Large Corporate Failures as Downward Spirals

Abstract

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.. Tushman made helpful comments on earlier drafts. Special gratitude is owed to Ian MacMillan for his substantial help in the matched-pair selection process. This exploratory study of 57 large bankruptcies and 57 matched survivors examined the dynamics of major corporate failure. Prior research was used to guide selection of the four major constructs studied: domain initiative, environmental carrying capacity, slack, and performance. What emerges is a clear portrayal of a protracted process of decline, aptly portrayed by prior theorists, and modeled here, as a downward spiral. In the firms studied, significant features of the downward spiral included early weaknesses in slack and performance, extreme and vacillating strategic actions, and abrupt environmental decline. An elaboration of the last two stages of decline is also presented, based on the findings from this study. The downward-spiral model is then illustrated with a case example. The study sheds light on major debates and dilemmas in the fields of organization theory and strategy regarding why major firms fail.'

Organizational Decline Research Review: Challenges and Issues for a Future Research Agenda

“…1, e160110, 2017 www.anpad.org.br/bar Causes and signs "What I found interesting in the article by Hambrick and D'Aveni (1988) were the discoveries that there is a difference between the finances of firms that went bankrupt and those that survived, and that this difference could be observed ten years before the bankruptcy, leading me to think that there must be denial in companies facing bankruptcy" [AU32] "it is necessary to study how technology, social networks and organizational fields of companies from cognition, access to knowledge and decision making in companies" …”

“…1, e160110, 2017 www.anpad.org.br/bar Table 1 shows the most cited works for the whole period under analysis. Considering only the 10 most-cited out of the 214 works, only Hambrick and D'Aveni (1988) and Bibeault (1982) are directly related to organizational decline. Hambrick and D'Aveni (1988) developed a longitudinal view of the bankruptcy of companies during the years prior to bankruptcy being declared from some characteristics such as lack of domain initiative, environmental carrying capacity, scarce resources and performance.…”

“…Considering only the 10 most-cited out of the 214 works, only Hambrick and D'Aveni (1988) and Bibeault (1982) are directly related to organizational decline. Hambrick and D'Aveni (1988) developed a longitudinal view of the bankruptcy of companies during the years prior to bankruptcy being declared from some characteristics such as lack of domain initiative, environmental carrying capacity, scarce resources and performance. The work of Bibeault (1982) is a book about the turnaround process, emphasizing organizational and human situations and indications of involved strategic actions.…”

“…Some address the antecedents of decline and the turnaround process (e.g., Argenti, 1976;Hambrick & D'Aveni, 1988), while others deal with theoretical approaches that would influence work on decline such as resource dependence theory (Pfeffer & Salancick, 1978), threat rigidity effects in organizational behavior (Staw, Sandelands, & Dutton, 1981), organizational ecology (Hannan & Freeman, 1984, 1989, contingency theory (Thompson, 1967), behavioral theory of the firm (Cyert & March, 1963), industrial economics (Porter, 1980) and risk taking in decision making (Singh, 1986). Therefore, the theoretical approaches that bolster studies on decline are related to the influence of the environment and context on decision making in companies and organizational mortality.…”

“…The second factor, decline process includes the works that address the characteristics inherent to decline (D'Aveni 1989b; Hambrick & D'Aveni, 1988) and adaptation, decision making and TMT (Hambrick & D'Aveni, 1992;Meyer, 1982;Singh, 1986;Staw et al, 1981). The third factor is also called mortality.…”