Turnarounds - A Stage Theory Perspective

Turnarounds: A Stage Theory PerspectiveShamsud D. Chowdhury*Dalhousie University

AbstractIn strategic management, an impressive body of litera-ture on turnaround has accumulated over the last threedecades; however, the topic remains largely idiosyncrat-ic and open-etided. Based mainly on the tenets of thelife-cycle family of process theory, this paper presents acomposite four-stage model that unfolds the dynamics ofturnaround and provides a basis for the development ofa theory on which to draw further. By categorizing theelements of turnaround as three critical requirements—incidents, events, and concepts—the model explains howthe elements germane to each stage, when combined,facilitate the progression from a crippling deteriorationin performance to an enduring success or to an eventualdeath. An analysis ofthe turnaround of Chrysler Corpo-ration provides preliminary support for the model. Themodel's implications for theory, research, and practiceare also given.

ResumeAu cours des trois demieres decennies, un nombreimpressionant d'etudes portant sur le redressement desentreprises otit ete menees en gestion strategique. Toute-fois, ces etudes demeuretit dans I'ensemble tres sub-Jectives et manquent un encadrement methodique tresrigoureux. La presente etude, en prenant pour base cer-tains postulats de la theorie du processus de la familledu cycle de vie, propose un modele a quatre etapes pouranalyser le processus de redressement d'entreprise. Cemodele pose les premiers Jalons d'une theorie qui peutfaire I'obfet d'etudes ulterieures plus approfondies. Endefinissant les trois etapes constitutives d'un redresse-ment, a savoir les incidents, les evetiements, et les con-cepts, notre modele expUque comment les elements pro-pres ci chaque etape, une fois combines, facilitent lepassage d'une performance mediocre a un succes stable,ou a une mort eventuelle d^ I'entreprise. L'etude duredressement de la compagnie Chrysler constitue I'illus-tration preliminaire du modele. Enfin, nous discutonsI 'apport possible du modele pour la theorie, la rechercheet la mise en pratique des redressements d'entreprise.

Because turnaround deals with reversing organiza-tional performance, it is of considerable importance. Par-alleling the growth of research on decline in organiza-tional science, an impressive body of literature onturnaround, both in terms of quantity and quality, hasaccumulated in strategic management over the last threedecades. However, as with most research areas in orga-nizational science, the literature is confusing, uneven,and noncumulative, due largely to an overwhelming

•School of Business Administration. Dalhousie University. Halifax,NS, Canada B3H 1Z5. E-mail: [email protected] condensed version of this paper was presented at the 1995 AnnualMeeting of the Academy of Management (Business Policy and StrategyDivision) in Vancouver. British Columbia. The author wishes to thankCynthia Hardy, Ann Langley, and Andrew Van de Ven for their con-structive comments on an earlier draft of this version. The author alsogratefully acknowledges the helpful suggestions of three anonymousCJAS reviewers. The author was at the School of Business, AthabascaUniversity, during the preparation and revision of this article.

emphasis on the content of turnaround. Tbe explanationfor such discrepancy in emphasis is not dift'tcult to com-prehend. Because methods for examining the relation-ships between inputs and outcomes are well developed(Van de Ven & Huber, 1990) and more voluminous (Pet-tigrew, 1992), secondary published data are easy toaccess (Chakravarthy & Doz, 1992), and processes aremessy and costly to research (Burgelman, 1983; Lang-ley, 1999), it is understandable that most research onturnaround has focused on its content. Mainly rooted inthe tradition of industrial economics, the contentapproach usually entails a "variance theory" (Mohr,1982) explanation for turnarounds in terms of statisticalrelationships among dependent and independent vari-ables. This approach represents static descriptions of aset of turnaround strategies to explain variations in per-formance outcomes, or to explain the influence of certaincontextual factors on the degree of turnaround success.As this rather sweeping description of a variance

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TURNAROUNDS: A STAGE THEORY PERSPECTIVE CHOWDHURY

approach may be misleading, it requires some qualifica-tion. In addition to containing difficulties with directionsof causality, variance approaches also fail to reveal com-plex interrelationships among the explanatory variables(Langley & Truax, 1994). Therefore, the contentapproach is most useful for a cross-sectional analysis ofthe reasons for variations in the degree of turnaroundoutcomes among a number of firms. It is from this per-spective that insights involving the actions and charac-teristics associated with turnarounds have resulted froma large body of content research (e.g.. Barker &Duhaime, 1997; Castrogiovanni & Bruton, 2000;Chowdhury & Lang, 1996; Hambrick & Schecter. 1983;O'Neill, 1986; Pant, 1991; Robbins & Pearce, 1992;Schendel & Patton, 1976; Schendel, Patton, & Riggs,1976; Thi^tart, 1988). However, in comparison with thisdisproportionately high emphasis on content, the processof turnaround, that is, how firms move away from crip-pling deterioration in performance to enduring successor eventual death, has received almost no attention.'Both content and process are equally important for agood theory (Bacharach, 1989; Van de Ven & Huber,1990; Whetten, 1989); thus, a deep appreciation for theprocess of turnaround is essential for a theory of turn-around, which is currently either nonexistent (Pearce &Robbins, 1993) or inadequate (Barker & Duhaime,1997). By definition, a process theory provides explana-tions in terms of the sequence or progression of eventsleading to an outcome (Mohr, 1982). In other words, it isa narration or story of how a sequence of events unfoldsto cause a dependent variable to respond to an indepen-dent variable (Van de Ven & Huber, 1990). Therefore,implicit in a content approach is the essence of a processapproach. It is in this sense that both content and processare linked (Van de Ven & Huber, 1990) and inseparable(Pettigrew, 1992). This linkage or inseparability betweencontent and process lies at the heart of a good theory,which establishes empirically observed patterns andexplains why certain relationships exist "between unitsobserved or approximated in the empirical world"(Bacharach, 1989, p. 498).

A theory of turnaround is lacking because of a wideseparation between empirical findings (based either onlarge samples or on case descriptions) and work donetoward systematically uncovering the causal structure ofevents from the onset of a firm's decline to its ultimaterecovery or death. Using Meyer's (1988) comment inreference to the bankruptcy of U.S. businesses in the1980s, it can be concluded that turnaround researchersare "a long way up the empirical creek without a theo-retical paddle" (p. 413).

Because it deals with the survival of organizations,turnaround is viewed as a performance issue in strategicmanagement. Accordingly, we define turnaround to

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occur when a firm perseveres through an existence-threatening performance decline; ends the threat with acombination of strategies, systems, skills, and capabili-ties; and achieves sustainable performance recovery. Theobverse of performance recovery is failure and eventualdeath. It is to be noted here that this broad definition ofturnaround includes, implicitly or explicitly, four keyattributes. First, stimuli for turnaround actions stem froma protracted performance decline that the firm has beenexperiencing. Second, turnaround constitutes a series ofactivities involving endogenous and exogenous contexts.Third, the activities are undertaken and executed deci-sively and purposively. Fourth, the combination of thefirst three attributes typically spans a period of years.

The intent of this paper is to present a theoreticalmodel that can guide future research on turnaround. Toaccomplish this, we argue the use of a stage theory,which can elucidate the sequence of events that culmi-nate in a declining firm's survival or failure and, thus,complement the causes and contexts of such an eventu-ality. The skeleton for the model comes mainly from thework of Bhave (1994), Krueger and Willard (1991), andWeitzel and Jonsson (1989). We then derive the elementsfrom a disparate literature on decline and turnaround,place them in their respective stages, and, finally, amal-gamate the stages into a composite model. This approachis consistent with Weitzel and Jonsson (1989), wholinked "approximate sets of characteristics of decline toits various stages for providing a useful framework foradditional research" (p. 97).

The paper is organized as follows. In the first sec-tion, we define process as used in this paper and identi-fy the requirements of a stage theory. In the second sec-tion, we advocate the use of a stage theory for the studyof turnaround and propose a four-stage model. The fourstages parallel the four key attributes of turnaround, asidentified earlier. In the same section, we also identifythe elements of each stage through a review of the extantliterature on turnaround. We then apply the model to thewell-known turnaround of Chrysler Corporation. Thethird section synthesizes the review and highlights theconnection between the elements of all stages. The finalsection discusses implications and draws conclusions.

'Rirnaround Process

Meaning of Process

In organizational science, the term process is used inmany different ways. From an extensive interdisciplinaryreview of literature involving change. Van de Ven andPoole (1995) have found about 20 different process the-ories that vary either in terminology, or in substance, or

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in both. Therefore, it is important to specify the exactmeaning of process in a particular study (Chakravarthy& Doz, 1992; Van de Ven, 1992). For example. Van deVen and Poole (1995) argue that process is used in threedifferent ways: (a) as a logic to explain a causal relation-ship between independent and dependent variables in avariance theory; (b) as a category of concepts referring toactions of individuals or organizations; and (c) as asequence of events describing how things change overtime and why they change in this way. They again clas-sify the 20 different process theories into four basic fam-ilies of theories: life-cycle, teleology, dialectics, and evo-lution. In this classification, they treat stage theory as avariant of the life-cycle process theory.

Of the three types, only the third focuses on thesequence of actions, incidents, or stages changing orunfolding over time (Monge, 1990; Pettigrew, 1992; Vande Ven, 1992). Implicit in this view is the need to identi-fy stages in the sequence and to specify the condition ofmovement from one stage to the next (Monge, 1990).According to this theory, a subsequent stage is prefig-ured in the present stage (Van de Ven, 1992), and the pre-sent stage serves as the fulcrum or springboard on whichthe subsequent stage rests. Although this meaning ofprocess is rooted in embryology, where each successivestage in the development of a fetus evolves from the pre-vious one (Van de Ven, 1992), organizations can alsodemonstrate such a process (Nisbet, 1969; Van de Ven &Poole, 1995). Many stage models illustrate this perspec-tive in different streams of literature in organizationalscience. For example, in a model of organizational devel-opment, Kimberiy and Miles (1980) propose that organi-zations proceed through the stages of emergence,growth, maturity, decline, and death. According to theinnovation process theory (Van de Ven & Poole, 1990),innovation passes through emergence, development,growth, or termination over time.

In this paper, we use the third meaning of process.Turnaround is not a single event or state; it is a processcomposed of a sequence of events that, when combined,describe the occurrence of performance improvementover a particular span of time. A stage theory seems par-ticularly appropriate for the study of turnaround for tworeasons. First, turnaround involves change, which, bydefinition, is dynamic. Any dynamic phenomenon is acombination of sequential events over a period of timeand can therefore be fruitfully viewed as a process ratherthan as a state of affairs. Some underlying generativemechanisms or laws must have the power to cause suchevents to happen sequentially in real life (Tsoukas,1989). Nisbet's (1969) notion of developmentalism,according to which "development is driven by somegenetic code or prefigured program within the develop-ing entity" (Van de Ven, 1992, p. 177) is in harmony with

the power of generative mechanisms or laws for the cau-sation of events, Developmentalism, as applied to turn-arounds, can be likened to the progression of circularrounds in a spiral, where each loop pushes the next. Thisanalogy of circular rounds, which Mintzberg, Raising-hani, and Theoret (1976) articulate in relation to unstruc-tured decisions, comes from Pfiffner's (1960) conceptu-alization of decision making. Consistent with thisanalogy, a firm may require "activation and nourishmentfrom external agencies" (Nisbet, 1969, p. 7) for turningaround, but the fundamentals for this daunting task arecrafted, guided, and executed by forces within the firm.Forces outside the firm can, to some extent, influencehow the turnaround outcome eventually unfolds, but aremediated by strategic manoeuvring within the firm. Thisassumption is in keeping with the strategic choice per-spective (Child, 1972), wherein "purposeful enactment"involves the processes, practices, and actions of keyplayers. The second rationale stems from Tsoukas'(1989) contention that the operation of the generativemechanisms or laws varies, depending on the circum-stances or contingencies at a given point in time. Theinteractions between a firm's internal and external con-texts, which may be enabling, or constraining, or neutral,account for such variations. This rationale is also consis-tent with one of Pettigrew's (1992) key precepts ofprocess.

[S]trategic choices and changes in the firm (have] tobe embedded in an analysis of the inner and outercontext of the organization. Outer context includesthe economic, social, political, competitive and sec-toral environments in which the firm is located. Innercontext refers to the inner mosaic of the firm; thestructural, cultural and political environments which,in consort with the outer context, shapes featuresof the content and process of strategic development.(p. 9)

The second qualification reinforces the expectationthat no similar sequencing of events is likely to beobserved in all turnarounds because of its idiosyncrasies.

Therefore, we argue that any process study of turn-around should be based on a stage theory perspectivebecause such an approach can explain how and why achronology of occurrences play out over time and ulti-mately lead to a firm's survival or failure. Consistentwith the four key attributes of turnaround, the stages wepropose are decline, response initiation, transition, andoutcome.

Requirements ofa Stage Theory

There are three critical requirements of a stage the-ory: incident, event, and concept. We elaborate briefly onthese requirements as follows.

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Incident. According to Van de Ven (1995), an inci-dent is defined as a "recurrent activity," which can beempirically observed in one or more stages of the model.It can be conceived of using terms such as actions, indi-cators, occurrences, or raw datum. A change in an inci-dent in terms of form, direction, quantity, quality, or statemust be amenable to direct observation. Shifts in criteriafor the distribution of bonuses from volume to marginsand from individual performance to team performanceare two examples of incidents. A meeting of top levelmanagers to minimize entanglements associated with animminent plant closing is another example of an inci-dent.

Event. An event is an abstract conceptual entity thatexplains the pattern of critical incidents and their tempo-ral order (Van dc Ven, 1995). More specifically, an eventis a construct that does not lend itself to direct observa-tion (Bacharach, 1989). Events cannot be seen, heard, orfelt; rather, they are inferred. Organizational atrophy,environmental entropy, culture, and reward structure areexamples of events. As an abstraction, an event isexpressed by a number of actions, indicators, or inci-dents.

To indicate that an event has taken place, a numberof reliable and valid indicators or incidents are needed(for a thorough discussion of the reliability and validityof incidents and events, see Van de Ven, 1995). There-fore, it is important to require, at the very least, two inci-dents to represent an event, and this is the approach takenin this paper. Moreover, because there are many levels ofevents (Langley, 1999), the number of incidents chosento represent an event may vary across situations.

However, the preceding definition is relaxed in cer-tain cases. A construct can be deliberately adopted for aspecial purpose and, therefore, "it is so defined and spec-ified that it can be observed and measured" as well (Ker-linger, 1973, p. 29). In this sense, for example, a bad yearis an event (Langley, 1999) because it can be measuredin terms of sales decline, asset sell-off, sliding profits,share price drop, surplus inventories, negative mediapublicity, and so on.

Concept. According to Bhave (1994), a variablethat epitomizes a phenomenon under consideration bybeing sequentially present through all stages ofthe phe-nomenon is called a core concept. Core concepts mustlink the stages and, thus, describe the progression oftheentire phenomenon. Simply put, besides facilitating thenarration of a story, the summation of the concepts pro-vides a unified meaning to the phenomenon under con-sideration (Woiceshyn, 1997). For the identification ofevents to be observed and incidents recorded, it isimportant to identify a core concept that represents eachcorresponding stage of the model. Therefore, implicitlyor explicitly, the process of turnaround requires a set of

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concepts to describe its movement from one stage toanother.

In summary, multiple incidents constitute an event.Because an event is multidimensional, a large number ofincidents needs to be recorded on all its dimensions tosufficiently indicate that it has taken place (Van de Ven,1995). Again, because an event is a conceptually relevantdimension of a core concept, it indicates the latter. Morethan one theoretically meaningful, complementary, orconflicting event generally constitutes a core concept.The definitions ofthe three critical requirements suggestthat a stage model of turnaround has an underlying hier-archical structure. In each stage, numerous incidents arecompressed into theoretically meaningful events, which,in turn, are compressed into a few core concepts whosesequential linkage facilitates the explanation of howturnaround occurs. Despite this hierarchical structure,there are different types of relationships between theserequirements of the model. Whereas both incidents andevents operate at many levels of analysis, core conceptsinvariably reside only at one. Although some incidentsare nested within a particular event on one level in onestage, others may be nested within another event on adifferent level in the same stage. Because incidents andevents may occur simultaneously at different levels ofanalysis, it is difficult to determine their exact relation-ships across the hierarchy in any given stage.

Another requirement of the model is the specifica-tion of a generative mechanism that propels the move-ment of one stage to the subsequent stage. For simplici-ty, we postpone a discussion of this requirement until thesynthesis of the paper is presented.

A Stage Model of Turnaround

Figure I shows a four-stage process model of turn-around. We mentioned earlier that the four stages of themodel parallel the four key attributes of turnaround.Although various labels have been loosely applied to thestages of turnaround, according to the literature thestages are, in substance, decline, response initiation,transition, and outcome. The model is based on the basictenet of developmentalism; that is, although the externalforces, such as competitive dynamics of immediate com-petitors and/or pressure from key stakeholders, greatlyinfluence how the turnaround outcome unfolds, top man-agement is able to control that influence to a large extent.Recall that the omnipotent role of top managers is one ofthe four attributes in our definition of turnaround. Thistreatment of top managers is consistent with the su-ategicchoice paradigm (Child, 1972), according to which thechoices of top managers "make a difference in theirorganizations and environment" (Rowe, 2001, p. 82).


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Figure 1The Turnaround Process*

uC

s3.k-o

Stage 1

Decline

Nadir

Stage 2

ResponseInitiation

SXage 3

Transition

tIndeterminale

Stage 4

Outcome

Time

Firm Equilibrium

Firm Performance

*The vertical scales on this figure are purely illustrative. In fact, it is difficult to develop accurate interval scales for all four stages of turnaround as theirduration varies considerably across situations.

More specifically, by expanding their discretion throughvarious managerial functions, top managers are able tochange and influence the culture and environment oftheir organizations for the accomplishment of perfor-mance. Recent investigators (e.g., Hambrick, 1987;Rowe, 2(X)1; Thomas, 1988) have concluded that man-agers do make a difference to organizational perfor-mance, and it is because of this positive role that the pro-gression of the prescribed stages in the model is unlikelyto be totally disrupted.

As the model shows, during the first stage, declinestarts from firm or industry equilibrium and reaches anadir. The nadir prompts management into correctiveactions, which constitute the second stage of the process.The third stage—the period of transition—is by far themost intricate of all the stages. Complex interplay

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between strategy, structure, culture, technology, andhuman variables occurs during this stage. The fourthstage shows the outcome of the interactions taking placeduring the third stage and can be described as either asuccess or a failure. The discussion of the stages focuseson the set of events that each stage involves.

Stage J: Decline

Decline is the first stage of a turnaround process.Two theoretical perspectives explain the sources ofdecline.

K-extinction. The "resource dependence" (Pfeffer &Salancik, 1978) tradition tends to emphasize macro orexternal factors as causes of decline. According to thisperspective, decline can be considered a property of the

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environment (Harrigan, 1980; Zammuto & Cameron,1985). This decline, which Wilson (1980) refers to as "k-extinction", occurs because an organization is part of amacroniche inhabited by a population of firms, or part ofan industry, that is shrinking or shifting in size or munif-icence. Because the carrying capacity ofthe macronicheis exhausted, all firms belonging to the niche face adepleted resource pool and an intense interflrm rivalry.The asbestos and tobacco industries exemplify such adecline.

R-extinction. Consistent with this perspective,which Wilson (1980) dubs "r-extinction", decline is aproperty ofthe organization (Cameron, Whetten, & Kim,1987; Freeman & Hannan, 1975). This decline, alterna-tively labelled organizational decline, refers to reductionin resources within an organization independent of thechanges in the environment. This decline occurs when anorganization is operating in a stable or growingmacroniche, but is fraught with self-induced problems.

Both decline types are likely to result in the deterio-ration of financial performance and level of resources inany organization (Barker & Duhaime, 1997). However,the magnitude and duration of decline are likely to vary,depending on whether this is externally or internallyinduced. Therefore, it is important to identify the inci-dents belonging to each decline type—k or r—and theway this decline type approaches the nadir. Since k andr involve industry and firm levels of analysis, respective-ly, the different trajectories of development of incidentsat these two levels and their wide spectrum of interac-tions become the crucial determinants of the length andspeed of decline.

Stimulus. Another event in the duration of decline isthe source of intervention that triggers actions. Althoughan early recognition of failure and a change or initiationof actions are likely to yield better chances for turn-around success, the influence of the involved partiessuch as banks, creditors, government, press, stockhold-ers, union, and so on greatly determine how the situationis perceived by the management and acted on. AsGopinath (1991) demonstrates through cases, more thanone source of interventions or stimuli operates in a turn-around situation, and these interventions can be eithercomplementary or conflicting. It is largely the pressureof one or more sources of trigger that brings about achange in management, including the ouster of theincumbent CEO (Bibeault, 1982; Fortune, 1987;Gopinath, 1991; Hofer, 1980; Schendel & Patton. 1976).

Stage 2: Response Initiation

Turnaround responses are typically categorized asstrategic and operating (Bibeault, 1982; Chowdhury &Lang. 1996; Hambrick, 1985; Hofer, 1980; Schendel et

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al., 1976). Strategic turnarounds focus on changing oradjusting the business the firm is currently engaged in,and consist of major, long-term moves such as diversifi-cation, vertical integration, new market share initiatives,and divestment. Operating turnarounds focus on the waythe firm currently conducts its business and involveshort-run tactics geared toward cost cutting, asset reduc-tion, and revenue generation. The general conclusionfrom this dichotomy is that turnaround actions mustmatch the cause of a firm's decline. In other words, ifdecline stems from structural shifts in markets, theresponse should be strategic turnaround. If the underly-ing cause is internal inefficiency, the firm should engagein operating turnaround (Hofer, 1980; Schendel et al.,1976). This dichotomy Is somewhat misleading and can-not be universally applicable. Untangling this question-able dichotomy brings into focus three events, which werefer to as domain definition, scope overlap, and strate-gic contours.

Domain definition. Many ofthe strategic cures suchas diversification, divestment, and vertical integrationhave limited applicability at an independent business orat the business unit level of a multibusiness corporation.Similarly, product/market refocusing involving geo-graphic expansion, concentric diversification, and acqui-sition programs is generally feasible only for firms witha broad range of business portfolios. Although large, sin-gle-business firms may consider diversification and ver-tical integration as ways out of decline in their core busi-nesses, these options may be somewhat restricted fortheir small counterparts. For example, R. J. Reynolds'acquisition of Nabisco exemplifies a classic diversifica-tion strategy to compensate for a declining macroniche.Such a major shift in competitive position would bealmost impossible for a small, single-business tobaccofirm. Beatrice Foods, CBS, General Electric, and Gulf &Western divested major holdings during the early andmid-1980s. Single-business firms simply cannot partici-pate in a sell-off of this magnitude.

Moreover, turnaround strategies even differ acrossdifferent types of single-business firms, such as an inde-pendent single business and the business unit of a corpo-rate parent (Castrogiovanni & Bruton, 2000). For exam-ple, as Castrogiovanni and Bruton illustrate, althoughcapital infusion may indeed be an option for a singlebusiness within a corporate portfolio, financially dis-tressed independent single businesses may not have thisaccess to outside capital. So, the type of business and itsexact strategic and operational domain can only deter-mine the appropriateness and efficacy of a particularstrategy or a set of strategies.

Scope overlap. Even though the business domain isclearly defined, the real difficulty may lie in the isolationof the effects of a chosen turnaround strategy, or a com-


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bination of strategies, that may be appropriate for a par-ticular type of business. Paraphrasing Pettigrew's (1992)terminology, because strategies have "fluid" charactersthat spread out over both space and time, a clear-cutdelineation of strategies, or of their effects, proves diffi-cult. Castrogiovanni and Bruton's example may beexpanded to reinforce this point. A multibusiness corpo-ration may acquire a distressed business to turn it aroundand then gain valuable synergies between the acquiredbusiness and the existing businesses in its portfolio. Insuch a case, for strategic coherence, changes in corpo-rate-level strategy bring about corresponding changes inbusiness-level strategies of all affected business units,including the newly acquired unit. This correspondenceinvolves multiple levels of analysis and, as a result, itbecomes difficult to separate strategies pertaining to onelevel from those pertaining to others.

Strategic contour. Decline itself entails a process,and corrective actions are possible at each stage exceptthe last one, dissolution (Weitzel & Jonsson, 1989).Therefore, it is important to align the stage of declinewith the contours of turnaround actions that are initiated.It is easier to reverse decline at its earlier stages throughtactical measures, such as cost-cutting, enhancedemployee productivity, and asset parsimony. Also, thesestrategies can be pursued in different ways at an earlystage. For example, cost-cutting can be accomplished bythe introduction of new technology through improvedproductivity.

When the decline is one of k-type, the organizationcan add some knee-jerk, revenue-generating measuressuch as aggressive price competition and increasedadvertising. These measures allow breathing space andmay provide a basis for the ultimate survival of the orga-nization through long-term strategies such as diversifica-tion, vertical integration, and product/market initiatives.For BankAmerica, a balanced, simultaneous executionof both short- and long-term measures paid off substan-tially in terms of its sales and market share measures(Clausen, 1990). If the short-term measures occur toolate, decline can turn into an "ever-descending spiral."This happened in the case of Woodwards, a now nonex-istent leading department store chain in western Canada.On the other hand, if short-term measures occur toosoon, the initiation of long-term measures can be avoid-ed in some situations.

When decline deepens, major shifts in strategic pos-ture involving product/market refocusing are necessary.Product/market refocusing has two seemingly oppositedirections: contraction and expansion of existing prod-uct/market niches. Contraction involves planned with-drawals from unprofitable products, services, and marketsegments. By dropping less profitable areas. Woodwardsconcentrated on fashion, accessories, and home fashions.

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areas where it used to have a competitive advantage inthe western Canadian market. RCA redefined its busi-ness and withdrew from TV manufacturing, selling it toThompson of France. Both Woodwards and RCA illus-trate contraction. Expansion involves development oracquisition of more business, attractive from the stand-points of profitability and growth. Contraction andexpansion could be mutually exclusive or complemen-tary. BankAmerica refocused on retail and wholesalebanking in the western United States, where it enjoyed adistinctive strength (Clausen, 1990). BecauseBankAmerica never played a premier role in peripheralfinancial services, Charles Schwab, its discount broker-age subsidiary, was jettisoned. However, at the sametime, BankAmerica refocused on its existing strengththrough the creation of new and improved products andservices in its major market, the western United States.BankAmerica exemplifies simultaneous contraction andexpansion.

There is another dimension to strategic contours.Some key stakeholders, such as banks and unionizedemployees, may dictate the selection of turnaroundstrategies, determine their priority and modes of imple-mentation, and even rule out certain strategies (Slatter,1984) in this stage. For example, although cost cuttingcan be accomplished both through improved technologyand retrenchment, it is difficult to lay off employees in atightly unionized organization.

Stage 3: Transition

A substantial amount of time has to pass before theresults of turnaround strategies show. As Pant (1991)notes. Ford's response to its dwindling market shareinvolved a four-year effort to introduce its successfulTaurus/Sable line. Similarly, Schendel et al. (1976) fmdthat performance improvement occurred over an averageof 7.7 years with a range from 4 to 16 years. Despite thecritical nature of the transition period, most turnaroundstudies (e.g., Chowdhury & Lang, 1996; Hambrick &Schecter, 1983; O'Neill, 1986; Robbins & Pearce, 1992;Schendel & Patton, 1976; Thietart, 1988) implicitly treatturnaround responses and improved financial results asalmost simultaneous events. In other words, this treat-ment tends to suggest that turnaround actions produceimmediate results. In reality, because this transition con-stitutes the real black box of the entire process of turn-around, it is temporally separated from both Stage 2 andStage 4.

Elapsed time. The length of transition for successfulturnarounds is important as this choice has implicationsfor the final delineation of turnaround and nontum-around firms. If the time is too short, selected strategiesmay not produce any improvements in performance and

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certain potential candidates for turnaround may be pre-maturely categorized as failures. If the time period is toolong, the effects of some short-term strategies are likelyto be masked by those of long-term strategies deployedlater in the transition. Clearly, a variation in transitionspan could lead to variations in the explanation of therelative effectiveness of certain response types.

Substantive levers. Because implementation encom-passes a wide range of approaches from which one canchoose one or more depending on the situation, a com-mon set of substantive levers must permeate throughthese approaches. Given that these substantive leversneatly capture the contexts of and intricacies aroundeach implementation, we consider each of the levers asevents in this stage.

As a growing body of literature (e.g,, Hoffman,1989; O'Neill, 1986; Schendel & Patton, 1976) suggests,it is the process through which turnaround strategies areimplemented, not their content per se, that explains thedifference between successful and unsuccessful turn-arounds, A host of variables, some of them concrete,some involving power and politics, requires serious con-sideration in this stage. The management style, gover-nance structure, strategic orientation, industry experi-ence, culture, and leadership qualities of the topmanagers combine with individual actions, characteris-tics, and skills of the employees as well as with the tan-gible and occult properties of the organization duringimplementation. Because context and action are alwaysinterwoven whenever human beings shape outcomes{Pettigrew, 1992), the configurations of, and interactionsbetween, the soft and hard factors assume enormouscomplexity during implementation. Human capabilitiesand organizational properties relate to one another inmany different ways (Ropo & Hunt, 1995), and theirinterplays tend to create information overioad for theimplementers that exceeds their cognitive ability(Mintzberg et al., 1976),

Although the number and type of implementationlevers are largely situation specific, resource commit-ments, subunit policies and programs, structure, rewards,and people represent a reliable identification of theselevers in the implementation of turnarounds (Hambrick& Cannella, 1989), Changes along the full array ofmoves forming each lever can be considered as its repre-sentative incidents. Because all these levers are relatedand overlapping, it is important to address them simulta-neously with a full understanding of their nuances andinterplays.

Stage 4: Outcome

In the fourth stage, a cut-off point of the perfor-mance measures determines whether a turnaround has

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been accomplished. The measures used to determine out-come—success or failure—are the same as those used todefine decline at the first stage ofthe turnaround process.

It is possible to conceive of both success and failuretaking place at the same time, in that two measures mayportray a contradictory picture of a firm's situation, atleast in the short-term. For example, when rumours cir-culated that Samsung Aerospace of South Korea hadagreed to buy Fokker, a Dutch regional aircraft manu-facturer, its share price rose immediately by 34% {Econ-omist, 1996). Fokker's accounting indices did not reflectthis inflated stock value, however. Similarly, there maybe a time lag between improvements in competitivenessand profitability of a firm (Baden-Fuller & Stopford,1992), Managerial resources, which involve changes inthe number of prestigious top managers, may have posi-tive and inverse relationships with the market- andaccounting-based measures of a firm, respectively.Therefore, a more balanced view of outcome is only pos-sible through a series of measures that capture differentdimensions of performance. Different measures are like-ly to give a better reflection of the role and interplay ofdifferent incidents that represent the speed and depth ofrecovery or failure. Moreover, for the selection of anarbitrary cut-off point from a composite score of the cho-sen measures, the inclusion of certain stringent require-ments in this selection is necessary. As Krueger andWillard (1991) note, the cut-off points selected must pro-vide an "unequivocal signal" that success has beenaccomplished. For the delineation of success from fail-ure, performance improvement should also stretch over along period of time to allow for recovery, lest firms beprematurely considered successful or unsuccessful.

A discussion of each of the four stages leaves theimpression that the model is a composite of four dis-parate, stand-alone stages. In fact, the stages are not dis-parate; rather, they are sequentially linked and mutuallyreinforcing. For the sake of convenience, we will returnto a discussion of such links and adjustments later, andwill, when appropriate, draw on the Chrysler case.

Illustrative Case: Chrysler Corporation

A number of different longitudinal methods can beused to observe the process of turnaround. Althoughthere are both advantages and disadvantages to each ofthe methods, one limitation that seems to permeate all ofthem is the sheer intensity of labour combined with atremendous commitment of time on the part of theresearch team. This problem aside, some of the longitu-dinal methods, such as real time study of events, wouldseem inappropriate for studying the process of turn-around, which is an ex post facto phenomenon. Wedecided, therefore, to use a comprehensive case with suf-


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ficient detail to see the extent to which it supports ourtheoretical tnodel. Although such an analysis is less rig-orous than a retrospective case reconstruction based ondocument analysis and periodic interviews (see Denis,Langley, & Cazale, 1996; Maritan, 2001), it holds thepotential to provide, at the very least, some preliminarysupport, or lack thereof, for the model.

We decided to reconstruct the turnaround ofChrysler Corporation to illustrate our model. There wereat least three reasons for the selection of Chrysler. Beingthe third largest automobile manufacturer and the tenthlargest industrial corporation of the U.S., Chrysler is def-initely well known. Second, over the years, there was awidespread belief in many quarters ofthe U.S., especial-ly the federal government, that Chrysler was doomed tobankruptcy. Third, because ofthe famous, widely-debat-ed "The Chrysler Corporation Loan Guarantee Act of1979" involving $1.5 billion, Chrysler's turnaroundefforts were under meticulous scrutiny by all levels ofgovernment and the press. For the reconstruction of thecase, we have primarily drawn from Iacocca's (1984)iacocca: An Autobiography, about half of which is ded-icated to the turnaround of Chrysler Corporation. Wecould rely on the fact that the case is based on the first-hand account of Iacocca, who became a corporate folkhero for turning Chtysler around, and whose activitieswere always under the scrutiny of a hostile press. Whenneeded, we also drew from Miesing's (1993) "TheChrysler Corporation Loan Guarantee Act of 1979", amarginally related published case. To indicate the extentto which the case was supporting the elements undereach stage, we keyed the reconstruction to the stages dis-cussed earlier and indicated in Figure 1.

In the late 1970s, Chrysler Corporation found itselfin a grave situation. Despite having a respectable pastwith a solid dealer organization and remarkable engi-neering prowess, the onset of Chrysler's decline can betraced back to the early 1970s. Its market share of theAmerican car market had plummeted from 16.1% in1970 to 9.6% in 1979. With sales of close to 5.4 and 2.6million cars, respectively, both GM and Ford reportedrecord sales and profits in 1978, whereas Chrysler soldless than 1.2 million cars in the same year. Even worse,during 1978-1979, in relation to GM's 70% owner loyal-ty rate and Ford's 54%, Chrysler's dropped to 36%. TheMichigan State Fairgrounds was jammed with thousandsof unsold, rusting Chryslers, Dodges, and Plymouths. Atone point, the number reached as high as 100,000 units,representing about $600 million in finished inventory. Ata time of dwindling cash and high interest rates, the costsof carrying this inventory was prohibitive for Chrysler.Its loss of over one billion dollars in 1979 was the largestin U.S. corporate history, and was expected to be fol-lowed by a loss of another half a billion dollars in 1980.

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Therefore, all measures of performance vividly charac-terized a company that was sinking into bankruptcy.

Chrysler's prolonged decline could be attributed toboth internal and external factors. On the one hand,Chrysler was plagued with self-induced problems, espe-cially the inefficiency of its top management. Chrysler'stop management did not have a comprehensive grasp ofthe strategic direction of the company, or of the dynam-ics of the industry in which it was competing. Serioustop management errors such as production of cars onspeculation, poorly conceived overseas expansions, andparticipation in the used car business contributed toChrysler's erosion of competitiveness and, thus, to itsprotracted r-extinction. Internally, Chrysler was a collec-tion of many mini-empires. There were 35 vice-presi-dents, each with his or her own turf. "There was no realcommittee set up, no cement in the organizational chart,no system of meetings to get people talking to eachother" (Iacocca, 1984, p. 152). It was difficult to identi-fy anyone in Chrysler with a specific responsibility foranything. The k-extinction was manifested in factorssuch as excessive government regulation, the recession,and the energy crisis. Although a set of severe U.S. anti-trust laws and the worst recession in 50 years hurtChrysler badly, it is really the Iranian crisis that broughtthe company to the verge of collapse. Never before in thehistory of car business had there been such a violentchange in the market as the one that occurred in thespring of 1979. Following the departure of the Shah ofIran on January 16, 1979, the price of gas doubled in theU.S. As a result, over the following five months, thesmall car share of the market rose from 43% to nearly58%, an increase of 15%, which proved to be cata-strophic for the U.S. automobile industry. As Chryslerwas a leader in recreational vehicles (RVs) and motorhomes, this shift had an especially devastating effect onthe sale of its huge gas guzzlers. By June of 1979, thechassis and engine Chrysler was supplying to the RVindustry had virtually stopped selling. Demand for itsvans, another successful line of Chrysler's operation, fellby 43% in only one month in 1979. Therefore, althoughan interplay of both internal and external factors culmi-nated in Chrysler's near bankruptcy, it was actually theIranian crisis that was the stimulus for immediate anddrastic response initiation for decline reversal. In fact, itwas this grave situation that prompted John Riccardo,then chairman of Chrysler's board, to recruit Lee Iacoc-ca for turning Chrysler around. Following Riccardo'ssudden retirement on September 20, 1979, Iacoccamoved up to become Chrysler's chairman and CEO witha full mandate to nurse Chrysler back to health.

Chrysler's turnaround demonstrates, in varyingdegrees, the presence of all three events—domain defin-ition, scope overlap, and strategic contour—in this stage


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of the process. The domain of its business dictated theselection of the strategies, both strategic and operating,that Iacocca and his team initiated. Further, the scopeand contour of these strategies encompassed all threerungs of the decision-making hierarchy—corporate,business, and operating—at Chrysler.

Chrysler was scrambling for cash to meet its day-to-day obligations. To raise cash, it divested its tank opera-tion to General Dynamics for $348 million. With a solidreputation as the best battle tank manufacturer in theworld, the Defense Division was virtually guaranteed anannual profit of $50 million by the U.S. government.Besides closing down two of its marginal plants inMichigan, Chrysler sold all the dealership real estate itowned, including a couple of hundred strategic down-town locations. It either trimmed or divested some of itsoverseas operations in Argentina, Australia, Brazil, andVenezuela. In return for $230 million and a 15% stake, itstruck a deal with Peugeot for its European operations.To reduce fixed costs by almost $66 million a year, itlowered the salary of its top 1700 executives,^ suspend-ed all merit pay increases, cut its employee stock optionplans, and eliminated dividends on its common stock.Against these large-scale divestments, wholesale assetpruning, and drastic cost-cutting measures, Chrysler alsoinitiated an expansionary move. For improved qualitycontrol alone, it set up a new department and staffed itwith 250 new people.

It would seem clear from the response initiationstage that only because Chrysler wanted to stay alive inits core car business did it divest itself of its cash cow, thetank division. It is this core business focus that prompt-ed the divestment of a very profitable but peripheralbusiness. Again, an overriding concern for the quality ofcars led to the creation of a new quality control depart-ment. The other operating strategies, such as massive fir-ings of both white- and blue-collar employees and dras-tic paring of fixed costs, occurred at multipleorganizational levels and were intertwined and consis-tent with Chrysler's corporate-level strategies.

Chrysler also demonstrates the key events in transi-tion, as set out in the model. There was a gap of aboutfive years between Iacocca's joining Chrysler in Novem-ber 1978 and the official announcement on July 13,1983, of its intention to repay the entire amount of a $ 1.5billion government-backed loan by the end of 1983.Many quarters, including the New York Times, found ithard to overstate the magnitude of such a quick turn-around for such a desperately sick company. In this case,the elapsed time of about five years is consistent with theobservations of Pant (1991) and Schendel et al. (1976).

The case also illustrates how the management style,governance structure, leadership focus, and both individ-ual and collective qualities and skills of the team mem-

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bers affected the substantive levers listed in the model. Inthe process of turnaround, the topmost priority for Iacoc-ca was to bring some cohesion and unity into the com-pany. Toward this end, he had to put a capable teamtogether before it was too late. He recruited some bril-liant incumbent and retired Ford executives for areassuch as financial control, marketing and dealer opera-tions, and quality control for design and manufacturing.He also discovered a lot of bright, young talent, who hadbeen passed over by the previous management, and putthem on the team. As bills were being paid from about35 different locations, the accounts payable had to becentralized immediately. There was no financial controlmechanism in place to evaluate what management wasdoing, nor could the controller's office project the con-sequences of Chrysler's corporate decisions.

Over a three-year period, 33 of the 35 vice-presi-dents were fired, which translated into one firing amonth. As Chrysler had been remarkably top heavy, thisaxing was long overdue. Massive firings at the other lev-els also took place. In 1979 and 1980, a total of 15,500workers—blue- and white-collar alike—were laid off,which saved Chrysler about $500 million in annualcosts. A large pool of planning staff was eliminated. Theubiquitous presence of a huge planning staff seemed tobe aggravating the haemorrhage Chrysler was trying tosurvive. With all firings, Chrysler ended up stripping outseveral levels of management, with a much flatter verti-cal hierarchy. Over time, fewer levels made the runningof Chrysler easier.

To cut costs further, Chrysler set up a just-in-timeinventory system so that parts would be shipped at thelast possible moment. In 1979, a brief document printedwith black ink on plain white recycled paper replacedChrysler's glorious full-colour annual report, and wasdistributed to its 200,000 shareholders.

Savings from the above measures were reallocatedto a full line of cars and light trucks. This reallocationwas necessary because Chrysler could not survive as aone-product company. A profit margin of about $750 oneach subcompact car could not keep Chrysler alive;hence, emphasis was placed on a full line of cars andtrucks.

This stage also demonstrates the virtue of successfulcoalition, cooperation, and communication among peo-ple in bad times. Hundreds and thousands of managersand workers had to be convinced of the rationale fordrastic pay cuts and massive layoffs. During 1980,Iacocca visited every single Chrysler plant, conductedsessions with plant supervisors, spoke directly with theworkers, and thanked them for sticking with Chryslerduring its bad times. He had to further convince themthat bad times would be over soon and that the lightwould finally beam. Direct communications at the high-

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est level made everyone in Chrysler feel part of whatIacocca was doing and finally preserved the company.Enormous personal sacrifices by thousands of employ-ees eloquently bore out the rather unusual fact that peo-ple can really act serenely in a crisis.

Following the initiation of these prompt but deci-sive steps, Chrysler gained new and important commit-ments from its other key stakeholders such as suppliers,bankers, dealers, and state and local governments.Because Chrysler's problems were truly intricate, andan inherent gap generally exists between turnaroundactions and the end results, all new actions and stake-holder concessions proved insufficient, and the possibil-ity of a bankruptcy was still far from over. However,fearing serious ramifications in terms of large-scaleunemployment and public outcry in a recession associ-ated with Chrysler's bankruptcy, the federal governmentwas finally willing to consider a long-debated $1.5 bil-lion rescue package for Chrysler. This famous aid pack-age, which later came to be known as "The ChryslerCorporation Loan Guarantee Act of 1979," provided themuch-needed breathing space for Chrysler's ultimatesurvival.

The outcome of the transition stage was clear inmany performance measures. The signs of a healthyChrysler began to emerge in 1982. According to Iacoc-ca, record profits, repayment of the entire government-backed loan, and the introduction of minivans were thehallmarks of Chrysler's triumph. Modernization ofplants; adaptation of a state-of-the art technology; anefficient, fuel-economy fleet of cars; high-quality vehi-cles; and, above all, a motivated work force dedicatedto the revival of Chrysler brought down its break-evenpoint from 2.3 million to I.I million units. At the endof 1982, Chrysler generated a modest profit, and in1983 again made an operating profit of $925 million—the best by far in Chrysler's history. By the spring of1983, when Chrysler offered 26 million shares, itsstock was selling at $I6-'*'l Within a few weeks, therewas so much demand for those stocks that they wereselling for $35. Another startling outcome was that, fol-lowing the stock sales, Chrysler was able to pay off$400 million, or one-third, of its guaranteed loans. Themost startling outcome, however, was its decision topay off the entire loan of more than $800 million onJuly 13, 1983, immediately after the first payment.Thus, Chrysler paid off its entire loan seven full yearsbefore it fell due. The New York Times regarded this tri-umph as "Chrysler's Sharp Turnaround" (Iacocca,1984). The ability of a troubled company to pay off anoutstanding debt of such magnitude so far before itsscheduled payment could justifiably be interpreted asan "unequivocal signal" that Chrysler really hadaccomplished turnaround.

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Synthesis

To get a holistic perspective of an entity, one has tobe able to visualize all of its dimensions and comprehendthe relationships between these dimensions. Therefore,the three dimensions and their underlying relationships,which are of crucial importance for a more comprehen-sive meaning of turnaround, are synthesized as follows.

Given that any number of incidents can be chosen torepresent an event, and that their number and nature mayvary across situations, a somewhat hypothetical listing ofvery many incidents was impossible, and hence ignoredin this paper. Even in the illustrative Chrysler case, weavoided a listing of incidents. Because the case wasreconstructed from the part of an autobiography where,for obvious reasons, every incident could not be record-ed in a systematic and chronological fashion, we couldnot list them. The situation, however, would be differentif the case could be reconstructed carefully from ananalysis of all original and relevant documents for 14years (1970-1983), the time span Chrysler needed for itsturnaround, as well as from interviews with selected peo-ple involved throughout the process. However, for illus-trative purposes, some incidents are included here fromthe case. Inappropriate use of telephones by executivesecretaries for their personal calls; visits to banks by thetreasurer to keep the outstanding loans intact; arrange-ment of frequent go!f tournaments at the initiative of theexecutives; and the leakage of photographs of future carsto competitors—all indicating the inefficiency of topmanagement—can serve as incidents of the event r-extinction in Stage 1. Frequent jokes about Chrysler onprime time TV shows, the departure of the Shah of Iran,pictures of gas lines in California, cover stories in thebusiness press on the dwindling demand of RVs, propos-als for gas rationing by Congress, a sharp rise in gasprices, and so on were the indicators of stimulus genera-tion, an event in Stage I. Examples of incidents aboundin other stages as well.

The review of the literature on turnaround has iden-tified a fairly comprehensive set of events in each stage.Accordingly, k-extinction, r-extinction, and stimulus indecline; domain definition, scope overlap, and strategiccontours in response initiation; elapsed time, resourcecommitment, policy and programs, structure, rewards,and people in transition; and success and failure in out-come are the events in the process of turnaround. Ananalysis of Chrysler also bore out the presence of theseevents in the four successive stages of turnaround.

The discussion of events in each stage of a turn-around highlights a core concept that is capable of rep-resenting that stage. Because concepts are embodied in acareful definition of the phenomenon under considera-tion, they constitute the central factors of concern to the

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Figure 2Key Events and Core Concepts in Turnaround

researcher. Although three events have been identified inStage I, performance is at the heart of all events in thisstage. Therefore, we consider performatice as the coreconcept in the decline stage of the process of turnaround.Because outcome is the obverse of the first stage, per-formance is the core concept of the fourth stage as well.Response initiation, the second stage, is the most visibleof all four stages. As we highlighted earlier, all events inthis stage centre on the unit of analysis for different turn-around strategies, their fluid nature across different lev-els, and the appropriateness of their combination in rela-tion to the decline type. Therefore, strategy is the coreconcept in this stage. In the third stage, the focus is onthe translation of physical, human, financial, and infor-mational resources, which cut across many complex sub-stantive levers, into viable results. Therefore, implemen-tation is the key concept in this stage. In summary, thesethree core concepts (performance for Stages 1 and 4,strategy for Stage 2, and implementation for Stage 3)serve to link the four stages of the process of turnaroundand are sequentially present through these stages. AsChrysler demonstrates, the entire story of its turnaround

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could be narrated in a unified way in terms of perfor-mance, strategy, and implementation.

The key events and core concepts are imposed onIhe hierarchy of dimensions in Figure 2. The chronolog-ical recording of recurring incidents representing severalrelated events, when tied to the core concepts, facilitatesthe story of turnaround from the onset of decline to ulti-mate recovery or dissolution.

For each stage to move forward to the succeedingstage, all events belonging to the preceding stage maynot be equally instrumental. They may be reinforcing orcomplementary. They may act in isolation or in combi-nation. For example, both r-extinction and k-extinctionmay be mutually exclusive sources of decline; they maycause decline in combination as well. The voluntary ini-tiation of actions by managers makes stimulus, an eventin Stage 2, redundant. On the other hand, the reluctanceof top managers to initiate actions makes the source ofexternal intervention a crucial stimulus. In the case ofChrysler, however, the inability of top management tostop its haemorrhage as well as the effects of a few force-ful exogenous factors, such as a severe recession and an

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acute energy crisis, served as stimuli for immediate anddrastic actions. On the other hand, in the widely knowncase of Allegis Corporation, the most powerful stimulusthat led to the ouster of its CEO, Dick Ferris, was theAllegis board (Fortune, 1987). Therefore, the nadir thatmarks the end of Stage 1 is a function of the severity ofdecline that brings about pressure from external stimulito change existing strategy or initiate new strategies.Although the locus of the nadir and, therefore, the spanof Stage 1 is largely an outcome of the perception of theaffected stakeholders, it is easy to determine, as the illus-trative case suggests. In Chrysler, a sharp decline inoperating profitability (in fact, its loss was mountingevery year), market share, and owner loyalty, coupledwith massive losses from the inventory build-up of fin-ished cars, reached such a low ehb that there had to be aninflection following the nadir if Chrysler wanted to avoidimmediate bankruptcy. This inflection point served tolink Stage 1 and Stage 2. Although Iacocca had initiateda few impromptu moves prior to reaching the nadir, thesemoves did not seem to produce any noticeable results.

It seems difficult to delineate Stage 2 and Stage 3, inthat strategy fomiulation and itTiplementation occuralmost simultaneously in real life. However, becausestrategies spread out over both space and time (Petti-grew, 1992), there has to be a temporal gap between theirformulation and implementation. Consider a few exam-ples from Chrysler. The dismissal of 33 vice-presidents,a cost-cutting measure, took over three years. Similarly,a decision to start a quality control department, taken InStage 2, took a long time to implement as the departmenthad to be staffed with 250 qualified people from otherplaces. A decision to replace its two advertising agenciesrepresenting a $150 million account change spannedboth stages. Similar intertwining involved almost allstrategies that Iacocca and his team considered neces-sary. Despite these apparent links and adjustmentsbetween these adjacent stages, the two stages could bedelineated, in that all or some dimensions and trajecto-ries of the strategies changed during their passage fromStage 2 to Stage 3. For example, even though vice-pres-idents known for their golfing ability were axed first,others later followed suit because a large pool of plan-ning staff had to be eliminated for a much flatter organi-zational structure. Although the initial reason for replac-ing two advertising agencies was to send a signal to thekey stakeholders that Chrysler was serious about turningitself around, the justification later turned out to be oneof effective product planning and marketing. Kenyonand Eckhardt, the newly recruited advertising agency,later proved to be an integral part of the turnaround ofChrysler. Therefore, the incidents that indicated eachstrategy in Stage 2 could not be the same in Stage 3.Changes along an anay of moves that affected each

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implementation lever also mirror changes in representa-tive incidents. Although a few common incidents may benested in Stage 2 and Stage 3, their frequency and tem-poral order vary substantially. Therefore, despite a some-what blurred boundary between Stage 2 and Stage 3,they can be delineated.

The substantive levers of implementation are con-nected to the subsequent stage in terms of a set of per-formance measures through which decline was mea-sured. Therefore, following the implementation ofstrategies and the elapse of a reasonable time, there haveto be noticeable changes along the chosen set of perfor-mance measures. Because of a variation in the nature ofperformance measures, although their inflection pointsoccur at different times following implementation, onbalance there should be a coherent pattern among them.In the case of Chrysler, the inflection points werenoticed, first, in a record operating profit of $925 mil-lion; second, in an unprecedented surge in its stock price;third, in a strong cash position; and, finally, in therespective introduction and reintroduction of new oronce-abandoned cars. Following implementation, for thesake of simplicity, we have indicated only one inflectionalong performance in Figure 1. Although there is a like-lihood of multiple inflection points along different mea-sures of performance, it is possible to delineate Stage 3and Stage 4 based on a coherent pattern created by suchpoints.

Following the identification of sequential stages in aprocess model, it is necessary to specify the generativemechanism that propels the movement from one stage tothe next (Van de Ven & Poole, 1995). As the review ofthe stages suggests, the number of incidents, their fre-quency of occurrence, their degree of embedded ness inmultiple levels, and the pattern of their interplay com-bine into what is referred to in physics as amplitude—themaximum extent of a vibration or oscillation from theposition of equilibrium—of an event. Mintzberg et al.(1976) describe the strengths of different stimuli prompt-ing management into decision-making action in terms ofamplitude. Implicit in Ropo and Hunt's (1995) expres-sion of momentum for human and organizational capa-bilities in terms of circular spiral is an amplitude.Accordingly, the interplay of reinforcing or contradicto-ry incidents in each stage creates an amplitude for eachevent, and when amplitudes of all events in a stagecumulate into a mega amplitude, one stage moves to thesubsequent stage. In other words, the cumulative ampli-tude of all events in a stage reaches a threshold, createsa momentum, and then pushes that stage forward. Theamplitude of a stage can be likened to a roller-coasterride with several rounds, each round giving rise to thenext (Ropo & Hunt, 1995). Although the physical move-ment of one stage to the succeeding stage is difficult to

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Figure 3The Turnaround Process'

Stage J

Decline

\

\ \ \^ s \ NadirW

Stage 2

ResponseInitiation

Stage 3

Transition

\Indeterminate

Stage 4

Outcome

Time

Firm Equilibrium

Firm Performance

•The vertical scales on this figure are purely illustrative. In fact, it is difficult to develop accurate interval scales for all four stages of turnaround as theirduration varies considerably across situations.

mark, it is possible to delineate each stage through itsfunctions (Van de Ven & Poole, 1995). Superimposingthis roller-coaster metaphor on Figure 1, a refined four-stage model is presented in Figure 3.

It may be argued on two grounds that the path cre-ated by the successive pushes can be different from theone presented in Figure 3. First, each stage of the modelis defined in terms of incidents and events, which vary inrelevance, nesting, frequency, and pattern of interactionsin the respective stage of a different turnaround. As aresult, the amplitude of each event varies, and the waymultiple amplitudes combine into a circular loop differs.Second, another component from a related process theo-ry of change, teleology, also adds to this explanation forvariation. As an adaptive entity, when an organizationstrives to reach its end state, individual and/or group goal

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structures of its human elements change (Van de Ven,1992; Van de Ven & Poole, 1995). When, in response toindividual, organizational, or environmental stimuli,goal structures shift in a stage or in the passage of astage, such shifts are enacted or reconstructed. Thisenactment or reconstruction creates a variation in bothamplitudes and tbe way they connect to each other forcreating a push. BankAmerica's mammoth reduction ofassets by $21 billion with a simultaneous introduction ofits innovative Alpha Account over a period of slightlymore than a year and Chrysler's procrastinated imple-mentation program under a tumultuous political debaterepresent two different enactments of team goals. Tbepath connecting BankAmerica's implementation andsuccess is different fi-om that connecting Chrysler'simplementation and success. Therefore, although the


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TURNAROUNDS; A STAGE THEORY PERSPECTIVE CHOWDHURY

Stages of turnaround are sequential, the tracks runningthrough them may be different.

Discussion and Conclusion

Although in the last three decades there has been aburgeoning interest in the study of turnaround, sufficientknowledge has not yet accumulated on the phenomenon,which remains idiosyncratic and open-ended. Conflict-ing vocabularies and perspectives have obstructed thedevelopment of a unifying theory on which to draw.

This paper argues that a four-stage process view ofturnaround is capable of unfolding the dynamics andinterplay of the nature, sequence, and duration of inci-dents and events from the onset of decline to the ultimatereversal of performance. Possible elements of turn-around from the extant literature are grouped into fourstages of a composite model, where each stage combinesa variety of roughly related events. A review of the liter-ature identifies the key events in each stage that wereincorporated into the model. The model also highlights aset of core concepts germane to turnarounds, unifyingand linking the stages in a sequential fashion.

The model contributes to strategic management andorganization theory in at least three respects. First, it pro-vides a comprehensive mechanism for developing ele-ments classifiable into incidents, events, and conceptsfrom the onset of decline to the ultimate recovery of per-formance to dissolution. In each stage, numerous inci-dents are compressed into theoretical events, which, inturn, are compressed into a few core concepts, whosesequential linkage facilitates the story of how turnaroundoccurs. A provision for insight into the clusters of prob-lems and issues at different stages ofthe process and thetransition of the stages can serve as a valuable aid for themanagers (Whetten, 1987). Besides serving a narrativepurpose, the model also offers the potential for flexibili-ty, because it can accommodate variations in the level ofspecificity and the temporal duration of incidents. Byincreasing the number of incidents and associating themwith short units of time, the events can be refined, theconcepts enriched, and the overall approach fine-grained. As a result, the contexts under which the inci-dents occur are likely to assume correct meaning, thusadding to the degree of realism that the story of turn-around unfolds. The degree of realism, in turn, may bet-ter uncover the "dynamic nature of contextual variables,as well as the interactions between them" (Langley &Truax, 1994, p. 646).

Second, because different organizations proceed atgreatly different rates through a stage of turnaround,variation is likely in the span of a stage and in the ele-ments that make it up in even two turnarounds. Despite

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this variation, it is possible to discern the same stages inall turnarounds, although the stages may not be physi-cally discrete. The proposed framework includes amechanism for comparing stage models designed tounfold different turnarounds. Such comparison is usefulfor a meaningful understanding of a truly complex phe-nomenon (Van de Ven, 1995; Van de Ven & Poole, 1990,1995) and for a verification of the generalizable relation-ships embedded in the mode! (Burgelman, 1983). For afirst-order comparison, different turnarounds can be jux-taposed on core concepts representing each stage. For arefined comparison, in line with Mintzberg et al.'s (1976)description of 25 strategic decisions in terms of 12 ele-ments, the juxtaposition can be made on the events in astage. Because events are theoretical constructs derivedfrom representative incidents, comparison of the broad-est possible range of turnaround situations on the eventsunder each concept can eliminate the risk of generaliza-tions from a single turnaround. By measuring the eventsand concepts in each stage for a number of turnarounds,the dominant patterns across the board can be identified.Implied in this identification is an opportunity for bothcomparison of tracks created by the mega amplitudesacross different turnarounds and examination of whetherthese configurations fall into certain distinct groupings.

Third, as a composite of multiple process theoriesof change, any model is "useful to remedy the incom-pleteness of any single model of change" (Van de Ven& Poole, 1995, p. 527), Ropo and Hunt (1995), forexample, empirically demonstrate the benefit of suchcomposition in their explanation of "virtuous" and"vicious" spirals in the process of entrepreneurship.Within an overall life-cycle progression from seriousperformance decline to ultimate success or liquidation,our model provides for an interplay of life-cycle andteleological perspectives. One of the simplest illustra-tions ofthe virtue of this interplay is the explanation ofwhy two turnarounds may have different tracks. Implic-it in this explanation is an opportunity to identify thecontingency factors (Burgelman, 19B3), or the dynam-ic nature of contextual variables and the interactionsamong them (Langley & Truax, 1994), or the inner orouter contexts (Pettigrew, 1992), which may have pro-duced variations in the tracks or path configurationsacross different turnarounds.

Based on the components of turnaround as gleanedfrom the literature and consistent with the tenets ofdevelopmentalism, we specified a sequence of fourstages in turnarounds. Although the events and conceptsin a stage are identified from a review of the literature,the incidents germane to a particular stage are left openfor empirical consideration, subject to their occurrencein a particular turnaround. Therefore, the proposedmodel lends itself to refinement or elaboration based on

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additional empirical findings. With such refinement orelaboration, the explicative power of the model can berealized to its fullest possible extent.

To our knowledge, this is the first comprehensiveprocess model in the stream of literature on turn-around, which may serve as an integrative frameworkto bring about cohesion among the disparate bodies ofresearch on the phenomenon. Because great variationsin firms and environments to which they respond resultin variability in tracks leading to ultimate success orliquidation, no single stage theory can capture all turn-around situations (Krueger & Willard, 1991; Pearce &Robbins, 1993). Despite the variations in tracks, thetracks should be amenable to classification into certaindistinct groupings. Given this possibility, our purposewas to find an evocative framework that can lead tosignificant generalizations about some turnarounds,not to suggest universal generalizations about all turn-arounds. With respect to two of the components of themodel—events and concepts—the Chrysler case haslent some preliminary support for the model. Becauseof some inherent constraints in our construction of theChrysler case, it was not possible to explore whetherevents germane to each stage, especially transition,could be expanded further and refined along finerlines. Because at times implementation involves acomplete change of an organization's business philos-ophy or its established culture and values, the substan-tive levers might not have adequately tapped whatthe autobiography had not recorded. Based on moreparsimonious empirical findings, other research mayclarify, elaborate, and refme this stage model of turn-around.

Notes

Some researchers (e.g., Bibeault, 1982; Finkin, 1985;Hambrick, 1985, Krueger & Willard, 1991; and others)refer to tumaround as a composite of a few stages. Thereare two noteworthy problems in such references. First,given that process can be used in many different ways(Van de Ven & Poole, 1995), these researchers do notdefme the meaning of process in their references. There-fore, the loose references are subsumed under an individ-ual researcher's unknown perception of process. Second,because no researcher justifies the number of stages ofturnaround he or she is proposing, the number varies fromone to another. Therefore, their references to such stagemodels provide us with no opportunity to compare ourmodel with theirs.

With his own salary reduced to $1 a year, Iacocca perme-ated the salary reduction down through the ranks. Hestarted with his executives and cut their salaries by up to

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10%. Similarly, over a nine-month period, an averageworker in Chrysler gave up close to $10,000 (Iacocca,1984).

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Turnarounds - A Stage Theory Perspective

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