Turnaround Management and Bankruptcy Law – lectures Y3
Lecture 1: Introduction to business failure, turnaround management and bankruptcy
What is (successful) turnaround management?
Turnaround management may be defined as the process of recovering a firm’s
economic performance following an existence-threatening decline.
The decline may occur over several years although there are situations when
extraordinary events occurring over a shorter period of time can place a firm in peril.
A turnaround may be defined as the recovery of a firm’s economic performance.
A successful recovery, in its most subdued form, may involve mere survival with
economic performance only just acceptable to the firm’s various stakeholders. On the
other hand, in its most positive form, the recovery may lead to the firm achieving
sustainable, superior competitive positions in its chosen areas of activity.
Deterministic view for business failure: external factors
Principle idea: when it comes to failure, the industry matters more than the firm.
Deterministic scholars agree that organizations are embedded in their environments and,
therefore, external factors have more explanatory power than firm level factors. That is,
failure is caused by external factors over which management has little or no control.
Also, organizational decisionmakers are assumed to be rational and committed to acting
in the firm’s best interest and, therefore, failure could not be caused by them alone.
The deterministic literature suggests a range of primary causes of organizational failure.
These include:
- Turbulent demand structure due to brand switching by core customers.
- Changes in consumer tastes.
- Cyclical decline in demand.
- Increased competition due to rivalry among existing competitors and or new
entrants.
- Technological uncertainty due to product innovations and or process innovations.
Voluntaristic view for business failure: internal factors
The voluntaristic perspective rejects the assumption that managers are powerless and/or
rational actors. Instead, it is predicated on the assumption that managers are the principal
decision makers of the firm, and their perceptions of the external environment and
individual behaviour have a strong effect on how they (mis)manage the firm(…)”.
Example of voluntaristic explanations
,Conceptual failure model of possible causes of bankruptcy
Failure as a process: 4 typologies
, The failure process of an unsuccessful start-up company.
The failure process of an ambitious growth company
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