The Elephant-Donkey Divide: Ideology-Based Faultlines and Strategic Renewal in Turnaround Situations

Abstract

Research on political psychology suggests that ideological differences among individuals in groups become salient in situations characterized by ‘uncertainty and threat’. We integrate faultlines theory with the uncertainty-threat principle from political psychology to introduce the notion of ideology-based top management team (TMT) faultlines – and examine its effects on strategic renewal in an uncertainty-threat context (i.e., turnaround situations). We argue that, in turnaround situations, differences in political ideology can fracture the TMT into distinct ideological factions (i.e., conservatives vs. liberals) with divergent attitudes toward the adequate management of ‘uncertainty and threat’. Such divergent attitudes cause decision-making fragmentation in the executive group, and thereby reduce the TMT’s ability to swiftly enact strategic renewal. Further, our research also considers the contingency impact of external environmental factors (i.e., shareholder unrest and industry performance decline) that may strengthen the job demands and uncertainty-threat facing executives in turnaround firms and further hamper renewal response. Building upon our findings, we offer a midrange theory of ideological separation in organizational upper echelons and highlight its impact on corporate strategic responses to situations requiring swift and adaptive action.