A Duality Perspective of Corporate Turnarounds

A Duality Perspective of Corporate Turnarounds

Two competing theory perspectives have dominated the extant corporate turnaround literature: the threat-rigidity perspective (e.g. Barker and Mone, 1998; Sutton and D’Aunno, 1989) and the prospect theory perspective (e.g. Bolton, 1993; Hambrick and D’Aveni, 1988). Despite their unquestionable contributions, the two perspectives fail to provide an overarching theory framework (Lohrke et al., 2012), while defending their contradictory viewpoints on the ‘if’, the ‘when’, and the ‘how’ to implement retrench- ment and recovery during turnarounds (Barker and Mone, 1994; Robbins and Pearce, 1992). This paper extends the two theoretical perspectives and integrates them in an overarching duality framework. The recognition of this duality (Farjoun, 2010) is an important departure from prior studies since it shifts the field’s analytical focus from exploring retrenchment and recovery’s distinct causes and effects to clarifying their interrelations. While we acknowledge the tensions between retrenchment and recovery (e.g. Robbins and Pearce, 1992), our perspective highlights their mutually enabling qualities. In this perspective, turnaround success is a function of the firm’s ability to integrate contradictory, yet interrelated, retrenchment and recovery activities in corporate turnarounds.

The duality perspective opens up interesting avenues for future research. Most impor- tantly, future research could examine the boundary conditions under which our theo- retical framework applies. While our post-hoc analyses show that our assumptions hold for different causes of decline, the interaction effect between retrenchment and recovery vanished under conditions of a particularly severe decline. These findings indicate that firms struggle with the simultaneous management of retrenchment and recovery in situations of particularly severe resource scarcity (Barker and Duhaime, 1997), which cause high levels of managerial stress and anxiety (Barker and Mone, 1994). Future research should investigate whether firms experiencing particularly severe decline are better off by initially opting for a one-sided attention to retrenchment (Robbins and Pearce, 1992) to ‘stop the bleeding’ (Bibeault, 1982). These studies should prioritize objective measures of the causes and severity of decline (Robbins and Pearce, 1992), which will allow the turnaround firm’s key performance indicators (e.g. labour efficiency, ROA, R&D investment) to be compared with the industry mean values (Deephouse, 1996). Further, we relied on a sample of Central European firms that mostly operated in mature industry contexts. Prior studies have shown that industry conditions, regulatory contexts, and cultural environments can shape turnaround activities and influence their performance implications (e.g. Bruton et al., 2003; Morrow et al., 2004). We thus welcome comparative studies that empirically test elements of our theory across different institutional and cultural settings.

Moreover, prior turnaround studies have provided illustrative evidence that focusing on either retrenchment or recovery can exacerbate organizational decline in turnaround situations (Barker and Mone, 1998; Cameron et al., 1987) due to impaired decision making (Walrave et al., 2011). While our duality perspective suggests that turnaround firms can prevent such vicious cycles, our methodological choices did not allow for a detailed examination of the underlying processes. Since we gathered field data from knowledgeable respondents, we were limited by our cross-sectional approach and retro-

1237 spective biases (Golden, 1992). Future research should thus investigate whether the

The Duality of Retrenchment and Recovery

integration of retrenchment and recovery leads to virtuous cycles (Smith and Lewis, 2011) and how they unfold over time. Case study research combining in-depth field data with archival data (Hambrick and D’Aveni, 1988) could enable researchers to examine the decision-making processes at multiple points during corporate turnarounds.