Successful rebounds: how firms overcome their middle age crisis

This paper aims to examine technology-based firms that successfully turned around a decline in performance, to report what they did and what characterized the firms themselves, relating those actions and characteristics to effective rebounds.

The authors use published data, including financial data, to examine 59 successful rebounds, and then apply regression analyses to relate firm actions and characteristics to performance.

Strategic moves by these firms included layoffs, new products and new inter-company relationships. However, none of those actions predicted rebound success, either individually or in combination. Successful rebounds were associated only with smaller size and a deeper decline – from exceeding the industry performance median to falling far below it.

Technology firms may or may not represent all middle-aged companies in terms of authors’ implications, that a one-size-fits-all turnaround formula is unavailable.

Wise managers will therefore consider various scenarios to prepare for decline and test several if possible. Further, the finding that dramatic drops in performance are associated with successful rebounds should warn managers who think that a competitor’s major problems mean they will disappear; they may be likelier to rebound than a competitor experiencing only a mild performance decline.

Managers who think they have THE answer to decline can profit from the news that one cannot count on layoffs, on new products or on new relationships to turn around performance decline. And, the small-is-beautiful (for rebounds) result suggests rethinking the assumption that bigger is better and making organizational changes in large organizations to allow them to imitate the flexibility advantages that a smaller firm achieves.