Managing the Retrenchment–Recovery Interrelations

Managing the Retrenchment–Recovery Interrelations

Corporate turnarounds are managerial responses to decline (Arogyaswamy et al., 1995) under conditions of high uncertainty and ambiguity (Rosenblatt et al., 1993). In this study, we provide the first theoretical arguments regarding how turnaround managers can approach the retrenchment–recovery duality through specific learning, organizing, and performing strategies. These strategies should help reduce the managerial stress (Ford and Baucus, 1987) and the related information processing problems (Staw et al., 1981) encountered in turnaround situations. Further, the strategies could contribute to greater strategic flexibility and the ‘dynamic managerial ability’ (Walrave et al., 2011) required to manage turnarounds.

Future research should explore in greater depth how managers leverage learning, organizing, and performing complementarities to integrate retrenchment and recovery activities during corporate turnarounds. More specifically, scholars could investigate the interrelations between organizing, learning, and performing strategies. For example, learning strategies – such as focus and experimentation – may challenge managers to engage in (or disengage from) organizing strategies of formalization and participation (Smith and Lewis, 2011). Similarly, profit and breakthrough strategies may have to be aligned with learning strategies to yield the expected results. Given that prior turnaround research has described the necessity to balance conflicting goals across dimensions (Arogyaswamy et al., 1995), future research may explore how coping with one tension enables firms to manage another. Our large-scale, cross-sectional approach did not allow for empirically exploring the different managerial strategies and their interrelations. Future research may use inductive and longitudinal process studies (Langley, 1999) to better capture these dynamic processes. Moreover, future research could formally test the individual strategies’ interaction and effects based on established measures for focus and experimentation (e.g. Jansen et al., 2006), formalization and participation (e.g. Gibson and Birkinshaw, 2004), and profit and breakthrough strategies (e.g. He and Wong, 2004).

1238 A. Schmitt and S. Raisch

1239 Future studies should also explore the organizational contexts that enable turnaround

The Duality of Retrenchment and Recovery

managers to effectively integrate retrenchment and recovery. Prior turnaround research points to the crucial role of top management team processes (e.g. Barker et al., 2001), governance mechanisms (e.g. Filatotchev and Toms, 2006), human resource systems and processes (e.g. Boyne and Meier, 2009), and stakeholder relations (e.g. Pajunen, 2006). We need to know more about how these activities enable turnaround managers not only to engage in retrenchment and recovery, but also to simultaneously approach and integrate the two activities.

From a practitioner perspective, an important question relates to the particular quali- ties and capabilities that turnaround managers need to successfully manage the retrenchment–recovery tensions. Are these similar to those required for managing sequential turnaround processes or do we need a new breed of turnaround managers? If turnaround success depends on integrating retrenchment and recovery, turnaround managers have to support these contradictory activities simultaneously. This requires awareness of tensions, as well as paradoxical thinking to view ‘tensions as an invitation for creativity and opportunity’ (Smith and Lewis, 2011, p. 391). Paradox studies show that the ability to attend to competing demands simultaneously requires managers with cognitive complexity (Smith and Tushman, 2005), behavioural complexity (Denison et al., 1995), and emotional equanimity (Lewis, 2000). While beyond the scope of this study, future turnaround studies could draw on these foundations to investigate the leadership characteristics and processes that enable managers to integrate retrenchment and recovery.