Description
Hr intervention for organizational turnaround evidence from pakistani financial sector amir manzoor (assistant professor) management sciences department, bahria university, karachi, pakistan.
Arabian Journal of Business and Management Review (OMAN Chapter) Vol. 2, No.10; May 2013
79
HR INTERVENTION FOR ORGANIZATIONAL TURNAROUND:
EVIDENCE FROM PAKISTANI FINANCIAL SECTOR
Amir Manzoor (Assistant Professor)
Management Sciences Department, Bahria University, Karachi, Pakistan
ABSTRACT
Existing literature on organizational turnaround has largely been focused on HR interventions
related to good management practices to improve organizational performance. This research
suggests that in addition to adopting good management practices, the managers also need to take
into account the impact of external environment variables and organizational resistance to
change (organizational inertia). These external environment variables are significant and beyond
the control of the organizations. Applying this concept to the private banks operating in Pakistan,
this study finds that organizational turnaround is influenced by changes in external
environmental variables, by changes in organizational inertia, and by good management
practices.
KEY WORDS: Turnaround, HRM, ROA, Retrenchment, Repositioning, Reorganization
1. INTRODUCTION
Various conceptual models have been developed to understand organizational turnaround
strategies [(Pearce and Robbins, 1993); (Jerry Paul Sheppard, 1994); (Arogyaswamy et al.,
1995); (Shelley S. Gordon et al., 2000); (Juha-Antti Lamberg and Kalle Pajunen, 2005); (George
A. Boyne, 2006); (Pretorius, 2008);(Pearce II & Robbins, 2008); (Boyne & Meier, 2009);(Solnet,
Paulsen, & Cooper, 2010); (Smarick, 2010);(Lawton, Rajwani, & O’Kane, 2011);]. Various
empirical studies are available that assess the impact of different turnaround strategies [(Shelley
S. Gordon et al., 2000); (Dawley et al., 2002);(Bruton et al., 2003); (Morrow et al., 2004);
(Fisher G. et al., 2004); (George A. Boyne, 2006); (Boyne & Meier, 2009); (Murphy,
2010);(Lawton et al., 2011); (Braun & Latham, 2012)]. In general, the literature is focused on
improving organizational performance through a) good management practices b) a clear vision
and mission statement and c) good performance management systems. Little literature is
available that focusses on the impact of a) external environment and b) organizational resistance
to change (organizational inertia) on improving organizational performance.
2. LITERATURE REVIEW AND HYPOTHESES
ORGANIZATIONAL TURNAROUND AND EXTERNAL ENVIRONMENT
Organizational turnaround studies typically assume that the degree of organizational turnaround
varies with management practices, a clear vision and mission statement, and performance
management systems. Organizational turnaround success is considered as a result of either
selection of universally successful management strategies or by adaptation of internal
Arabian Journal of Business and Management Review (OMAN Chapter) Vol. 2, No.10; May 2013
80
management strategies to external environment. This perspective suggests that drivers of
turnaround are internal to the organization and not external. Good management drives success
and vice versa.
We suggest that organizational success not only depends on good management practices but also
on changes in external environment variables. These changes in the in the external environment
variables constrain organization performance. These changes are important because favorable
changes in such environmental variables can improve performance regardless of the adopted
managerial strategies and unfavorable shifts can erode the positive impact of adopted managerial
strategies.
Some turnaround studies do take into account the impact of such changes on organizational
success. [(George A. Boyne and Kenneth J. Meier, 2004); (George A. Boyne, 2006);(Boyne &
Meier, 2009); (Abebe, M. A., Angriawan, A., & Liu, Y. ,2011)] provides an analysis of impact
of such shifts on organizational turnaround in public sector organizations.
According to (Kelly and Amburgey, 1991), change in organizational strategy has either neutral
or negative impact on organizational performance. We suggest that both organizational strategy
and environment influence the extent of turnaround success. Good management practices,
favorable changes in external environmental variables, and changes in organizational inertia all
contribute to turnaround success. The perspective of this research is supported by (Hrebiniak and
Joyce, 1985) and (Koberg, Tegarden, & Wilsted, 2011). They suggest that choices of
management practices and external constraints both can significantly impact the organizational
performance.
In general, while explaining the changes in organizational environment, the turnaround literature
is generally focused on analyzing a single industry such as [(Robbins and Pearce, 1992); (O’Neil,
1986); (W. Terry Umbreit, 1996)]. This approach also ignores the impact of changes in
organization external environment variables. This approach has two problems. (Tony W. Tong
and Jeffrey J. Reuer ,2006) concludes that characteristics of industries are important in
explaining variation in firm performance but firm characteristics plays a dominant role.
(Hawawini et al., 2003) and (McGahan and Porter, 1997) found a significant role of
characteristics of industries in explaining variations in organizational performance. [(Dess and
Beard, 1984); (Castrogiovanni, 1991); (Harris, 2004)] finds that organizations operating in same
industry may face similar aggression environment but very different task environment (such as
different levels of finance and support from key stakeholders). Favorable or unfavorable changes
in the task environment during turnaround may occur. Restricting the analysis to industry in
which the organization is located, without taking into account these changes, it will be unable to
assess the impact of changes in the specific environment of individual organizations on
organizational performance. Our first hypothesis is, therefore,
Hypothesis 1: Favorable changes in external environment of organization produce a positive
impact on organizational performance.
Arabian Journal of Business and Management Review (OMAN Chapter) Vol. 2, No.10; May 2013
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ORGANIZATIONAL PERFORMANCE AND GOOD MANAGEMENT PRACTICES
Many empirical studies have analyzed three major organizational turnaround strategies
[(Hoffman, 1989); (Pearce and Robbins, 1993);(George A. Boyne ,2006); (Langabeer, 2008);
(Hopkins, 2008);(Boyne & Meier, 2009); (Murphy, J., & Meyers, C. V. 2009); (Schmitt,
2010);(Evans, Chitnomrath, & Christopher, 2012)]. These strategies include retrenchment,
repositioning and reorganization.
1) Retrenchment Strategy
The retrenchment strategy focusses on reducing the size and scope of a business to minimize
financial losses and generate resources that can be used for productive activities. Retrenchment
strategy may include out-sourcing and downsizing as sub-categories.
There exist many theoretical and empirical studies that analyzed the impact of retrenchment on
organizational performance. [Robbins and Pearce 1992; John A. Pearce II, and D. Keith Robbins,
1994] suggest that turnaround success corresponds to divesting assets and cutting costs. [David
D. Dawley et al., 2002] finds that in order to benefit from retrenchment, a firm should either
have relatively high strategic choice or few environmental constraints. [Hoffman, 1989]
concludes that cost control is the key to successful turnaround. (Jody Hoffer Gittell et al., 2006)
argues that downsizing doesn't necessarily bring an upswing in the organizational performance.
[John D. Francis and Ashay B. Desai, 2005] finds that organization size is not a significant
contributor to a successful turnaround. By contrast (Mark A. Farrell and Felix Mavondo, 2005)
argues that restructuring the organization and redesigning tasks has a positive effect on
organizational performance. Retrenchment may cause organizational weakness [Barker et al.,
1994; Barker and Mone, 1998], produce a significant positive impact on organizational success
[(Hambrick and Schechter, 1983); (O’Neill, 1986); (Robbins and Pearce, 1992) ; (Pearce and
Robbins, 1994);(Bruton and Wan, 1994); (Chowdhury and Lang, 1996); (Victor B. Wayhan and
Steve Werner ,2000); (Dawley et al., 2002); (Bruton et al., 2003); Morrow et al., 2004], and may
produce no impact on organizational success [(Pant, 1991); (Barker and Mone, 1994);
(Chowdhury and Lang, 1994); (Evans and Green, 2000); (Sudarsanam and Lai, 2001)]. No study
was found that suggests a significant negative impact of retrenchment on organizational success.
Literature also suggest that turnaround in large organizations is more difficult and time
consuming [(Pant, 1991); (Bruton et al, 2003)]. The evidence available supports the argument
that retrenchment influences organizational success and we expect negative relation between
organizational size and turnaround. Our second and third hypotheses are, therefore:
Hypothesis 2: Retrenchment produces a positive impact on organizational success.
Hypothesis 3: Organization size produces a negative impact on organizational success.
2) Repositioning Strategy
The repositioning strategy focuses on change and innovation. This change and innovation can be
related to market position and product portfolio. Organizations following repositioning may also
move into new markets, seek new revenue streams, develop new products, change their vision
and mission, or improve the organizational image. Many studies exist that found a positive link
Arabian Journal of Business and Management Review (OMAN Chapter) Vol. 2, No.10; May 2013
82
between repositioning and organizational success [(Hambrick and Schechter, 1983); (Pearce and
Robbins, 1994); (Barker et al., 1998); (Evans and Green, 2000) ;(Dawley et al., 2002)]. Few
studies found no significant impact of repositioning on organizational success [(Schendel and
Paton, 1976); (Sudarsanam and Lai, 2001); (Kontic, L., Kontic, J., & Vidicki, D. 2012)].
However, no study suggests a negative impact of repositioning on organizational success.
Keeping in view the evidence available, our fourth hypothesis is, therefore:
Hypothesis 4: Organizational success is positively influenced by repositioning.
3) Reorganization Strategy
Reorganization focusses on changing internal management of an organization including new
organizational structures, strategic processes, and management styles.
a) Leadership Change
A significant focus of turnaround literature is on the change in leadership [(Hoffman,
1989);(Vincent L. Barker, III and Paul W. Patterson, Jr.,1996) ; (Barker et al., 2001); (Kalle
Pajunen, 2006)]. The literature proposes a positive impact of executive succession on
organizational success. In support of this proposition, two main arguments have been suggested.
First, the length of service of senior executives is directly correlated with their resistance to
change the existing strategies. Long-serving executives are reluctant to accept that existing
strategies need a necessary change [(Miller, 1991);(Barker and Patterson, 1996)]. Second, the
replacement of senior executives can convey the organizational determination towards
organizational success. This can, in turn, increase staff motivation and encourage external
stakeholders to make available time and resources required for improving organizational
performance. Some studies found a positive impact of leadership change on organizational
performance improvement [(Pearce and Robbins. 1994) ;(Mueller and Barker, 1997)] while other
found no impact [(Bruce A. Samuelson et al., 1985); (Bruton et al., 2003); (Sudarsanam and Lai,
2001)]. Some studies have suggested conflicting effects of leadership change on organizational
performance (Vincent L. Barker, III and Mark A. Mone, 1998). (Wallace N. Davidson et al.,
1993) concludes that market’s reaction is more positive for outsider succession than for insiders,
and this was especially so when the succession happened after bankruptcy. [(Dan R. Dalton, and
Idalene F. Kesner, 1983) ;(George A. Boyne and Kenneth J. Meier, 2004)] find that turnaround
success is positively related to insider succession. Outsiders may be more prepared and willing to
bring radical change. At the same time, they lack the required detailed knowledge about
organization required to bring this radical change quickly and effectively. This speed of change
is crucial in organizational turnaround (Arogyaswamy et al., 1995). An insider may already
possess the detailed knowledge of the current issues of organizational performance and in a
better position to make rapid moves towards organizational turnaround. Our fifth and sixth
hypotheses are, therefore:
Hypothesis 5: Insider succession of senior executives in the organization produces positive
impact on organizational success.
Arabian Journal of Business and Management Review (OMAN Chapter) Vol. 2, No.10; May 2013
83
Hypothesis 6: Insider succession more positively impacts the organizational success than
outsider succession.
b) Leadership Experience
Turnaround literature suggests that experience of top-management is an asset for organization.
But after a threshold level this experience can lead to resistance to change and becomes a
liability for organization [(Eitzen and Yetman, 1972); (Hambrick and Fukutomi, 1991)]. With
the available evidence, we expect an initial positive relationship between tenure of top
management and organizational turnaround. But this positive relationship eventually becomes
negatives.
c) Quality and Proportion of Core Staff
There exist empirical studies that analyze the impact of reorganization. However, these studies
recognize the role and impact of top management and place little emphasis on potential positive
effect of recruitment of new staff throughout the organization. Literature suggests that higher
performance is associated with the recruitment of employees with expertise that align with the
strategic objectives of organization i.e. the core staff [(Wright and Snell, 1998);(Hitt et al.,
2001); (Skaggs and Youndt, 2004)]. The probability of organizational turnaround success
increases with an increase in the proportion and quality of core staff. Such reorganization
strategy seeks to replace non-core staff with core staff and recruit core staff with high level of
expertise. Our seventh and eighth hypotheses are, therefore:
Hypothesis 7: An increase in the proportion of core staff positively impacts the organizational
success.
Hypothesis 8: An increase in the quality of core staff positively impacts the organizational
success.
ORGANIZATIONAL TURNAROUND AND INERTIA
Inertia can be defined as the strong persistence of existing form and function. There are five
basic categories of inertia (a) distorted perception, (b) dulled motivation, (c) failed creative
response, (d) political deadlocks, and (e) action disconnects (Richard P. Rumelt, 1995).
(Barker V. L. , and Duhaime I. M. 1997) finds that organizational inertia constrain organization
performance. Successful change requires enough organizational momentum to move quickly
from the initial state (inertial state) towards the desired direction. This momentum is generated
once sufficient support and speed is generated quickly. (Alan McKinlay and Ken Starkey,1988)
concludes that organizational realignment is positively related to significant organizational
turnaround. (Denish Shah et al., 2006) concludes that organizational realignment is crucial for
business success. (Richard P. Rumelt ,1995) defines Fragmentation as dividing the company into
smaller department, reducing interdependencies, measuring each department's performance and
tying managerial pay and career potential to results. Fragmentation reduces the sources of inertia,
Arabian Journal of Business and Management Review (OMAN Chapter) Vol. 2, No.10; May 2013
84
breaks political coalitions, reinforces the legitimate authority of management over employee
behavior, and results in more attention to performance. Our ninth hypothesis is therefore:
Hypothesis 9: Organizational success is positively influenced by fragmentation.
3. RESEARCH DESIGN
SAMPLE
The sample of firms for our study consists of 35 private banks operating in Pakistan. This is a
good choice to examine organizational success for many reasons. First, banks belong to a single
industry, a single country, and are directly comparable. All banks work under State Bank of
Pakistan (the regulatory authority). That means that all banks work under the same set of rules
and regulations. Thus we can hold some of the potentially confusing variables that might affect
the bank’s organizational performance, constant. Second, all the banks operate under a similar
governance structure. Third, banks are a common private organization in Pakistan. Finally, chief
executives of banks have substantial power to choose and implement the strategy of choice (such
as retrenching, repositioning, or reorganization) in order to improve deteriorating performance.
It takes time to implement change and this time varies from industry to industry. In this study we
review banks performance for the period 2008-2012. This time period is considered sufficient to
allow for the performance effects of changes in external environment variables, change in
organizational inertia, and good management practices to emerge.
DATA SOURCES
The data for this study was drawn from various sources of primary and secondary data. These
sources included the published annual financial statements of banks, public documents from
State Bank of Pakistan, targeted interviews with senior executives (N=40), library references,
and the review of different research articles/studies.
MEASURES FOR VARIABLES
ORGANIZATIONAL EXTERNAL ENVIRONMENT
Bank’s performance is dependent on two most significant external constraints 1) Access to extra
financial resources and 2) Perception of key stakeholders about bank’s organizational and market
performance. We measured the munificence and hostility of task environment of the bank. The
munificence of the environment was measured as the access to extra financial resources to the
bank, which is determined by the exogenous variables such as funding from the parent
organization. Other things being equal, poorly performing banks who has access to expanding
financial resources make it convenient to improve their performance. The hostility of
environment was operationalized as the change in perception of key stakeholders. We argue that
performance improvement is positively related to the perception of key stakeholders about
bank’s organizational and market performance. The change in perception of key stakeholders
about bank’s organizational and market performance was measured as the change in price-
Arabian Journal of Business and Management Review (OMAN Chapter) Vol. 2, No.10; May 2013
85
earnings ratio of the bank. A high price-earnings ratio indicates favorable shift. These variables
can also be taken as exogenous to bank’s performance.
Good Management Practices
The central elements of retrenchment strategy i.e. cost reduction and efficiency improvement,
organizational focus on core business, and attention given by senior executives to internal
operations of the business (Arogyaswamy et al., 1995) were operationalized. First the senior
executives of banks were asked about their relative priority given to lower costs and increase
efficiency. This measure reflected the organizational approach towards cost reduction and
improvement of the efficiency. Second, the senior executives were asked about their relative
priority that they attached to keeping account holders. This measure reflects organizational focus
on core business. Third, senior executives were asked to provide an estimate of the proportion of
their total time they spent on internal management. This measure reflects detailed attention by
senior executives to the internal operations of bank.
The concept of repositioning was operationalized in three ways. First, the bank executives were
asked three questions regarding the extent to which they were seeking change. They were asked
1) whether they favor major changes in bank policies 2) whether they assume leadership role in
shaping bank policies 3) whether they see themselves as a change agent
A weighted score was derived from responses to these questions. This measure reflected attitude
towards change. A high score reflected a more positive attitude change and vice versa. Second,
to measure the organizational approach towards creating new streams of revenue, executives
were asked whether they actively made efforts to raise level of bank deposits by either attracting
new account holders or existing customers. A positive response indicated organizational efforts
towards creating new sources of revenue. Third, to measure the organizational efforts to
influence perceptions and expectations of key stakeholders, bank executives were asked three
questions. They were asked 1) to what extent they interacted with external stakeholders and 2) to
what extent they initiated interactions with key stakeholders. A weighted score was derived from
the responses. A high score reflected a keen interest of organization in changing the perceptions
of key stakeholders and vice versa.
The concept of reorganization was operationalized in three ways. First, the bank executives were
asked about the total tenure of their employment and their tenure as an executive in the bank.
This measure was used to establish whether a change of executives occurred from 2008-2012
and whether the succession was from inside or outside. Second, secondary data was used to
measure the proportion of core staff in the bank i.e. staff with relevant skills and qualifications.
An increase in the proportion indicates greater emphasis of bank on increasing the core staff.
Third, secondary data was used to measure the average length of experience of staff in the bank.
This measure reflected the quality of workforce.
Organizational Inertia
To operationalize the concept of organizational inertia, we used two measures. First, Secondary
data was used to determine whether the organization has implemented a restructuring program
Arabian Journal of Business and Management Review (OMAN Chapter) Vol. 2, No.10; May 2013
86
composed of basic elements of fragmentation. Second, executives were asked whether they think
fragmentation resulted in increased organizational performance.
Bank Size and Success
The extent of success and improvement for Pakistani banks can be determined by calculating
bank’s ROA. This is a suitable measure of performance that is considered as primary criterion of
success by key stakeholders [(Samy Ben Naceur and Mohamed Goaied, 2001);(Medhat
Tarawneh, 2006)]. The size of bank was measured as the number of employees. This is a
measure of organizational workload and related closely with indicators of internal aspects of size
such as operational budget.
4. RESULTS AND DISCUSSION
Table 2 shows variables and the correlations between them. The statistical evidence on the
validity of results is presented in Table 3. The model explains 72% of the variation in
organizational success across private Pakistani banks between 2008 and 2012.
Statistical evidence supports our first hypothesis. Regardless of whether the banks followed the
retrenchment or reorganization strategy, banks were more likely to improve if there were
favorable changes in their external environment variables. Increases in environmental
munificence, as indicated by the access to extra financial resources, is positively associated with
performance; and decrease in environmental hostility, as reflected by the increase in Price
Earning ratio is positively related with performance.
All three retrenchment variables, emphasis on keeping accountholders, time spent on internal
management, and focus on cost cutting and increasing efficiency have no significant effect on
performance. Thus statistical evidence contradicts our second hypothesis.
Size of bank has a positive co-efficient and is not significantly related to the performance which
contradicts our third hypothesis.
Statistical evidence provides mixed support about our fourth hypothesis about repositioning.
Two of the three retrenchment variables, Seeking change and emphasis on pursuing new
deposits, are not significantly related to performance. Third variable (contact with stakeholders)
is significantly related to performance. Executives who keep contact with key stakeholders are
more likely to boost bank performance.
Reorganization strategy also has significant positive impact on performance. The variable of
insider executive succession has significant positive relation with performance while the outsider
executive succession has no significant impact. That provides support for our fifth and sixth
hypothesis. Banks that have insider succession are more likely to improve performance while
appointment from outside is insignificantly different from keeping the same executive who led to
deteriorating performance. Length of chief executive experience has significant positive
relationship with performance.
Arabian Journal of Business and Management Review (OMAN Chapter) Vol. 2, No.10; May 2013
87
Statistical evidence contradicts our seventh hypothesis and supports eighth hypothesis.
Proportion of core staff has no significant relation with the performance while increase in quality
of core staff had significant positive correlation with the performance. Banks that raised the
proportion of core staff witness no improvement in performance while banks that recruited more
experienced professionals achieved improved performance. These results are consistent with the
proposition that organizational success associated not only with top management change but also
with the organizational emphasis on increasing proportion of core staff in the work force.
95% of executives answered “Yes” to the question whether they think fragmentation of
organization increased performance. Statistical model shows that restructuring variable has
positive correlation with performance. This evidence clearly supports our ninth hypothesis.
5. IMPLICATIONS
Contradictory results not necessarily imply the inappropriateness of these strategies nor cast any
doubts on findings of previous studies. These results suggest to HR managers that they need to
adopt different strategies to respond to failure on multi-dimensional performance measures.
Retrenchment strategy is likely to improve organizational performance if the reasons for non-
performance are high costs and lower levels of efficiency. The empirical evidence suggests that
repositioning works and poor performance requires change in the product offering and better
relationships with key stakeholders. When it comes to reorganization, there exists a distinction
between insider and outsider executive succession. However, further research is needed to
establish the proposition that insider succession to the top management role is also an effective
HRM strategy in other settings. Our evidence provides significant positive effects, on
organizational performance, of HRM strategy of raising the quality of core staff. This, in turn,
points to the fact that leaders alone don’t make a difference. Our evidence provides significant
positive effects, on organizational performance, of changes in organizational inertia.
6. CONCLUSION
In this research we extended the study of organizational success and its drivers by adding the
impact of a) changes in external environment variables of organization, and b) organizational
inertia to the existing models. We developed hypothesis on various turnaround strategies in the
same model and provided statistical evidence that supports them. Our statistical analysis suggests
that changes in external environment variables produce significant impact on organizational
performance but HR managers should be aware that the relative influence of such changes and
organizational strategy may vary within the public and private organizations. Our analysis
extends the prior turnaround research by covering institutional environment of organizational
success (e.g. by measuring change in perception of key stakeholders). We found contradicting
effects in our sample of organizations about various turnaround strategies which have generally
been found helpful in improving organizational performance. Future research is required to
investigate the environmental factors under which a verity of HRM strategies can be linked to
performance improvement.
Arabian Journal of Business and Management Review (OMAN Chapter) Vol. 2, No.10; May 2013
88
Table 1: Variables and their Description
ROAAT Return on Assets (After Tax)
TIMEIM % of time spent on internal management
EMPKAC Emphasis on keeping accountholders
EMPEFF Emphasis on efficiency
SEEKCH Executive seeking change
CONTSH Contact with Stakeholders
HIREOUTSIDE New Leader – Outside Hire
HIREINSIDE New Leader – Inside Hire
CHP % change of professionals in workforce
CHPEXP Avg. length of experience of professionals
LEXP Length of experience of Chief Executive
EMPLOYYES Number of Employees
Restructuring Restructuring Implemented
EXTRAFIN Access to Extra Financial Resources
EMPNACC Emphasis on pursuing new deposits
PERATIO Price Earning Ratio
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89
Table 2: Correlation Matrix
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
1
ROAAT 1
.09
1
.276 .208 .200
.523(*
*)
.140
.558(*
*)
.193
.388(*
)
.537(*
*)
.241
.407(*
)
.324(
*)
.20
5
.426(*
*)
2
TIMEIM .091 1 .153 .127 .144 .157 -.023 .054 .032 .013 -.014 .093 .013 -.016
.10
4
.076
3
EMPKAC .276
.15
3
1
.822(*
*)
.335(*
)
.420(*
*)
-.129 .205
.405(*
)
.182 .153
-
.317(
*)
.051 .233
.15
0
.364(*
)
4
EMPEFF .208
.12
7
.822(*
*)
1
.444(*
*)
.394(*
)
-.187 .226
.471(*
*)
.180 .166 -.283 .008
.331(
*)
.08
7
.320(*
)
5
SEEKCH .200
.14
4
.335(*
)
.444(*
*)
1 .295 .037 .186 .184 .061 .082 -.227 .019 .072
-
.16
3
-.039
6
CONTSH
.523(*
*)
.15
7
.420(*
*)
.394(*
)
.295 1 .188
.665(*
*)
.219
.330(*
)
.659(*
*)
.202
.617(*
*)
.157
.01
9
.413(*
*)
7
HIREOUTSI
DE
.140
-
.02
3
-.129 -.187 .037 .188 1
.348(*
)
-.101 -.020
.515(*
*)
.246 .157 -.016
-
.14
8
-.024
8 HIREINSID
E
.558(*
*)
.05
4
.205 .226 .186
.665(*
*)
.348(*
)
1 .157
.316(*
)
.940(*
*)
.174
.351(*
)
.235
.07
7
.525(*
*)
9
CHP .193
.03
2
.405(*
)
.471(*
*)
.184 .219 -.101 .157 1
.661(*
*)
.134 -.043 .193 .297
-
.02
6
.290
1
0
CHPEXP
.388(*
)
.01
3
.182 .180 .061
.330(*
)
-.020
.316(*
)
.661(*
*)
1 .271 .009
.545(*
*)
.228
.27
6
.306
1
1 LEXP
.537(*
*)
-
.01
4
.153 .166 .082
.659(*
*)
.515(*
*)
.940(*
*)
.134 .271 1 .263
.382(*
)
.261
.05
4
.513(*
*)
Arabian Journal of Business and Management Review (OMAN Chapter) Vol. 2, No.10; May 2013
90
1
2
EMPLOYYE
S
.241
.09
3
-
.317(*
)
-.283 -.227 .202 .246 .174 -.043 .009 .263 1
.360(*
)
.034
-
.01
2
.197
1
3
Restructurin
g
.407(*
)
.01
3
.051 .008 .019
.617(*
*)
.157
.351(*
)
.193
.545(*
*)
.382(*
)
.360(
*)
1 .098
.24
3
.096
1
4 EXTRAFIN
.324(*
)
-
.01
6
.233
.331(*
)
.072 .157 -.016 .235 .297 .228 .261 .034 .098 1
.27
1
.398(*
)
1
5
EMPNACC .205
.10
4
.150 .087 -.163 .019 -.148 .077 -.026 .276 .054 -.012 .243 .271 1 .230
1
6
PERATIO
.426(*
*)
.07
6
.364(*
)
.320(*
)
-.039
.413(*
*)
-.024
.525(*
*)
.290 .306
.513(*
*)
.197 .096
.398(
*)
.23
0
1
** Correlation is significant at the0.01 level (2-tailed).
* Correlation is significant at the0.05 level (2-tailed).
Arabian Journal of Business and Management Review (OMAN Chapter) Vol. 2, No.10; May 2013
91
Table 3: Performance of Banks – Summary of Regression Analysis
Independent Variable Slope
% of time spent on internal management .001
Emphasis on keeping accountholders .377
Emphasis on efficiency -.250
Executive seeking change .196
Contact with Stakeholders .055*
New Leader – Outside Hire -.109
New Leader – Inside Hire .132*
% change of professionals in workforce -.201
Avg. length of experience of professionals .320*
Length of experience of Chief Executive .235**
Number of Employees .254
Restructuring Implemented .018+
Access to Extra Financial Resources .176+
Emphasis on pursuing new deposits .029
Price Earning Ratio .003+
R
2
0.72
N 150
Significance Levels:
+
Hr intervention for organizational turnaround evidence from pakistani financial sector amir manzoor (assistant professor) management sciences department, bahria university, karachi, pakistan.
Arabian Journal of Business and Management Review (OMAN Chapter) Vol. 2, No.10; May 2013
79
HR INTERVENTION FOR ORGANIZATIONAL TURNAROUND:
EVIDENCE FROM PAKISTANI FINANCIAL SECTOR
Amir Manzoor (Assistant Professor)
Management Sciences Department, Bahria University, Karachi, Pakistan
ABSTRACT
Existing literature on organizational turnaround has largely been focused on HR interventions
related to good management practices to improve organizational performance. This research
suggests that in addition to adopting good management practices, the managers also need to take
into account the impact of external environment variables and organizational resistance to
change (organizational inertia). These external environment variables are significant and beyond
the control of the organizations. Applying this concept to the private banks operating in Pakistan,
this study finds that organizational turnaround is influenced by changes in external
environmental variables, by changes in organizational inertia, and by good management
practices.
KEY WORDS: Turnaround, HRM, ROA, Retrenchment, Repositioning, Reorganization
1. INTRODUCTION
Various conceptual models have been developed to understand organizational turnaround
strategies [(Pearce and Robbins, 1993); (Jerry Paul Sheppard, 1994); (Arogyaswamy et al.,
1995); (Shelley S. Gordon et al., 2000); (Juha-Antti Lamberg and Kalle Pajunen, 2005); (George
A. Boyne, 2006); (Pretorius, 2008);(Pearce II & Robbins, 2008); (Boyne & Meier, 2009);(Solnet,
Paulsen, & Cooper, 2010); (Smarick, 2010);(Lawton, Rajwani, & O’Kane, 2011);]. Various
empirical studies are available that assess the impact of different turnaround strategies [(Shelley
S. Gordon et al., 2000); (Dawley et al., 2002);(Bruton et al., 2003); (Morrow et al., 2004);
(Fisher G. et al., 2004); (George A. Boyne, 2006); (Boyne & Meier, 2009); (Murphy,
2010);(Lawton et al., 2011); (Braun & Latham, 2012)]. In general, the literature is focused on
improving organizational performance through a) good management practices b) a clear vision
and mission statement and c) good performance management systems. Little literature is
available that focusses on the impact of a) external environment and b) organizational resistance
to change (organizational inertia) on improving organizational performance.
2. LITERATURE REVIEW AND HYPOTHESES
ORGANIZATIONAL TURNAROUND AND EXTERNAL ENVIRONMENT
Organizational turnaround studies typically assume that the degree of organizational turnaround
varies with management practices, a clear vision and mission statement, and performance
management systems. Organizational turnaround success is considered as a result of either
selection of universally successful management strategies or by adaptation of internal
Arabian Journal of Business and Management Review (OMAN Chapter) Vol. 2, No.10; May 2013
80
management strategies to external environment. This perspective suggests that drivers of
turnaround are internal to the organization and not external. Good management drives success
and vice versa.
We suggest that organizational success not only depends on good management practices but also
on changes in external environment variables. These changes in the in the external environment
variables constrain organization performance. These changes are important because favorable
changes in such environmental variables can improve performance regardless of the adopted
managerial strategies and unfavorable shifts can erode the positive impact of adopted managerial
strategies.
Some turnaround studies do take into account the impact of such changes on organizational
success. [(George A. Boyne and Kenneth J. Meier, 2004); (George A. Boyne, 2006);(Boyne &
Meier, 2009); (Abebe, M. A., Angriawan, A., & Liu, Y. ,2011)] provides an analysis of impact
of such shifts on organizational turnaround in public sector organizations.
According to (Kelly and Amburgey, 1991), change in organizational strategy has either neutral
or negative impact on organizational performance. We suggest that both organizational strategy
and environment influence the extent of turnaround success. Good management practices,
favorable changes in external environmental variables, and changes in organizational inertia all
contribute to turnaround success. The perspective of this research is supported by (Hrebiniak and
Joyce, 1985) and (Koberg, Tegarden, & Wilsted, 2011). They suggest that choices of
management practices and external constraints both can significantly impact the organizational
performance.
In general, while explaining the changes in organizational environment, the turnaround literature
is generally focused on analyzing a single industry such as [(Robbins and Pearce, 1992); (O’Neil,
1986); (W. Terry Umbreit, 1996)]. This approach also ignores the impact of changes in
organization external environment variables. This approach has two problems. (Tony W. Tong
and Jeffrey J. Reuer ,2006) concludes that characteristics of industries are important in
explaining variation in firm performance but firm characteristics plays a dominant role.
(Hawawini et al., 2003) and (McGahan and Porter, 1997) found a significant role of
characteristics of industries in explaining variations in organizational performance. [(Dess and
Beard, 1984); (Castrogiovanni, 1991); (Harris, 2004)] finds that organizations operating in same
industry may face similar aggression environment but very different task environment (such as
different levels of finance and support from key stakeholders). Favorable or unfavorable changes
in the task environment during turnaround may occur. Restricting the analysis to industry in
which the organization is located, without taking into account these changes, it will be unable to
assess the impact of changes in the specific environment of individual organizations on
organizational performance. Our first hypothesis is, therefore,
Hypothesis 1: Favorable changes in external environment of organization produce a positive
impact on organizational performance.
Arabian Journal of Business and Management Review (OMAN Chapter) Vol. 2, No.10; May 2013
81
ORGANIZATIONAL PERFORMANCE AND GOOD MANAGEMENT PRACTICES
Many empirical studies have analyzed three major organizational turnaround strategies
[(Hoffman, 1989); (Pearce and Robbins, 1993);(George A. Boyne ,2006); (Langabeer, 2008);
(Hopkins, 2008);(Boyne & Meier, 2009); (Murphy, J., & Meyers, C. V. 2009); (Schmitt,
2010);(Evans, Chitnomrath, & Christopher, 2012)]. These strategies include retrenchment,
repositioning and reorganization.
1) Retrenchment Strategy
The retrenchment strategy focusses on reducing the size and scope of a business to minimize
financial losses and generate resources that can be used for productive activities. Retrenchment
strategy may include out-sourcing and downsizing as sub-categories.
There exist many theoretical and empirical studies that analyzed the impact of retrenchment on
organizational performance. [Robbins and Pearce 1992; John A. Pearce II, and D. Keith Robbins,
1994] suggest that turnaround success corresponds to divesting assets and cutting costs. [David
D. Dawley et al., 2002] finds that in order to benefit from retrenchment, a firm should either
have relatively high strategic choice or few environmental constraints. [Hoffman, 1989]
concludes that cost control is the key to successful turnaround. (Jody Hoffer Gittell et al., 2006)
argues that downsizing doesn't necessarily bring an upswing in the organizational performance.
[John D. Francis and Ashay B. Desai, 2005] finds that organization size is not a significant
contributor to a successful turnaround. By contrast (Mark A. Farrell and Felix Mavondo, 2005)
argues that restructuring the organization and redesigning tasks has a positive effect on
organizational performance. Retrenchment may cause organizational weakness [Barker et al.,
1994; Barker and Mone, 1998], produce a significant positive impact on organizational success
[(Hambrick and Schechter, 1983); (O’Neill, 1986); (Robbins and Pearce, 1992) ; (Pearce and
Robbins, 1994);(Bruton and Wan, 1994); (Chowdhury and Lang, 1996); (Victor B. Wayhan and
Steve Werner ,2000); (Dawley et al., 2002); (Bruton et al., 2003); Morrow et al., 2004], and may
produce no impact on organizational success [(Pant, 1991); (Barker and Mone, 1994);
(Chowdhury and Lang, 1994); (Evans and Green, 2000); (Sudarsanam and Lai, 2001)]. No study
was found that suggests a significant negative impact of retrenchment on organizational success.
Literature also suggest that turnaround in large organizations is more difficult and time
consuming [(Pant, 1991); (Bruton et al, 2003)]. The evidence available supports the argument
that retrenchment influences organizational success and we expect negative relation between
organizational size and turnaround. Our second and third hypotheses are, therefore:
Hypothesis 2: Retrenchment produces a positive impact on organizational success.
Hypothesis 3: Organization size produces a negative impact on organizational success.
2) Repositioning Strategy
The repositioning strategy focuses on change and innovation. This change and innovation can be
related to market position and product portfolio. Organizations following repositioning may also
move into new markets, seek new revenue streams, develop new products, change their vision
and mission, or improve the organizational image. Many studies exist that found a positive link
Arabian Journal of Business and Management Review (OMAN Chapter) Vol. 2, No.10; May 2013
82
between repositioning and organizational success [(Hambrick and Schechter, 1983); (Pearce and
Robbins, 1994); (Barker et al., 1998); (Evans and Green, 2000) ;(Dawley et al., 2002)]. Few
studies found no significant impact of repositioning on organizational success [(Schendel and
Paton, 1976); (Sudarsanam and Lai, 2001); (Kontic, L., Kontic, J., & Vidicki, D. 2012)].
However, no study suggests a negative impact of repositioning on organizational success.
Keeping in view the evidence available, our fourth hypothesis is, therefore:
Hypothesis 4: Organizational success is positively influenced by repositioning.
3) Reorganization Strategy
Reorganization focusses on changing internal management of an organization including new
organizational structures, strategic processes, and management styles.
a) Leadership Change
A significant focus of turnaround literature is on the change in leadership [(Hoffman,
1989);(Vincent L. Barker, III and Paul W. Patterson, Jr.,1996) ; (Barker et al., 2001); (Kalle
Pajunen, 2006)]. The literature proposes a positive impact of executive succession on
organizational success. In support of this proposition, two main arguments have been suggested.
First, the length of service of senior executives is directly correlated with their resistance to
change the existing strategies. Long-serving executives are reluctant to accept that existing
strategies need a necessary change [(Miller, 1991);(Barker and Patterson, 1996)]. Second, the
replacement of senior executives can convey the organizational determination towards
organizational success. This can, in turn, increase staff motivation and encourage external
stakeholders to make available time and resources required for improving organizational
performance. Some studies found a positive impact of leadership change on organizational
performance improvement [(Pearce and Robbins. 1994) ;(Mueller and Barker, 1997)] while other
found no impact [(Bruce A. Samuelson et al., 1985); (Bruton et al., 2003); (Sudarsanam and Lai,
2001)]. Some studies have suggested conflicting effects of leadership change on organizational
performance (Vincent L. Barker, III and Mark A. Mone, 1998). (Wallace N. Davidson et al.,
1993) concludes that market’s reaction is more positive for outsider succession than for insiders,
and this was especially so when the succession happened after bankruptcy. [(Dan R. Dalton, and
Idalene F. Kesner, 1983) ;(George A. Boyne and Kenneth J. Meier, 2004)] find that turnaround
success is positively related to insider succession. Outsiders may be more prepared and willing to
bring radical change. At the same time, they lack the required detailed knowledge about
organization required to bring this radical change quickly and effectively. This speed of change
is crucial in organizational turnaround (Arogyaswamy et al., 1995). An insider may already
possess the detailed knowledge of the current issues of organizational performance and in a
better position to make rapid moves towards organizational turnaround. Our fifth and sixth
hypotheses are, therefore:
Hypothesis 5: Insider succession of senior executives in the organization produces positive
impact on organizational success.
Arabian Journal of Business and Management Review (OMAN Chapter) Vol. 2, No.10; May 2013
83
Hypothesis 6: Insider succession more positively impacts the organizational success than
outsider succession.
b) Leadership Experience
Turnaround literature suggests that experience of top-management is an asset for organization.
But after a threshold level this experience can lead to resistance to change and becomes a
liability for organization [(Eitzen and Yetman, 1972); (Hambrick and Fukutomi, 1991)]. With
the available evidence, we expect an initial positive relationship between tenure of top
management and organizational turnaround. But this positive relationship eventually becomes
negatives.
c) Quality and Proportion of Core Staff
There exist empirical studies that analyze the impact of reorganization. However, these studies
recognize the role and impact of top management and place little emphasis on potential positive
effect of recruitment of new staff throughout the organization. Literature suggests that higher
performance is associated with the recruitment of employees with expertise that align with the
strategic objectives of organization i.e. the core staff [(Wright and Snell, 1998);(Hitt et al.,
2001); (Skaggs and Youndt, 2004)]. The probability of organizational turnaround success
increases with an increase in the proportion and quality of core staff. Such reorganization
strategy seeks to replace non-core staff with core staff and recruit core staff with high level of
expertise. Our seventh and eighth hypotheses are, therefore:
Hypothesis 7: An increase in the proportion of core staff positively impacts the organizational
success.
Hypothesis 8: An increase in the quality of core staff positively impacts the organizational
success.
ORGANIZATIONAL TURNAROUND AND INERTIA
Inertia can be defined as the strong persistence of existing form and function. There are five
basic categories of inertia (a) distorted perception, (b) dulled motivation, (c) failed creative
response, (d) political deadlocks, and (e) action disconnects (Richard P. Rumelt, 1995).
(Barker V. L. , and Duhaime I. M. 1997) finds that organizational inertia constrain organization
performance. Successful change requires enough organizational momentum to move quickly
from the initial state (inertial state) towards the desired direction. This momentum is generated
once sufficient support and speed is generated quickly. (Alan McKinlay and Ken Starkey,1988)
concludes that organizational realignment is positively related to significant organizational
turnaround. (Denish Shah et al., 2006) concludes that organizational realignment is crucial for
business success. (Richard P. Rumelt ,1995) defines Fragmentation as dividing the company into
smaller department, reducing interdependencies, measuring each department's performance and
tying managerial pay and career potential to results. Fragmentation reduces the sources of inertia,
Arabian Journal of Business and Management Review (OMAN Chapter) Vol. 2, No.10; May 2013
84
breaks political coalitions, reinforces the legitimate authority of management over employee
behavior, and results in more attention to performance. Our ninth hypothesis is therefore:
Hypothesis 9: Organizational success is positively influenced by fragmentation.
3. RESEARCH DESIGN
SAMPLE
The sample of firms for our study consists of 35 private banks operating in Pakistan. This is a
good choice to examine organizational success for many reasons. First, banks belong to a single
industry, a single country, and are directly comparable. All banks work under State Bank of
Pakistan (the regulatory authority). That means that all banks work under the same set of rules
and regulations. Thus we can hold some of the potentially confusing variables that might affect
the bank’s organizational performance, constant. Second, all the banks operate under a similar
governance structure. Third, banks are a common private organization in Pakistan. Finally, chief
executives of banks have substantial power to choose and implement the strategy of choice (such
as retrenching, repositioning, or reorganization) in order to improve deteriorating performance.
It takes time to implement change and this time varies from industry to industry. In this study we
review banks performance for the period 2008-2012. This time period is considered sufficient to
allow for the performance effects of changes in external environment variables, change in
organizational inertia, and good management practices to emerge.
DATA SOURCES
The data for this study was drawn from various sources of primary and secondary data. These
sources included the published annual financial statements of banks, public documents from
State Bank of Pakistan, targeted interviews with senior executives (N=40), library references,
and the review of different research articles/studies.
MEASURES FOR VARIABLES
ORGANIZATIONAL EXTERNAL ENVIRONMENT
Bank’s performance is dependent on two most significant external constraints 1) Access to extra
financial resources and 2) Perception of key stakeholders about bank’s organizational and market
performance. We measured the munificence and hostility of task environment of the bank. The
munificence of the environment was measured as the access to extra financial resources to the
bank, which is determined by the exogenous variables such as funding from the parent
organization. Other things being equal, poorly performing banks who has access to expanding
financial resources make it convenient to improve their performance. The hostility of
environment was operationalized as the change in perception of key stakeholders. We argue that
performance improvement is positively related to the perception of key stakeholders about
bank’s organizational and market performance. The change in perception of key stakeholders
about bank’s organizational and market performance was measured as the change in price-
Arabian Journal of Business and Management Review (OMAN Chapter) Vol. 2, No.10; May 2013
85
earnings ratio of the bank. A high price-earnings ratio indicates favorable shift. These variables
can also be taken as exogenous to bank’s performance.
Good Management Practices
The central elements of retrenchment strategy i.e. cost reduction and efficiency improvement,
organizational focus on core business, and attention given by senior executives to internal
operations of the business (Arogyaswamy et al., 1995) were operationalized. First the senior
executives of banks were asked about their relative priority given to lower costs and increase
efficiency. This measure reflected the organizational approach towards cost reduction and
improvement of the efficiency. Second, the senior executives were asked about their relative
priority that they attached to keeping account holders. This measure reflects organizational focus
on core business. Third, senior executives were asked to provide an estimate of the proportion of
their total time they spent on internal management. This measure reflects detailed attention by
senior executives to the internal operations of bank.
The concept of repositioning was operationalized in three ways. First, the bank executives were
asked three questions regarding the extent to which they were seeking change. They were asked
1) whether they favor major changes in bank policies 2) whether they assume leadership role in
shaping bank policies 3) whether they see themselves as a change agent
A weighted score was derived from responses to these questions. This measure reflected attitude
towards change. A high score reflected a more positive attitude change and vice versa. Second,
to measure the organizational approach towards creating new streams of revenue, executives
were asked whether they actively made efforts to raise level of bank deposits by either attracting
new account holders or existing customers. A positive response indicated organizational efforts
towards creating new sources of revenue. Third, to measure the organizational efforts to
influence perceptions and expectations of key stakeholders, bank executives were asked three
questions. They were asked 1) to what extent they interacted with external stakeholders and 2) to
what extent they initiated interactions with key stakeholders. A weighted score was derived from
the responses. A high score reflected a keen interest of organization in changing the perceptions
of key stakeholders and vice versa.
The concept of reorganization was operationalized in three ways. First, the bank executives were
asked about the total tenure of their employment and their tenure as an executive in the bank.
This measure was used to establish whether a change of executives occurred from 2008-2012
and whether the succession was from inside or outside. Second, secondary data was used to
measure the proportion of core staff in the bank i.e. staff with relevant skills and qualifications.
An increase in the proportion indicates greater emphasis of bank on increasing the core staff.
Third, secondary data was used to measure the average length of experience of staff in the bank.
This measure reflected the quality of workforce.
Organizational Inertia
To operationalize the concept of organizational inertia, we used two measures. First, Secondary
data was used to determine whether the organization has implemented a restructuring program
Arabian Journal of Business and Management Review (OMAN Chapter) Vol. 2, No.10; May 2013
86
composed of basic elements of fragmentation. Second, executives were asked whether they think
fragmentation resulted in increased organizational performance.
Bank Size and Success
The extent of success and improvement for Pakistani banks can be determined by calculating
bank’s ROA. This is a suitable measure of performance that is considered as primary criterion of
success by key stakeholders [(Samy Ben Naceur and Mohamed Goaied, 2001);(Medhat
Tarawneh, 2006)]. The size of bank was measured as the number of employees. This is a
measure of organizational workload and related closely with indicators of internal aspects of size
such as operational budget.
4. RESULTS AND DISCUSSION
Table 2 shows variables and the correlations between them. The statistical evidence on the
validity of results is presented in Table 3. The model explains 72% of the variation in
organizational success across private Pakistani banks between 2008 and 2012.
Statistical evidence supports our first hypothesis. Regardless of whether the banks followed the
retrenchment or reorganization strategy, banks were more likely to improve if there were
favorable changes in their external environment variables. Increases in environmental
munificence, as indicated by the access to extra financial resources, is positively associated with
performance; and decrease in environmental hostility, as reflected by the increase in Price
Earning ratio is positively related with performance.
All three retrenchment variables, emphasis on keeping accountholders, time spent on internal
management, and focus on cost cutting and increasing efficiency have no significant effect on
performance. Thus statistical evidence contradicts our second hypothesis.
Size of bank has a positive co-efficient and is not significantly related to the performance which
contradicts our third hypothesis.
Statistical evidence provides mixed support about our fourth hypothesis about repositioning.
Two of the three retrenchment variables, Seeking change and emphasis on pursuing new
deposits, are not significantly related to performance. Third variable (contact with stakeholders)
is significantly related to performance. Executives who keep contact with key stakeholders are
more likely to boost bank performance.
Reorganization strategy also has significant positive impact on performance. The variable of
insider executive succession has significant positive relation with performance while the outsider
executive succession has no significant impact. That provides support for our fifth and sixth
hypothesis. Banks that have insider succession are more likely to improve performance while
appointment from outside is insignificantly different from keeping the same executive who led to
deteriorating performance. Length of chief executive experience has significant positive
relationship with performance.
Arabian Journal of Business and Management Review (OMAN Chapter) Vol. 2, No.10; May 2013
87
Statistical evidence contradicts our seventh hypothesis and supports eighth hypothesis.
Proportion of core staff has no significant relation with the performance while increase in quality
of core staff had significant positive correlation with the performance. Banks that raised the
proportion of core staff witness no improvement in performance while banks that recruited more
experienced professionals achieved improved performance. These results are consistent with the
proposition that organizational success associated not only with top management change but also
with the organizational emphasis on increasing proportion of core staff in the work force.
95% of executives answered “Yes” to the question whether they think fragmentation of
organization increased performance. Statistical model shows that restructuring variable has
positive correlation with performance. This evidence clearly supports our ninth hypothesis.
5. IMPLICATIONS
Contradictory results not necessarily imply the inappropriateness of these strategies nor cast any
doubts on findings of previous studies. These results suggest to HR managers that they need to
adopt different strategies to respond to failure on multi-dimensional performance measures.
Retrenchment strategy is likely to improve organizational performance if the reasons for non-
performance are high costs and lower levels of efficiency. The empirical evidence suggests that
repositioning works and poor performance requires change in the product offering and better
relationships with key stakeholders. When it comes to reorganization, there exists a distinction
between insider and outsider executive succession. However, further research is needed to
establish the proposition that insider succession to the top management role is also an effective
HRM strategy in other settings. Our evidence provides significant positive effects, on
organizational performance, of HRM strategy of raising the quality of core staff. This, in turn,
points to the fact that leaders alone don’t make a difference. Our evidence provides significant
positive effects, on organizational performance, of changes in organizational inertia.
6. CONCLUSION
In this research we extended the study of organizational success and its drivers by adding the
impact of a) changes in external environment variables of organization, and b) organizational
inertia to the existing models. We developed hypothesis on various turnaround strategies in the
same model and provided statistical evidence that supports them. Our statistical analysis suggests
that changes in external environment variables produce significant impact on organizational
performance but HR managers should be aware that the relative influence of such changes and
organizational strategy may vary within the public and private organizations. Our analysis
extends the prior turnaround research by covering institutional environment of organizational
success (e.g. by measuring change in perception of key stakeholders). We found contradicting
effects in our sample of organizations about various turnaround strategies which have generally
been found helpful in improving organizational performance. Future research is required to
investigate the environmental factors under which a verity of HRM strategies can be linked to
performance improvement.
Arabian Journal of Business and Management Review (OMAN Chapter) Vol. 2, No.10; May 2013
88
Table 1: Variables and their Description
ROAAT Return on Assets (After Tax)
TIMEIM % of time spent on internal management
EMPKAC Emphasis on keeping accountholders
EMPEFF Emphasis on efficiency
SEEKCH Executive seeking change
CONTSH Contact with Stakeholders
HIREOUTSIDE New Leader – Outside Hire
HIREINSIDE New Leader – Inside Hire
CHP % change of professionals in workforce
CHPEXP Avg. length of experience of professionals
LEXP Length of experience of Chief Executive
EMPLOYYES Number of Employees
Restructuring Restructuring Implemented
EXTRAFIN Access to Extra Financial Resources
EMPNACC Emphasis on pursuing new deposits
PERATIO Price Earning Ratio
Arabian Journal of Business and Management Review (OMAN Chapter) Vol. 2, No.10; May 2013
89
Table 2: Correlation Matrix
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
1
ROAAT 1
.09
1
.276 .208 .200
.523(*
*)
.140
.558(*
*)
.193
.388(*
)
.537(*
*)
.241
.407(*
)
.324(
*)
.20
5
.426(*
*)
2
TIMEIM .091 1 .153 .127 .144 .157 -.023 .054 .032 .013 -.014 .093 .013 -.016
.10
4
.076
3
EMPKAC .276
.15
3
1
.822(*
*)
.335(*
)
.420(*
*)
-.129 .205
.405(*
)
.182 .153
-
.317(
*)
.051 .233
.15
0
.364(*
)
4
EMPEFF .208
.12
7
.822(*
*)
1
.444(*
*)
.394(*
)
-.187 .226
.471(*
*)
.180 .166 -.283 .008
.331(
*)
.08
7
.320(*
)
5
SEEKCH .200
.14
4
.335(*
)
.444(*
*)
1 .295 .037 .186 .184 .061 .082 -.227 .019 .072
-
.16
3
-.039
6
CONTSH
.523(*
*)
.15
7
.420(*
*)
.394(*
)
.295 1 .188
.665(*
*)
.219
.330(*
)
.659(*
*)
.202
.617(*
*)
.157
.01
9
.413(*
*)
7
HIREOUTSI
DE
.140
-
.02
3
-.129 -.187 .037 .188 1
.348(*
)
-.101 -.020
.515(*
*)
.246 .157 -.016
-
.14
8
-.024
8 HIREINSID
E
.558(*
*)
.05
4
.205 .226 .186
.665(*
*)
.348(*
)
1 .157
.316(*
)
.940(*
*)
.174
.351(*
)
.235
.07
7
.525(*
*)
9
CHP .193
.03
2
.405(*
)
.471(*
*)
.184 .219 -.101 .157 1
.661(*
*)
.134 -.043 .193 .297
-
.02
6
.290
1
0
CHPEXP
.388(*
)
.01
3
.182 .180 .061
.330(*
)
-.020
.316(*
)
.661(*
*)
1 .271 .009
.545(*
*)
.228
.27
6
.306
1
1 LEXP
.537(*
*)
-
.01
4
.153 .166 .082
.659(*
*)
.515(*
*)
.940(*
*)
.134 .271 1 .263
.382(*
)
.261
.05
4
.513(*
*)
Arabian Journal of Business and Management Review (OMAN Chapter) Vol. 2, No.10; May 2013
90
1
2
EMPLOYYE
S
.241
.09
3
-
.317(*
)
-.283 -.227 .202 .246 .174 -.043 .009 .263 1
.360(*
)
.034
-
.01
2
.197
1
3
Restructurin
g
.407(*
)
.01
3
.051 .008 .019
.617(*
*)
.157
.351(*
)
.193
.545(*
*)
.382(*
)
.360(
*)
1 .098
.24
3
.096
1
4 EXTRAFIN
.324(*
)
-
.01
6
.233
.331(*
)
.072 .157 -.016 .235 .297 .228 .261 .034 .098 1
.27
1
.398(*
)
1
5
EMPNACC .205
.10
4
.150 .087 -.163 .019 -.148 .077 -.026 .276 .054 -.012 .243 .271 1 .230
1
6
PERATIO
.426(*
*)
.07
6
.364(*
)
.320(*
)
-.039
.413(*
*)
-.024
.525(*
*)
.290 .306
.513(*
*)
.197 .096
.398(
*)
.23
0
1
** Correlation is significant at the0.01 level (2-tailed).
* Correlation is significant at the0.05 level (2-tailed).
Arabian Journal of Business and Management Review (OMAN Chapter) Vol. 2, No.10; May 2013
91
Table 3: Performance of Banks – Summary of Regression Analysis
Independent Variable Slope
% of time spent on internal management .001
Emphasis on keeping accountholders .377
Emphasis on efficiency -.250
Executive seeking change .196
Contact with Stakeholders .055*
New Leader – Outside Hire -.109
New Leader – Inside Hire .132*
% change of professionals in workforce -.201
Avg. length of experience of professionals .320*
Length of experience of Chief Executive .235**
Number of Employees .254
Restructuring Implemented .018+
Access to Extra Financial Resources .176+
Emphasis on pursuing new deposits .029
Price Earning Ratio .003+
R
2
0.72
N 150
Significance Levels:
+