Situational and organizational determinants of turnaround

Purpose To test the ability of situational variables, manageable pre‐decline resources, and specific firm responses to decline to classify performance outcomes (turnaround vs non‐turnaround) in declining firms. Design/methodology/approach Using a longitudinal methodology and a multi‐firm sample, the paper studies the relative role of situational factors concerning the environment and a firm's decline, along with various internal resources and strategies that can enable a firm to recover from decline. Findings The results indicate that contextual factors such as the urgency and severity of decline, firm productivity and the availability of slack resources, and firm retrenchment can determine the ability of sample firms to turnaround. Overall, factors under the control of managers contribute more to successful turnarounds than situational characteristics. Research limitations/implications This study does not identify the exact cause of firm decline. The authors believe this is beyond the scope of this multi‐firm study. Originality/value This study contributes to the existing research by theoretically explicating and empirically testing the influences of multiple situational and organizational factors on turnaround outcomes. While several studies have investigated conceptually unique sets of actions applied by managers attempting to turn around declining firms, this paper integrate these actions as they can often impact each other and the eventual turnaround. The authors believe their research design affords a more holistic view to the turnaround process. In order to direct executives efforts, the findings are summarized into some practical applications.