Organizational turnaround: understanding the role of cutbacks, efficiency improvements, and investment in technology

This paper examines strategies attempted by managers of 204 manufacturing firms which experienced performance decline. Of these, 89 firms turned around, i.e., reversed their performance decline, while 115 firms failed to turnaround and continued to decline in performance over the entire eight-year period of observation. The authors paid particular attention to cutbacks (or retrenchment), improvements in efficiency, and increased investment in technology (specifically, plant and research and development (R&D) expenditure). Results suggest that cutbacks, commonly assumed as essential to organizational turnaround, are adopted by both turnarounds and nonturnarounds. Further, some firms turned around even without resorting to cutbacks, suggesting that the role of cutbacks may need to be reconsidered. Significant differences between turnarounds and nonturnarounds emerged in the ability of managers at turnaround firms to convert cutbacks into efficiency increases. Results also suggest that although efficiency increases were important for turnaround, most turnaround organizations supplemented improved efficiency with increased investment in technology.