Creating value in the face of declining performance: firm strategies and organizational recovery
Creating value in the face of declining performance: firm strategies and organizational recovery
Morrow J.L., Sirmon D.G., Hitt M.A., Holcomb T.R.Strategic Management Journal; March, 2007, Vol. 28 No. 3
Purpose – To examine the outcomes of strategic actions taken by firms that are failing to meet market expectations. Design/methodology/approach– Compares market reactions to different types of valuable and difficult-to-imitate actions such as new product introductions, mergers and acquisitions and strategic alliances. Suggests that the market recognizes and differentially rewards actions that are valuable and difficult to imitate relative to those that do not satisfy these criteria. Uses the resource-based view of the firm (RBV) to consider the effects of recombining existing resources, acquiring new resources and gaining access to new resources and considers hierarchical value strategies in a decline context. Analyses data from single-product manufacturing firms between 1982 and 1994 to evaluate the resulting hypotheses. Findings – Indicates that reversing declining market-based performance requires that firms’ actions are valuable or difficult-to-imitate. Shows that the introduction of new products or formation of strategic alliances that were judged not to be valuable and inimitable had no effect on performance. Adds that pursuing acquisitions regardless of their value and imitability further eroded market performance. Discusses the relative merits of and challenges associated with strategic actions to develop new combinations of existing resources or acquire new resources through acquisitions. Suggests that recombining resources to produce new products may produce the greatest gain. Research limitations/implications – Identifies boundary conditions for and contributes greater theoretical elaboration of the resource-based view of the firm. Originality/value – Provides a fine-grained application of prospect theory to firms with declining performance.
Keywords: Corporate strategy, Organizational performance, Resource allocation, Share prices
