Entrepreneurial recovery strategies of small market share manufacturers

Abstract

Field studies of organizational decline and turnaround have provided evidence that economically troubled firms can undertake recovery from sharp financial losses in different ways. As suggested by a recent stream of research, the most promising of these ways is for businesses that have retrenched to initiate recovery strategies designed to redirect their remaining resources toward more promising product-market combinations. The choice of this set of alternatives, known as entrepreneurial recovery strategies, is the topic of the research that was undertaken. Entrepreneurial recovery strategies involve reformulation of a firm's products, services, markets, or principal technologies in ways that represent a new or radically altered competitive posture. They are contrasted to efficiency recovery strategies that entail retaining the current product-market-technology orientation but on a smaller and more efficient scale. As these descriptions suggest, the thrust of research on recovery strategies has been to merge the findings from entrepreneurship studies on new venture creation and corporate intrapreneurship with strategic management studies on retrenchment and recovery. Our project extends this process by treating recovery strategies as the central element in a turnaround model. The research was specifically designed to address two research questions: 1. Which functional areas are most emphasized by small market share (SMS) firms that pursue entrepreneurial versus efficiency recovery strategies? 2. What are the performance implications for adopting entrepreneurial versus efficiency recovery strategies for mature-industry, SMS manufacturers based on the cause of the performance downturn? The research questions were investigated through an empirical analysis of 32 companies, each of which controlled less than 1% of their mature manufacturing industry's total sales. Two executives from each of these companies responded to a 162-item questionnaire designed to assess the cause of a downturn that occurred anytime during the period of 1976–1985, any changes in strategy components during the recovery, and the emphasis placed on specific functional level activities during the response to the decline. Additionally, objective measures of performance were used to assess the performance implications of entrepreneurial and efficiency strategies. The major findings from the research included: (1) a high degree of strategy change among the participant firms; (2) a focus on marketing and production functional areas by SMS firms that pursued entrepreneurial recovery strategies, and a focus on finance and management functional areas for SMS firms that pursued efficiency recovery strategies; and (3) a relatively poor level of performance among SMS firms that pursued entrepreneurial recovery strategies. The main implication from the study is that SMS companies in mature manufacturing industries should consider the adoption of efficiency-oriented recovery strategies to foster economic revival. The research should be replicated in industries that vary both technologically and in stage of life cycle to determine if entrepreneurial strategies represent more viable alternatives in certain other turnaround situations or for other industry populations.