Description
Against a backdrop of continued weak economic conditions and with many firms experiencing declining financial performance, this paper presents a synthesis of the business turnaround literature.
1
European Business Review, Volume 25, Issue 3, 2013, Pages 243-262
This article is © Emerald Group Publishing and permission has been granted for this
version to appear here (https://dspace.lib.cranfield.ac.uk/index.jsp). Emerald does not
grant permission for this article to be further copied/distributed or hosted elsewhere
without the express permission from Emerald Group Publishing Limited.
www.emeraldinsight.com
Strategies for Business Turnaround and Recovery: A Review and Synthesis
Richard Schoenberg, Nardine Collier, Cliff Bowman
Cranfield University School of Management
Abstract
Purpose: Against a backdrop of continued weak economic conditions and with many firms
experiencing declining financial performance, this paper presents a synthesis of the business
turnaround literature. It aims to identify which turnaround and recovery strategies have been
effective historically, based on the evidence provided by previous empirical research.
Design/methodology/approach: We review literature that includes 22 empirical studies,
which investigated business turnarounds in previous recessionary environments. We review
this literature in its entirety, rather than as individual contributions, to synthesise the lessons
available for businesses operating in today’s challenging economic environment.
Findings: Our review revealed convergence in the findings of the prior studies. Six effective
turnaround strategies were consistently identified. Four of these relate to the content of the
turnaround, namely cost efficiencies, asset retrenchment, a focus on the firm’s core activities
and building for the future and two relate to accompanying change processes required for
implementation: reinvigoration of firm leadership and culture change.
Research limitations/implications: We highlight areas where knowledge on business
turnarounds remains limited and suggest potentially fruitful directions for future research.
Practical implications: We discuss the elements involved in each of the six effective
turnaround strategies identified. We also provide a contemporary example to illustrate the
application of these strategies in the current economic environment.
Originality/value: The paper offers practitioners an evidence-based view on effective
business turnaround and recovery strategies, in addition to providing researchers with an
accessible review of the existing literature.
Keywords: Business Turnaround; Recovery Strategies; Financial Decline
Article classification: Literature Review
2
Strategies for Business Turnaround and Recovery: A Review and Synthesis
Richard Schoenberg, Nardine Collier, Cliff Bowman
Cranfield University School of Management
Introduction
The economic crisis that began in 2008 has resulted in recessionary conditions across many
countries with numerous companies facing tough trading circumstances, which in some cases
are posing a direct threat to their survival. This has led to a revival of interest in business
turnaround and recovery strategies as firms seek to improve their performance in the
downturn and place themselves in the best position to benefit from economic upturn.
This paper therefore presents a synthesis of the existing business turnaround literature. Our
aim is to identify which business turnaround and recovery strategies have been effective
historically, drawing on the evidence provided by previous empirical research. We reviewed
literature that included 22 empirical studies, which primarily investigated business
turnarounds completed in the prior recessionary environments of the mid 1970s, early 1980s
and early 1990s. While we recognise that previous recessions may have had different causes
to today’s recessionary environment, the ultimate impact on businesses is similar; lower
demand and therefore declining revenues and profits. In total the turnaround and recovery
strategies of almost 1300 separate firms were empirically investigated in the body of
literature we draw upon. By reviewing this literature in its entirety, rather than as individual
contributions, we sought to synthesise the lessons available for businesses operating in
today’s challenging economic environment.
Our review revealed a very high level of convergence in the findings of the prior studies. In
essence, six turnaround strategies were consistently identified in the literature as effective in
helping firms make a sustained recovery from a period of performance decline. Four of these
3
relate to the content or main objectives of the turnaround, namely cost efficiencies, asset
retrenchment, a focus on the firm’s core activities and building for the future. The remaining
two relate to accompanying change processes required for implementation: reinvigoration of
firm leadership and corporate culture change. In the first part of this paper we discuss the
elements involved in each of these strategies, reviewing the literature with an emphasis on
capturing and synthesising the lessons for practice. In the second part of the paper we provide
a contemporary example to illustrate the application of these strategies in the current
economic environment. In our concluding section we highlight areas where the knowledge on
business turnarounds remains limited and suggest potentially fruitful directions for future
research. Finally, we provide an Appendix, which summarises in table form the individual
findings and methodologies of the 22 prior empirical studies that form the evidence base of
our review.
Lessons from the Turnaround Literature: Core Recovery Strategies
Content-orientatedstrategies
Cost efficiencies
The most prolific turnaround strategy implemented by firms is the pursuit of cost efficiencies.
Cost efficiencies include a varied range of actions, which can all be characterised as “belt-
tightening” or “fire-fighting”, with the aim of producing “quick-wins” in order to either
stabilise finances in the short-term until more complex strategies are devised, or to quickly
improve cash flow (Bibeault, 1982; Hambrick and Schecter, 1983; Sudarsanam and Lai,
2001). Cost efficiency measures are frequently the first step in any recovery strategy as they
can be quickly implemented, may have an almost immediate effect, and generally require
little or no capital or resource outlay (Hofer, 1980; Robbins and Pearce, 1992). Indeed one
4
study concluded that “cost retrenchment was so pervasive as to be considered indispensible in
achieving turnaround” (Robbins and Pearce, 1992: 303).
The most commonly reported cost efficiencies in the literature include reducing R&D,
collecting and reducing accounts receivable, cutting inventory, stretching accounts payable,
reducing marketing activity and eliminating pay increases (Hambrick and Schecter, 1983,
Hofer, 1980; O’Neill, 1986a; Stopford and Baden-Fuller, 1990; Sudarsanam and Lai, 2001).
These were frequently accompanied by financial restructuring such as a reworking of the
firm’s capital structure so as to relieve pressure from debt repayments (Sudarsanam and Lai,
2001). Interestingly, Grinyer et al., (1990) found that successful “sharpbenders” concentrated
on reducing production costs relative to their industry peers that pursued more general
overhead reductions. This included adjusting wage incentives, tighter stock control, financial
and capacity controls and investment in new plant to enable greater efficiencies and
streamlined processes (Grinyer et al., 1990).
As with any strategy the pursuit of cost efficiencies carries some risks. Some authors have
warned that solely cutting costs can reduce employee morale and commitment, resulting in
increased staff turnover (e.g. Barker and Mone, 1994). Others caution that cost efficiency
activity should be halted after a suitable length of time, so as not to damage assets or
resources needed to maintain the core focus of the firm (Sudarsanam and Lai, 2001). Indeed
some studies present evidence that firms which were unsuccessful in their turnaround efforts
over-pursued cost efficiencies to the extent that they actually exacerbated the decline (Boyne
and Meier, 2009). Similarly, Hambrick and Schecter (1983) also caution that while R&D is
often one of the first areas to be cut, this alone is unlikely to be a major contributor to
turnaround and, furthermore, may weaken the firm for the future.
5
Asset retrenchment
Asset retrenchment is often pursued in concert with, or immediately following, a cost
efficiency drive. An asset retrenchment strategy is where areas of the firm that are under-
performing are appraised to determine if efficiencies can be made, or whether it is best to
divest the asset completely rather than allowing it to continue operating at a weaker level than
the rest of the firm (Hofer 1980; Morrow et al., 2007). Some studies indicated that
retrenchment was implemented only if cost efficiency strategies did not have enough impact
to stabilise the firm’s finances, although in the majority of cases it is the natural second step
following cost efficiencies (Robbins and Pearce, 1992).
Filatotchev and Toms (2006) highlight that the usefulness of asset retrenchment as a
component of a turnaround strategy depends on the firm’s ability to generate cash flow from
any disposal. It is often assumed that this will be the case, yet there can be significant
difficulties surrounding simple disposal and cash generation due to asset specificity, liquidity
in the second hand market and exit barriers (Filatotchev and Toms, 2006). Similarly, where
asset retrenchment involves the disposal of aging assets and their replacement with new,
state-of-the-art counterparts, for example investing in new plant, equipment or technology,
careful assessment is obviously required to ensure that the efficiency savings will more than
cover the investment and implementation costs (Sudarsanam and Lai, 2001).
Retrenchment decisions are inevitably difficult. There is the risk that asset sales will
compromise future strategic options, while conversely they may be a necessity to generate
cash and reduce losses. As one study concluded “the primary guideline for decision making
6
in such a situation appears to be survival and the need to stem the bleeding” (Gopinath, 1991:
99).
Focusoncoreactivities
A focus on the firm’s core activities is a further turnaround strategy repeatedly identified in
the literature and frequently enacted in parallel with asset retrenchment (Boyne and Meier
2009; Pearce and Robbins, 1993; Robbins and Pearce, 1992). This strategy entails
determining the markets, products and customers that have the potential to generate the
greatest profits and refocusing the firms activities on these areas. Successful turnarounds
have been associated with a focus on product lines for which the firm is best known,
customer segments that are particularly loyal or less price sensitive, and areas where the firm
has distinct competitive strength (Hambrick and Schecter, 1993; Sudarsanam and Lai, 2001).
The firm may also return to activities for which it was well known in the past (Hambrick and
Schecter, 1983; Hofer, 1980). In conjunction with this it may be necessary for the firm to
undertake a redesign or restructuring to align itself more effectively with its core purpose,
entailing the rationalisation, divestment or closure of operations, products or assets that do
not fit with this purpose (O’Neill, 1986a). This retrenchment can also serve to free up scarce
marketing, operational and financial resources for reinvestment in the chosen core activities,
including appropriate acquisitions where specific further capability is required (Grinyer, et
al., 1990; Hambrick and Schecter, 1983; Stopford and Baden-Fuller, 1990; Sudarsanam and
Lai 2001). To reinforce the importance of a focus on the core, some studies explicitly warn
that following a strategy with “no distinguishing characteristics, hence qualifying as a
piecemeal approach” is unlikely to lead to a successful recovery (Hambrick and Schecter,
1983: 246).
7
Focus allows the firm to develop a clear competitive strategy in its chosen core activities. The
Grinyer et al., (1990) study found that this was frequently achieved through an increased
focus on marketing, employing initiatives to improve customer understanding, build closer
customer relationships, increase the number of marketing channels, optimise after-sales
service and employ cost-effective advertising.
Arogyaswamy et al., (1995) report that if a firm is in an environment characterised by
temporary economic downturn, then scaling back the number of activities it is involved in
could be all that is needed for it to survive the conditions. Here they advocate contracting
back to serve the customers which most value the firm’s resources and capabilities. However,
if the economic conditions are more severe or permanent, the return to the core should be
attained through concentrating on using existing resources and capabilities to focus on the
remaining viable customers. Put another way, the firm maximises its chance of recovery
through exclusively serving the needs of the core customers, so as to “strengthen or expand”
upon any favourability in the firm’s present position in comparison to its competitors
(Arogyaswamy et al., 1995).
Buildfor thefuture
The literature reveals that a ‘build for the future’ strategy typically, and logically, follows the
implementation of the three strategies discussed above. This phase is entered when the
immediate crisis has passed and the financial position has stabilised (Filatotchev and Toms,
2006; Robbins and Pearce, 1992). Build for the future is aligned with a recovery phase of the
turnaround process. This recovery should naturally be undertaken in a cautious and
considered manner, and will often be embarked upon as a growth strategy from the strong
8
core focus that the firm has developed. It is about positioning for long-term growth rather
than short-term day-to-day survival.
In this phase firms tended to follow an entrepreneurially driven reconfiguration of assets,
leveraging existing resources to broaden the product line or enter new geographic territories
(Pearce and Robbins, 1993; Sudarsanam and Lai, 2001). The build for the future strategy has
been seen as “re-complicating the business” by adding back some of the complexity removed
during cost cutting and retrenchment (Stopford and Baden-Fuller, 1990).
It has been argued that a turnaround is only successfully completed when the firm in question
has been left with the capacity for self-renewal, so as to be agile in responding to changing
circumstances in the future (Ghoshal and Bartlett, 1996; Stopford and Baden-Fuller, 1990). It
is the ability of the firm to replenish and renew and is described as the hardest stage to attain,
since it is difficult to maintain momentum in keeping the firm agile enough to transform, and
not allowing it to get “stuck” in its current position or revert to a “usual” way of operating.
This can be especially challenging following a difficult turnaround period because employees
may feel they need a break from the change and upheaval they have experienced. Ghoshal
and Bartlett (1996) suggest that an aid to accomplishing this is to ensure that all managers,
regardless of level, act as leaders and understand the importance of the individual employee,
their own personal behaviours and how their actions have a significant impact on the ability
of the firm to remain flexible (Ghoshal and Bartlett, 1996).
This latter point illustrates the links between the four ‘content-orientated’ turnaround
strategies we have considered so far, and the change processes required to enact them. We
now consider these more ‘process-orientated’ strategies.
9
Process-orientatedstrategies
Reinvigorationof FirmLeadership
Changing the CEO
The replacement of the firm’s incumbent CEO is frequently undertaken early in the
turnaround process, and in some cases is even the trigger for a realisation that the firm is in
serious difficulties and that action is urgently needed (Stopford and Baden-Fuller, 1990).
CEO change is significantly linked to firms in distress and it is reported that in turnaround
situations 75% of replacement CEOs are appointed from outside the firm (Kesner and Dalton,
1994).
The literature reveals two predominant reasons as to why the CEO is replaced. First, the
media and shareholders frequently place responsibility for the negative position of the firm
on the CEO. Replacing the incumbent CEO can serve as a signal of change, both to this
external audience and internally to the employees (Daily and Dalton, 1995). Indeed, the
change in leadership is often instigated by Board Chairmen following lobbying by investors
(Sudarsanam and Lai, 2001). The change has symbolic power; it is a sign that the current
situation is no longer tenable, that the firm is serious in its willingness to change and that the
turnaround process has begun (Arogyaswamy et al., 1995; Boyne and Meier, 2009; O’Neill
1986a). Interestingly, research into charismatic leadership has found that to external
audiences “the mere presence of a charismatic leader can remove doubts about the survival of
a firm” (Flynn and Staw, 2004: 311), as well as galvanize employees towards committed and
focused efforts during difficult circumstances. This would suggest the benefits of ensuring a
charismatic leader is at the helm during the turnaround period.
10
The second common reason for the replacement of the CEO is where the incumbent appears
blind to the existence of any problems (Bibeault, 1982; Gopinath, 1991; Kesner and Dalton,
1994), or simply tries to solve issues with past solutions (Arogyaswamy et al., 1995; Barker
and Patterson, 1996). Managers can take for granted the assumptions and beliefs enacted in
their firm, which can blind them from identifying, or agreeing to, any course of action that
does not fit with the usual way of operating (Johnson, 1987). In such cases the managers’
historically-built mental models fail to adapt to their firm’s changing interactions with the
environment. Managers will seek to solve firm-based decline issues with the solutions they
have used in the past; even if there is evidence which indicates that their past manner of
viewing the environment is no longer sufficient for understanding the current situation, or for
the development of new solutions. In addition, managers may be so stressed and distracted by
the firm’s decline that any evidence they do identify, or are presented with, can easily be
misinterpreted (Arogyaswamy et al., 1995). Indeed, Sudarsanam and Lai (2001) report that
bankruptcy and ultimate corporate failure following a period of performance decline is linked
to management inaction, poor timing and rejection of turnaround strategies that could be
detrimental to the CEO’s own self-interest. In these situations, the replacement of the CEO
can bring new perspectives and assumptions as well as different personal backgrounds and
experiences to those they replaced and, most importantly, new ideas on what turnaround
strategies the firm can implement (Barker and Duhaime, 1997). These arguments are also
highlighted by Grinyer et al., (1990: 121), who found that while 55% of the successful
“sharpbenders” had a change of leadership, more important was that the new leadership
brought “a new committed, positive approach – a bias for action. This was closely linked to
the injection of new values, new vision, strong drive and improved motivation and
communication”.
11
Changing the Top Management Team
In concert with CEO change, replacement of part or all of the Top Management Team (TMT)
is often advocated (Kesner and Dalton, 1994; Lohrke et al., 2004). Indeed, many new CEOs
will bring their own trusted colleagues with them. Much of the discussion reported above
regarding CEO change is echoed in the findings regarding the TMT. Therefore, to avoid
repetition, we describe below only those elements that are specific to the TMT.
Some research has identified the replacement of the TMT as one of the first actions that a
firm should take as a “pre-condition for almost all successful turnaround” (Hofer, 1980: 25).
A number of reasons have been given for this view. First, the existing TMT will have had a
set of beliefs on how the firm should be, which had to be incorrect since they had led the firm
to its current position (Hofer, 1980). Second, senior managers may reject arguments and
evidence if it highlights they have made poor prior decisions, and therefore new TMTs are
necessary to enable the firm to focus on new strategies and, finally, different managers have
different skills and those that delivered the firm to its present position may not be suitably
skilled for leading the turnaround (Kesner and Dalton, 1994).
In his research into organisational decline Whetten (1980) identified that incumbent
managers may fear taking responsibility for failure, and as such do not have the incentive to
halt the implementation of problem strategies: “instead they tend to pour good money after
bad in hope of salvaging the operation and their reputations” (Whetten, 1980: 580). This was
compounded if their advisers either did not recognise the significance of pertinent
information or did not wish to pass on bad news. With comparable findings Gopinath (1991:
96) also found that the incumbent management may not want to admit the firm was in
difficulty, instead it would rely on “well-rehearsed responses, and…indulge in self-
12
deception”, explaining that this may continue until the firm is in severe decline. Long-serving
senior managers may also be too ensconced in decline-causing extant strategies to accept the
need for change (Barker and Patterson, 1996). Conversely, when new external senior
managers join a firm they may be better equipped to deal with the psychological, sociological
and general issues present (Kesner and Dalton, 1994). Interestingly, the available empirical
evidence suggests that the appointment of an external CEO does indeed lead to greater
change in the TMT, although there is no consistent relationship between TMT change and
subsequent business performance (Kesner and Dalton, 1994).
A Cautionary Note Regarding CEO/TMT Change
Other research has cautioned that CEO and TMT succession can result in high levels of
internal disruption. The introduction of new reporting relationships can cause additional
stress for employees worried for their own security and status, as well as a deterioration in
informal communication channels, which together can increase levels of ambiguity and
instability throughout the firm (Castrogiovanni et al., 1992; Kesner and Dalton, 1994).
A limited number of the prior turnaround studies have distinguished between performance
decline caused by industry-wide factors, where changes in the external environment have
resulted in negative implications for all the firms in the industry, and decline caused by firm-
specific factors, where the focal firm had suffered a particular fall in profitability relative to
rivals due, for example, to an excessively high cost base or poor product-market decisions
(Barker and Duhaime; 1997; Pearce and Robbins, 1993). These studies argue that the precise
cause of decline has implications for the selection of appropriate turnaround strategies. In
instances of industry-based decline, cost retrenchment may be all that is required until
demand picks up (Barker and Duhaime, 1997), or in cases of a fundamental shift in consumer
13
tastes, new market opportunities may need to be sought (Pearce and Robbins, 1993). In such
cases changing the CEO and TMT could have negative implications, not only causing
internal disruptions, but also risking loss of the existing management team’s understanding of
the firm’s competencies and customers. The latter could be vital to a more cost conscious
execution of the firm’s existing strategy, which may be all that is required to ride out a
temporary industry downturn. In contrast, where the cause of decline is firm-based, it is
unlikely that the management team that allowed the firm to fall behind its rivals is capable of
effecting the scale of changes required for a turnaround. In these cases there is widespread
agreement amongst prior studies that replacement of the CEO and part, or all, of the TMT is
necessary for effective recovery (Arogyaswamy et al., 1995; Barker and Duhaime; 1997;
Pearce and Robbins, 1993). In sum this suggests that whether a successful turnaround is
dependent upon changing the firm’s leadership needs to include a judgement about whether
the firm’s decline simply reflects the overall business environment or whether it has been
compounded by underlying specific firm-based issues. A comparison with industry peers may
be helpful here. In the first case (industry-wide decline) we would expect to see financial
performance similarly affected to rival firms and no loss of relative market share; in the
second case (firm-based decline) we would expect to see either the firm’s profitability or its
market share fall to a greater extent than its peers reflecting the firm’s impaired relative
competitiveness.
Culturechange
In concert with leadership change, the role of culture change in facilitating the rejuvenation
and re-adaptation of the struggling firm is highlighted in the literature. It may be necessary to
effect a change in culture to challenge past beliefs and taken for granted assumptions, which
may no longer be relevant to the changed environment the firm is facing; only then can
14
historic operating routines be abandoned and new employee behaviours adopted. Stopford
and Baden-Fuller’s (1990) study of rejuvenation in declining UK manufacturers showed that
when the CEO and TMT challenged past beliefs it acted as a signal to employees that this
behaviour was acceptable and led to the generation of innovative solutions that would not
have otherwise been possible. Signalling was also found to be part of the culture change
turnaround strategy because it indicated a transition from the old way of behaving to the new
way for the firm to move forward. The collection and dissemination of up to date market
information, reflecting the new realities of the market place, was one of the ways in which
historic beliefs were challenged. Others have found that the use of symbols facilitates a
change in the cognition and behaviours of employees, which is important for the turnaround
to progress swiftly and achieve quick results (Armenakis et al., 1995). These researchers
identified the most popular and useful symbols as the elimination of perks and the adoption
of “medical” metaphors to convey the severity of the situation. Overall, the literature
emphasises that in implementing turnaround strategies managers should remember that it is
not just the systems or structures that need to change, but the behaviour and attitudes of the
individuals too, and that acknowledging and respecting this is important for success.
Application of the Turnaround Strategies: An Illustrative Example
Harley-Davidson, the iconic motorcycle manufacturer, provides an example of the turnaround
strategies outlined above in action during the current economic downturn. The European and
US markets for heavyweight motorcycles fell 40% between 2007 and 2010, declining from a
combined total of 904,000 to 561,000 units. As a consequence Harley-Davidson’s net profits
collapsed from US$933m in 2007 to a loss of US$55m in 2009. Their sales revenue over the
same period fell from US$6.14bn to US$4.8bn. Harley-Davidson’s 2009, 2010 and 2011
15
Annual Reports and associated press releases reveal a set of decisive actions undertaken to
address this decline, which included:
Cost efficiencies: The immediate challenge of declining sales and profits was met by cutting
production by 26% during 2009, to better balance supply with demand and, in turn, protect
the strength of the Harley-Davidson brand. This was accompanied by a consolidation of
production operations, which included 2000 job losses, representing a 22% headcount
reduction. In other actions, the distribution of parts and accessories was transferred to a third
party provider and vehicle test facilities were consolidated from three US locations to one.
Two major longer term cost efficiency initiatives were also commenced. First, the adoption
of lean product development processes to reduce the time to market by 30%, better capture
customer insight and simultaneously handle more product development initiatives. Second,
the restructuring of production to provide a standardized operating system across all the
firm’s manufacturing facilities. This aimed to allow production to respond efficiently to
seasonal and other changes in overall demand and to vary the product mix more flexibly in
response to customer preferences. The implementation of this involved the negotiation of
new seven year labour agreements at each of the firm’s facilities, which included the
capability to adjust the size of the workforce through the use of flexible workers, who will
work as required to meet demand and make up 20-30% of the plant employees. It also
involved significant structural changes to the facilities themselves to allow all models to be
produced interchangeably on a single production line.
To illustrate the scale of the restructuring, the 2011 Annual Report estimated that the
activities initiated since 2009 would incur one-time costs of US$500m by 2013. It also
16
revealed that cumulative savings generated from these restructuring activities were US$217m
in 2011 and that ongoing savings of US$315m per annum would be seen from 2014. It is
relevant to note that these initiatives were not only concerned with changing the firm’s cost
structure, but also aimed to simultaneously make the business more customer responsive; in
the CEO’s words “getting customers the motorcycles they want, when they want them.”
(Harley-Davidson, 2010: 4).
Asset retrenchment: In addition to the Harley-Davidson brand of custom motorcycles the
Company owned two brands of sports motorcycles, Buell and MV Agusta. In October 2009
Harley-Davidson announced that it would shut down its Buell Motorcycle Division and
divest MV Agusta, the Italian sports motorcycle manufacturer that had been acquired just a
year earlier for $109m. The news of Buell’s closure, a wholly owned subsidiary since 1997,
was a shock to many of its customers and employees and incurred one-time closure costs of
approximately US$125m. MV Agusta was sold back to its former owner for an undisclosed
sum.
Focus on core activities: “Focusing our investment behind the uniquely strong Harley-
Davidson brand provides the most attractive path to sustained, long-term growth” stated the
firm’s CEO (Harley-Davidson, 22 January 2010). This focus was implemented through
product development targeted at customers who were loyal to the brand’s differentiated value
proposition of traditional engineering, heritage and retro styling. Between 2009 and 2011
over ten new models were introduced to a range that numbered around 35 in total, combined
with the deletion of a number of slower selling models. The product brochures made frequent
reference to Harley-Davidson’s unique heritage, using inset photographs of vintage models to
illustrate styling cues of the current models. An example of these targeted product
17
introductions was the Sportster ‘Seventy-Two’ model, which adopted 1970s styling features
such as white-walled tyres, metalflake paint, and ape-hanger handlebars. It explicitly
leveraged the firm’s competencies in terms of design, heritage and marketing; in the words of
the Company, “it personifies old-school Harley-Davidson....no-one [else] has the experience,
motivation and desire to produce a bike like the Seventy-Two” (Harley-Davidson, 2 February
2012). Notably, all the new model introductions over this period were based on incremental
development of existing platforms, making the most efficient use of product development
budgets and avoiding the capital cost of major plant re-tooling.
Build for the future: In addition to targeting core customers the recovery strategy called for
growing sales to outreach customers, both “multigenerational and multicultural” (Harley-
Davidson, 2010: 5). This included the launch of models orientated to the young adult and
female segments as well as international expansion, with the objective of raising export sales
from 33% to 40% of production output by 2014. A number of organisational steps towards
this were taken in 2010 and 2011. New regional headquarters for the Asia Pacific and Latin
America regions were opened to support sales, marketing and dealer development activities
in these markets. The first Harley-Davidson dealership opened in India in July 2010. This
was followed by an Indian assembly facility in 2011 to allow the local assembly of
motorcycles from components manufactured in the firm’s US plants, reducing tariffs and
making the products more accessible.
CEO and Top Management Team change: The above strategies were implemented by a
reinvigorated firm leadership. A new CEO, Keith Wandell, joined Harley-Davidson in May
2009. Notably, he was the first CEO to be appointed from outside the firm since 1981. He
had previously been President and COO of Johnson Controls, a global diversified industrial
18
group. Several changes to the TMT were also made at this time, including the appointment of
a new CFO, who had joined Harley-Davidson six years previously and brought 25 years of
financial leadership experience, as well as two further senior internal promotions of
executives possessing significant experience in the operations and product development
functions. A number of other changes to the TMT, including external appointments, were
made subsequently.
It is too early to comment on the long term sustainability of these actions, but the short term
recovery has been marked. While the European and US motorcycle markets declined a
further 9% between 2009 and 2011, Harley-Davidson’s net profits turned around to
US$146m in 2010, rising to US$599m in 2011, with sales revenues also up by 11% since the
recovery strategy was initiated. Harley-Davidson’s share price increased from a low of
US$7.99 in March 2009 to US$38.87 at the end of 2011, representing an increase in market
capitalisation of approximately US$7bn over the 33 month period.
Conclusions and Future Directions for Turnaround Research
Our initial aim in this paper was to identify which business turnaround strategies have been
effective historically, drawing on evidence provided by previous empirical research. We
found that six turnaround strategies were consistently identified in the literature as effective
in helping firms make a sustained recovery from a period of performance decline. Four of
these relate to the content or main objectives of the turnaround, namely cost efficiencies,
asset retrenchment, a focus on the firm’s core activities and building for the future. The
remaining two relate to accompanying change processes required for implementation:
reinvigoration of firm leadership and corporate culture change.
19
While the high degree of convergence in the findings of the studies we reviewed was
surprising, the overall message that emerges is perhaps less so. The key lesson that comes
through is that successful turnaround and recovery is driven by concentrating on business
fundamentals: focusing on the most viable and profitable customers, developing a clear
competitive strategy based on an understanding of those customers’ needs, instilling effective
cost control and ensuring a positive and committed leadership team whose mental models are
appropriate to the environment the firm finds itself in.
One important caveat is that the majority of turnaround research to date has been undertaken
in European and US firms. Therefore our conclusions are likely to only be applicable to firms
operating in these territories. Indeed, the lack of turnaround research conducted in other, non-
Western, contexts presents an interesting opportunity for future study, both to identify the
turnaround strategies effective in different cultural contexts and to understand the underlying
reasons as to why individual strategies may be more or less effective in such circumstances.
It is also notable that much of the advice from the turnaround literature has tended to be
generic, with an implicit assumption that the strategies put forward would be effective for all
firms, regardless of their particular context or circumstances. The majority of the literature
we reviewed portrayed the identified turnaround strategies as universally applicable, with
little regard to the particular context the firm faces. While a minority of authors (e.g. Barker
and Duhaime, 1997; Pearce and Robbins, 1993) have raised the distinction between firm-
based or industry-based decline, we believe that greater recognition of the cause of
performance decline offers scope for the creation of more integrated and context specific
turnaround strategies. The current challenging economic climate has placed general economic
conditions at the front of people’s minds when considering the cause of a firm’s performance
20
decline. However, business insolvencies can occur at any point in the economic cycle and
industry specific factors or poor internal firm management can be additional triggers for
falling profitability. More finely grained research which takes into account the different
causes of decline could allow the development of evidence-based contingency models, where
specific recovery pathways could be linked to specific causes of decline. Such a contingency
approach has the potential to provide managers with turnaround advice that is more tailored
and appropriate to the particular context they face.
There are a number of other areas where our current knowledge on turnarounds is limited or
potentially constrained by the dominant perspectives adopted in the literature. While there is
a strong history of quantitative work aiming to elucidate the determinants of successful
turnaround, qualitative studies with a focus on process aspects are more limited in number.
Qualitative investigation would allow the study of under-researched human resource topics,
such as employees suffering survivor syndrome, or the effects of culture change. The
resource-based view (RBV) and dynamic capability perspectives could also provide
insightful lenses to explore turnaround. For example, do management teams that possess an
RBV insight execute more successful recoveries by protecting and leveraging their critical
resources? Or if turnaround is viewed as a dynamic capability what are the processes by
which it can be developed internally, without recourse to external sources such as the hiring
of a new CEO?
A second notable opportunity stems from the observation that the majority of research to date
has been framed from a command and control perspective, with a dominant narrative of top
management-driven change. Viewing the firm as a complex adaptive system (e.g. Anderson,
21
1999) could provide a fruitful alternative lens in researching turnarounds, which might reveal
more emergent self-organization processes of recovery.
Finally, the current economic crisis offers the prospect of a wealth of further data to isolate
the turnaround strategies applicable to firms attempting to recover from decline brought about
by general economic conditions. Such studies will hopefully lead to a greater recognition of
the underlying causes of decline and the benefits of taking a more finely grained contingency
approach to understanding effective turnaround strategies.
22
References
Anderson, P. (1999), “Complexity theory and organization science”, Organization Science,
Vol. 10, pp. 216-232.
Armenakis, A., Fredenberger, W., Cherones, L., Feild, H., Giles, W. and Holley, W. (1995),
“Symbolic actions used by business turnaround change agents”, Academy of Management
Journal Best Papers Proceedings pp. 229-233.
Arogyaswamy, K., Barker, V. and Yasai-Ardekani, M. (1995), “Firm turnarounds: an
integrative two-stage model”, Journal of Management Studies, Vol. 32, pp. 493-525.
Barker, V.L. and Duhaime, I.M. (1997), “Strategic change in the turnaround process: Theory
and empirical evidence”, Strategic Management Journal, Vol. 18, pp. 13-38.
Barker, V.L. and Mone, M.A. (1994), “Retrenchment: Cause of turnaround or consequence
of decline?”, Strategic Management Journal, Vol. 15, pp. 395-405.
Barker, V.L. and Patterson, P. (1996), “Top management team tenure and top manager causal
attributions in declining firms attempting turnaround”, Group and Organization
Management, Vol. 21, pp. 304-336.
Bibeault, D. (1982), Corporate Turnaround, McGraw Hill, New York.
Boyne, G.A. and Meier, K.J. (2009), “Environmental change, human resources and
organizational turnaround”, Journal of Management Studies, Vol. 46, pp. 835-863.
Bruton, G.D., Ahlstrom, D. and Wan, J.C.C. (2003), “Turnaround in East Asian firms:
Evidence from ethnic overseas Chinese communities”, Strategic Management Journal, Vol.
24, pp. 519-540.
Castrogiovanni, G., Baliga, B. and Kidwell, R. (1992), “Curing sick businesses: Changing
CEOs in turnaround efforts”, Academy of Management Executive, Vol. 6, pp. 26-41.
Daily, C.M. and Dalton, D.R. (1995), “CEO and director turnover in failing firms: an illusion
of change?”, Strategic Management Journal, Vol. 16, pp. 393-400.
Filatotchev, I. and Toms, S. (2006), “Corporate governance and financial constraints on
strategic turnarounds”, Journal of Management Studies, Vol. 43, pp. 407-433.
Flynn, F.J. and Staw, B.M. (2004), “Lend me your wallets: The effect of charismatic
leadership on external support for an organization”, Strategic Management Journal, Vol. 25,
pp. 309-330.
Ghoshal, S. and Bartlett, C.A. (1996), “Rebuilding behavioural context: A blueprint for
corporate renewal”, Sloan Management Review, Vol. 37, pp. 23-36.
Gopinath, C. (1991), “Turnaround: Recognizing decline and initiating intervention”, Long
Range Planning, Vol. 24, pp. 96-101.
23
Grinyer, P.H., Mayes, D. and McKiernan, P. (1990), “The sharpbenders: Achieving a
sustained improvement in performance”, Long Range Planning, Vol. 23, pp. 116-125.
Grinyer, P.H. and McKiernan, P. (1990), “Generating major change in stagnating
companies”, Strategic Management Journal, Vol. 11, pp. 131-146.
Hambrick, D.C. and Schecter, S.M. (1983), “Turnaround strategies for mature industrial-
product business units”, Academy of Management journal, Vol. 26, pp. 231-248.
Harley-Davidson. (2009), Annual Report.
Harley-Davidson. (2010), Annual Report.
Harley-Davidson. (2011), Annual Report.
Harley-Davidson Press Release. (22 January 2010), “Harley-Davidson reports 2009 results”.
Harley-Davidson Press Release. (2 February 2012), “New model fever: Have you caught it”.
Hofer, C.W. (1980), “Turnaround strategies”, Journal of Business Strategy, Vol. 1, pp. 19-31.
Johnson, G. (1987), Strategic Change and the Management Process, Basil Blackwell,
Oxford.
Kesner, I.F. and Dalton, D.R. (1994), “Top management turnover and CEO succession: An
investigation of the effects of turnover on performance”, Journal of Management Studies,
Vol. 31, pp. 701-713.
Lohrke, F. Bedeian, A. and Palmer, T. (2004), “The role of top management teams in
formulating and implementing turnaround strategies: A review and research agenda”,
International Journal of Management Reviews, Vol. 5/6, pp. 63-90.
Morrow, J.L. Sirmon, D.G., Hitt, M.A. and Holcomb, T.R. (2007), “Creating value in the
face of declining performance: Firm strategies and organizational recovery”, Strategic
Management Journal, Vol. 28, pp. 271-283.
O’Neill, H.M. (1986a), “An analysis of the turnaround strategy in commercial banking”,
Journal of Management Studies, Vol. 23, pp. 165-188.
O’Neill, H.M. (1986b), “Turnaround and recovery: What strategy do you need?”, Long
Range Planning, Vol. 19, pp. 80-88.
Pearce, J.A. and Robbins, D.K. (1993), “Retrenchment remains the foundation of business
turnaround”, Strategic Management Journal, Vol. 15, pp. 407-417.
Robbins, D.K. and Pearce, J.A. (1992), “Turnaround: Retrenchment and recovery”, Strategic
Management Journal, Vol. 13, pp. 287-309.
Schreuder, H., Van Cayseele, P., Jaspers, P. and De Graaff, B. (1991), “Successful bear-
fighting strategies”, Strategic Management Journal, Vol. 12, pp. 523-534.
24
Stopford, J.M. and Baden-Fuller, C. (1990), “Corporate rejuvenation”, Journal of
Management Studies, Vol. 27, pp. 399-415.
Sudarsanam , S. and Lai, J. (2001), “Corporate financial distress and turnaround strategies:
An empirical analysis”, British Journal of Management, Vol. 12, pp. 183-199.
Whetten, D.A. (1980), “Organizational decline: A neglected topic in organizational science”,
Academy of Management Review, Vol. 5, pp. 577-588.
25
Appendix: Summary Table of Empirical Business Turnaround Studies Reviewed
The table below summarises the sample, methodology and reported findings of each of the 22 prior empirical studies included in our review. The final column distils the key
successful turnaround strategies identified by each study, using common descriptors synthesised from the entire body of literature reviewed. This final column was generated
through discussion by the three authors once all the papers had been read and the findings from each considered.
Author Sample and
methods
Definitions Findings for firms successful in turnaround/recovery Key strategies
identified
Hofer, 1980 12 turnaround
situations of 10
firms in 10
industries over 30
years (1950-1980).
A major decline in
performance.
Two types of turnaround strategy:
1. Strategic: change to firm strategy.
2. Operating:
? Increase revenues: focus on existing line, short term quick win products, reduce
R&D, stimulate sales with price cuts, increased advertising and direct sale.
? Decrease costs and assets.
3. A new top management team is needed irrespective of turnaround route selected.
Cost efficiencies
CEO/TMT change
Asset retrenchment
Hambrick
and Schecter,
1983
US mature industrial
product business
units. n = 260 with
low performance.
Mid to late 1970s.
From PIMS
database, 4 years of
data.
Decline: average
pre-tax ROI for first
2 years of study had
to be below 10%.
Recovery: years 3
and 4 had to have at
least ROI of 20%.
1. Asset/cost surgery strategy: “belt-tightening”, increase cutbacks of marketing, R&D,
receivables and inventories, and dispose of old assets or newer saleable assets, and/or
add ‘state of art’ assets.
2. Selective product/market pruning strategy: refocus business to the most profitable
areas and/or its distinctive strengths:
• increase price and product quality
• decrease marketing and inventory expenses
• abandon marginal customers
3. Increase capacity utilization and employee productivity.
Cost efficiencies
Asset retrenchment
Focus on core
O’Neill,
1986a
9 successful
turnaround and
4 non-successful
turnaround firms.
Case histories from
Fortune from 1970s.
Not defined. 1. Management strategy: change CEO or TMT and emphasise morale building.
2. Cutback strategy to stop further decline: replace losing subsidiaries, financial
controls, cost cutting and inventory write off.
3. Growth strategy: new products, new promotions, acquisitions (although not used in
firms with a high level of diversification).
4. Restructuring strategy: redesign to the core of the business.
CEO/TMT change
Cost efficiencies
Asset retrenchment
Build for future
Focus on core
O’Neill,
1986b
Study of turnaround
(n = 31) and decline
(n = 20) commercial
banks, over a seven
year period..
Database
information sources.
A turnaround firm
has gained ground in
comparison to its
strategic group. A
decline firm has
continued with
relative decline.
Cost control and revenue generation. Control of loan risk and credit rationing. Work
rationalisation, new technologies, training and centralisation. Reduction in personnel,
merge branches, increased centralization, change staff composition. Liquidate
subsidiaries, sell or close branches, work simplification.
Attract more deposits and loan customers by advertising, promotion, and identifying
new markets, or changes in market definition. Increase marketing, targets and plans,
new banks, new consumer services, and international expansion.
Cost efficiencies
Asset retrenchment
Build for future
26
Grinyer and
McKiernan,
1990
25 UK companies
identified as sharp-
benders, and a
smaller control
group. Data from
1970-1984.Semi-
structured, multi-
level interviews plus
archival data.
A firm which
“sharp-bent” from
stagnation or decline
to sustained
performance relative
to their industry
peers.
Re-adaptation, which if unsuccessful, is followed by fundamental transformation. Part
of the purpose being to alter the firm’s operations, beliefs and rules.
Re-adaptation:
1. Strong financial controls, decrease production costs, decrease debt.
2. Understand product/market position (and make associated improvements to quality,
service, delivery) and increase marketing.
3. New functional executives.
Fundamental change:
1. Return to core business by closing operations or selling those that are weak.
2. Diversification via acquisition, new plant materials to enter new markets (which
gives new operations, beliefs and rules, and therefore a new way of thinking).
Cost efficiencies
Focus on core
CEO/TMT change
Grinyer,
Mayes,
McKiernan,
1990
25 UK companies
identified as sharp-
benders, and a
smaller control
group. Data from
1970-1984.Semi-
structured, multi-
level interviews plus
archival data.
A firm which
“sharp-bent” from
stagnation or decline
to sustained
performance relative
to their industry
peers. Control firms
had static
performance.
Actions to give sharp-bend:
1. Change to management: new CEO, new directors, “new, committed, positive
approach” for new values, vision, motivation and drive. Improve employee morale.
2. Production costs: reduce costs, especially in production, new plant investment, better
use of existing capacity, production/stock control increase, wage incentives.
3. Marketing: get closer to the customer, increase marketing channels, rationalise
product range to focus on profitable customers, cost-effective advertising.
In addition:
Dispose of subsidies to decrease debt, or properly integrate them to increase controls.
Grasp any opportunities of luck. Have a simple structure and small HQ.
CEO/TMT change
Cost efficiencies
Focus on core
Asset retrenchment
Stopford and
Baden-Fuller,
1990
6 British firms, a
control group of 5
successful European
competitors, and 4
less successful
British competitors,
from 1970s to 1988.
Four mature
industries: cutlery,
knitwear, domestic
electrical appliances,
and pumps.
Several hundred
interviews with
firms, buyers,
industry
associations, and
government.
“An increase in
profitability” as a
measure to test for
rejuvenation.
To rejuvenate:
1. Focus the business to manageable competitive arena.
2. New CEO.
3. Reduce scope: product lines, technological ranges, and cost reductions.
4. Build new skills and capabilities to enhance learning throughout the firm.
5. Re-complicate the business:
? Pursue growth to maintain change.
? Broaden product line to serve more of the primary market (both offensively to gain
leverage by exploiting core skills in new segments/markets; and as a defence
against new competition).
? Expand in to new countries.
In addition:
Break the mould: understand taken for granted assumptions.
Simplification and control: structural changes, changes to informal aspects of TMT.
Invest in organisational capability: new equipment, new organisational processes and
training, to fully exploit new possibilities, lower costs and increase differentiation.
Flexible supply: increase quality, implement time management, add new products.
Focus on core
CEO/TMT change
Cost efficiencies
Build for future
Cultural change
27
Gopinath,
1991
Archival case
data1975 – 1988,
n=22 successful
turnaround, n=3
non-successful
turnaround.
Not defined. A new CEO initiates turnaround. CEO/TMT change
Pant, 1991 Use of Compustat,
over a consecutive 8
year period, from
1970 to 1982,
sample was 42
turnaround firms
and 50 non
turnaround firms.
Turnaround is a
substantial
improvement of the
firms ROA relative
to industry average.
Turnaround firms are smaller than non-turnaround: the reason speculated as being that
they have greater flexibility and faster response time.
Investment in R&D alters industry structure and how firms compete, so the
relationships between the firms have changed and new opportunities are presented.
There was more investment in industries with turnaround than non-turnaround.
If a firm has a lower operating margin in an industry with low advertising, then
increasing spend on marketing will have quite an impact on sales.
Turnaround firms had more severe problems than non-turnaround, and were in slower
growth industries.
Schreuder,
Cayseele,
Jaspers, de
Graaff, 1991
28 declining
industries from
1972-1985 in the
Netherlands. 21
matched pairs of
firms; one which
coped with the
market, and one
which had not. Data
via questionnaire.
Success and
profitability defined
by level of ROA and
avoidance of losses.
Successful firms have market or product related strategies. They also alter distribution
channels, add new or delete old products. They decentralise and restructure. They also
cut or replace levels of the TMT.
Diversification only occurs within the industry.
Focus on the core
CEO/TMT change
Robbins and
Pearce, 1992
US manufacturing
industry 1976-1985:
textile mill products,
n = 38. 4 corporate
officers from each
organisation were
surveyed.
Performance
measured by ROI.
A two-stage process of retrenchment and then recovery.
1. Cut backs, and cost and asset reductions. Cost retrenchment was performed, but
needed asset retrenchment too. Liquefy plant property, receivables plus equipment.
Regardless of turnaround situation, firm should try to reduce operational costs via
retrenchments, these should be done quickly.
2. Returning to segments of business that have best profit opportunities.
3. Recovery strategies then follow.
Cost efficiencies
Asset retrenchment
Focus on core
Build for future
Pearce and
Robbins,
1993
Review of 9
turnaround papers
(1976-1992) from
different disciplines
and research
streams.
Two stage process:
? Retrenchment: cost cutting and asset reduction. Shrink back to most profitable
areas.
? Recovery: Externally: entrepreneurial, which means explore growth areas for the
core product or market. and/or Internally: efficiency, making better use of
manufacturing or production.
Cost efficiencies
Focus on core
Asset retrenchment
Build for future
28
Kesner and
Dalton, 1994
Firms of the New
York Stock
Exchange which had
CEO succession in
1980, n=84.
ROA three years
prior/post CEO
succession =
performance
measure.
CEO succession. CEO/TMT change
Daily and
Dalton, 1995
7 firms filing for
bankruptcy, 1973 to
1982, and a matched
sample of 7 not
filing for
bankruptcy. Data
taken over 5 years.
Not defined. The use of outside directors in firms surviving bankruptcy filings. CEO/TMT change
Armenakis,
Fredenberger,
Cherones,
Feild, Giles
and Holley
(1995)
145 completed
questionnaires from
members of the
“Turnaround
Management
Association”
Organisation
performance
unacceptable prior to
turnaround.
The most popular symbols used to aid change were elimination of perks, recognising
departments and managers, and using a “medical metaphor”.
Cost efficiency
CEO/TMT change
Ghoshal and
Bartlett, 1996
A study of more
than a dozen
companies
undergoing renewal.
Data taken from the
1980s and 1990s.
Not defined. Process of establishing strong business units, and then integrating them.
1. Simplification: strengthen performance of each unit, managers attention is focused,
they are given the freedom to develop new strategies and control over operations. Close
non-performing or peripheral units and acquire new ones, cut staff and responsibilities.
2. Integration: link units to exploit scale economies, leverage resources and
opportunities for cross-learning. Shared vision and values. Collaborate on programmes,
open communication and break isolation.
3. Regeneration: ability to replenish and renew. All managers should understand the
importance of individual’s behaviour, and think and act as leaders (so that the
organisation is capable of self-renewal). The most important aspect was changing
individual’s attitudes, assumptions and behaviours, rather than systems etc. This should
result in a culture change.
In addition the following traits are needed: Discipline, Support, Stretch, and Trust.
Cost efficiencies
Focus on core
Cultural change
Build for future
Barker and
Duhaime,
1997
120 successful
turnaround US
manufacturing firms
(1974-1988).
Questionnaires, to
CEO and COO, plus
archival sources
Decline: at least 3
years of ROI below
risk-free rate of
return. Recovery: at
least 3 years of ROI
above risk-free rate
of return.
1. If there is an industry-based decline then the need for strategic change is quite low
because a firm could still hold a strong industry position, and changing in this way
could result in the firm’s failure. Traditional cost efficiency measures may maintain the
firm while it rides out the economic conditions.
2. If there is a firm-based decline strategic change is necessary, and often accompanied
by a change to CEO. Turnaround needs to be a strategic reorientation.
Cost efficiencies
CEO/TMT change
29
Sudarsanam
and Lai, 2001
166 UK firms, in
financial distress
1983-1993, that
were comprised of
recovery and non-
recovery firms.
Distress: minimum
of 1 year of negative
Z score after 2
consecutive years of
positive Z score.
Recovery: return to
positive Z score over
2 year period after
distress year.
1. Operational restructuring: Cost reduction, revenue generation, operational asset
reduction to improve efficiency, lay offs. Improve cash flow. Maximise output/revenue
and minimise input. Increase marketing to stimulate sales, focus on existing products.
Decrease price, or increase if customers are not price sensitive.
2. Financial restructuring: move capital etc. to generate cash flow and reduce debt.
3. Management restructuring: replace CEO.
4. Asset restructuring: divest lines, products and businesses not aligned with the core
focus of the firm. Make acquisitions and joint ventures which will help in achieving the
core focus. Purchase new plant equipment that will make processes more efficient.
Cost efficiencies
Asset retrenchment
CEO/TMT change
Focus on core
Build for future
Bruton,
Anstrom and
Wan, 2003
Pacific-basin capital
markets databases
and annual reports,
1979 to 1998.
Turnaround: reversal
of a firm’s pattern of
performance decline.
Selling assets.
The firm should pursue those areas “that its managers know best”.
Asset retrenchment
Focus on core
Sheppard and
Chowdhury,
2005
One Canadian
retailer case study
and two minor
studies for
comparison.
Turnaround: the
firms perseverance
through existence-
threatening
performance decline.
1. Recognise and act on decline, do not dismiss it as a “blip”.
2. Evaluate the severity of the performance decline, understand the environment, and
understand the firm completely.
3. Get aid from all stakeholders.
4. Acquire resources to aid the firm in the long-run.
5. Exploit valuable, rare, hard to imitate activities.
6. Firm should be ready to alter itself to align with customer needs.
7. Work effectively, decisively and timely.
Focus on core
Build for future
Filatotchev
and Toms,
2006
British textile
industry, from the
1920s (turnaround
failure) and the
1960s (turnaround
success). Case
analyses and
archival data.
Turnaround firms:
those that are trading
profitably in the
1970s.
Reinvest available profits to fund capital equipment purchases.
Investment in new machinery to reduce costs.
Cost efficiency
Morrow, Jr,
Sirmon, Hitt
and
Holcomb,
2007
1982-1994,
Compustat database,
Lexis/Nexis and the
Wall Street Journal;
single product
manufacturing
firms, n = 178.
Performance
decline: 2 years of
meeting market
expectations,
followed by 1 year
of below investor
expectations.
Follow strategic actions that recombine existing resources in valuable and inimitable
ways.
Follow valuable and inimitable strategic actions in acquiring, and therefore controlling,
new resources to positively effect investors.
Divestment of assets.
Asset retrenchment
doc_788094520.pdf
Against a backdrop of continued weak economic conditions and with many firms experiencing declining financial performance, this paper presents a synthesis of the business turnaround literature.
1
European Business Review, Volume 25, Issue 3, 2013, Pages 243-262
This article is © Emerald Group Publishing and permission has been granted for this
version to appear here (https://dspace.lib.cranfield.ac.uk/index.jsp). Emerald does not
grant permission for this article to be further copied/distributed or hosted elsewhere
without the express permission from Emerald Group Publishing Limited.
www.emeraldinsight.com
Strategies for Business Turnaround and Recovery: A Review and Synthesis
Richard Schoenberg, Nardine Collier, Cliff Bowman
Cranfield University School of Management
Abstract
Purpose: Against a backdrop of continued weak economic conditions and with many firms
experiencing declining financial performance, this paper presents a synthesis of the business
turnaround literature. It aims to identify which turnaround and recovery strategies have been
effective historically, based on the evidence provided by previous empirical research.
Design/methodology/approach: We review literature that includes 22 empirical studies,
which investigated business turnarounds in previous recessionary environments. We review
this literature in its entirety, rather than as individual contributions, to synthesise the lessons
available for businesses operating in today’s challenging economic environment.
Findings: Our review revealed convergence in the findings of the prior studies. Six effective
turnaround strategies were consistently identified. Four of these relate to the content of the
turnaround, namely cost efficiencies, asset retrenchment, a focus on the firm’s core activities
and building for the future and two relate to accompanying change processes required for
implementation: reinvigoration of firm leadership and culture change.
Research limitations/implications: We highlight areas where knowledge on business
turnarounds remains limited and suggest potentially fruitful directions for future research.
Practical implications: We discuss the elements involved in each of the six effective
turnaround strategies identified. We also provide a contemporary example to illustrate the
application of these strategies in the current economic environment.
Originality/value: The paper offers practitioners an evidence-based view on effective
business turnaround and recovery strategies, in addition to providing researchers with an
accessible review of the existing literature.
Keywords: Business Turnaround; Recovery Strategies; Financial Decline
Article classification: Literature Review
2
Strategies for Business Turnaround and Recovery: A Review and Synthesis
Richard Schoenberg, Nardine Collier, Cliff Bowman
Cranfield University School of Management
Introduction
The economic crisis that began in 2008 has resulted in recessionary conditions across many
countries with numerous companies facing tough trading circumstances, which in some cases
are posing a direct threat to their survival. This has led to a revival of interest in business
turnaround and recovery strategies as firms seek to improve their performance in the
downturn and place themselves in the best position to benefit from economic upturn.
This paper therefore presents a synthesis of the existing business turnaround literature. Our
aim is to identify which business turnaround and recovery strategies have been effective
historically, drawing on the evidence provided by previous empirical research. We reviewed
literature that included 22 empirical studies, which primarily investigated business
turnarounds completed in the prior recessionary environments of the mid 1970s, early 1980s
and early 1990s. While we recognise that previous recessions may have had different causes
to today’s recessionary environment, the ultimate impact on businesses is similar; lower
demand and therefore declining revenues and profits. In total the turnaround and recovery
strategies of almost 1300 separate firms were empirically investigated in the body of
literature we draw upon. By reviewing this literature in its entirety, rather than as individual
contributions, we sought to synthesise the lessons available for businesses operating in
today’s challenging economic environment.
Our review revealed a very high level of convergence in the findings of the prior studies. In
essence, six turnaround strategies were consistently identified in the literature as effective in
helping firms make a sustained recovery from a period of performance decline. Four of these
3
relate to the content or main objectives of the turnaround, namely cost efficiencies, asset
retrenchment, a focus on the firm’s core activities and building for the future. The remaining
two relate to accompanying change processes required for implementation: reinvigoration of
firm leadership and corporate culture change. In the first part of this paper we discuss the
elements involved in each of these strategies, reviewing the literature with an emphasis on
capturing and synthesising the lessons for practice. In the second part of the paper we provide
a contemporary example to illustrate the application of these strategies in the current
economic environment. In our concluding section we highlight areas where the knowledge on
business turnarounds remains limited and suggest potentially fruitful directions for future
research. Finally, we provide an Appendix, which summarises in table form the individual
findings and methodologies of the 22 prior empirical studies that form the evidence base of
our review.
Lessons from the Turnaround Literature: Core Recovery Strategies
Content-orientatedstrategies
Cost efficiencies
The most prolific turnaround strategy implemented by firms is the pursuit of cost efficiencies.
Cost efficiencies include a varied range of actions, which can all be characterised as “belt-
tightening” or “fire-fighting”, with the aim of producing “quick-wins” in order to either
stabilise finances in the short-term until more complex strategies are devised, or to quickly
improve cash flow (Bibeault, 1982; Hambrick and Schecter, 1983; Sudarsanam and Lai,
2001). Cost efficiency measures are frequently the first step in any recovery strategy as they
can be quickly implemented, may have an almost immediate effect, and generally require
little or no capital or resource outlay (Hofer, 1980; Robbins and Pearce, 1992). Indeed one
4
study concluded that “cost retrenchment was so pervasive as to be considered indispensible in
achieving turnaround” (Robbins and Pearce, 1992: 303).
The most commonly reported cost efficiencies in the literature include reducing R&D,
collecting and reducing accounts receivable, cutting inventory, stretching accounts payable,
reducing marketing activity and eliminating pay increases (Hambrick and Schecter, 1983,
Hofer, 1980; O’Neill, 1986a; Stopford and Baden-Fuller, 1990; Sudarsanam and Lai, 2001).
These were frequently accompanied by financial restructuring such as a reworking of the
firm’s capital structure so as to relieve pressure from debt repayments (Sudarsanam and Lai,
2001). Interestingly, Grinyer et al., (1990) found that successful “sharpbenders” concentrated
on reducing production costs relative to their industry peers that pursued more general
overhead reductions. This included adjusting wage incentives, tighter stock control, financial
and capacity controls and investment in new plant to enable greater efficiencies and
streamlined processes (Grinyer et al., 1990).
As with any strategy the pursuit of cost efficiencies carries some risks. Some authors have
warned that solely cutting costs can reduce employee morale and commitment, resulting in
increased staff turnover (e.g. Barker and Mone, 1994). Others caution that cost efficiency
activity should be halted after a suitable length of time, so as not to damage assets or
resources needed to maintain the core focus of the firm (Sudarsanam and Lai, 2001). Indeed
some studies present evidence that firms which were unsuccessful in their turnaround efforts
over-pursued cost efficiencies to the extent that they actually exacerbated the decline (Boyne
and Meier, 2009). Similarly, Hambrick and Schecter (1983) also caution that while R&D is
often one of the first areas to be cut, this alone is unlikely to be a major contributor to
turnaround and, furthermore, may weaken the firm for the future.
5
Asset retrenchment
Asset retrenchment is often pursued in concert with, or immediately following, a cost
efficiency drive. An asset retrenchment strategy is where areas of the firm that are under-
performing are appraised to determine if efficiencies can be made, or whether it is best to
divest the asset completely rather than allowing it to continue operating at a weaker level than
the rest of the firm (Hofer 1980; Morrow et al., 2007). Some studies indicated that
retrenchment was implemented only if cost efficiency strategies did not have enough impact
to stabilise the firm’s finances, although in the majority of cases it is the natural second step
following cost efficiencies (Robbins and Pearce, 1992).
Filatotchev and Toms (2006) highlight that the usefulness of asset retrenchment as a
component of a turnaround strategy depends on the firm’s ability to generate cash flow from
any disposal. It is often assumed that this will be the case, yet there can be significant
difficulties surrounding simple disposal and cash generation due to asset specificity, liquidity
in the second hand market and exit barriers (Filatotchev and Toms, 2006). Similarly, where
asset retrenchment involves the disposal of aging assets and their replacement with new,
state-of-the-art counterparts, for example investing in new plant, equipment or technology,
careful assessment is obviously required to ensure that the efficiency savings will more than
cover the investment and implementation costs (Sudarsanam and Lai, 2001).
Retrenchment decisions are inevitably difficult. There is the risk that asset sales will
compromise future strategic options, while conversely they may be a necessity to generate
cash and reduce losses. As one study concluded “the primary guideline for decision making
6
in such a situation appears to be survival and the need to stem the bleeding” (Gopinath, 1991:
99).
Focusoncoreactivities
A focus on the firm’s core activities is a further turnaround strategy repeatedly identified in
the literature and frequently enacted in parallel with asset retrenchment (Boyne and Meier
2009; Pearce and Robbins, 1993; Robbins and Pearce, 1992). This strategy entails
determining the markets, products and customers that have the potential to generate the
greatest profits and refocusing the firms activities on these areas. Successful turnarounds
have been associated with a focus on product lines for which the firm is best known,
customer segments that are particularly loyal or less price sensitive, and areas where the firm
has distinct competitive strength (Hambrick and Schecter, 1993; Sudarsanam and Lai, 2001).
The firm may also return to activities for which it was well known in the past (Hambrick and
Schecter, 1983; Hofer, 1980). In conjunction with this it may be necessary for the firm to
undertake a redesign or restructuring to align itself more effectively with its core purpose,
entailing the rationalisation, divestment or closure of operations, products or assets that do
not fit with this purpose (O’Neill, 1986a). This retrenchment can also serve to free up scarce
marketing, operational and financial resources for reinvestment in the chosen core activities,
including appropriate acquisitions where specific further capability is required (Grinyer, et
al., 1990; Hambrick and Schecter, 1983; Stopford and Baden-Fuller, 1990; Sudarsanam and
Lai 2001). To reinforce the importance of a focus on the core, some studies explicitly warn
that following a strategy with “no distinguishing characteristics, hence qualifying as a
piecemeal approach” is unlikely to lead to a successful recovery (Hambrick and Schecter,
1983: 246).
7
Focus allows the firm to develop a clear competitive strategy in its chosen core activities. The
Grinyer et al., (1990) study found that this was frequently achieved through an increased
focus on marketing, employing initiatives to improve customer understanding, build closer
customer relationships, increase the number of marketing channels, optimise after-sales
service and employ cost-effective advertising.
Arogyaswamy et al., (1995) report that if a firm is in an environment characterised by
temporary economic downturn, then scaling back the number of activities it is involved in
could be all that is needed for it to survive the conditions. Here they advocate contracting
back to serve the customers which most value the firm’s resources and capabilities. However,
if the economic conditions are more severe or permanent, the return to the core should be
attained through concentrating on using existing resources and capabilities to focus on the
remaining viable customers. Put another way, the firm maximises its chance of recovery
through exclusively serving the needs of the core customers, so as to “strengthen or expand”
upon any favourability in the firm’s present position in comparison to its competitors
(Arogyaswamy et al., 1995).
Buildfor thefuture
The literature reveals that a ‘build for the future’ strategy typically, and logically, follows the
implementation of the three strategies discussed above. This phase is entered when the
immediate crisis has passed and the financial position has stabilised (Filatotchev and Toms,
2006; Robbins and Pearce, 1992). Build for the future is aligned with a recovery phase of the
turnaround process. This recovery should naturally be undertaken in a cautious and
considered manner, and will often be embarked upon as a growth strategy from the strong
8
core focus that the firm has developed. It is about positioning for long-term growth rather
than short-term day-to-day survival.
In this phase firms tended to follow an entrepreneurially driven reconfiguration of assets,
leveraging existing resources to broaden the product line or enter new geographic territories
(Pearce and Robbins, 1993; Sudarsanam and Lai, 2001). The build for the future strategy has
been seen as “re-complicating the business” by adding back some of the complexity removed
during cost cutting and retrenchment (Stopford and Baden-Fuller, 1990).
It has been argued that a turnaround is only successfully completed when the firm in question
has been left with the capacity for self-renewal, so as to be agile in responding to changing
circumstances in the future (Ghoshal and Bartlett, 1996; Stopford and Baden-Fuller, 1990). It
is the ability of the firm to replenish and renew and is described as the hardest stage to attain,
since it is difficult to maintain momentum in keeping the firm agile enough to transform, and
not allowing it to get “stuck” in its current position or revert to a “usual” way of operating.
This can be especially challenging following a difficult turnaround period because employees
may feel they need a break from the change and upheaval they have experienced. Ghoshal
and Bartlett (1996) suggest that an aid to accomplishing this is to ensure that all managers,
regardless of level, act as leaders and understand the importance of the individual employee,
their own personal behaviours and how their actions have a significant impact on the ability
of the firm to remain flexible (Ghoshal and Bartlett, 1996).
This latter point illustrates the links between the four ‘content-orientated’ turnaround
strategies we have considered so far, and the change processes required to enact them. We
now consider these more ‘process-orientated’ strategies.
9
Process-orientatedstrategies
Reinvigorationof FirmLeadership
Changing the CEO
The replacement of the firm’s incumbent CEO is frequently undertaken early in the
turnaround process, and in some cases is even the trigger for a realisation that the firm is in
serious difficulties and that action is urgently needed (Stopford and Baden-Fuller, 1990).
CEO change is significantly linked to firms in distress and it is reported that in turnaround
situations 75% of replacement CEOs are appointed from outside the firm (Kesner and Dalton,
1994).
The literature reveals two predominant reasons as to why the CEO is replaced. First, the
media and shareholders frequently place responsibility for the negative position of the firm
on the CEO. Replacing the incumbent CEO can serve as a signal of change, both to this
external audience and internally to the employees (Daily and Dalton, 1995). Indeed, the
change in leadership is often instigated by Board Chairmen following lobbying by investors
(Sudarsanam and Lai, 2001). The change has symbolic power; it is a sign that the current
situation is no longer tenable, that the firm is serious in its willingness to change and that the
turnaround process has begun (Arogyaswamy et al., 1995; Boyne and Meier, 2009; O’Neill
1986a). Interestingly, research into charismatic leadership has found that to external
audiences “the mere presence of a charismatic leader can remove doubts about the survival of
a firm” (Flynn and Staw, 2004: 311), as well as galvanize employees towards committed and
focused efforts during difficult circumstances. This would suggest the benefits of ensuring a
charismatic leader is at the helm during the turnaround period.
10
The second common reason for the replacement of the CEO is where the incumbent appears
blind to the existence of any problems (Bibeault, 1982; Gopinath, 1991; Kesner and Dalton,
1994), or simply tries to solve issues with past solutions (Arogyaswamy et al., 1995; Barker
and Patterson, 1996). Managers can take for granted the assumptions and beliefs enacted in
their firm, which can blind them from identifying, or agreeing to, any course of action that
does not fit with the usual way of operating (Johnson, 1987). In such cases the managers’
historically-built mental models fail to adapt to their firm’s changing interactions with the
environment. Managers will seek to solve firm-based decline issues with the solutions they
have used in the past; even if there is evidence which indicates that their past manner of
viewing the environment is no longer sufficient for understanding the current situation, or for
the development of new solutions. In addition, managers may be so stressed and distracted by
the firm’s decline that any evidence they do identify, or are presented with, can easily be
misinterpreted (Arogyaswamy et al., 1995). Indeed, Sudarsanam and Lai (2001) report that
bankruptcy and ultimate corporate failure following a period of performance decline is linked
to management inaction, poor timing and rejection of turnaround strategies that could be
detrimental to the CEO’s own self-interest. In these situations, the replacement of the CEO
can bring new perspectives and assumptions as well as different personal backgrounds and
experiences to those they replaced and, most importantly, new ideas on what turnaround
strategies the firm can implement (Barker and Duhaime, 1997). These arguments are also
highlighted by Grinyer et al., (1990: 121), who found that while 55% of the successful
“sharpbenders” had a change of leadership, more important was that the new leadership
brought “a new committed, positive approach – a bias for action. This was closely linked to
the injection of new values, new vision, strong drive and improved motivation and
communication”.
11
Changing the Top Management Team
In concert with CEO change, replacement of part or all of the Top Management Team (TMT)
is often advocated (Kesner and Dalton, 1994; Lohrke et al., 2004). Indeed, many new CEOs
will bring their own trusted colleagues with them. Much of the discussion reported above
regarding CEO change is echoed in the findings regarding the TMT. Therefore, to avoid
repetition, we describe below only those elements that are specific to the TMT.
Some research has identified the replacement of the TMT as one of the first actions that a
firm should take as a “pre-condition for almost all successful turnaround” (Hofer, 1980: 25).
A number of reasons have been given for this view. First, the existing TMT will have had a
set of beliefs on how the firm should be, which had to be incorrect since they had led the firm
to its current position (Hofer, 1980). Second, senior managers may reject arguments and
evidence if it highlights they have made poor prior decisions, and therefore new TMTs are
necessary to enable the firm to focus on new strategies and, finally, different managers have
different skills and those that delivered the firm to its present position may not be suitably
skilled for leading the turnaround (Kesner and Dalton, 1994).
In his research into organisational decline Whetten (1980) identified that incumbent
managers may fear taking responsibility for failure, and as such do not have the incentive to
halt the implementation of problem strategies: “instead they tend to pour good money after
bad in hope of salvaging the operation and their reputations” (Whetten, 1980: 580). This was
compounded if their advisers either did not recognise the significance of pertinent
information or did not wish to pass on bad news. With comparable findings Gopinath (1991:
96) also found that the incumbent management may not want to admit the firm was in
difficulty, instead it would rely on “well-rehearsed responses, and…indulge in self-
12
deception”, explaining that this may continue until the firm is in severe decline. Long-serving
senior managers may also be too ensconced in decline-causing extant strategies to accept the
need for change (Barker and Patterson, 1996). Conversely, when new external senior
managers join a firm they may be better equipped to deal with the psychological, sociological
and general issues present (Kesner and Dalton, 1994). Interestingly, the available empirical
evidence suggests that the appointment of an external CEO does indeed lead to greater
change in the TMT, although there is no consistent relationship between TMT change and
subsequent business performance (Kesner and Dalton, 1994).
A Cautionary Note Regarding CEO/TMT Change
Other research has cautioned that CEO and TMT succession can result in high levels of
internal disruption. The introduction of new reporting relationships can cause additional
stress for employees worried for their own security and status, as well as a deterioration in
informal communication channels, which together can increase levels of ambiguity and
instability throughout the firm (Castrogiovanni et al., 1992; Kesner and Dalton, 1994).
A limited number of the prior turnaround studies have distinguished between performance
decline caused by industry-wide factors, where changes in the external environment have
resulted in negative implications for all the firms in the industry, and decline caused by firm-
specific factors, where the focal firm had suffered a particular fall in profitability relative to
rivals due, for example, to an excessively high cost base or poor product-market decisions
(Barker and Duhaime; 1997; Pearce and Robbins, 1993). These studies argue that the precise
cause of decline has implications for the selection of appropriate turnaround strategies. In
instances of industry-based decline, cost retrenchment may be all that is required until
demand picks up (Barker and Duhaime, 1997), or in cases of a fundamental shift in consumer
13
tastes, new market opportunities may need to be sought (Pearce and Robbins, 1993). In such
cases changing the CEO and TMT could have negative implications, not only causing
internal disruptions, but also risking loss of the existing management team’s understanding of
the firm’s competencies and customers. The latter could be vital to a more cost conscious
execution of the firm’s existing strategy, which may be all that is required to ride out a
temporary industry downturn. In contrast, where the cause of decline is firm-based, it is
unlikely that the management team that allowed the firm to fall behind its rivals is capable of
effecting the scale of changes required for a turnaround. In these cases there is widespread
agreement amongst prior studies that replacement of the CEO and part, or all, of the TMT is
necessary for effective recovery (Arogyaswamy et al., 1995; Barker and Duhaime; 1997;
Pearce and Robbins, 1993). In sum this suggests that whether a successful turnaround is
dependent upon changing the firm’s leadership needs to include a judgement about whether
the firm’s decline simply reflects the overall business environment or whether it has been
compounded by underlying specific firm-based issues. A comparison with industry peers may
be helpful here. In the first case (industry-wide decline) we would expect to see financial
performance similarly affected to rival firms and no loss of relative market share; in the
second case (firm-based decline) we would expect to see either the firm’s profitability or its
market share fall to a greater extent than its peers reflecting the firm’s impaired relative
competitiveness.
Culturechange
In concert with leadership change, the role of culture change in facilitating the rejuvenation
and re-adaptation of the struggling firm is highlighted in the literature. It may be necessary to
effect a change in culture to challenge past beliefs and taken for granted assumptions, which
may no longer be relevant to the changed environment the firm is facing; only then can
14
historic operating routines be abandoned and new employee behaviours adopted. Stopford
and Baden-Fuller’s (1990) study of rejuvenation in declining UK manufacturers showed that
when the CEO and TMT challenged past beliefs it acted as a signal to employees that this
behaviour was acceptable and led to the generation of innovative solutions that would not
have otherwise been possible. Signalling was also found to be part of the culture change
turnaround strategy because it indicated a transition from the old way of behaving to the new
way for the firm to move forward. The collection and dissemination of up to date market
information, reflecting the new realities of the market place, was one of the ways in which
historic beliefs were challenged. Others have found that the use of symbols facilitates a
change in the cognition and behaviours of employees, which is important for the turnaround
to progress swiftly and achieve quick results (Armenakis et al., 1995). These researchers
identified the most popular and useful symbols as the elimination of perks and the adoption
of “medical” metaphors to convey the severity of the situation. Overall, the literature
emphasises that in implementing turnaround strategies managers should remember that it is
not just the systems or structures that need to change, but the behaviour and attitudes of the
individuals too, and that acknowledging and respecting this is important for success.
Application of the Turnaround Strategies: An Illustrative Example
Harley-Davidson, the iconic motorcycle manufacturer, provides an example of the turnaround
strategies outlined above in action during the current economic downturn. The European and
US markets for heavyweight motorcycles fell 40% between 2007 and 2010, declining from a
combined total of 904,000 to 561,000 units. As a consequence Harley-Davidson’s net profits
collapsed from US$933m in 2007 to a loss of US$55m in 2009. Their sales revenue over the
same period fell from US$6.14bn to US$4.8bn. Harley-Davidson’s 2009, 2010 and 2011
15
Annual Reports and associated press releases reveal a set of decisive actions undertaken to
address this decline, which included:
Cost efficiencies: The immediate challenge of declining sales and profits was met by cutting
production by 26% during 2009, to better balance supply with demand and, in turn, protect
the strength of the Harley-Davidson brand. This was accompanied by a consolidation of
production operations, which included 2000 job losses, representing a 22% headcount
reduction. In other actions, the distribution of parts and accessories was transferred to a third
party provider and vehicle test facilities were consolidated from three US locations to one.
Two major longer term cost efficiency initiatives were also commenced. First, the adoption
of lean product development processes to reduce the time to market by 30%, better capture
customer insight and simultaneously handle more product development initiatives. Second,
the restructuring of production to provide a standardized operating system across all the
firm’s manufacturing facilities. This aimed to allow production to respond efficiently to
seasonal and other changes in overall demand and to vary the product mix more flexibly in
response to customer preferences. The implementation of this involved the negotiation of
new seven year labour agreements at each of the firm’s facilities, which included the
capability to adjust the size of the workforce through the use of flexible workers, who will
work as required to meet demand and make up 20-30% of the plant employees. It also
involved significant structural changes to the facilities themselves to allow all models to be
produced interchangeably on a single production line.
To illustrate the scale of the restructuring, the 2011 Annual Report estimated that the
activities initiated since 2009 would incur one-time costs of US$500m by 2013. It also
16
revealed that cumulative savings generated from these restructuring activities were US$217m
in 2011 and that ongoing savings of US$315m per annum would be seen from 2014. It is
relevant to note that these initiatives were not only concerned with changing the firm’s cost
structure, but also aimed to simultaneously make the business more customer responsive; in
the CEO’s words “getting customers the motorcycles they want, when they want them.”
(Harley-Davidson, 2010: 4).
Asset retrenchment: In addition to the Harley-Davidson brand of custom motorcycles the
Company owned two brands of sports motorcycles, Buell and MV Agusta. In October 2009
Harley-Davidson announced that it would shut down its Buell Motorcycle Division and
divest MV Agusta, the Italian sports motorcycle manufacturer that had been acquired just a
year earlier for $109m. The news of Buell’s closure, a wholly owned subsidiary since 1997,
was a shock to many of its customers and employees and incurred one-time closure costs of
approximately US$125m. MV Agusta was sold back to its former owner for an undisclosed
sum.
Focus on core activities: “Focusing our investment behind the uniquely strong Harley-
Davidson brand provides the most attractive path to sustained, long-term growth” stated the
firm’s CEO (Harley-Davidson, 22 January 2010). This focus was implemented through
product development targeted at customers who were loyal to the brand’s differentiated value
proposition of traditional engineering, heritage and retro styling. Between 2009 and 2011
over ten new models were introduced to a range that numbered around 35 in total, combined
with the deletion of a number of slower selling models. The product brochures made frequent
reference to Harley-Davidson’s unique heritage, using inset photographs of vintage models to
illustrate styling cues of the current models. An example of these targeted product
17
introductions was the Sportster ‘Seventy-Two’ model, which adopted 1970s styling features
such as white-walled tyres, metalflake paint, and ape-hanger handlebars. It explicitly
leveraged the firm’s competencies in terms of design, heritage and marketing; in the words of
the Company, “it personifies old-school Harley-Davidson....no-one [else] has the experience,
motivation and desire to produce a bike like the Seventy-Two” (Harley-Davidson, 2 February
2012). Notably, all the new model introductions over this period were based on incremental
development of existing platforms, making the most efficient use of product development
budgets and avoiding the capital cost of major plant re-tooling.
Build for the future: In addition to targeting core customers the recovery strategy called for
growing sales to outreach customers, both “multigenerational and multicultural” (Harley-
Davidson, 2010: 5). This included the launch of models orientated to the young adult and
female segments as well as international expansion, with the objective of raising export sales
from 33% to 40% of production output by 2014. A number of organisational steps towards
this were taken in 2010 and 2011. New regional headquarters for the Asia Pacific and Latin
America regions were opened to support sales, marketing and dealer development activities
in these markets. The first Harley-Davidson dealership opened in India in July 2010. This
was followed by an Indian assembly facility in 2011 to allow the local assembly of
motorcycles from components manufactured in the firm’s US plants, reducing tariffs and
making the products more accessible.
CEO and Top Management Team change: The above strategies were implemented by a
reinvigorated firm leadership. A new CEO, Keith Wandell, joined Harley-Davidson in May
2009. Notably, he was the first CEO to be appointed from outside the firm since 1981. He
had previously been President and COO of Johnson Controls, a global diversified industrial
18
group. Several changes to the TMT were also made at this time, including the appointment of
a new CFO, who had joined Harley-Davidson six years previously and brought 25 years of
financial leadership experience, as well as two further senior internal promotions of
executives possessing significant experience in the operations and product development
functions. A number of other changes to the TMT, including external appointments, were
made subsequently.
It is too early to comment on the long term sustainability of these actions, but the short term
recovery has been marked. While the European and US motorcycle markets declined a
further 9% between 2009 and 2011, Harley-Davidson’s net profits turned around to
US$146m in 2010, rising to US$599m in 2011, with sales revenues also up by 11% since the
recovery strategy was initiated. Harley-Davidson’s share price increased from a low of
US$7.99 in March 2009 to US$38.87 at the end of 2011, representing an increase in market
capitalisation of approximately US$7bn over the 33 month period.
Conclusions and Future Directions for Turnaround Research
Our initial aim in this paper was to identify which business turnaround strategies have been
effective historically, drawing on evidence provided by previous empirical research. We
found that six turnaround strategies were consistently identified in the literature as effective
in helping firms make a sustained recovery from a period of performance decline. Four of
these relate to the content or main objectives of the turnaround, namely cost efficiencies,
asset retrenchment, a focus on the firm’s core activities and building for the future. The
remaining two relate to accompanying change processes required for implementation:
reinvigoration of firm leadership and corporate culture change.
19
While the high degree of convergence in the findings of the studies we reviewed was
surprising, the overall message that emerges is perhaps less so. The key lesson that comes
through is that successful turnaround and recovery is driven by concentrating on business
fundamentals: focusing on the most viable and profitable customers, developing a clear
competitive strategy based on an understanding of those customers’ needs, instilling effective
cost control and ensuring a positive and committed leadership team whose mental models are
appropriate to the environment the firm finds itself in.
One important caveat is that the majority of turnaround research to date has been undertaken
in European and US firms. Therefore our conclusions are likely to only be applicable to firms
operating in these territories. Indeed, the lack of turnaround research conducted in other, non-
Western, contexts presents an interesting opportunity for future study, both to identify the
turnaround strategies effective in different cultural contexts and to understand the underlying
reasons as to why individual strategies may be more or less effective in such circumstances.
It is also notable that much of the advice from the turnaround literature has tended to be
generic, with an implicit assumption that the strategies put forward would be effective for all
firms, regardless of their particular context or circumstances. The majority of the literature
we reviewed portrayed the identified turnaround strategies as universally applicable, with
little regard to the particular context the firm faces. While a minority of authors (e.g. Barker
and Duhaime, 1997; Pearce and Robbins, 1993) have raised the distinction between firm-
based or industry-based decline, we believe that greater recognition of the cause of
performance decline offers scope for the creation of more integrated and context specific
turnaround strategies. The current challenging economic climate has placed general economic
conditions at the front of people’s minds when considering the cause of a firm’s performance
20
decline. However, business insolvencies can occur at any point in the economic cycle and
industry specific factors or poor internal firm management can be additional triggers for
falling profitability. More finely grained research which takes into account the different
causes of decline could allow the development of evidence-based contingency models, where
specific recovery pathways could be linked to specific causes of decline. Such a contingency
approach has the potential to provide managers with turnaround advice that is more tailored
and appropriate to the particular context they face.
There are a number of other areas where our current knowledge on turnarounds is limited or
potentially constrained by the dominant perspectives adopted in the literature. While there is
a strong history of quantitative work aiming to elucidate the determinants of successful
turnaround, qualitative studies with a focus on process aspects are more limited in number.
Qualitative investigation would allow the study of under-researched human resource topics,
such as employees suffering survivor syndrome, or the effects of culture change. The
resource-based view (RBV) and dynamic capability perspectives could also provide
insightful lenses to explore turnaround. For example, do management teams that possess an
RBV insight execute more successful recoveries by protecting and leveraging their critical
resources? Or if turnaround is viewed as a dynamic capability what are the processes by
which it can be developed internally, without recourse to external sources such as the hiring
of a new CEO?
A second notable opportunity stems from the observation that the majority of research to date
has been framed from a command and control perspective, with a dominant narrative of top
management-driven change. Viewing the firm as a complex adaptive system (e.g. Anderson,
21
1999) could provide a fruitful alternative lens in researching turnarounds, which might reveal
more emergent self-organization processes of recovery.
Finally, the current economic crisis offers the prospect of a wealth of further data to isolate
the turnaround strategies applicable to firms attempting to recover from decline brought about
by general economic conditions. Such studies will hopefully lead to a greater recognition of
the underlying causes of decline and the benefits of taking a more finely grained contingency
approach to understanding effective turnaround strategies.
22
References
Anderson, P. (1999), “Complexity theory and organization science”, Organization Science,
Vol. 10, pp. 216-232.
Armenakis, A., Fredenberger, W., Cherones, L., Feild, H., Giles, W. and Holley, W. (1995),
“Symbolic actions used by business turnaround change agents”, Academy of Management
Journal Best Papers Proceedings pp. 229-233.
Arogyaswamy, K., Barker, V. and Yasai-Ardekani, M. (1995), “Firm turnarounds: an
integrative two-stage model”, Journal of Management Studies, Vol. 32, pp. 493-525.
Barker, V.L. and Duhaime, I.M. (1997), “Strategic change in the turnaround process: Theory
and empirical evidence”, Strategic Management Journal, Vol. 18, pp. 13-38.
Barker, V.L. and Mone, M.A. (1994), “Retrenchment: Cause of turnaround or consequence
of decline?”, Strategic Management Journal, Vol. 15, pp. 395-405.
Barker, V.L. and Patterson, P. (1996), “Top management team tenure and top manager causal
attributions in declining firms attempting turnaround”, Group and Organization
Management, Vol. 21, pp. 304-336.
Bibeault, D. (1982), Corporate Turnaround, McGraw Hill, New York.
Boyne, G.A. and Meier, K.J. (2009), “Environmental change, human resources and
organizational turnaround”, Journal of Management Studies, Vol. 46, pp. 835-863.
Bruton, G.D., Ahlstrom, D. and Wan, J.C.C. (2003), “Turnaround in East Asian firms:
Evidence from ethnic overseas Chinese communities”, Strategic Management Journal, Vol.
24, pp. 519-540.
Castrogiovanni, G., Baliga, B. and Kidwell, R. (1992), “Curing sick businesses: Changing
CEOs in turnaround efforts”, Academy of Management Executive, Vol. 6, pp. 26-41.
Daily, C.M. and Dalton, D.R. (1995), “CEO and director turnover in failing firms: an illusion
of change?”, Strategic Management Journal, Vol. 16, pp. 393-400.
Filatotchev, I. and Toms, S. (2006), “Corporate governance and financial constraints on
strategic turnarounds”, Journal of Management Studies, Vol. 43, pp. 407-433.
Flynn, F.J. and Staw, B.M. (2004), “Lend me your wallets: The effect of charismatic
leadership on external support for an organization”, Strategic Management Journal, Vol. 25,
pp. 309-330.
Ghoshal, S. and Bartlett, C.A. (1996), “Rebuilding behavioural context: A blueprint for
corporate renewal”, Sloan Management Review, Vol. 37, pp. 23-36.
Gopinath, C. (1991), “Turnaround: Recognizing decline and initiating intervention”, Long
Range Planning, Vol. 24, pp. 96-101.
23
Grinyer, P.H., Mayes, D. and McKiernan, P. (1990), “The sharpbenders: Achieving a
sustained improvement in performance”, Long Range Planning, Vol. 23, pp. 116-125.
Grinyer, P.H. and McKiernan, P. (1990), “Generating major change in stagnating
companies”, Strategic Management Journal, Vol. 11, pp. 131-146.
Hambrick, D.C. and Schecter, S.M. (1983), “Turnaround strategies for mature industrial-
product business units”, Academy of Management journal, Vol. 26, pp. 231-248.
Harley-Davidson. (2009), Annual Report.
Harley-Davidson. (2010), Annual Report.
Harley-Davidson. (2011), Annual Report.
Harley-Davidson Press Release. (22 January 2010), “Harley-Davidson reports 2009 results”.
Harley-Davidson Press Release. (2 February 2012), “New model fever: Have you caught it”.
Hofer, C.W. (1980), “Turnaround strategies”, Journal of Business Strategy, Vol. 1, pp. 19-31.
Johnson, G. (1987), Strategic Change and the Management Process, Basil Blackwell,
Oxford.
Kesner, I.F. and Dalton, D.R. (1994), “Top management turnover and CEO succession: An
investigation of the effects of turnover on performance”, Journal of Management Studies,
Vol. 31, pp. 701-713.
Lohrke, F. Bedeian, A. and Palmer, T. (2004), “The role of top management teams in
formulating and implementing turnaround strategies: A review and research agenda”,
International Journal of Management Reviews, Vol. 5/6, pp. 63-90.
Morrow, J.L. Sirmon, D.G., Hitt, M.A. and Holcomb, T.R. (2007), “Creating value in the
face of declining performance: Firm strategies and organizational recovery”, Strategic
Management Journal, Vol. 28, pp. 271-283.
O’Neill, H.M. (1986a), “An analysis of the turnaround strategy in commercial banking”,
Journal of Management Studies, Vol. 23, pp. 165-188.
O’Neill, H.M. (1986b), “Turnaround and recovery: What strategy do you need?”, Long
Range Planning, Vol. 19, pp. 80-88.
Pearce, J.A. and Robbins, D.K. (1993), “Retrenchment remains the foundation of business
turnaround”, Strategic Management Journal, Vol. 15, pp. 407-417.
Robbins, D.K. and Pearce, J.A. (1992), “Turnaround: Retrenchment and recovery”, Strategic
Management Journal, Vol. 13, pp. 287-309.
Schreuder, H., Van Cayseele, P., Jaspers, P. and De Graaff, B. (1991), “Successful bear-
fighting strategies”, Strategic Management Journal, Vol. 12, pp. 523-534.
24
Stopford, J.M. and Baden-Fuller, C. (1990), “Corporate rejuvenation”, Journal of
Management Studies, Vol. 27, pp. 399-415.
Sudarsanam , S. and Lai, J. (2001), “Corporate financial distress and turnaround strategies:
An empirical analysis”, British Journal of Management, Vol. 12, pp. 183-199.
Whetten, D.A. (1980), “Organizational decline: A neglected topic in organizational science”,
Academy of Management Review, Vol. 5, pp. 577-588.
25
Appendix: Summary Table of Empirical Business Turnaround Studies Reviewed
The table below summarises the sample, methodology and reported findings of each of the 22 prior empirical studies included in our review. The final column distils the key
successful turnaround strategies identified by each study, using common descriptors synthesised from the entire body of literature reviewed. This final column was generated
through discussion by the three authors once all the papers had been read and the findings from each considered.
Author Sample and
methods
Definitions Findings for firms successful in turnaround/recovery Key strategies
identified
Hofer, 1980 12 turnaround
situations of 10
firms in 10
industries over 30
years (1950-1980).
A major decline in
performance.
Two types of turnaround strategy:
1. Strategic: change to firm strategy.
2. Operating:
? Increase revenues: focus on existing line, short term quick win products, reduce
R&D, stimulate sales with price cuts, increased advertising and direct sale.
? Decrease costs and assets.
3. A new top management team is needed irrespective of turnaround route selected.
Cost efficiencies
CEO/TMT change
Asset retrenchment
Hambrick
and Schecter,
1983
US mature industrial
product business
units. n = 260 with
low performance.
Mid to late 1970s.
From PIMS
database, 4 years of
data.
Decline: average
pre-tax ROI for first
2 years of study had
to be below 10%.
Recovery: years 3
and 4 had to have at
least ROI of 20%.
1. Asset/cost surgery strategy: “belt-tightening”, increase cutbacks of marketing, R&D,
receivables and inventories, and dispose of old assets or newer saleable assets, and/or
add ‘state of art’ assets.
2. Selective product/market pruning strategy: refocus business to the most profitable
areas and/or its distinctive strengths:
• increase price and product quality
• decrease marketing and inventory expenses
• abandon marginal customers
3. Increase capacity utilization and employee productivity.
Cost efficiencies
Asset retrenchment
Focus on core
O’Neill,
1986a
9 successful
turnaround and
4 non-successful
turnaround firms.
Case histories from
Fortune from 1970s.
Not defined. 1. Management strategy: change CEO or TMT and emphasise morale building.
2. Cutback strategy to stop further decline: replace losing subsidiaries, financial
controls, cost cutting and inventory write off.
3. Growth strategy: new products, new promotions, acquisitions (although not used in
firms with a high level of diversification).
4. Restructuring strategy: redesign to the core of the business.
CEO/TMT change
Cost efficiencies
Asset retrenchment
Build for future
Focus on core
O’Neill,
1986b
Study of turnaround
(n = 31) and decline
(n = 20) commercial
banks, over a seven
year period..
Database
information sources.
A turnaround firm
has gained ground in
comparison to its
strategic group. A
decline firm has
continued with
relative decline.
Cost control and revenue generation. Control of loan risk and credit rationing. Work
rationalisation, new technologies, training and centralisation. Reduction in personnel,
merge branches, increased centralization, change staff composition. Liquidate
subsidiaries, sell or close branches, work simplification.
Attract more deposits and loan customers by advertising, promotion, and identifying
new markets, or changes in market definition. Increase marketing, targets and plans,
new banks, new consumer services, and international expansion.
Cost efficiencies
Asset retrenchment
Build for future
26
Grinyer and
McKiernan,
1990
25 UK companies
identified as sharp-
benders, and a
smaller control
group. Data from
1970-1984.Semi-
structured, multi-
level interviews plus
archival data.
A firm which
“sharp-bent” from
stagnation or decline
to sustained
performance relative
to their industry
peers.
Re-adaptation, which if unsuccessful, is followed by fundamental transformation. Part
of the purpose being to alter the firm’s operations, beliefs and rules.
Re-adaptation:
1. Strong financial controls, decrease production costs, decrease debt.
2. Understand product/market position (and make associated improvements to quality,
service, delivery) and increase marketing.
3. New functional executives.
Fundamental change:
1. Return to core business by closing operations or selling those that are weak.
2. Diversification via acquisition, new plant materials to enter new markets (which
gives new operations, beliefs and rules, and therefore a new way of thinking).
Cost efficiencies
Focus on core
CEO/TMT change
Grinyer,
Mayes,
McKiernan,
1990
25 UK companies
identified as sharp-
benders, and a
smaller control
group. Data from
1970-1984.Semi-
structured, multi-
level interviews plus
archival data.
A firm which
“sharp-bent” from
stagnation or decline
to sustained
performance relative
to their industry
peers. Control firms
had static
performance.
Actions to give sharp-bend:
1. Change to management: new CEO, new directors, “new, committed, positive
approach” for new values, vision, motivation and drive. Improve employee morale.
2. Production costs: reduce costs, especially in production, new plant investment, better
use of existing capacity, production/stock control increase, wage incentives.
3. Marketing: get closer to the customer, increase marketing channels, rationalise
product range to focus on profitable customers, cost-effective advertising.
In addition:
Dispose of subsidies to decrease debt, or properly integrate them to increase controls.
Grasp any opportunities of luck. Have a simple structure and small HQ.
CEO/TMT change
Cost efficiencies
Focus on core
Asset retrenchment
Stopford and
Baden-Fuller,
1990
6 British firms, a
control group of 5
successful European
competitors, and 4
less successful
British competitors,
from 1970s to 1988.
Four mature
industries: cutlery,
knitwear, domestic
electrical appliances,
and pumps.
Several hundred
interviews with
firms, buyers,
industry
associations, and
government.
“An increase in
profitability” as a
measure to test for
rejuvenation.
To rejuvenate:
1. Focus the business to manageable competitive arena.
2. New CEO.
3. Reduce scope: product lines, technological ranges, and cost reductions.
4. Build new skills and capabilities to enhance learning throughout the firm.
5. Re-complicate the business:
? Pursue growth to maintain change.
? Broaden product line to serve more of the primary market (both offensively to gain
leverage by exploiting core skills in new segments/markets; and as a defence
against new competition).
? Expand in to new countries.
In addition:
Break the mould: understand taken for granted assumptions.
Simplification and control: structural changes, changes to informal aspects of TMT.
Invest in organisational capability: new equipment, new organisational processes and
training, to fully exploit new possibilities, lower costs and increase differentiation.
Flexible supply: increase quality, implement time management, add new products.
Focus on core
CEO/TMT change
Cost efficiencies
Build for future
Cultural change
27
Gopinath,
1991
Archival case
data1975 – 1988,
n=22 successful
turnaround, n=3
non-successful
turnaround.
Not defined. A new CEO initiates turnaround. CEO/TMT change
Pant, 1991 Use of Compustat,
over a consecutive 8
year period, from
1970 to 1982,
sample was 42
turnaround firms
and 50 non
turnaround firms.
Turnaround is a
substantial
improvement of the
firms ROA relative
to industry average.
Turnaround firms are smaller than non-turnaround: the reason speculated as being that
they have greater flexibility and faster response time.
Investment in R&D alters industry structure and how firms compete, so the
relationships between the firms have changed and new opportunities are presented.
There was more investment in industries with turnaround than non-turnaround.
If a firm has a lower operating margin in an industry with low advertising, then
increasing spend on marketing will have quite an impact on sales.
Turnaround firms had more severe problems than non-turnaround, and were in slower
growth industries.
Schreuder,
Cayseele,
Jaspers, de
Graaff, 1991
28 declining
industries from
1972-1985 in the
Netherlands. 21
matched pairs of
firms; one which
coped with the
market, and one
which had not. Data
via questionnaire.
Success and
profitability defined
by level of ROA and
avoidance of losses.
Successful firms have market or product related strategies. They also alter distribution
channels, add new or delete old products. They decentralise and restructure. They also
cut or replace levels of the TMT.
Diversification only occurs within the industry.
Focus on the core
CEO/TMT change
Robbins and
Pearce, 1992
US manufacturing
industry 1976-1985:
textile mill products,
n = 38. 4 corporate
officers from each
organisation were
surveyed.
Performance
measured by ROI.
A two-stage process of retrenchment and then recovery.
1. Cut backs, and cost and asset reductions. Cost retrenchment was performed, but
needed asset retrenchment too. Liquefy plant property, receivables plus equipment.
Regardless of turnaround situation, firm should try to reduce operational costs via
retrenchments, these should be done quickly.
2. Returning to segments of business that have best profit opportunities.
3. Recovery strategies then follow.
Cost efficiencies
Asset retrenchment
Focus on core
Build for future
Pearce and
Robbins,
1993
Review of 9
turnaround papers
(1976-1992) from
different disciplines
and research
streams.
Two stage process:
? Retrenchment: cost cutting and asset reduction. Shrink back to most profitable
areas.
? Recovery: Externally: entrepreneurial, which means explore growth areas for the
core product or market. and/or Internally: efficiency, making better use of
manufacturing or production.
Cost efficiencies
Focus on core
Asset retrenchment
Build for future
28
Kesner and
Dalton, 1994
Firms of the New
York Stock
Exchange which had
CEO succession in
1980, n=84.
ROA three years
prior/post CEO
succession =
performance
measure.
CEO succession. CEO/TMT change
Daily and
Dalton, 1995
7 firms filing for
bankruptcy, 1973 to
1982, and a matched
sample of 7 not
filing for
bankruptcy. Data
taken over 5 years.
Not defined. The use of outside directors in firms surviving bankruptcy filings. CEO/TMT change
Armenakis,
Fredenberger,
Cherones,
Feild, Giles
and Holley
(1995)
145 completed
questionnaires from
members of the
“Turnaround
Management
Association”
Organisation
performance
unacceptable prior to
turnaround.
The most popular symbols used to aid change were elimination of perks, recognising
departments and managers, and using a “medical metaphor”.
Cost efficiency
CEO/TMT change
Ghoshal and
Bartlett, 1996
A study of more
than a dozen
companies
undergoing renewal.
Data taken from the
1980s and 1990s.
Not defined. Process of establishing strong business units, and then integrating them.
1. Simplification: strengthen performance of each unit, managers attention is focused,
they are given the freedom to develop new strategies and control over operations. Close
non-performing or peripheral units and acquire new ones, cut staff and responsibilities.
2. Integration: link units to exploit scale economies, leverage resources and
opportunities for cross-learning. Shared vision and values. Collaborate on programmes,
open communication and break isolation.
3. Regeneration: ability to replenish and renew. All managers should understand the
importance of individual’s behaviour, and think and act as leaders (so that the
organisation is capable of self-renewal). The most important aspect was changing
individual’s attitudes, assumptions and behaviours, rather than systems etc. This should
result in a culture change.
In addition the following traits are needed: Discipline, Support, Stretch, and Trust.
Cost efficiencies
Focus on core
Cultural change
Build for future
Barker and
Duhaime,
1997
120 successful
turnaround US
manufacturing firms
(1974-1988).
Questionnaires, to
CEO and COO, plus
archival sources
Decline: at least 3
years of ROI below
risk-free rate of
return. Recovery: at
least 3 years of ROI
above risk-free rate
of return.
1. If there is an industry-based decline then the need for strategic change is quite low
because a firm could still hold a strong industry position, and changing in this way
could result in the firm’s failure. Traditional cost efficiency measures may maintain the
firm while it rides out the economic conditions.
2. If there is a firm-based decline strategic change is necessary, and often accompanied
by a change to CEO. Turnaround needs to be a strategic reorientation.
Cost efficiencies
CEO/TMT change
29
Sudarsanam
and Lai, 2001
166 UK firms, in
financial distress
1983-1993, that
were comprised of
recovery and non-
recovery firms.
Distress: minimum
of 1 year of negative
Z score after 2
consecutive years of
positive Z score.
Recovery: return to
positive Z score over
2 year period after
distress year.
1. Operational restructuring: Cost reduction, revenue generation, operational asset
reduction to improve efficiency, lay offs. Improve cash flow. Maximise output/revenue
and minimise input. Increase marketing to stimulate sales, focus on existing products.
Decrease price, or increase if customers are not price sensitive.
2. Financial restructuring: move capital etc. to generate cash flow and reduce debt.
3. Management restructuring: replace CEO.
4. Asset restructuring: divest lines, products and businesses not aligned with the core
focus of the firm. Make acquisitions and joint ventures which will help in achieving the
core focus. Purchase new plant equipment that will make processes more efficient.
Cost efficiencies
Asset retrenchment
CEO/TMT change
Focus on core
Build for future
Bruton,
Anstrom and
Wan, 2003
Pacific-basin capital
markets databases
and annual reports,
1979 to 1998.
Turnaround: reversal
of a firm’s pattern of
performance decline.
Selling assets.
The firm should pursue those areas “that its managers know best”.
Asset retrenchment
Focus on core
Sheppard and
Chowdhury,
2005
One Canadian
retailer case study
and two minor
studies for
comparison.
Turnaround: the
firms perseverance
through existence-
threatening
performance decline.
1. Recognise and act on decline, do not dismiss it as a “blip”.
2. Evaluate the severity of the performance decline, understand the environment, and
understand the firm completely.
3. Get aid from all stakeholders.
4. Acquire resources to aid the firm in the long-run.
5. Exploit valuable, rare, hard to imitate activities.
6. Firm should be ready to alter itself to align with customer needs.
7. Work effectively, decisively and timely.
Focus on core
Build for future
Filatotchev
and Toms,
2006
British textile
industry, from the
1920s (turnaround
failure) and the
1960s (turnaround
success). Case
analyses and
archival data.
Turnaround firms:
those that are trading
profitably in the
1970s.
Reinvest available profits to fund capital equipment purchases.
Investment in new machinery to reduce costs.
Cost efficiency
Morrow, Jr,
Sirmon, Hitt
and
Holcomb,
2007
1982-1994,
Compustat database,
Lexis/Nexis and the
Wall Street Journal;
single product
manufacturing
firms, n = 178.
Performance
decline: 2 years of
meeting market
expectations,
followed by 1 year
of below investor
expectations.
Follow strategic actions that recombine existing resources in valuable and inimitable
ways.
Follow valuable and inimitable strategic actions in acquiring, and therefore controlling,
new resources to positively effect investors.
Divestment of assets.
Asset retrenchment
doc_788094520.pdf