Organizational Decline Research Articles

Ownership Traits and Downsizing Behaviour: Evidence for the Largest Spanish Firms, 1990—1998

This paper explores and tests the differences in downsizing behaviour depending upon three ownership-based traits of the largest Spanish companies: stock versus privately held corporations, foreign versus domestic firms and state-owned versus private companies. From a theoretical standpoint, we develop an explanatory model of downsizing that accounts for techno-economic, institutional, and socio-cognitive explanations which serves as a conceptual basis for generating hypotheses on the role of ownership in downsizing decisions. Probit estimates using a sample of large Spanish firms (1990—1998) confirm that stock corporations and state-owned firms engaged in a privatization process are more likely to downsize than privately held domestic companies. We found less conclusive results about the downsizing behaviour of foreign firms. Finally, our findings corroborate the relevance of organizational decline and institutional factors for predicting the downsizing event.

Conservative Party Agents in Second World War Britain

The Second World War placed great pressures on the machinery and personnel of all political parties. Conservatives formed the view that their own machine had been especially hard hit by the challenges of the war years, and that this was a major reason for the party's 1945 general election defeat. A supposed decline in the number of full-time, salaried constituency agents was a key component of this narrative of decline. This article investigates what happened to the Conservative agency in wartime, using an unusually wide range of sources, including those of around a hundred constituency associations. It shows that the number of agents did fall as a result of the war, but that associations often worked hard to keep their agents, or to mitigate the effects of their departure. It also explains the failure of headquarters' wartime efforts to reform the agency and centralize the employment of agents. Although the party's relative organizational decline did have significant emotional and practical consequences for it in 1945, Conservatives tended, post hoc, to overstate the extent of their wartime organizational collapse, in part because it allowed them to avoid damaging recriminations about the real reasons for their defeat. Ultimately, though, the war's effects, while significant, were essentially transient. Constituency control of agents remained, and a professional standard was maintained. The Conservatives emerged from the war with an agency that was different in detail from, but recognizably similar in form to, that which had predated the war.

Top management team behavioral integration, decision quality, and organizational decline

Little research on top management teams (TMTs) has sought to understand how group processes may influence organizational outcomes. This study examined the role of TMT behavioral integration in explaining the quality of strategic decisions and how these constructs together influenced organizational decline. Findings from survey data of 116 TMTs and a follow up case study show that TMTs in which members reported higher behavioral integration made better quality strategic decisions. Behavioral integration of TMTs was negatively related to organizational decline both directly and indirectly through the perceived quality of strategic decisions. We discuss implications for more fully utilizing the capabilities of TMTs to confront organizational threats.

Concepts of Care in Organizational Crisis Prevention

The role of ethics in organizational crisis management has received limited but growing attention. However, the majority of research has focused on applications of ethical theories to managing crisis events after they have occurred, as opposed to the implications of ethical theories for the primary prevention of these situations. The relationship between concepts derived from a contemporary ethic of care (resistance, voice, silence, connection) (Gilligan, C.: 1988, ‘Exit–voice Dilemmas in Adolescent Development’, in C. Gilligan, J. V. Ward and J. M. Taylor (eds.) (Harvard University Press, Cambridge, MA), pp. 141–158, Gilligan, C.: 1990, ‘Preface’, in C. Gilligan, N. P. Lyons and T. J. Hanmer (eds.) (Harvard University Press, Cambridge, MA), pp. 6–29, Gilligan, C.: 1991, ‘Women’s Psychological Development: Implications for Psychotherapy’, in C. Gilligan, A. G. Rogers and D. L. Tolman (eds.) (Harrington Park Press, New York), pp. 5–32), and, concepts derived from a classic theory of organizational decline and recovery (exit, voice, loyalty) (Hirschman, A. O.: 1970, Exit, Voice, and Loyalty: Responses to Decline in Firms,Organizations, and States (Harvard University Press, Cambridge, MA)) is described. The relevance of these notions for signal detection and uptake in organizational crisis prevention is discussed. Implications for prevention are highlighted through consideration of a case involving organizational crisis, the explosion of the space shuttle Challenger. Directions for both business practice and future research are identified

Beyond the metaphor: The morphology of organizational decline and turnaround

This study is based on the thesis that Vladimir Propp's (1928/2001) theory of folktale structure functions not only as a morphology of folktales, but also as a structural, deep-level model of any process that includes crisis and recovery. We essentially suggest that corporate decline and turnaround processes can be emplotted into a folktale-like structure that supports Propp's theory and thereby helps uncover deep-level mechanisms governing the process. The developed model describes seven mechanisms that drive the organization from initial strategic harmony to disharmony, and furthermore to the construction of a new strategic harmony, thus creating a perspective for the interpretation of long-term organizational decline and turnaround processes. Theoretical and practical implications are offered.

Organizational Decline and Turnaround: Insights from the Worldcom Case

In 2002, the entire globe was rocked by the WorldCom accounting scandal that led to the bankruptcy of the fourth-ranked Fortune 500 telecom company, and raised several questions in relation to corporate governance, ethical leadership and corrupt practices in American companies. The consequences of this famous scandal led to unrest within the ranks of investors, pension funds, banks and the public at large. Later, the company appealed to the US court for reorganization under chapter 11 of US bankruptcy code and under the leadership of the new CEO, Michael Capellas, the new company (MCI) not only reconsolidated its financial position but also overhauled all its internal systems and transformed itself from a corrupt company to an ethical one. This article presents insights learnt from this case study in the context of managing organizational turnaround. It also focuses on the role that the new chief executive played in installing an ethical work culture in the organization. The authors have used Chowdhury's four stage theory to analyze the case. They have further tried to integrate insights from other theoretical models to focus on both the process of turnaround and the role of ethical leadership in bringing about the turnaround.

Traps in diagnosing organization failure

PurposeTo provide practicing managers and consultants with advice about common pitfalls encountered in diagnosing the causes of organizational decline. Hopefully, the paper will help managers and their advisors avoid these pitfalls.Design/methodology/approachReviews common problems that the author and other researchers have documented in their research examining how firms and organizations respond to poor performance.FindingsShows how managers naturally have “blind spots” in perceiving and interpreting the sources of organizational problems.Originality/valueProvides managers with explanations for why they may have a difficult time spotting organizational problems. Also, gives practical tips for avoiding the pitfalls encountered in diagnosing decline.

Higher Education in Competitive Markets: Literature on Organizational Decline and Turnaround

ABSTRACTHigher educational institutions face fundamental challenges as they adapt to increasingly competitive markets. This literature review provides a context on markets, failure, and turnarounds, and discusses the literature on the shift of the higher educational industry into competitive markets. The literature on turnarounds in the corporate marketplace is reviewed, and followed by the literature on turnarounds in higher education. Finally, the review concludes with literature on the turnarounds of New York University and Northeastern University.

Higher Education in Competitive Markets: Literature on Organizational Decline and Turnaround

ABSTRACT Higher educational institutions face fundamental challenges as they adapt to increasingly competitive markets. This literature review provides a context on markets, failure, and turnarounds, and discusses the literature on the shift of the higher educational industry into competitive markets. The literature on turnarounds in the corporate marketplace is reviewed, and followed by the literature on turnarounds in higher education. Finally, the review concludes with literature on the turnarounds of New York University and Northeastern University.

Higher Education in Competitive Markets: Literature on Organizational Decline and Turnaround

Higher educational institutions face fundamental challenges as they adapt to increasingly competitive markets. This literature review provides a context on markets, failure, and turnarounds, and discusses the literature on the shift of the higher educational industry into competitive markets. The literature on turnarounds in the corporate marketplace is reviewed, and followed by the literature on turnarounds in higher education. Finally the review concludes with literature on the turnarounds of New York University and Northeastern University.

How Downsizing Affects Organizational Memory in Government: Some Implications for Professional and Organizational Development

This paper examines some ways that downsizing can affect professional and organizational development in government by posing some possible scenarios based on social and organizational theories. The paper maintains that the depletion of social capital in the past two decades may lead to some predictable consequences in the future. For instance, downsizing has necessitated incumbents' having to play multiple and often conflicting roles: a condition that culminates in stress and burnout and, eventually, to turnover. Because organizations carry little promise for continued employment and advancement, career paths will be truncated; “revolving doors” may happen, in which individuals cycle in and out of government service frequently. The removal of individuals with “institutional memory” may deplete the supply of mentors and coaches, who provide both career advice as well as promote a common perspective on organizational problems. The decline in organizational problem solving ability, in turn, can lead to ways to “reinvent” mission and essential programs. This may engender searches for fundamental values, re-constructed heroic stories, and an emphasis on defining and getting “in touch” with vital customers. The latter turn of reinvention is creative rather than destructive, for it provides a means for regenerating a basis of knowledge lost during downsizing. Hence, although downsizing may reduce human resources and fuel organizational decline, ultimately, the decline can lead to re-birth.

Organizational De‐development*

ABSTRACT Organizational decline prompts leaders to downsize, reducing the size of the workforce in an attempt to cut costs. This paper discusses some of the dangers of downsizing in which organizations experience an unanticipated and unwanted loss of core competencies. An alternative to downsizing is offered, showing how organizations can ‘de‐develop’ by slowly and deliberately moving to a lower order of organized complexity, retaining essential core competencies and supporting functions. To produce a ‘soft‐landing’ that preserves core competencies, a new identity is forged and connections to the new identity are uncovered. The connections point out what must be preserved, such as a crucial channel for key products, for the new identity to survive and flourish. The de‐developed organization preserves customers, products, markets, channels, revenue sources, alliances, skilled people, ways to organize, and/or image crucial to the new strategic identity before letting go of the remaining customers, products, etc. The paper identifies conditions under which de‐development can be desirable and suggests a ‘devolutionary’ process that points out some of the key moves needed to reduce organized complexity and realize a soft landing.

Organizational Decline and Turnaround Management

A panel of turnaround leaders, consultant, and academia responded to the theme on Organizational Decline and Turnaround Management. The panel members addressed the following issues: What are the causes of organizational decline? How do stakeholders respond to organizational decline? What are the turnaround challenges? The salient features of the responses are as follows: There is a divide among the turnaround leaders regarding the causes of decline. Some view the decline purely as the result of the failure of management to anticipate and act appropriately in time. For others, the decline is caused primarily due to external changes. People in academia and consulting view the problem as a mix of the two. According to them, a complex mix of variables-organizational processes, structure, leadership, vision, and technologies-lead to organizational decline. To safeguard against decline, organizations must carefully monitors difficulties in adapting changes and rigidity of systems declining profitability shift in customer preferences working capital problems like inventory build-up; dumping products on dealers; and increasing receivables from customers inability to plough back into the business lack of vision and explicit direction for the future frequent labour unrest regular plant breakdowns. The response of stakeholders to organizational decline becomes hostile. Often, financial institutions include compound interest and increase penal charges to secure their dues. The employees and union members tend to become aggressive owing to loss of credibility of management. Suppliers tend to evaluate the risk of their dues. Their hostility reduces if the management assures them of payment. Managers experience erosion of pride in their company. It leads to low individual initiatives. The turnaround challenges include the following: Leadership that provides a vision, induces creativity, challenges the existing business assumptions, and shows willingness to take tough decisions. The support of financial institutions by way of loan restructuring. Industry is experiencing a definite shift in the approach of financial institutions and banks; they are now tending to support the turnaround effort. Gaining the trust of the suppliers to seek their support. Internally, management needs to be concerned about: maximizing productivity of all resources and capacity utilization manpower rationalization stringent working capital management stretching the targets and making assets ‘sweat’ streamlining systems investing in technology upgradation through internal generation financial restructuring in low interest cost regime.

Exit‐Voice Dynamics in Collective Action: An Analysis of Emigration and Protest in the East German Revolution

What triggers protest in a highly repressive regime? Do opportunities to exit an unfavorable regime through flight spur collective action aimed to reform or replace it? Drawing on Hirschman’s microeconomic theory of exit and voice as responses to organizational decline, this article offers a sociological theory of exit‐voice dynamics that considers the implications of social embeddedness for collective action. A unique data set on migration and protest in the East German revolution of 1989–90 is used to analyze county‐level variations in exit and voice alongside indicators of political loyalty, social movement organization, and social and economic conditions. The analysis finds strong support for the reformulated exit‐voice model and its prediction of an inverted‐$$\textsf{U}$$‐curve relationship between emigration and protest.

A case study of organizational decline: lessons for health care organizations.

This case study reports on an organizational decline situation involving a historically well-known and respected professional organization outside the health care field, with the intention of pointing to several implications for health care. We begin by discussing the results of a survey that involved both members of the organization and "outsiders." Our primary finding, both in the survey and in presenting the results to the membership, was that while those outside the organization perceived the organization as increasingly irrelevant and in decline, those inside it reacted with defensiveness to "meddling by outsiders." We then reviewed the literature on decline, with emphasis upon important findings by Guy, to further understand our results and to make recommendations. We then turn to the situation in health care organizations and point out why some organizations may be at risk and conclude with a series of recommendations with emphasis on health care.

Control and Collaboration: Paradoxes of Governance

Corporate governance is an increasingly provocative topic, evident in ongoing debates between proponents of control versus collaborative approaches. We accommodate these contrasting approaches within a paradox framework, using agency and stewardship theories to elaborate the underlying tensions and to emphasize the value of monitoring, as well as empowerment. Building from these tensions, we examine reinforcing cycles that foster strategic persistence and organizational decline. We conclude by discussing means of managing control and collaboration, highlighting the implications for corporate governance.

Getting by with the Advice of Their Friends: CEOs' Advice Networks and Firms' Strategic Responses to Poor Performance

This paper theorizes that relatively poor firm performance can prompt chief executive officers (CEOs) to seek more advice from executives of other firms who are their friends or similar to them and less advice from acquaintances or dissimilar others and suggests how and why this pattern of advice seeking could reduce firms' propensity to change corporate strategy in response to poor performance. We test our hypotheses with large-sample survey data on the identities of CEOs' advice contacts and archival data on firm performance and corporate strategy. The results confirm our hypotheses and show that executives' social network ties can influence firms' responses to economic adversity, in particular by inhibiting strategic change in response to relatively poor firm performance. Additional findings indicate that CEOs' advice seeking in response to low performance may ultimately have negative consequences for subsequent performance, suggesting how CEOs' social network ties could play an indirect role in organizational decline and downward spirals in firm performance.

Organizational survival within a declining industry: an analysis of a single sex boarding school

It is quite common for industries to quickly go from a state of stability to one of decline in today’s hypercompetitive marketplace. In this article, we examine research on organizational and industry decline, a topic often overlooked by researchers and practitioners. In particular, survival guidelines are provided for organizations within declining industries. Also, it is demonstrated how an organization can use such guidelines by examining a single‐sex boarding school that is currently facing such a dilemma. It is hoped that our observations and prescriptions for the boarding school may be helpful to other organizations that may be facing similar decline in their environments.

Stakeholders' perceptions of organizational decline

Prior research has raised questions about the ability of key organizational stakeholders, especially accountants, to correctly assess an organization's likelihood to grow or decline. It appears that these stakeholders often view the decision from a highly narrow and predominantly financial perspective. Meanwhile the root causes of decline, which often feature as non‐financial and non‐quantifiable information, are overlooked. The present study was conceived and conducted with a view to testing the generalizability of these previous findings. Using a quasi‐experimental design that incorporated the methodological improvements suggested in these earlier studies, the perceptions of accountants, stock analysts, and directors of company boards toward organizational decline were examined. The data provide mixed support for the conclusions reached in previous studies. In particular, the information stakeholders rely upon is not as clear‐cut as past research would suggest.

THE ENACTMENT OF ORGANIZATIONAL DECLINE: THE SELF‐FULFILLING PROPHECY

Building on the enactment perspective and past work on the self‐fulfilling prophecy, this paper explores how organizational decline can be enacted through self‐fulfilling prophecies of decline. We present two self‐fulfilling prophecy‐based models of organizational decline, one in which decline is enacted unintentionally through the predictions of an organization's managers, and a second in which decline is enacted unintentionally through the predictions of external constituencies. We articulate propositions that capture the dynamics of each model and that are intended as a platform for future empirical research. We also discuss the implications of our theoretical framework for future theory development on the causes of organizational decline, and offer suggestions for managers who wish to avoid organizational decline.