Turnaround Leadership: Contrasting 1

Running head: TURNAROUND LEADERSHIP: CONTRASTING LEADERSHIP STYLES

Turnaround Leadership: Contrasting Leadership Styles in Successful versus Failed Turnaround

Efforts of Multinational Corporations during an Economic Downturn

Cristian C. Teodoridis

Lawrence Technological University

DBA - Cohort 3

Qualifying Paper Proposal

February 02, 2009

 Turnaround Leadership: Contrasting Leadership Styles in Successful versus Failed Turnaround

Efforts of Multinational Corporations during an Economic Downturn

Introduction

“Car sales: From bad to worse” announced an article from the CNNMoney.com website

in early February 2009. The article continued: “even as credit starts to flow to potential car

buyers, sales could fall to a 26-year low due to a sharp drop in purchases by car rental

companies”.(Isidore, 2009) This was just one of the economic doom and gloom stories we have

come to expect recently, almost on a daily basis. And the car industry is not the only one in

crisis: manufacturing, retail, banking and the financial sectors are all faced with the most serious

economic challenges since the Great Depression.

With the economy in turmoil, many businesses are struggling; this is true for small and

medium companies and also for large multinational corporations. Some of these companies have

been underperforming for a number of months of even years and other have just succumbed to

the current economic slowdown, seeing their profits vanish almost over night. In order to

survive, many of these businesses will need to reassess their business models and try to

reposition themselves in such a way that they will become competitive and profitable once again,

for many years to come.

This process of rediscovery is also known as corporate turnaround: “a corporate

turnaround may be defined simply as the recovery of a firm’s economic performance following

an existence threatening decline” (Pandit, 2000, p. 32). As it is the case with corporations in the

current economic downturn, “the decline may occur over several years, although there are
situations when extraordinary events occurring over a shorter period of time can place a firm in

peril” (Pandit, p. 32). One such extraordinary event was the financial crisis of 2008.

Along the years, many companies have gone through turnaround activities. Some of these

initiatives were successful and the respective companies came out stronger, leaner and better

prepared to take on their competition. Other turnaround attempts have failed, resulting in the

liquidation of those companies. There are countless reasons why a corporate turnaround succeeds

or fails, and most of them have been researched to a varying degree. However, a lot more

research in this field is needed: “despite the frequent incidence of corporate turnaround and over

two decades of research effort, our understanding of the phenomenon is very incomplete (Pandit,

p. 51.

According to a comprehensive study, one of the factors that influence the outcome of a

corporate turnaround is leadership (Finkin, 1987). In this study of some of the most successful

turnarounds, the author reviews the strategies and the specific actions that are needed, in his

opinion, to achieve a successful turnaround. Based on the empirical evidence collected from

several companies, he concluded that “as in all turnarounds, leadership was needed. It had to

come from the top. […] Leadership had to be exercised at all levels.” (Finkin, 1987, p. 18) Good

leadership is vital because turnarounds deal in most part with people, as “people are at the heart

of the majority of the company’s problems. They are also at the heart of the solutions to these

problems.” (Finkin, p. 12)

Another reason that compels us to accept the importance of leadership in a turnaround

situation is the fact that most often companies and their management teams do not realize that

they actually need a turnaround (Milite, 1999), and because of this “most turnarounds, in fact,

aren’t initiated by the company but by a bank or a bankruptcy attorney” (Milite, p. 9).
Furthermore, “turning around a troubled company means changing attitudes about how to do

business” (Milite, p. 10). This highlights the importance for companies and their executives to

recognize when their organizations are in crisis. Even though in almost every crisis there are

triggers of decline that should tip-off the management teams, these are often not recognized or,

even worse, they are ignored for long periods of time. This is another area where good leadership

can ensure that triggers are recognized and that action is promptly taken, commensurate with the

severity of the decline (Gopinath, 2005, p. 25).

Leadership is also needed to change the culture of an organization in crisis: in the case of

the turnaround process that Sears, Roebuck and Company went through in the mid 1990s,

“transformation was more than a change in marketing strategy. It was also a change in the logic

and culture of the business” (Rucci, Kirn, & Quinn, 1998, p. 83). Indeed, inspired by the great

leadership skills of CEO Arthur Martinez, “a group of more than 100 top-level Sears executives

spent the better part of three years rebuilding the company around its customers” (Rucci et al., p.

85).

General Statement of purpose

The research data strongly indicates that leadership is a crucial component in corporate

turnaround. Companies engaged in turnaround need “leadership that provides vision, induces

creativity, challenges the existing business assumptions and show willingness to take tough

decisions” (Raina, Chanda, Mehta, & Maheshwari, 2003, p. 83). This is the reason why in my

qualifying paper I will research the relationship between the leadership traits of a turnaround

leader and that company’s success in its turnaround efforts.

 Specifically, I want to study the leadership styles of leaders involved in successful and

failed turnaround efforts, in multinational corporations during an economic downturn, because I

want to understand the extent to which leadership is a significant determinant of success in

turnaround situations, in order to provide research-based recommendations and organizational

guidelines that will enable companies to achieve success in their turnaround activities.

The research subject is very complex and the paper will involve an extensive review of

literature. I plan to draw on existing research in several fields of study, such as leadership,

strategic management and corporate turnaround. Further review of literature will be conducted

on the topics of strategic change, organizational decline, crisis management, retrenchment

strategies and any others necessary topics that will be discovered during the literature review.

The review of literature process will be completed by conducting keywords-based searches

within multiple sources such as peer-reviewed journal articles and studies, dissertations,

handbooks, white papers, conference proceedings and books. The qualifying paper is intended to

provide the foundation for the literature review process in my upcoming DBA dissertation on the

same topic. The topic however will remain open to change, as new research ideas will be

generated during the literature review.

The topic of this qualifying paper is timely, relevant and extremely important to the entire

US and global economy. Due to the historic economic challenges that virtually every single

organization in the world is faced with, status-quo is simply not acceptable for a significant

majority of them. Companies cannot afford to continue to operate using the same strategies or

even the same business models. These companies will need to go through a turnaround process,

and the success of their turnaround will shape the future of the global economy. It is therefore
imperative that the turnaround leaders will have as much information as possible enabling them

to be successful in their endeavors.

Review of literature outline

The literature review will concentrate on two main areas: leadership and corporate

turnaround. Each of these areas will be divided into separate topics, and each topic will be

reviewed separately. The end result will provide a better understanding on the real impact of

leadership traits on the outcome of corporate turnaround; this will be used to provide the basis of

the research for the DBA dissertation requirements and may eventually enable the development

of a theoretical model created using grounded theory.

A cursory literature review was performed and some high-level results are outlined

below. The reference material has been recorded in this proposal paper, together with additional

sources that have been captured in the Bibliography section.

Leadership-related questions: what is leadership? What are the leadership traits? etc. with

citations.

Unlike in the field of leadership, turnaround literature is much more recent: the earliest

writings on corporate leadership are two books that date back to only the mid 1970s, based on

the research of over 1,800 companies from Standard & Poor’s Compustat database; one book

analyzed the link between corporate stagnation and turnaround (Schendel & Patton, 1976), while

the other studied the various actions taken in successful corporate turnarounds, concluding that

operating solutions are the best solutions for operating problems while strategic solutions are

appropriate for strategic problems (Schendel, Patton, & Riggs, 1975).

 The most recent literature is from as early as 2008. In one such article, based on the

premise that turnaround of corporations in crisis have unique requirements that cannot be

addressed by Porter’s strategic matrix, the authors attempt to develop a complementary strategic

framework for turnaround companies (Pretorius, 2008).

Most of the research on turnaround can be categorized in three main categories: “(1)

studies of management strategies leading to turnaround, (2) studies of organizational process in

response to a crisis, and (3) studies of the economic attributes of turnaround firms” (Pant, 1991,

p. 623). Among the studies in the in the first category (management strategies) there are some

that look at who is best positioned to execute the turnaround, whether the incumbent

management team should remain in place or the struggling companies should be bringing in a

turnaround expert, or a team of experts (Walters-Malcolm, 2007). Other studies in the same

category investigate the types of strategies available in a turnaround situation, typically three

main strategies: growth, stability and retrenchment strategies (Rasheed, 2005, p. 3), or just two:

decline-stemming and recovery strategies (Arogyaswamy, Baker III, & Yasai-Ardekani, 1995).

Articles in the second category (organizational process) investigate a variety of topics

such as: the dimensions of successful turnarounds – financial, strategic and pride aspects

(Gadiesh, Pace, & Rogers, 2003); models outlining the 4 stage process of failure and turnaround

– decline, response initiation, transition and outcome (Sheppard & Chowdhury, 2005);

One article in the third category (economic attributes) investigates the attributes of

turnaround firms by utilizing a structure/conduct/performance framework, according to which

“performance is a function of the conduct or actions of the firm […] Conduct is a function of the

structure of the firm and the markets in which it operates” (Pant, 1991, p. 623). Based on the

authors’ research, the structural characteristics of the firm (such as the size of the firm, the
product portfolio, the competitive landscape and the barriers to entry) are closely related to

corporate performance and therefore a good indicator of the most adequate strategies to be

adopted in a given turnaround situation.

.
 Motivation and rationale

During the three years of course work in the DBA program at Lawrence Tech, my

academic interests revolved around the larger field of leadership. This interest in understanding

leadership, leadership styles and the traits of great leaders is what determined me to enroll in the

DBA program in the first place. Having a mechanical engineering background, I had been

exposed in my career to a number of professional assignments in which my technical skills were

most utilized. The leadership component was somewhat ignored and gradually I came to realize

the negative consequences of such an approach to work and workplace environment. Even in

highly technical positions, leadership skills were crucial to achieving success. This realization

motivated me earn an MBA degree from Lawrence Tech. Upon graduation I decided that in

order to become a better leader I had to complement the learning process with my own

contribution to the body of knowledge, through academic research. The DBA program offered

me the best avenue of achieving this goal and I now find myself at the dissertation stage, ready to

start adding value to the field of leadership.

However, as I had found out during the Leadership class with Dr. Castelli, leadership is a

one of the largest fields of study, if not the largest. In order to narrow the scope of my research, I

had to concentrate on a specific area. This area started to become evident to me last year, when

the economy began to weaken. As the economic decline proceeded to accelerate, a certain term

began to be used more and more frequently in the media coverage of this phenomenon:

turnaround. Yes, many companies found themselves in serious decline, and the logical next step,

indeed the only remedial action, was to engage in a process of turnaround. This was seen as a last

hope activity for the companies’ survival and the outcome as a major determinant that would
shape the entire US economy and, due to globalization, of the global economy. This was the

reason I decided to focus my research on the impact of leadership on the success or failure of

corporate turnaround. To further refine the study, I will concentrate on the turnaround activities

of multinational corporations during periods of economic downturn.

 References

Arogyaswamy, K., Baker III, V. L., & Yasai-Ardekani, M. (1995). Firm turnarounds: An

integrative two-stage model. Journal of Management Studies, 32(4), 493-525.

Finkin, E. F. (1987). Successful corporate turnarounds: A guide for board members, financial

managers, financial institutions and other creditors. Westport, CT: Quorum Books,

Greenwood Press.

Gadiesh, O., Pace, S., & Rogers, P. (2003). Successful turnarounds: Three key dimensions.

Strategy & Leadership, 31(6), 41-43.

Gopinath, C. (2005). Recognizing decline: The role of triggers. Mid-American Journal of

Business, 20(1), 21-27.

Isidore, C. (2009, February 2). Car sales: From bad to worse. CNN Money. Retrieved from

http://money.cnn.com/2009/02/02/news/companies/auto_sales_outlook/

Milite, G. (1999, November). Trunaround management: Charting a new begining. HR Focus, 9-

10.

Pandit, N. R. (2000). Some recommendations for improved research on corporate turnaround.

Management, 3(2), 31-55.

Pant, L. W. (1991). An investigation of industry and firm structural characteristics in corporate

turnarounds. Journal of Management Studies, 28(6), 623-643.

Pretorius, M. (2008). When Porter’s generic strategies are not enough: Complementary strategies

for turnaround situations. Journal of Business Strategy, 29(6), 19-28.

Raina, B., Chanda, P., Mehta, D. P., & Maheshwari, S. K. (2003). Organizational decline and

turnaround management. Vikalpa, 28(4), 83-92.

Rasheed, H. S. (2005). Turnaround strategies for declining small business: The effects of

performance and resources . Journal of Developmental Entrepreneurship, 10(3), 1-22.

Rucci, A. J., Kirn, S. P., & Quinn, R. T. (1998). January-February. Harvard Business Review, ,

83-97.

Schendel, D., & Patton, G. R. (1976). Corporate stagnation and turnaround. West Lafayette, IN:

Institute for Research in the Behavioral, Economic and Management Sciences.

Schendel, D., Patton, G. R., & Riggs, J. R. (1975). Corporate turnaround strategies: A study of

Profit Decline and Recovery. West Lafayette, IN: Institute for Research in the Behavioral,

Economic and Management Sciences.

Sheppard, J. P., & Chowdhury, S. D. (2005). 38. Long Range Planning, 38, 239-259.

Walters-Malcolm, S. (2007). Corporate turnaround strategies for IT firms: An empirical

investigation (Doctoral dissertation, Nova Southeastern University, 2007). Dissertations

Abstracts International, 68 (10A (2007)), 4385-4515.