A resource-based analysis of organizational turnaround: The contingency role of organizational life stages

Abstract

Drawing on the resource-based view (RBV) of the firm, this study proposes two levels of resource action: shedding resources and adding resources as the main two turnaround approaches. Since firms differ in the way they manage their resources over stages of organizational development, this study further analyzes the link between the RBV and organizational life-cycle model to investigate the contingency role of life stages in the turnaround context. The study sample consists of 72 Taiwan firms had ever experienced a successful turnaround. The results indicate that cost-cutting and investment in training and R&D, which represent respectively a shedding and an adding resource action, enable firms to turn around their deteriorating performance. The results also show that R&D investment is more effective for early-stage firms, while cost-cutting is more useful to firms in the late-stage.

Fighting organizational decline: a risk-based approach to organizational anti-aging

“…Basically, operative responses suit internal challenges and strategic responses suit external challenges. However, no clear cut course of action exists and the turnaround research consistently calls for a mix of both Organizational anti-aging responses (Arogyaswamy et al, 1995;Hambrick and Schecter, 1983;Hofer, 1980;Hugh, 1986;Kow, 2004;Robbins and Pearce, 1992;Yeh and Fang, 2011).…”

“…Next, distressed firms implement various turnaround strategies to both shed resources, to increase efficiency and excess capacity, and add resources, to renew the resource portfolio (Yeh and Fang, 2011). Such resource shedding and addition actually updates the given firm's portfolio of resources and is vital for maintaining superior resources and capabilities, as called for by RBV (Sirmon and Hitt, 2003).…”

“…Another example is the strategic focus strategy that entails determining the markets, segments, niches, products, and customers that have the potential of generating the greatest profits and shrinking back activities towards those areas (Arogyaswamy et al, 1995;Hambrick and Schecter, 1983;Kow, 2004;Schoenberg et al, 2013;Sudarsanam and Lai, 2001). Investing in research and development and training is a turnaround strategy that adds resources after other resources have been shed (Yeh and Fang, 2011). All the turnaround strategies listed above aim at moving a firm upward to acceptable levels of performance in regard to resource and performance heterogeneity from its current position as an underperformer among its industry peers.…”

“…Having clarified that the responsibility is laid on the shoulders of top managers, their response to decline and crisis should be appropriate to the cause (Hofer, 1980;Hugh, 1986). External causes can be effectively addressed through strategic responses, such as a focus on the firm's core activities or growth strategies (Boyne and Meier, 2009;Pearce and Robbins, 2008;Schoenberg et al, 2013;Yeh and Fang, 2011). In turn, if the cause is internal, the solutions should be operative ones, such as cost control and plant modernization, with the aim of improving internal operational efficiency (Yeh and Fang, 2011).…”

“…External causes can be effectively addressed through strategic responses, such as a focus on the firm's core activities or growth strategies (Boyne and Meier, 2009;Pearce and Robbins, 2008;Schoenberg et al, 2013;Yeh and Fang, 2011). In turn, if the cause is internal, the solutions should be operative ones, such as cost control and plant modernization, with the aim of improving internal operational efficiency (Yeh and Fang, 2011). Although external factors are the most frequent causes of decline (Grinyer et al, 1990), "Sharpbenders" tended to focus more heavily on improving internal factors (Safrudin et al, 2014;Scherrer, 1988), as they usually had fewer opportunities to improve their operating efficiencies rather than their strategic position (Hofer, 1980).…”