Description
The study investigated the impact of turnaround strategies on the recovery from corporate decline in Jordanian manufacturing. The results indicated that the organizational performance of declined firms can be improved by utilizing the following turnaround strategies.
1
Operations and marketing managers’ perceptions of turnaround
strategies and corporate decline: An applied study
Abdulkareem S. Awwad
Qatar University
College of Business and Economics
Department of Management and Marketing
Email: [email protected]
Abstract
The study investigated the impact of turnaround strategies on the recovery from corporate decline in Jordanian
manufacturing. The results indicated that the organizational performance of declined firms can be improved by
utilizing the following turnaround strategies- (1) Revenue generation, (2) Product/market refocusing, (3) Asset
reduction, and, (4) Productivity improvement
Keywords: corporate decline, turnaround strategies, Jordan
Introduction
Turnaround strategies are the set of reform strategies that can be used as the recovery of a firm’s financial
performance, after showing deterioration over a time period. In today’s uncertain business environment, global
economic crisis, extended economic boundaries, growth of e-commerce, and rapid changes of information
technology, turnaround strategies are becoming very critical for success and recovery from corporate decline.
Organisational performance decline is an expected situation facing organisations, as they usually practise their
activities in turbulent environments. The fall of a firm in poor performance reflects a severe problem with its
management or a drastic change in its environment.
How should managers respond in such circumstances? Organisations are strategically advised to do strategic
analysis to see how they can maintain, develop, and sustain the competitive advantage that should be continuously
developed based on improvements of organisational performance. To this end, it could be stated that declining
firms should increase their abilities to meet their stakeholders' expectations and to recover from decline situations.
To recover from decline, organisations need to take turnaround strategies into action by addressing declining firm’s
core problems which affect organizational performance.
Literature review: Corporate decline and turnaround strategies
Corporate decline is a result of a firm's organizational performance reduction over specific periods of time. In the
line with Jas and Skelcher (2005), the common causes of decline according to Scherrer (2003) include the
following (management by exception rather than flexible planning; delegation without inspection control; no
feedback review or reinforcement; vertical organization chart where there is little, if any, interaction among
departments; managers with responsibility for more than five direct reports;, employees with more than one boss;
chain of command broken when employees deem it necessary; formal communications not used; over-reliance on
management by objectives; senior managers' abuse of outside activities and company perks; marketing the wrong
product and/ or in wrong markets; aging production techniques; and inadequate understanding of customers'
needs).
2
Organizations need flexibility to cope with uncertainty and avoid corporate decline. When they fail to respond may
end up in complete failure (Serra et al., 2013). The big challenge that may face organizations is the link between
decline situation and turnaround strategy that is appropriate for the severity of the situation. In one the earliest
works on corporate decline, Hofer (1980) highlighted the following question: How can management pinpoint the
right turnaround strategy when it is needed—and make it work? Similarly, a central question in the research has
been the examination of why and how some organizations are able, and others are not, to begin a turnaround in a
crisis situation and make it succeed (Lamberg and Pajunen, 2005). This dilemma acts as a motivation for managers
and researchers to identify and predict the causes of business decline and to understand the factors behind this
decline. In this regard, (Bruton, et al., 2003) argue that the firm needs to understand the principal cause of its
decline since its response needs to be geared to the nature of the problem that created that decline.
A turnaround strategy has been defined as the master plan of actions necessary to reverse a declining internal or
environmental business situation (Gowen III and Tallon, 2002). This definition is similar to the one set by Furman
and McGahan (2002) in which they define the term turnaround as a change in business segment profitability from
the lowest quintile among all businesses in a specific year to the highest quintile among all businesses in any
subsequent year covered in the dataset.
Lohrke et al. (2004) represent decline and turnaround operationalizations in terms of performance measures as
follows in Table 1.
Table 1: Representative decline and turnaround operationalizations. Adapted from Lohrke et al. (2004)
Performance
measure
Description
Profitability Decline and turnaround are defined based on a firm’s profitability. Firms
decreasing and increasing profitability relative to historical company levels
for a set time period (e.g. three years) are in decline and turnaround
situations, respectively.
Profitability
relative to an
objective
financial
benchmark
Decline and turnaround are defined based on whether a firm’s profitability
exceeds or falls short of an objective financial benchmark (e.g. 5% return on
investment or the risk-free rate). Firms that have returns less and more than
the benchmark are in decline and turnaround situations, respectively
Proximity to
bankruptcy
Decline and turnaround are defined based on a firm’s proximity to
bankruptcy. Firms facing increased and decreased bankruptcy risk are in
decline and turnaround situations, respectively.
Slack resources Decline and turnaround are defined based on a firm’s level of financial
cushion (i.e. slack). Firms having decreasing and increasing slack levels are
in decline and turnaround situations, respectively.
Expert panel/
business press
Decline and turnaround are defined by experts outside a firm (e.g. stock
analysts, consultants, academicians). Firms receiving decreasing and
increasing performance ratings are in decline and turnaround situations,
respectively.
Stakeholder
opinion
Decline and turnaround are defined from a stakeholder (e.g. employees,
stockholders or local community) perspective. Firms facing withdrawn and
renewed stakeholder support are in decline and turnaround situations,
respectively.
Turnaround situations are governed by a mix of preconditions that are often described in metaphors or as
syndromes, because they are so complex, severe and urgent. The need for turnaround strategies is not new; most
business ventures face trouble and decline somewhere in their life cycle (Pretorius, 2008). One of the earliest and
most impressive and interesting work on turnaround strategies is the one done by Hofer (1980) who identifies two
broad types of turnaround strategies that may be used for dealing with organizational decline: strategic and
operating. Strategic turnarounds can be divided into those that involve a change in the organization's strategy for
3
competing in the same business and those that call for entering a new business or businesses. Operating
turnarounds are usually of four types, none of which require changing the firm's business level strategy. These
emphasize: increasing revenues, decreasing costs, decreasing assets, or a combination effort. However, turnaround
strategies are not only necessary for recovery from decline but also for building good reputation. In the case study
prepared by Kaul (2012) about Lenovo and corporate reputation, the author raises the following questions that
should be answered in order to improve the reputation of Lenovo India: What strategies should be adopted to build
reputation, redefine perceptions, and gain market share in India? Was Lenovo India poised for growth? Similarly,
Abebi (2012) highlights the role of environmental scanning and strategy formulation processes in an organizational
decline context. He examined two major questions: first, is there a relationship between executive environmental
attention patterns and corporate turnaround performance during organizational decline? and, second, does the
degree of environmental dynamism moderates the relationship between executive environmental scanning
emphasis and corporate turnaround performance? Such questions can help organizations to suggest what
turnaround strategies can be taken into action to improve organizational performance.
In their review for the literature on corporate decline and turnaround strategies, Schoenberg et al. (2013) outline six
effective turnaround strategies that can be used for the recovery from corporate decline. four of them 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. Other authors i.e. (Malmendier et al., 2011, Cassell et al.,
2012, Serfling, 2014) investigated the role of strategic relationship in managing the financial function by
addressing the effect of managerial traits and CEO age on corporate financial policies and investments. In this
context, Haron et al. (2013) concluded that the success of the corporate turnaround appeared to be attributable to an
effective leadership style that was able to motivate and support the employees whilst making strategic changes to
the organization’s capital, financial well-being and operations.
According to Gowen III and Tallon (2002), the traditional literature for turnaround strategy actions can be
summarized by a four category action typology: revenue generation, product/market refocusing, asset reduction,
and productivity improvement. The actions of these strategies are summarized in Table 2.
Table 2: Actions of turnaround strategies. Adapted from Gowen III and Tallon (2002)
Revenue generation
turnaround actions
Product/market
refocusing
turnaround actions
Asset reduction
turnaround actions
Productivity
improvement
turnaround actions
? Raising product
prices
? Increasing cash
discounts to
customers
? Loosening
customer credit
criteria
? Market share
domination
? Elimination of
unprofitable
products,
customers,
channels of
distribution, sales
regions, or sales
representatives
? Immediate cash
flow
? Major
retrenchment
? Divestiture
‘‘strategic cures’’
? Liquidation of
inventory,
equipment, or
physical plant
? Divestiture of a
subsidiary,
product line, or
holdings.
Cost cutting such as
reducing expenses,
e.g., marketing and
sales cost
Operating cures
Greater plant capacity
utilization,
3. Research objectives, model, and hypotheses
The aims of this research can be summarized as follows:
4
1. Determining the causes of corporate decline, turnaround situations, and turnaround strategies in the context
of Jordanian Manufacturing Companies
2. Examining the managers' perceptions of turnaround strategies that declining firms need to take into action
in response to corporate decline situations. The research model depicted in Figure 1 is designed to address
the managers' perceptions of the relationship between turnaround strategies (independent variables) and
improvement of corporate organizational performance.
Figure 1: The research model
Research hypotheses
Based on the research model the following hypotheses are formulated:
1. Revenue generation as a turnaround strategy contributes to improvement of organizational performance by
recovering from corporate decline.
2. Product/market refocusing as a turnaround strategy contributes to improvement of organizational
performance by recovering from corporate decline.
3. Asset reduction as a turnaround strategy contributes to improvement of organizational performance by
recovering from corporate decline.
4. Productivity improvement as a turnaround strategy contributes to improvement of organizational
performance by recovering from corporate decline.
Research methodology
The entire population that comprises all manufacturing companies listed in Amman stock exchange market was
chosen as the sample of this study. The respondents of this study are executives with titles of operations manager,
plant manager, financial manager, and marketing manager. A total of 360 questionnaires were distributed to the
targeted executives. 234 usable questionnaires were returned The target sample that consisted of 234 managers was
used to collect the responses from executive with title of operations manager (n = 82); plant manager (n = 57); and
marketing manager (n =95). These usable responses represented a response rate of 65%. The responding firms
cover a wide range of manufacturing activities including electronics, engineering products, electric, chemical,
Improvement of
organizational
performance (Recovery
from corporate decline)
Product/market refocusing
Revenue generation
Asset reduction
Productivity improvement
5
textiles, leathers, and clothing, glass and ceramic, engineering and constructions, mining and extraction, food and
beverages, paper and cartoon, and pharmaceutical and medical products.
The data was collected using a self-administered questionnaire. The delivery and collection of questionnaire
method was adopted to ensure a high response rate and to take the advantages of personal contact since this method
enhances respondent participation. The seven-point Likert scale was used throughout the questionnaire to provide a
greater opportunity to respondents to answer its questions. The respondents were asked to indicate the causes of
corporate decline on a scale ranging from 1 (strongly disagree) to 7 (strongly agree). In addition, the respondents
were also asked to determine the extent to which they agree or disagree on how the overall company’s performance
can be improved when using a number of proposed turnaround strategies. The scale is given below:
Strongly
disagree
Disagree Slightly
disagree
Neutral Slightly
agree
Agree Strongly
agree
1 2 3 4 5 6 7
Data analysis, results, and discussion
The responses were measured on a 7-point Likert scale where 1 indicated that the respondents strongly disagree, 7
indicates that they strongly agree on the statement determined for measuring the research constructs.
The respondents agreed that the causes of corporate decline are attributed to the following factors:
1. Inadequate understanding of customers' needs.
2. Employees with more than one boss
3. Consumer, regulatory, and economic changes
4. Changing technology
5. Marketing the wrong product and/ or in wrong markets
6. Inadequate production equipment
7. Inadequate research and development
8. Inappropriate channels of distribution
9. Displacement by competition
10. Non-responsive financial information systems
11. Falling demand for an industry’s products
12. Management commitment to existing strategies and routines
13. Poor management information systems.
14. High cost structure
15. Input price increase
16. Problems in teamwork
17. Lack of capital funds
18. Board-management conflict
It was noted that all the above factors have a mean more than 5. The means are ranging from 5.36 to 5.71 and this
indicates that the respondents, in general, agree on the items included in the questionnaires in which the corporate
decline is caused by the factors mentioned above.
Regarding the organizational performance construct, as seen in Table 3, it was noted that all the performance
measures have a mean more than 5. This result is the evidence that the respondents agreed to some extent that all
the performance measures are affected by the turnaround strategies, it was noted that all the means are very closed
each to other. This results is justified because the measures are very correlated since each one of them is a function
to others, for example, increasing the sales volume leads to increase in the market share, cash flow, profitability,
and return on investment. At the same time, improving the quality continuously and launching new products are
critical success factors for maintaining and developing the competitive advantage of a firm.
6
Table 3: Means and standard deviations of performance measures
Performance measure Mean Std. Deviation
Sales volume 5.64 1.13
Cash flow 5.57 1.17
Profitability 5.56 1.13
New product development 5.55 1.28
Market share 5.53 1.14
Product quality 5.53 1.21
Return on investment 5.51 1.18
5.3 Hypothesis testing
The results of hypothesis testing are summarised in Table 4. It was noted that the improvement of organizational
performance in the target sample is significantly affected by adopting one or more of the following turnaround
strategies.
? Revenue generation
? Product/market refocusing
? Asset reduction
? Productivity improvement
Table 4: Summary of the research hypotheses (H1-H4) and their results
The results of this study are also in line with results emerged from previous work. Frost and Joson (1998), for
instance, studied the corporate decline in four electric utilities from New Zealand and the Philippines and they
found a number of factors that lead to corporate decline such as: inadequate financial control; inadequate working
capital; government interference in decision making; union interference over external hiring, contracting and other
personnel matters; poor management; and the inability of management to effectively answer criticism of the public.
The results of this study are in consistent with the findings of the empirical work done by Pandit (1998) who
examined the turnaround of the British Steel Corporation (BSC) over the period 1974-89 where the following
causes of decline were found in BSC over the period 1974-1989:
? Cyclical decline in market demand
? Secular decline in market demand
? Poor management
? Increase in competition/poor marketing
However, it could be concluded that determining the cause(s) of corporate decline can help management find the
best way to recover from failure and decline. In this study, it was found that the decline of organizational
Hypothesis t-value Sig Result
Revenue generation as a turnaround strategy contributes to
improvement of organizational performance by recovering
from corporate decline.
4.453 .000 Rejected
Product/market refocusing as a turnaround strategy
contributes to improvement of organizational performance
by recovering from corporate decline.
2.965 .003 Accepted
Asset reduction as a turnaround strategy contributes to
improvement of organizational performance by recovering
from corporate decline.
6.980 .000 Accepted
Productivity improvement as a turnaround strategy
contributes to improvement of organizational performance
by recovering from corporate decline.
9.336 .000 Accepted
7
performance is affected by a number of management attributes such as: poor management information systems,
Problems in teamwork, employees with more than one boss, and dysfunctional organizational culture. In this
context, Boyne (2006) considers the poor leadership as an internal cause of corporate decline. This conclusion
indicates that top management usually is responsible for the outcomes of the firm’s financial decline. Therefore,
there is a need for replacing new top management in order to take the right turnaround strategies into action in
response to decline of organizational performance.
Managerial implications
This research is an attempt to identify the causes of corporate decline experienced in the manufacturing companies
classified in Amman stock exchange market as a public shareholding companies. Utilizing the findings of this
study, however, can help top management make sense of causes of corporate decline that reduce organizational
performance and what turnaround strategies that are required to recover from decline. More specifically, the
findings of this study make explicit the following practical implications.
1. Customers are viewed as a main driver of change in business environment. Therefore, in a turbulent
environment, organizations should not only focus on the financial measures, but also on non-financial measures
of performance. Any lack in understanding customers’ expectations and preferences, will results in declining
the organizational performance. Organizations should communicate with customers periodically to receive
constructive feedback that help in formulating and implementing the marketing and operations strategies on
one side, and to respond effectively and efficiently to changes in business environment, particularly, the
changes associated with customers’ needs, preferences, and expectations.
2. Management should determine the major causes(s) of corporate decline and check whether the decline resulted
from internal or external factors or both.
3. To improve organizational performance and recover from corporate decline, managers are advised to use one or
more of the following turnaround strategies:
? Revenue generation,
? Product/market refocusing,
? Asset reduction, and
? Productivity improvement.
4. All inside and outside stakeholders should be kept informed about corporate decline in terms of symptoms,
causes, and the proposed turnaround strategies to recover from decline.
Limitations and future directions
The sample was limited to the Jordanian manufacturing companies classified in Amman stock exchange market
public shareholding companies. Thus, it is not representative of global industry and therefore the findings are not
generalizable as the study excluded the Jordanian manufacturing companies that are not classified in Amman Stock
Exchange.
The above mentioned limitations should be viewed as opportunities for future research. Much work needs to be
done on the empirical research. The following directions are suggested for further research.
1. Conducting more empirical investigations to identify the extent that causes and outcomes of corporate decline
are linked to the global financial crises.
2. More research is required to investigate the top managements’ perceptions of corporate decline in the declining
firms that cover a wide range of manufacturing and service activities.
3. Examining the impact of turnaround strategies on organizational performance in the service sector.
References
8
? Abebi, M.2013. Executive attention patterns, environmental dynamism and corporate turnaround performance.
Leadership and Organization Development Journal 33 (7): 684-701.
? Boyne, G. A. 2006. Strategies for Public Service Turnaround: Lessons from the Private Sector? Administration
and Society 38 (3): 365-388.
? Cassell, C.A., Huang, S.X., Sanchez, J.M., Stuart, M.D. (2012), “ Seeking safety: the relation between
CEO inside debt holdings and the riskiness of firm investment and financial policies”, Journal of
Financial Economics, 103 (3): 588-610.
? Frost, F., A. and Joson, G. R. 1998. Turnaround strategies of electric utilities in New Zealand and the
Philippines. Strategic Change 7: 289-300.
? Furman, J.L and McGahan, A. M. 2002. Turnarounds", Managerial and Decision Economics 23: 283–300
? Gowen III, C.R. and Tallon, W.J. 2002. Turnaround strategies of American and Japanese electronics
corporations: How do they differ in formulating plans and achieving results? Journal of High Technology
Management Research 13: 225–248
? Haron, N. H., Abdul Rahman, I. K., and Smith, M. 2013. Management accounting practices and the turnaround
process”, Asian Review of Accounting 21 (2): 100-112.
? Hofer, C. W. (1980). “Turnaround strategies”. Journal of Business Strategy 1: 19-31.
? Jas, P. and Skelcher, C. 2005. Performance Decline and Turnaround in Public Organizations: A Theoretical
and Empirical Analysis. British Journal of Management 16: 195–210
? Juha-Antti Lamberg, J. and Pajunen, k. 2005. Beyond the metaphor: The morphology of organizational decline
and turnaround, Human Relations 58(8): 947–980.
? Kaul, A. 2012. Doing’’ the act: Lenovo and corporate reputation”, Emerald Emergent Markets Case Studies 2
(8): 1-16.
? Latham, S. 2009. Contrasting Strategic Response to Economic Recession in Start-Up versus Established
Software Firms. Journal of Small Business Management. 47(2): 180–201.
? Lohrke, F.T., Arthur G. Bedeian, A. B., and Palmer, T.B. 2004). The role of top management teams in
formulating and implementing turnaround strategies: a review and research agenda. International Journal of
Management Reviews 5/6 (2): 63–90.
? Malmendier, U., Tate, G., Yan, J. 2011.Overconfidence and early-life experiences: the effect of
managerial traits on corporate financial policies”, The Journal of Finance 66 (5): 1687–1733.
? Pandit, N. R. .1998. British Steel Corporation: probably the biggest turnaround story in UK industrial history.
Strategic Change 7 : 65-79
? Pretorius, M. 2008. When Porter’s generic strategies are not enough: complementary strategies for turnaround
situations, Journal of Business Strategy 29 (6):19-28.
? Scherrer, P. S. (2003). “Management turnaround: diagnosing business ailments”. Corporate Governance 3 (4):
52-62.
? Schoenberg, R., Collier, N., and Bowman, C. 2013. Strategies for business turnaround and recovery: a
review and synthesis”, European Business Review 25 (3) 243-262.
? Serfling, M.A. .2014.CEO age and the riskiness of corporate policies. Journal of Corporate Finance 25: 251–
273.
? Serra, F. R., Ferreira, M. P., and de Almeida, M. I. .2013.Organizational decline: a yet largely neglected topic
in organizational studies, Management Research: The Journal of the Iberoamerican Academy of Management
(2): 133-156
doc_768601804.pdf
The study investigated the impact of turnaround strategies on the recovery from corporate decline in Jordanian manufacturing. The results indicated that the organizational performance of declined firms can be improved by utilizing the following turnaround strategies.
1
Operations and marketing managers’ perceptions of turnaround
strategies and corporate decline: An applied study
Abdulkareem S. Awwad
Qatar University
College of Business and Economics
Department of Management and Marketing
Email: [email protected]
Abstract
The study investigated the impact of turnaround strategies on the recovery from corporate decline in Jordanian
manufacturing. The results indicated that the organizational performance of declined firms can be improved by
utilizing the following turnaround strategies- (1) Revenue generation, (2) Product/market refocusing, (3) Asset
reduction, and, (4) Productivity improvement
Keywords: corporate decline, turnaround strategies, Jordan
Introduction
Turnaround strategies are the set of reform strategies that can be used as the recovery of a firm’s financial
performance, after showing deterioration over a time period. In today’s uncertain business environment, global
economic crisis, extended economic boundaries, growth of e-commerce, and rapid changes of information
technology, turnaround strategies are becoming very critical for success and recovery from corporate decline.
Organisational performance decline is an expected situation facing organisations, as they usually practise their
activities in turbulent environments. The fall of a firm in poor performance reflects a severe problem with its
management or a drastic change in its environment.
How should managers respond in such circumstances? Organisations are strategically advised to do strategic
analysis to see how they can maintain, develop, and sustain the competitive advantage that should be continuously
developed based on improvements of organisational performance. To this end, it could be stated that declining
firms should increase their abilities to meet their stakeholders' expectations and to recover from decline situations.
To recover from decline, organisations need to take turnaround strategies into action by addressing declining firm’s
core problems which affect organizational performance.
Literature review: Corporate decline and turnaround strategies
Corporate decline is a result of a firm's organizational performance reduction over specific periods of time. In the
line with Jas and Skelcher (2005), the common causes of decline according to Scherrer (2003) include the
following (management by exception rather than flexible planning; delegation without inspection control; no
feedback review or reinforcement; vertical organization chart where there is little, if any, interaction among
departments; managers with responsibility for more than five direct reports;, employees with more than one boss;
chain of command broken when employees deem it necessary; formal communications not used; over-reliance on
management by objectives; senior managers' abuse of outside activities and company perks; marketing the wrong
product and/ or in wrong markets; aging production techniques; and inadequate understanding of customers'
needs).
2
Organizations need flexibility to cope with uncertainty and avoid corporate decline. When they fail to respond may
end up in complete failure (Serra et al., 2013). The big challenge that may face organizations is the link between
decline situation and turnaround strategy that is appropriate for the severity of the situation. In one the earliest
works on corporate decline, Hofer (1980) highlighted the following question: How can management pinpoint the
right turnaround strategy when it is needed—and make it work? Similarly, a central question in the research has
been the examination of why and how some organizations are able, and others are not, to begin a turnaround in a
crisis situation and make it succeed (Lamberg and Pajunen, 2005). This dilemma acts as a motivation for managers
and researchers to identify and predict the causes of business decline and to understand the factors behind this
decline. In this regard, (Bruton, et al., 2003) argue that the firm needs to understand the principal cause of its
decline since its response needs to be geared to the nature of the problem that created that decline.
A turnaround strategy has been defined as the master plan of actions necessary to reverse a declining internal or
environmental business situation (Gowen III and Tallon, 2002). This definition is similar to the one set by Furman
and McGahan (2002) in which they define the term turnaround as a change in business segment profitability from
the lowest quintile among all businesses in a specific year to the highest quintile among all businesses in any
subsequent year covered in the dataset.
Lohrke et al. (2004) represent decline and turnaround operationalizations in terms of performance measures as
follows in Table 1.
Table 1: Representative decline and turnaround operationalizations. Adapted from Lohrke et al. (2004)
Performance
measure
Description
Profitability Decline and turnaround are defined based on a firm’s profitability. Firms
decreasing and increasing profitability relative to historical company levels
for a set time period (e.g. three years) are in decline and turnaround
situations, respectively.
Profitability
relative to an
objective
financial
benchmark
Decline and turnaround are defined based on whether a firm’s profitability
exceeds or falls short of an objective financial benchmark (e.g. 5% return on
investment or the risk-free rate). Firms that have returns less and more than
the benchmark are in decline and turnaround situations, respectively
Proximity to
bankruptcy
Decline and turnaround are defined based on a firm’s proximity to
bankruptcy. Firms facing increased and decreased bankruptcy risk are in
decline and turnaround situations, respectively.
Slack resources Decline and turnaround are defined based on a firm’s level of financial
cushion (i.e. slack). Firms having decreasing and increasing slack levels are
in decline and turnaround situations, respectively.
Expert panel/
business press
Decline and turnaround are defined by experts outside a firm (e.g. stock
analysts, consultants, academicians). Firms receiving decreasing and
increasing performance ratings are in decline and turnaround situations,
respectively.
Stakeholder
opinion
Decline and turnaround are defined from a stakeholder (e.g. employees,
stockholders or local community) perspective. Firms facing withdrawn and
renewed stakeholder support are in decline and turnaround situations,
respectively.
Turnaround situations are governed by a mix of preconditions that are often described in metaphors or as
syndromes, because they are so complex, severe and urgent. The need for turnaround strategies is not new; most
business ventures face trouble and decline somewhere in their life cycle (Pretorius, 2008). One of the earliest and
most impressive and interesting work on turnaround strategies is the one done by Hofer (1980) who identifies two
broad types of turnaround strategies that may be used for dealing with organizational decline: strategic and
operating. Strategic turnarounds can be divided into those that involve a change in the organization's strategy for
3
competing in the same business and those that call for entering a new business or businesses. Operating
turnarounds are usually of four types, none of which require changing the firm's business level strategy. These
emphasize: increasing revenues, decreasing costs, decreasing assets, or a combination effort. However, turnaround
strategies are not only necessary for recovery from decline but also for building good reputation. In the case study
prepared by Kaul (2012) about Lenovo and corporate reputation, the author raises the following questions that
should be answered in order to improve the reputation of Lenovo India: What strategies should be adopted to build
reputation, redefine perceptions, and gain market share in India? Was Lenovo India poised for growth? Similarly,
Abebi (2012) highlights the role of environmental scanning and strategy formulation processes in an organizational
decline context. He examined two major questions: first, is there a relationship between executive environmental
attention patterns and corporate turnaround performance during organizational decline? and, second, does the
degree of environmental dynamism moderates the relationship between executive environmental scanning
emphasis and corporate turnaround performance? Such questions can help organizations to suggest what
turnaround strategies can be taken into action to improve organizational performance.
In their review for the literature on corporate decline and turnaround strategies, Schoenberg et al. (2013) outline six
effective turnaround strategies that can be used for the recovery from corporate decline. four of them 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. Other authors i.e. (Malmendier et al., 2011, Cassell et al.,
2012, Serfling, 2014) investigated the role of strategic relationship in managing the financial function by
addressing the effect of managerial traits and CEO age on corporate financial policies and investments. In this
context, Haron et al. (2013) concluded that the success of the corporate turnaround appeared to be attributable to an
effective leadership style that was able to motivate and support the employees whilst making strategic changes to
the organization’s capital, financial well-being and operations.
According to Gowen III and Tallon (2002), the traditional literature for turnaround strategy actions can be
summarized by a four category action typology: revenue generation, product/market refocusing, asset reduction,
and productivity improvement. The actions of these strategies are summarized in Table 2.
Table 2: Actions of turnaround strategies. Adapted from Gowen III and Tallon (2002)
Revenue generation
turnaround actions
Product/market
refocusing
turnaround actions
Asset reduction
turnaround actions
Productivity
improvement
turnaround actions
? Raising product
prices
? Increasing cash
discounts to
customers
? Loosening
customer credit
criteria
? Market share
domination
? Elimination of
unprofitable
products,
customers,
channels of
distribution, sales
regions, or sales
representatives
? Immediate cash
flow
? Major
retrenchment
? Divestiture
‘‘strategic cures’’
? Liquidation of
inventory,
equipment, or
physical plant
? Divestiture of a
subsidiary,
product line, or
holdings.
Cost cutting such as
reducing expenses,
e.g., marketing and
sales cost
Operating cures
Greater plant capacity
utilization,
3. Research objectives, model, and hypotheses
The aims of this research can be summarized as follows:
4
1. Determining the causes of corporate decline, turnaround situations, and turnaround strategies in the context
of Jordanian Manufacturing Companies
2. Examining the managers' perceptions of turnaround strategies that declining firms need to take into action
in response to corporate decline situations. The research model depicted in Figure 1 is designed to address
the managers' perceptions of the relationship between turnaround strategies (independent variables) and
improvement of corporate organizational performance.
Figure 1: The research model
Research hypotheses
Based on the research model the following hypotheses are formulated:
1. Revenue generation as a turnaround strategy contributes to improvement of organizational performance by
recovering from corporate decline.
2. Product/market refocusing as a turnaround strategy contributes to improvement of organizational
performance by recovering from corporate decline.
3. Asset reduction as a turnaround strategy contributes to improvement of organizational performance by
recovering from corporate decline.
4. Productivity improvement as a turnaround strategy contributes to improvement of organizational
performance by recovering from corporate decline.
Research methodology
The entire population that comprises all manufacturing companies listed in Amman stock exchange market was
chosen as the sample of this study. The respondents of this study are executives with titles of operations manager,
plant manager, financial manager, and marketing manager. A total of 360 questionnaires were distributed to the
targeted executives. 234 usable questionnaires were returned The target sample that consisted of 234 managers was
used to collect the responses from executive with title of operations manager (n = 82); plant manager (n = 57); and
marketing manager (n =95). These usable responses represented a response rate of 65%. The responding firms
cover a wide range of manufacturing activities including electronics, engineering products, electric, chemical,
Improvement of
organizational
performance (Recovery
from corporate decline)
Product/market refocusing
Revenue generation
Asset reduction
Productivity improvement
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textiles, leathers, and clothing, glass and ceramic, engineering and constructions, mining and extraction, food and
beverages, paper and cartoon, and pharmaceutical and medical products.
The data was collected using a self-administered questionnaire. The delivery and collection of questionnaire
method was adopted to ensure a high response rate and to take the advantages of personal contact since this method
enhances respondent participation. The seven-point Likert scale was used throughout the questionnaire to provide a
greater opportunity to respondents to answer its questions. The respondents were asked to indicate the causes of
corporate decline on a scale ranging from 1 (strongly disagree) to 7 (strongly agree). In addition, the respondents
were also asked to determine the extent to which they agree or disagree on how the overall company’s performance
can be improved when using a number of proposed turnaround strategies. The scale is given below:
Strongly
disagree
Disagree Slightly
disagree
Neutral Slightly
agree
Agree Strongly
agree
1 2 3 4 5 6 7
Data analysis, results, and discussion
The responses were measured on a 7-point Likert scale where 1 indicated that the respondents strongly disagree, 7
indicates that they strongly agree on the statement determined for measuring the research constructs.
The respondents agreed that the causes of corporate decline are attributed to the following factors:
1. Inadequate understanding of customers' needs.
2. Employees with more than one boss
3. Consumer, regulatory, and economic changes
4. Changing technology
5. Marketing the wrong product and/ or in wrong markets
6. Inadequate production equipment
7. Inadequate research and development
8. Inappropriate channels of distribution
9. Displacement by competition
10. Non-responsive financial information systems
11. Falling demand for an industry’s products
12. Management commitment to existing strategies and routines
13. Poor management information systems.
14. High cost structure
15. Input price increase
16. Problems in teamwork
17. Lack of capital funds
18. Board-management conflict
It was noted that all the above factors have a mean more than 5. The means are ranging from 5.36 to 5.71 and this
indicates that the respondents, in general, agree on the items included in the questionnaires in which the corporate
decline is caused by the factors mentioned above.
Regarding the organizational performance construct, as seen in Table 3, it was noted that all the performance
measures have a mean more than 5. This result is the evidence that the respondents agreed to some extent that all
the performance measures are affected by the turnaround strategies, it was noted that all the means are very closed
each to other. This results is justified because the measures are very correlated since each one of them is a function
to others, for example, increasing the sales volume leads to increase in the market share, cash flow, profitability,
and return on investment. At the same time, improving the quality continuously and launching new products are
critical success factors for maintaining and developing the competitive advantage of a firm.
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Table 3: Means and standard deviations of performance measures
Performance measure Mean Std. Deviation
Sales volume 5.64 1.13
Cash flow 5.57 1.17
Profitability 5.56 1.13
New product development 5.55 1.28
Market share 5.53 1.14
Product quality 5.53 1.21
Return on investment 5.51 1.18
5.3 Hypothesis testing
The results of hypothesis testing are summarised in Table 4. It was noted that the improvement of organizational
performance in the target sample is significantly affected by adopting one or more of the following turnaround
strategies.
? Revenue generation
? Product/market refocusing
? Asset reduction
? Productivity improvement
Table 4: Summary of the research hypotheses (H1-H4) and their results
The results of this study are also in line with results emerged from previous work. Frost and Joson (1998), for
instance, studied the corporate decline in four electric utilities from New Zealand and the Philippines and they
found a number of factors that lead to corporate decline such as: inadequate financial control; inadequate working
capital; government interference in decision making; union interference over external hiring, contracting and other
personnel matters; poor management; and the inability of management to effectively answer criticism of the public.
The results of this study are in consistent with the findings of the empirical work done by Pandit (1998) who
examined the turnaround of the British Steel Corporation (BSC) over the period 1974-89 where the following
causes of decline were found in BSC over the period 1974-1989:
? Cyclical decline in market demand
? Secular decline in market demand
? Poor management
? Increase in competition/poor marketing
However, it could be concluded that determining the cause(s) of corporate decline can help management find the
best way to recover from failure and decline. In this study, it was found that the decline of organizational
Hypothesis t-value Sig Result
Revenue generation as a turnaround strategy contributes to
improvement of organizational performance by recovering
from corporate decline.
4.453 .000 Rejected
Product/market refocusing as a turnaround strategy
contributes to improvement of organizational performance
by recovering from corporate decline.
2.965 .003 Accepted
Asset reduction as a turnaround strategy contributes to
improvement of organizational performance by recovering
from corporate decline.
6.980 .000 Accepted
Productivity improvement as a turnaround strategy
contributes to improvement of organizational performance
by recovering from corporate decline.
9.336 .000 Accepted
7
performance is affected by a number of management attributes such as: poor management information systems,
Problems in teamwork, employees with more than one boss, and dysfunctional organizational culture. In this
context, Boyne (2006) considers the poor leadership as an internal cause of corporate decline. This conclusion
indicates that top management usually is responsible for the outcomes of the firm’s financial decline. Therefore,
there is a need for replacing new top management in order to take the right turnaround strategies into action in
response to decline of organizational performance.
Managerial implications
This research is an attempt to identify the causes of corporate decline experienced in the manufacturing companies
classified in Amman stock exchange market as a public shareholding companies. Utilizing the findings of this
study, however, can help top management make sense of causes of corporate decline that reduce organizational
performance and what turnaround strategies that are required to recover from decline. More specifically, the
findings of this study make explicit the following practical implications.
1. Customers are viewed as a main driver of change in business environment. Therefore, in a turbulent
environment, organizations should not only focus on the financial measures, but also on non-financial measures
of performance. Any lack in understanding customers’ expectations and preferences, will results in declining
the organizational performance. Organizations should communicate with customers periodically to receive
constructive feedback that help in formulating and implementing the marketing and operations strategies on
one side, and to respond effectively and efficiently to changes in business environment, particularly, the
changes associated with customers’ needs, preferences, and expectations.
2. Management should determine the major causes(s) of corporate decline and check whether the decline resulted
from internal or external factors or both.
3. To improve organizational performance and recover from corporate decline, managers are advised to use one or
more of the following turnaround strategies:
? Revenue generation,
? Product/market refocusing,
? Asset reduction, and
? Productivity improvement.
4. All inside and outside stakeholders should be kept informed about corporate decline in terms of symptoms,
causes, and the proposed turnaround strategies to recover from decline.
Limitations and future directions
The sample was limited to the Jordanian manufacturing companies classified in Amman stock exchange market
public shareholding companies. Thus, it is not representative of global industry and therefore the findings are not
generalizable as the study excluded the Jordanian manufacturing companies that are not classified in Amman Stock
Exchange.
The above mentioned limitations should be viewed as opportunities for future research. Much work needs to be
done on the empirical research. The following directions are suggested for further research.
1. Conducting more empirical investigations to identify the extent that causes and outcomes of corporate decline
are linked to the global financial crises.
2. More research is required to investigate the top managements’ perceptions of corporate decline in the declining
firms that cover a wide range of manufacturing and service activities.
3. Examining the impact of turnaround strategies on organizational performance in the service sector.
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