Corporate Turnaround Strategies

Schendel, Dan E.; Patton, Richard; Riggs, James
August 1974
Academy of Management Proceedings (00650668);1974, p4
Conference Proceeding
This paper examines a sample of firms who have reversed serious declining performance trends and identifies characteristics of the strategies used to turn performance around. A series of hypotheses on strategic and corporate failure, including several developed by Richards, Beaver, and Altman, are tested. Turnaround situations are defined in general (specific decision rules are developed and tested) as firms which suffered at least four years of decline in income relative to the economy, followed by a period of four or more years of increasing performance trends, again, relative to economic trends. Based, then, on a stringent test of decline and subsequent turnaround, a sample of 67 firms emerged from a search of the 20-year history provided for the 1800 firms reported on Standard and Poor's COMPUSTAT data file. Through the use of secondary data sources, the declines are studied and classified by strategic, operational, or combined causes. Turnarounds are similarly studied and classified. The characteristics of each of these causal classifications are developed. Using multivariate statistical techniques, the hypotheses developed by Richards on five categories of risk level (business domain, financial, technological, scale, and organizational) and the financial indicators or predictors of failure reported by both Beaver and Altman are tested. Their usefulness of predictors of decline and, therefore, as managerial control standards is developed. The use and usefulness of and differences in over a 20-year period of diversification, and divestment, acquisition, management reorganization, financial reorganization, vertical integration, and other strategies, and combinations of these, are presented in terms of their value to strategic managers who must confront turnaround situations.



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