The Mechanistic Structure Shift and Strategic Reorientation in Declining Firms Attempting Turnarounds

Abstract

Past researchers have observed that declining organizations often experience mechanistic structural changes that centralize authority, increase reliance on formalized procedures, and reduce the amount of information flowing to top managers. Many have proposed that this "mechanistic shift" in declining organizations reduces their adaptive capability by making innovative organizational change in response to decline less likely. However, despite much research on declining firms and their turnaround attempts, many questions about mechanistic shifts remain, such as: (1) To what extent do declining firms become systematically mechanistic when trying to recover from decline? (2) What aspects of declining firms' situations make mechanistic shifts more likely? (3) Do mechanistic shifts reduce the likelihood of large-scale strategic reorientation as declining firms attempt to recover? We sought answers to these questions through an analysis of data from in-depth interviews with top managers (mostly CEOs) at 29 U.S. firms attempting turnarounds from decline. Our primary finding was that mechanistic structure shifts did restrict firms' abilities to change their strategic orientations in response to decline. Highlighting the important role of the context of turnaround attempts, we further found the average declining firm attempting a turnaround did not become more mechanistic, but that turnaround attempts launched from financial crises were significantly more likely to lead to mechanistic shifts. Also, we found that the common practice of replacing the firm's CEO during turnaround attempts had conflicting and paradoxical effects on firms' abilities to enact strategic reorientations.