Vincent L. Barker

Investigations into management actions that reverse organizational decline have produced inconsistent findings. Prior studies have focused on the value of retrenchment actions versus strategic actions to engineer a performance turnaround. These studies, however, have generally not controlled for the cause of firm decline, overlooking a major theoretical contingency. Examining prepackaged software firms in the 1990s, we test the association of strategic and retrenchment actions in facilitating turnarounds in a munificent industry. The results show that measures of strategic actions—new product introductions, strategic alliances, and acquisitions—were positively associated with turnarounds. Conversely, measures of retrenchment actions—layoffs, asset reductions, and product withdrawals—were negatively associated with performance recovery. Our results suggest declining firms in munificent industries cannot retrench their way back to prosperity . Copyright © 2013 John Wiley & Sons, Ltd.

Purpose: To 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/approach: Reviews common problems that the author and other researchers have documented in their research examining how firms and organizations respond to poor performance.Findings: Shows how managers naturally have “blind spots” in perceiving and interpreting the sources of organizational problems.Originality/value: Provides 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.