Executive attention patterns, environmental dynamism and corporate turnaround performance

Abstract

PurposeDespite an improved understanding of the role of top executives in declining firms, research is still needed to explore the role of environmental scanning and strategy formulation processes in an organizational decline context. Drawing from the attention‐based view and the literature on environmental scanning, the purpose of this paper is to examine the relationship among executive attention patterns, industry dynamism and corporate turnaround performance in declining firms.Design/methodology/approachIn order to test theoretically‐driven hypotheses, data were collected from 70 US manufacturing firms that experienced serious performance decline and subsequent performance turnaround between 1990‐2000. The hypothesized relationships among market‐related, input‐related environmental scanning, industry dynamism and corporate turnaround performance were tested using a moderated regression analysis.FindingsThe findings indicate that declining firms operating in dynamic industry environments tend to improve their turnaround performance when executives focus their attention more on market‐related sectors (i.e. customer, competitor and technological sectors). Conversely, the findings also indicated that corporate turnaround performance of declining firms seems to be adversely affected by a disproportionate focus on input‐related sectors of the task environment (i.e. suppliers and creditors).Research limitations/implicationsThe paper's findings contribute to the ongoing corporate turnaround research by highlighting the important role executive attention patterns and selective perceptions play in improving the extent of corporate turnaround in declining firms. More importantly, the findings also indicate that environmental context (in this case dynamism) is a critical part of successful corporate turnaround since it dictates the impact of relevant external actors on the organization.Practical implicationsExecutives of declining firms attempting turnaround may find it particularly useful, based on the paper's findings, to focus their attention and information search on specific aspects of the task environment in order to facilitate corporate turnaround. Such focus becomes especially necessary if the declining firm is operating in dynamic industries.Originality/valueThe paper contributes to the corporate turnaround literature by highlighting the importance of both executive attention patterns and environmental context in any successful turnaround attempt.