SOFTWARE FIRM TURNAROUNDS IN THE 1990S: AN ANALYSIS OF REVERSING DECLINE IN A GROWING, DYNAMIC INDUSTRY

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 actionsnew product introductions, strategic alliances, and acquisitionswere positively associated with turnarounds. Conversely, measures of retrenchment actionslayoffs, asset reductions, and product withdrawalswere negatively associated with performance recovery. Our results suggest declining firms in munificent industries cannot retrench their way back to prosperity. Copyright (c) 2013 John Wiley & Sons, Ltd.