firm such as the
resource-based view (RBV), transaction cost economics and agency theory (Penrose,
1959; Grant, 1991; Mahoney and Pandian, 1992; Miller and Shamsie, 1996). In
particular the RBV has emerged as a viable alternative to the industrial organisation
(IO) perspective for the explanation of firm financial performance. In the RBV, firm
performance is driven by heterogeneous resources which are optimally configured
rather than by market power. In explaining these performance differences,
researchers have tended to focus on resources which are valuable, rare, inimitable,
non-substitutable, strategically relevant and occurs within a system which is organised
to use it (Penrose, 1959; Conner, 1991; Miller and Shamsie, 1996).
Although several researchers have argued that the industry environment accounts for
relatively small variations in the profitability of firms (Schmalensee, 1985; Rumelt,
1991; Baden-Fuller and Stopford, 1994), their findings suggest that industry effects
are nonetheless significant, validating in part the IO approach which has buttressed
the dominant logic in strategic management since the 1980s (Porter, 1980; Scherer
and Ross, 1990; Conner, 1991; Foss, 1996). It is then disappointing that more
emphasis has not been placed on establishing relationships between turnaround
success and the industrial environments within which they occur (Slatter, 1994; Pant,
1991). Given the pace of innovation and the degree of technology proliferation, it is
important to understand how firms in high velocity fields respond to turnaround
situations.
Other aspects of inner and outer context also remain under-represented in turnaround
research questions. Few studies have assessed the impact on the turnaround
phenomenon of the macroeconomic environment (Bibeault, 1982; Slatter, 1984), the
historical strategy of the firm (Slatter, 1984; Slatter and Lovett, 1999), the attitude of
stakeholders (Slatter, 1984) or the causes and severity of decline (Slatter, 1984; 1992).
Using a chronological content-context-process logic for assessing the streams within
which turnaround literature may fall (Pettigrew, 1987, 1990, 1992), we find that
research in the field has largely focused on content issues which rely on accessible
data rather than on more challenging context and ontological process issues which
answer more difficult ‘how’ and ‘why’ questions.
‘It seems that simple questions focusing on easily available and
measurable data have been asked most often whilst more complex
questions requiring difficult to obtain and messy data have been
avoided. Thus, questions related to the content of turnaround
strategies are reasonably frequent, whilst those relating to the context
and process of turnaround are rare’ (Pandit, 2000, pp.38-39).
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
3
A plethora of questions about the turnaround phenomenon therefore remain
unanswered, and existing knowledge remains unacceptably distant from a holistic
understanding of the phenomenon. In the absence of a general theory, more local
theory is needed (Eisenhardt, 1989) if we are to develop cross-context understanding
(Chandler, 1996) and come to an encompassing theory of turnaround (Balgobin and
Pandit, 1998).
As part of a wider study which sought to develop a holistic framework of high-
velocity turnaround, this paper reports on efforts to link the turnaround phenomenon
to extant theory by embedding turnaround concepts within the RBV. Thus, the
question this paper asks is ‘to what extent does the RBV help to explain successful
turnaround in a high-velocity environment’?
The rest of this paper is organised in the following way. In the next section, we
explore the RBV and marry some concepts with those of turnaround to develop an
initial conceptual framework to explain decline, failure and turnaround. Following
this, the methodology of the study is explained, including some definitions and a
priori constructs developed from the literature on turnaround and the RBV. Third, the
key findings are discussed. A final section concludes.
The Resource Based View of the Firm
Linking turnaround concepts to extant theory presents a viable opportunity to enhance
the relevance of existing constructs as well as broaden the range of applicability of the
RBV. Resources are assets or elementary entities which can serve as the foundation
of strategies for sustained competitive advantage
1
(Daft, 1983; Wernerfelt, 1984;
Barney, 1991; Miller and Shamsie, 1996; Pringle and Kroll, 1997; Moingeon, et al,
1998). In traditional strategy terms, resources are strengths which the organisation
can leverage in pursuit of its goals (DeWit and Meyer, 1994). As such, the RBV
treats with the firm as its primary unit of analysis rather than the industry as
evolutionary and IO approaches do (Foss, et al, 2000).
Resources owned or controlled by the firm are the products of prior organisation
activities or management decisions to bring together external resources in new
activity configurations (Hofer and Schendel, 1978; Barney, 1991; Porter, 1991;
Conner, 1991; Pringle and Kroll, 1997). Consequently, a firm’s unique temporal and
geographic position helps to determine which resources are available for exploitation
(Ruiz-Navarro, 1998; Minshall and Garnsey, 1999).
Within the RBV three broad resource classifications exist. At the broadest level,
resources may be tangible (property-based) or intangible (knowledge-based) (Godfrey
and Hill, 1995). Property-based resources have physical presence (e.g. contracts,
patents, buildings). Knowledge-based resources are intangible in nature and do not
lend themselves to precise measurement. A second classification views resources as
discrete or systemic. Discrete resources have value within or outside of the firm.
1
Defined as the ability of a firm to implement an inimitable value-creating strategy not simultaneously
being implemented by competitors or potential entrants (Barney, 1991).
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
4
Having value in their own right, they are best viewed as stand-alone resources.
Systemic resources have value because of the context within which they operate.
A third, more detailed classification treats with resources as being physical, human or
organisational (Barney, 1991). Using this classification, physical resources
approximate tangible ones, while human and organisational resources are intangibles
(Pringle and Kroll, 1997). The distinction between human and organisational
resources is crucial, because it allows for a more exact positioning of the critical
elements on which firm competitiveness and success may be based. Human resources
include the experience, training, judgement capabilities and execution abilities of
individuals within the firm. They are therefore person-specific. Organisational
resources are firm-specific and can include reporting structure, environmental
scanning routines, cultural strength and informal relationships between groups in the
firm and its environment (Barney, 1991; Christensen, 2000). Human and
organisational resources manipulate physical ones to create value (Teece et al, 1997;
Galunic and Rodan, 1998).
Researchers have suggested that in environments characterised by rapid and
discontinuous change, intangible resources which are rare, inimitable, non-
substitutable, valuable, strategically relevant and occur within a system organised to
leverage them are best positioned to support a thrust for sustainable competitive
advantage (Itami, 1987; Mahoney and Pandian, 1992; Miller and Shamsie, 1996;
Pringle and Kroll, 1997). Which resources account for an organisation’s success is
not always clear, and even where a competitor can identify a resource, it may be
unable to recreate the causal chain which account for its creation (Grant, 1991).
Table 1 - Key Resource Properties
Property of Resource Definition
Valuable The market must place a premium on the resource and it must contribute
to the company’s efficiency or effectiveness, or neutralise threats in
some way.
Rare The number of firms seeking the resource exceeds the number that have
it, thus hindering the adoption of similar strategies in such a way as to
generate the dynamics of perfect competition.
Inimitable Firms that do not have the resource cannot get it. Inimitability can
derive from unique historical conditions, causal ambiguity and social
complexity.
Non-Substitutable There must not be another resource that could generate similar outcomes
without it being rare as well.
Strategically relevant The resource must relate to the firm’s strategic architecture, and
therefore bear some relation to the areas in which the organisation
wishes to compete.
Organised System The resource must occur within a system that is structured to take
advantage of its properties.
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
5
Identifying the types of resources from which durable and successful strategies can
emanate does not provide clarity on how those strategies might be occasioned. Hamel
and Prahalad (1996) identify five ways in which resources are exploited in the pursuit
of competitive success.
Table 2 – Resource Leveraging
(Source: Hamel and Prahalad, 1996)
Leveraging Method Detail
Concentration • Resources converged on the same goals over a period of time.
• Resources focused on a challenge at a single point in time.
• Resources targeted at areas in which they are likely to have
greatest impact.
Accumulation • Resources mined through organisation features which allow it
to learn from its experiences.
• Resources are borrowed from beyond organisation borders to
augment its latent set.
Complementing • Functional integration skills blend different resource types
together
• Firms are able to manage their value chain through resource
balancing
Conserving • Resources are recycled by maximising their application
• Resources are co-opted by enrolling potential competitors as
allies against a more threatening major competitor.
• Using them to greatest effect, rather than wasting them on full
frontal competitive assaults protects resources.
Recovering • The faster resources are recovered in the form of new
revenues, the greater the impact of the resource.
In a firm enjoying sustained competitive advantage therefore, one would expect to
observe a clear relationship between historical strategy, resources available to the firm
and employed in the current strategy, and the performance of the firm. Business
results then find a place in historical strategy and become the foundation again for the
current resource stock (figure 1).
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
6
Figure 1 – Relationship between resources, strategy, leveraging and performance
At least two interesting observations can be made in assessing the RBV in relation to
corporate turnaround. First, RBV researchers have used this emerging theory of the
firm to explain competitive advantage as an alternative to IO or evolutionary theories.
However, the theory has not been applied to explanations of poor firm performance
and existence-threatening decline. Second, researchers in the RBV and corporate
turnaround have largely ignored the potential value of the RBV to explain successful
performance recovery. As such, both fields have had their explanatory power
constrained by a lack of research effort which aims to position the turnaround
phenomenon within an extant theoretical framework to strengthen explanatory power
and improve generalisability.
An initial framework for analysing corporate turnaround
A rudimentary framework was developed by bringing together concepts from the
literature on corporate turnaround and the RBV. Central to this was reframing decline
perspectives in resource-based terms. Given that a firm’s resources are products of
prior organisation activities, later strategy options are enabled or constrained by prior
organisation activities, even though these may no longer be appropriate (Mone, et al,
1998). The tendency of prior organisation activities to establish a channel of
behaviour within which subsequent activity is likely to follow is termed path
dependencies (Teece, et al., 1992). Such dependencies can lead to the development
of core rigidities, which can impede effective adaptation to new and difficult
situations (Pascale, 1990; Sull, 1999). This is consistent with findings in the fields of
F i r m
P e r f o r m a n c e
S t r a t e g y
R e s o u r c e
B a s e
R e s o u r c e
L e v e r a g i n g
( E x e c u t i o n )
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
7
on innovation, organisation learning and lateral thinking, which suggest that the seeds
of failure can often lie in success (De Bono, 1974; Senge, 1990; Christensen, 2000).
Thus, from an integrated perspective, poor performance can be explained by any one
or a combination of three factors: (a) poor resources, that is, resources which do not
meet the criteria for quality established in table 1; (b) poor strategy, which fails to
make optimal use of available resources; and (c) poor execution of strategy, which
inappropriately leverages available resources in the pursuit of organisation goals.
The means by which the firm will address its difficulties will be in part determined by
the availability and type of key resources. It is to be expected that the turnaround plan
will employ existing resources rather than new ones given the time required for key
resource creation (Galunic and Rodan, 1998).
By integrating these ideas, it is possible to develop a simple analytical template. This
is shown in figure 2.
Figure 2 - Initial Framework
Our assessment of the literature on RBV and corporate turnaround allows us to make
explicit some of our expectations of the case study data. These expectations were not
propositions to be tested; rather, they attempted to surface implicit expectations prior
to data collection, thus reducing the risk of subsurface assumptions limiting the rigor
of methodological application. This is consistent with the recommendations of
Eisenhardt (1989) who argues:
‘A prior specification of constructs can also help to shape the initial
design of theory building research. […] most importantly, theory
building research is begun as close as possible to the ideal of […] no
hypotheses to test. Admittedly, it is impossible to achieve this ideal of
a clean theoretical slate. Nonetheless, attempting to this ideal is
important because preordained […] propositions may bias and limit
further findings’ (p.536).
R e s o u r c e s S t r a t e g y E x e c u t i o n
T u r n a r o u n d
S i t u a t i o n
T u r n a r o u n d S t r a t e g y
S t r a t e g y
I m p l e m e n t a t i o n
R e c o v e r y
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
8
Three key expectations should be noted. First, it is expected that decline can be
explained in terms of poor resources, poor strategy and poor execution or a
combination of these factors. Poor resource refers to resources which are not
endowed with the qualities identified in table 1. Poor strategy refers to a course of
action which is sub-optimal given the resource base to which the firm has access.
Poor execution refers to a situation where resources are not utilised effectively, thus
reducing their positive impact.
Second, we would expect that successful turnarounds would involve the development
and implementation of a turnaround plan which makes use of existing key resources,
whether core or peripheral, rather than create new buttressing resources. Because the
computer industry is largely knowledge-driven and operates at high velocity, we
would also expect most key turnaround resources to be intangible rather than
physical.
Third, we would expect that the turnaround firms would better leverage their
resources for successful recovery. That is, there should be evidence of effective
concentration, accumulation, conservation, complementing and recovery in successful
cases and evidence of less effective leveraging in unsuccessful turnaround cases.
Having made some of our expectations of the data explicit, we assessed the evidence
against the initial framework to develop an understanding of the extent to which the
RBV helps to explain successful turnaround in a high-velocity environment. The
methodology employed in this exercise is now described.
METHODOLOGY
Case Study Methodology
The choice of research strategy in the social sciences is dependent on 3 conditions as
identified by Yin (1994), as the type of research question posed, the extent of
researcher influence over proceedings and the degree of focus on historical events.
Given that the primary question for this project involved understanding how and why,
in integrated terms, firms successfully turnaround, case study methodology was
viewed as a valid means of gathering, ordering analysing and presenting data on the
subject matter.
There are several advantages to using case studies in this type of research. First, case
studies allow us to focus on a phenomenon while preserving temporally sensitive
causal chains (Pettigrew, 1990; 1992; Tellis, 1997a). Case studies also allow us to
consider the views of the players in the process rather than restrict us to historical
artefacts alone (Tellis, 1997a; 1997b). The use of case studies is ideal for making
analytic generalizations as opposed to statistical ones (Yin, 1994). That is, case
studies are excellent for theory building, where measurability and empirical validity
strengthen its ability to produce novel theory (Eisenhardt, 1989). Thus the argument
for the use of case studies to develop a holistic understanding of the turnaround
phenomenon is supported.
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
9
The project employed a multiple holistic case design. This improves the ability of the
researcher to consider multiple critical cases and so build a better framework (Yin,
1994). This is consistent with replication logic, which strengthens findings by
comparing them with similar cases (literal replication) or dissimilar ones (theoretical
replication). Using this logic, firms are not selected for their representativeness of a
particular population. Rather polar types are chosen to gain a clearer conceptual view
of the event (Pettigrew, 1987; Dyer and Wilkins, 1991; Stoecker, 1991). This
approach, using conceptually driven, purposive case selection has been adopted
recently in the fields of turnaround and strategic management to strengthen research
designs (e.g. Collins and Porras, 1994; Baden-Fuller and Stopford, 1996; Sull, 1999).
Study Definitions and Case Selection
The turnaround field has been plagued by definitional inexactitudes, which have
hindered effective comparisons across studies, thus lowering external validity of
findings (Balgobin and Pandit, 1998). Turnaround consists largely of two cycles
which are temporally interconnected – a downturn cycle and an upturn cycle. And
definition of turnaround should encompass the reality of both and provide appropriate
performance measures. In this regard, researchers have adopted significantly varied
approaches to the definition and measurement of turnaround.
Some researchers have used pre-tax profits as the sole turnaround measure (Bibeault,
1998; O’Neill, 1986). Others have protected better for inflation and exchange effects
by using ROI, ROA and ROCE ratios to assess profitability. While there is merit is
using these measures, these ratios can be manipulated (Griffiths, 1992) and the
formulae used in their calculation can vary (Whiting, 1986).
More recent studies have used multiple methods of measuring decline and recovery
performance. Generally, studies have used multiple quantitative measurements of
financial performance (Robbins and Pearce, 1992; Barker and Mone, 1994). A more
balanced perspective triangulating qualitative and quantitative indicators is
appropriate (Pandit, 2000). Consistent with this recommendation, the study modified
the approaches of Pandit (1998) and Pearce and Robbins (1993) to select cases for
inclusion which met 6 criteria.
1. Study firms must experience an absolute and simultaneous downturn in profit
as indicated by the ROCE, ROA
2
and pre-tax margin for a period of not less
than two years, followed by an upturn in profitability as measured by these
indicators for at least 3 years, with at least 2 years allowed between downturn
and upturn, and stagnation and continued decline in unsuccessful cases.
2. All profitability measures are negative for at least one year in the downturn
period and exceed the return on long-term bonds in the upturn phase.
2
ROCE defined as profit before tax divided by capital employed. ROA calculated by pre-tax profit
divided by total assets. Both formulae derived from OneSource and ICC. ROCE and ROA provide
equity and entity based perspectives, allowing the firm to be compared to others within the same
temporal period and to itself across periods (Whiting, 1986).
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
10
3. The firm generated more than 50% of its sales from business in UK SIC 30020
(computers and information processing equipment) prior to decline.
4. Senior management at the firm acknowledged the need for turnaround, that
one was attempted, and that it was successful or unsuccessful.
5. The firm agreed to grant research access.
6. There was sufficient public interest in the company to ensure the availability
of sufficient secondary data to generate critical incident charts and a detailed
timeline.
Small firms, as defined by Minshall (1997) were not included in the study as the
avenues available to them for turnaround are largely confined to efficiency actions as
opposed to strategic ones (Chowdhury and Lang, 1996; DeDee and Vorhies, 1998;
Michael and Robbins, 1998). Small firms also have less data available in the public
domain, and command less public interest than large firms.
Consistent with the recommendation of Christensen (2000), certain environmental
factors, such as the legal and political framework, currency type, state of public
institutions, quality of the national business environment and domestic market
structure were held constant by selecting the UK computer industry as opposed to the
European or global computer industry.
The Lotus OneSource database contains financial information on more than 1.7
million large and medium sized companies drawn from more than 2,500 sources.
This database was interrogated using the financial and SIC requirements for inclusion
in the study. Returned cases were then reviewed for public interest by scanning the
bibliographic database ABI/Inform, Reuters Business Briefing and the Economist Web
Archive. Once the availability of public information was deemed sufficient to
develop a case outline for secondary sources, discussions were held with research
colleagues, academics and members of the media to assess the general level of interest
a case on the company would generate. From the firms which emerged, senior
management was contacted for access. This list was further refined and reduced as
the research progressed and critical cases using replication logic were sought. All 8
cases met the 6 criteria for inclusion listed above.
Sources and collection of data
Yin (1994) identifies 6 sources of data, of which 5 were used for the purpose of data
triangulation. These were archival records, interviews, documents, observation and
physical artefacts. These fit into 4 broad data categories – primary and secondary,
internal and external. Such data triangulation has precedent in the strategy field
(Collins and Porras, 1994) as well as in the study of the RBV (Miller and Shamsie,
1996). This improves reliability and construct validity.
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
11
Data collection occurred in 2 overlapping stages. First, a data collection protocol was
developed and a case study database was established. A research diary was also
implemented to track researcher thoughts as well as to improve reliability. Secondary
data was then collected from internal and external sources such as bibliographic
databases, market research studies, web pages, analyst reports and financial
statements. This was used to develop an outline of each case.
The second stage emphasised primary data sources. Initial unstructured interviews
were conducted on-site, where the case outline was presented as a starting point for
discussion. The emerging picture of the case was then used to develop a second set of
semi-structured interviews to ensure that gaps in data collection were filled. These
interviews were conducted in person, by email and over the telephone.
This approach allowed for iterative case development. Contradictory or
disconfirming evidence was explored, and thus added to the richness and detail of
each case. Qualitative and quantitative data was tracked through data accounting
sheets and accounting checklists, consistent with the recommendations of Miles and
Huberman (1996).
Data was ordered using the Atlas/ti qualitative data analysis software package. This
allowed for the deconstruction, conceptual ordering and analytic reconstruction of
cases while preserving ontological integrity (Bourgeois and Eisenhardt, 1989;
Pettigrew, 1990; Yin, 1994). Cases were built by first developing critical incident
charts to support analytical chronologies which were used a units of analysis in the
project.
Analysis
Analysis was performed on two broad levels. First, within case analysis was
undertaken by deconstructing raw data through textual analysis – open, axial and
selective coding - within Atlas/ti. Because several a priori constructs were drawn
from the field to generate an opening conceptual framework, emphasis was placed on
open and selective coding.
Case reconstruction involved a detailed write up of each case using a turnaround
process perspective to ensure temporal integrity and protect the validity of the cross
case analysis which represented the second phase of the analysis.
Cross-case analysis attempted to identify patterns across cases by looking at the data
in divergent ways. Cases were examined across dimensions such as size, ownership,
financial position and strategic objective of parent companies, where applicable. This
literal and theoretical replication thus allowed for the emergence of a new ,
empirically grounded conceptual framework which established a relationship between
corporate turnaround and the RBV, thus improving external validity.
Following the recommendations of Drucker (1999), findings were subjected to
academic review through the submission of papers to journals and conference
presentations.
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
12
Key Findings
According to the initial model, decline may be caused by poor resources, poor
strategy or poor implementation of strategy, or a combination of any two of these.
The pattern of decline observed in all cases matched expectations, in that all 8 cases
demonstrated a combination of factors playing a role in their decline.
Table 3 – Decline Patterns
Theoretical Pattern Case Patterns
Case 1 Case 2 Case 3 Case 4
POOR RESOURCES
• Not strategically relevant ? ? ? ?
• Less valuable ? ? ?? ?
• Less rare ?? ?? ?? ??
• Substitutable ?? ?? ?? ??
• Not within an organised system ? ? ?? ?
• Imitable
? ? ? ?
POOR STRATEGY
• Diversification/International
expansion
? ?? ?? ?
• Ill-advised projects
?? ? ?? ?
POOR EXECUTION /LEVERAGE
• Poor resource concentration
? ? ?? ?
• Poor resource accumulation
? ? ? ?
• Poor resource
complementing
? ? ?? ??
• Poor resource conservation
?? ? ? ??
• Poor resource recovery
? ?? ? ?
?? - Strong
evidence
? - Some
evidence
? – Little
evidence
All the firms in the study experienced multiple causes of decline, and case
descriptions suggest that several of these causes were related. There is little to
distinguish turnaround firms from non-turnaround firms in their causes of decline.
That is, an examination of causes of decline alone might be insufficient to determine
whether the firm is likely to successfully recover.
However, firms were distinguished by the period of time during which they
underperformed prior to failure. Failed firms appeared to experience more protracted
declines, which were initiated by a trigger cause at an identifiable temporal point. For
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
13
successful turnarounds, this trigger occurred when all other causes of decline were in
place.
The relationship between successful recovery, the positioning of the trigger and the
length of the decline period might be explained in terms of inertia. Because other
causes of decline were discernible prior to the experience of losses, the successful
turnaround firms may have had more time to generate - consciously or unconsciously
- the energy required to overcome inertial path dependencies and initiate change.
Thus, by the time the trigger problem manifested, the companies may already have
been awakening to the need for change. By contrast, the unsuccessful firms were not
expecting the trigger when it occurred. Once they were assured of survival after the
initial shock they may not have been able to marshal the further strength necessary to
complete a turnaround. This is consistent with the argument that drastic deterioration
in performance is more likely to evoke a turnaround response than consistent
underperformance.
Triggers for change
Three dimensions of change triggers were initially identified as being of potential
interest to firms facing turnaround situations - severity of decline, the source of
turnaround intervention and whether a new CEO initiated the changes deemed
necessary to recover (Table 4).
Table 4 - Triggers for change
Theoretical Pattern Case Patterns
S1 S1 F1 F2
Existence threatened Yes Yes Yes Yes
External intervention
(source)
Yes
(Parent)
No
(Management)
Yes
(Parent)
No
(Management)
New top management
Yes No Yes Yes
Results of the analysis of characteristics of triggers for change were mixed. As
intended in the study design, all cases supported the view that a threat to existence is
essential for the initiation of a turnaround attempt. The sources of intervention were
more ambiguous as the groups do not appear to be clearly distinguished by the origin
of the change trigger. Likewise, the need for new top management to initiate a
successful turnaround was not conclusively demonstrated. This finding counters the
established view that a change in top management is a prerequisite for the initiation of
a turnaround and supports the views of Grove (1997) and Sull (1999) that the mindset
of the executive management may be more important in determining when a
turnaround attempt starts.
Turnaround plans
The turnaround plans employed had several interesting dimensions which
distinguished the successful from the unsuccessful firms (Table 5). As predicted by
the initial model, successful turnaround plans were the products of an analysis-led
comprehension of the dynamics impacting the business (i.e. the causes of decline, the
strengths of the firm and the needs of the marketplace). The outcome of this was a
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
14
clear indication of the opportunities which could be pursued as well as an
understanding of what was required to capitalise on them. By contrast there was little
evidence of such planning preceding the launch of a turnaround initiative in failed
firms. Thus one company’s managers did not know what was expected of them while
another’s management found it easy to endorse ideas which did not have a clear
foundation in research.
Table 5 - Turnaround plan characteristics
Theoretical Pattern Case Patterns
S1 S2 F1 F2
Diagnostic review conducted ? ? X X
Objective of profitability set ? ? X X
Single turnaround plan developed ? ? X X
Plans communicated to stakeholders ? ? X X
Turnaround plan developed and implemented by a
turnaround team
? ? X X
Plans involve multiple actions ? ? ? ?
Addresses causes of decline ? ? X X
? - Yes X - No
A second interesting dimension of turnaround planning at the successful and
unsuccessful firms concerns the explicitly stated objective of profitability. In
successful cases, the knowledge drawn from the analysis was formalised and
communicated as a coherent turnaround plan which envisioned a desirable,
sustainable market position and a profitable end-point. In contrast, one failed case did
not clearly express the need for profitability in its turnaround plans at all while
another only added a mandate for profitability to its efforts 9 years after its initial
decline. This finding contradicts the hierarchical
3
arguments of some researchers (e.g.
Hofer, 1980; Robbins and Pearce, 1992) that the firm attempting to recover focuses
on survival and only considers growth issues when existence is assured. It also moves
the discussion beyond the traditional medical analogy used in corporate turnaround –
that the turnaround manager undertakes emergency room surgery and focuses on the
survival of the patient (e.g. Slatter and Lovett, 1999). The planning of the
turnarounds in the study clearly demonstrated that the successful firms did not
postpone thinking about ‘longer-term’ issues until survival was certain.
Another distinguishing feature in turnaround plan development is that the successful
firms were more likely to develop and articulate a single turnaround plan. The
unsuccessful cases took two different, and equally unsuccessful, routes to planning for
recovery, with one having no formal plan at all until it was too late and the other
having several. Both successful turnaround firms also appeared to communicate their
turnaround plans better than the unsuccessful ones. This may have served to increase
3
This logic can be related to Maslow’s hierarchy of needs, a criticism of which is that one need
becomes imperative only when another is satisfied.
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
15
stakeholder support in successful turnaround cases, while stakeholders in unsuccessful
firms may have been either more risk averse or less tolerant of the uncertainty
generated by the absence of information.
Finally, the study cases demonstrated the importance of consultation in the
development of turnaround plans. Both successful turnaround plans were the product
of team development although a dominant individual played a key role in raising the
profile of the recovery effort. In the unsuccessful cases, turnaround plans appeared to
be more individually driven and were not the product of inputs by multidisciplinary
teams. In fact, the unsuccessful cases did not have formal turnaround teams at all.
This supports suggestions in the literature that collaboration may assist in reducing
inertia, igniting change and gaining control.
Resource base for turnaround strategy
According to the initial framework, a successful turnaround strategy would be based
on existing resources (or recombinations of these), which meet the criteria for quality
identified in Table 2. The findings of the study are shown in Table 6.
Table 6 – Resources and turnaround plans
Theoretical Patterns Case Patterns
S1 S2 F1 F2
Turnaround plans based on existing resources ? ? ? ?
Resources meet criteria for quality set in Figure 3.2 ? ? X X
Emphasis on intangible resources rather than the
development of physical infrastructure
? ? ? ?
? - Yes X - No
In all cases, the turnaround plans developed were based largely on existing resources,
although at least 2 of the firms attempted to co-opt resources from other firms which
were tangential to their own and which allowed the exploration of new product or
service domains. In the other 2 cases there was an attempt to invest out of difficulty
through new product development and product-market reorientation using existing
skills to serve new markets. Therefore, although not all of the turnaround plans
devised were the products of analysis, it appeared that all the firms in the study were
implicitly aware of the resources at their disposal.
Whether these resources met the criteria for quality highlighted in Table 2 proved to
be a distinct feature of both groups (Table 7). In successful turnarounds, recovery
strategies were based on resources that were valued by the marketplace, rare,
inimitable, non-substitutable, occurred within a system configured to use them and
were strategically relevant to the recovery plan. For example, one company
leveraged its existing knowledge in systems design and deployment to provide a
solutions-led service to its customers, many of whom still preferred to deal with a
large and reputable firm. It was also able to leverage the knowledge of its staff and its
international knowledge network to enter new and more profitable areas of the
computer market. And it was able to draw from a talented and experienced pool of
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
16
resources for leadership in its time of crisis. Another successful turnaround leveraged
its R&D and brand strength as creator of the personal digital assistant to develop and
introduce new and very successful products in existing and new markets. The
company also drew on its leadership resources to provide guidance and resolve as the
turnaround effort progressed.
By contrast, in the unsuccessful cases, turnaround strategies were based on resources
which lacked some of the qualities identified as necessary to serve as the foundations
of sustainable competitive advantage. For example, one failed firm’s design
capability was widely respected and was a key factor in the purchase decision of an
acquiring multinational. However, despite its intrinsic value, this capability was
increasingly common as a result of open standards which emphasised knowledge
transfer over proprietary designs. The fact that design abilities occurred within an
organised system or were of strategic relevance could not compensate for their lack of
exclusivity. Another had a different problem, in that it possessed technology which
was rare and inimitable, but was substitutable and not valued by the market.
Table 7 – Quality of key resources for turnaround plans
Turnaround strategy resources Quality criteria
Successful firms Valuable Rare Inimitable
Non-
substitutable
Within
organised
system
Strategically
relevant
Stable turnaround team ? ? ? ? ? ?
Systems integration knowledge ? ? ? ? ? ?
Knowledge of microelectronics,
and low power software
? ? ? ? ? ?
Ownership of key architecture,
software and proprietary rights
? ? ? ? ? ?
Reputation as leaders in their
respective fields
? ? ? ? ? ?
Unsuccessful firms
PC design knowledge ? X X X ? ?
Proprietary architecture X ? ? X ? ?
? - yes X - no
Findings from several prior studies suggest that successful firms rely more on
intangible resources than on physical ones (e.g. Miller and Shamsie, 1996; Pringle
and Kroll, 1997; Moingeon et al, 1998 and Ruiz-Navarro, 1998). The importance of
intangible resources was demonstrated in the study, and all cases emphasised their use
in attempting to turnaround. Both successful firms reduced their physical resources in
several areas such as branches and distribution points, although this did not mean the
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
17
exclusion of physical resources in the development of recovery strategies. However,
the firms did demonstrate a tendency to build on or leverage existing intangible
resources rather than physical infrastructure. This supports the expectations of the
initial framework with regards to the nature of resources on which turnaround
strategies are based. It is important to note however, that both successful and
unsuccessful groups relied on intangible resources. Thus the use of these resources
alone is insufficient to ensure recovery.
Resources and turnaround
Two resource dimensions were addressed –reduction and leveraging.
Resource reduction and reconfiguration
Successful firms reduced their resource base in some areas where it was felt that
activities were no longer ‘core’. Thus one successful company outsourced several
functions and along with S2 reduced headcount, particularly in administrative areas.
By contrast the failed firms in the study were more likely to reduce or sell off their
most valuable resources which might have supported efforts at turnaround – one sold
its software and services arm, while another sold its chip design capabilities.
Both successful firms also changed the alignment of their resources to suit their needs.
These changes were augmented by ‘borrowed’ resources accessed through
development agreements, joint ventures and outright acquisitions. The successful
cases in the study developed strategies based on existing business models, while
failed firms did not appear to be supported by similar logic (Table 8).
Table 8 – Business models of study firms
Business Model S1 S2 F1 F2
Pre-crisis
Business to business ? ? ? ?
Business to consumer X X X X
Post-crisis
Business to business ? ? ? ?
Business to consumer X X ? ?
? - emphasis ? – some emphasis X – no emphasis
Thus execution within a new business model did not appear to assist firms in dealing
with a turnaround situation. One possible explanation for this is that the failed firms
did not successfully manage their transition to the new model in time or effectively
enough to prevent collapse, while the turnarounds did not have to refocus on radical
changes to their approach to market.
Resource leveraging
The manner in which existing resources were leveraged – that is, the quality of the
implementation of strategy - also distinguished turnaround firms from unsuccessful
ones. The leveraging of resources is examined across the dimensions identified in
Table 2 – concentration, accumulation, complementing, conservation and recovery.
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
18
Concentration
There were 3 aspects to concentration – converging, focusing and targeting (Table 9).
Table 9 – Resource concentration
Concentration dimensions S1 S2 F1 F2
Convergence – turnaround plan consistency over time ? ? X X
Focusing – emphasises a few key areas at a time ? ? X X
Targeting – dealing with areas with biggest impact on
performance.
? ? X X
Unlike failed cases, both successful turnarounds managed to concentrate their
resources first by developing a single and coherent turnaround plan. This ensured
resource convergence and minimised extraneous and unnecessary effort, thus
simplifying the management agenda. Second, the successful firms focused on areas
where the greatest impact could be made. This was reflected in the changing
emphases of the turnaround phases. In the unsuccessful firms, such focus was not
evident in that several actions were taken with few addressing causes of decline or
transforming the firm to face new competitive imperatives.
Finally, resources at turnarounds were targeted at particular areas that held the
potential for dramatic and sustainable performance improvement. This was in
contrast to one failed case, which persevered with its losing PC strategy and another,
which spread its resources across a wide range of opportunities. Neither failing firm
successfully addressed the causes of their decline while their successful study
counterparts systematically resolved the issues that caused their turnaround situations
and had the biggest impact on performance. Successful firms made their efforts
count, while unsuccessful ones did not.
Accumulation
The initial framework identified two dimensions of accumulation – mining and
borrowing (Table 10).
Table 10 – Resource accumulation
Accumulation dimensions S1 S2 F1 F2
Mining – feedback mechanisms in place and capacity for
learning explicitly developed
? ? X X
Borrowing – Effectiveness of alliances, partnerships etc. to
access unavailable resources
? ? X X
Both turnaround firms attempted to learn from their experiences and develop an
understanding of the resources which they lacked or needed to improve upon in order
to improve their performance. They implemented feedback initiatives, trained their
employees in the art of problem solving and emphasised teamwork. Both developed
review mechanisms which allowed them to channel feedback to the top of the
organisation, and both used highly visible leaders who were active in the field with
customers and users and so were in a position to learn first-hand about new
developments and criticisms. There was no evidence of feedback initiatives at
unsuccessful cases, nor were teamwork and problem solving emphasised. Finally,
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
19
neither firm used a high-profile CEO with whom stakeholders could relate. Thus the
turnaround firms appeared capable of mining more out of an experience than the
failed cases.
The findings on borrowing were also interesting. There was a mixed result to the
study question of whether turnaround plans were executed through borrowing, as all
the cases demonstrated clear examples of the activity. However, the effectiveness of
borrowing activities for market benefit distinguished turnaround firms from failed
study cases. One failed firm was unable to use its relationship with its new parent to
advantage, and the other had difficulty both with Olivetti and Apple in developing a
viable product. By contrast one firm’s work through its registered developers scheme,
retail channel and subcontractors, and another successful company’s marketing
relationships with other firms enhanced their abilities to serve their markets and
develop new ones.
Complementing and Conserving
According to the initial framework, complementing involves both blending and
balancing of resources. Blending refers to the ability to interweave disparate skills to
produce a successful product or service. Turnaround firms managed to blend
technical and functional skills via cross-functional turnaround teams and mixed
development teams to provide, for example, integrated services and the Series 3. In
contrast, both failed cases continued to function in operational chimneys and neither
managed to produce a successful product which could support their turnaround
efforts.
Balancing refers to the ability to ‘weight’ resources along the value chain – to design,
build and deliver products and services (Table 11).
Table 11 – Resource balancing
Balancing dimensions S1 S2 F1 F2
Strong design and development capability ? ? ? ?
Capacity to produce/deliver products/services ? ? ? ?
Marketing, distribution and service infrastructure ? ? X X
Both successful turnarounds demonstrated the balanced abilities to invent, build and
deliver. This was in marked contrast to one failed case, which generated new designs
faster than they could sell them, and another, which had a number of good long-term
product prospects but no immediate market demand in the interim. Thus while all the
study firms had the ability to design new products and the capacity to build them, only
the successful firms managed to balance these abilities with a marketing and
distribution infrastructure which allowed their products an avenue to market.
The successful turnaround firms were also better at using their resources
parsimoniously and to greater effect (Table 12).
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
20
Table 12 – Resource conserving
Conserving dimensions S1 S2 F1 F2
Working with other firms in pursuit of a common
objective
? ? ? ?
Internal agreement on key turnaround priorities ? ? ? X
Targeting accessible market segments ? ? X X
? - evidence of ? – uncertain X – no evidence of
In attempting to recover, S1 concentrated its service offerings under the ‘Know-How’
banner, and S2 focused on the new product and its software architecture (which
provided the software that is the foundation for a successful technology consortium).
While all the firms depended on external linkages for supply, market access or
distribution, in failed cases it was not clear that the firms and their partners were
working with a common objective in mind.
In the implementation of strategy, the turnaround firms also appeared to have clear
internal agreement on priorities as a consequence of effective turnaround plan
development and communication (already seen to be greater in successful firms).
There was less evidence of internal cohesion in the non-turnaround cases. One aspect
of strategy leveraging which appeared to be decisive however was the decision by
turnaround cases to pursue product market segments which appeared to be less
defended than those selected by failed study counterparts. This supports the earlier
conclusion that analysis is key to informing the turnaround plan, as unsuccessful firms
persevered with poor PC strategies or aimed for market segments which could not
support their involvement rather than target sectors which were lucrative but not
comprehensively addressed. As a result of this the firms expended resources fighting
larger competitors or trying to create a market segment which had not yet
materialised.
Recovering resources
Related to resource conserving is the ability of the firm to reduce the time to payback
from new initiatives (Table 13).
Table 13 – Resource recovery examples from study cases
Firm Initiative
Decision
date
Profit
impact
S1
Address services market through creation of knowledge
base
1991 1991
S2 Use of new software architecture to create Series 3 1990 1991
F1 New file server 1990 1993
F2 Media investment 1996 -
As demonstrated in the table above, key initiatives made a difference to the
profitability of the unsuccessful companies much later than they did at successful
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
21
firms, and proved either to contribute too little or nothing at all to the recoveries they
were intended to expedite. The successful cases were better at identifying lucrative
market segments and developing product or service offerings to profitably address
them.
Summary of key issues
The expectations of the initial framework for resource leveraging were largely
supported. The successful cases concentrated their resources in a single and
consistent turnaround plan, emphasised a few improvement areas at a time and
focused on areas which had a big impact on performance. They also had mechanisms
for feedback in place which were spearheaded by high-profile CEOs, allowing the
firms to increase learning through environmental interaction. This was augmented by
resource borrowing through alliances and partnerships, for example, where other
skills, abilities or assets not owned by the firm were accessed. In unsuccessful cases
there was less evidence of resource concentration, and accumulation efforts through
mining and borrowing were less effective.
The successful firms were also able to blend and balance resources in order to bring
products and services to market. With unsuccessful cases there was an imbalance of
skills, which led effectively to the negation of capabilities resident elsewhere in the
organisation. Resource conservation through parsimonious use, internal agreement on
turnaround priorities and the targeting of accessible segments also distinguished
successful cases from failed ones. Finally, the turnaround firms also demonstrated an
ability to implement profit-generating ideas which had a faster impact on
performance. These findings are of interest as they demonstrate that leveraging is
important not only for long-term development but also in turnaround situations.
Conclusion
There remains a great deal of work to be done, but clearly there is scope to augment
what is already known about corporate turnaround by positioning the field within a
broader stream of extant literature.
The RBV has been used in this study to assist in developing a theoretical framework
which could help to explain historical success, decline, turnaround plan development
and the implementation of turnaround strategy.
This emerging model may serve as the foundation for an integrated framework to
bring about greater cohesion in the field of turnaround study, and the cases employed
assisted in this regard by providing empirical grounding from preliminary
conclusions. It is expected that other research may clarify and refine this new,
integrated turnaround model.
Rolph N. S. Balgobin – A Resource Based View of High Velocity Corporate Turnaround
22
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