Schweizer, L., & Nienhaus, A. (2017). Corporate distress and turnaround: Integrating the literature and directing future research. Business Research, 10(1), 3–47. https://doi.org/10.1007/s40685-016-0041-8
Summary
In their 2017 article in Business Research, Lars Schweizer and Andreas Nienhaus tackle the messy world of corporate distress and turnaround—when a business is in deep trouble and fighting to survive. They pull together decades of research from fields like management, finance, economics, accounting, and sociology to figure out what works, what doesn’t, and where the gaps are. Unlike earlier studies that often split turnaround moves into just “retrenchment” (cutting back) and “recovery” (bouncing back), these authors dig deeper, offering a richer framework to understand the chaos of a failing firm.
The article starts with a history lesson: turnaround research kicked off in the 1970s and 1980s with pioneers like Altman (1968) and Bibeault (1982), spurred by events like the 1979 Bankruptcy Reform Act and the 1980s merger boom. These early works defined turnaround as a drop into distress followed by a climb back up. Typically, fixes were labeled as “operational” (e.g., cost-cutting) or “strategic” (e.g., refocusing the business). But Schweizer and Nienhaus argue this two-box approach is too simple—distressed firms face a wild mix of challenges that need a broader lens.
Their big idea is a framework with four types of turnaround moves: operational (e.g., tweaking processes, layoffs), managerial (e.g., swapping the CEO), portfolio (e.g., selling or buying assets), and financial (e.g., restructuring debt). They also look at the process (timing and stages like retrenchment vs. recovery), context (what caused the mess—internal screw-ups or external shocks?), and outcomes (how do we even measure success?). They reviewed 276 studies from 1992 to 2013, plus older classics, to map this out.
On operational moves, they find that quick fixes like layoffs or process tweaks can stop the bleeding but often don’t guarantee long-term survival—less than 10% of firms fully recover after bankruptcy with these alone. Context matters: layoffs work better in manufacturing than retail, and timing is key—early cuts beat late ones. Managerial changes, like firing the CEO, are tricky. Some say it shakes things up positively if done early; others argue it’s just scapegoating with no real impact unless the new leader fits the crisis. Portfolio moves—selling off parts of the business or investing in new ones—can refocus a firm, but overdoing it risks losing valuable assets cheap. Financial moves, like cutting debt or boosting liquidity, often have the fastest impact, though results vary by situation (e.g., renegotiating credit works better in a recession).
The process splits into retrenchment (emergency cost-cutting) and recovery (growth-focused moves). Retrenchment buys time but needs recovery to seal the deal—think of it as stabilizing a sinking ship before sailing again. Context is huge: internal causes (like bad management) need different fixes than external ones (like an industry crash). Firm size, ownership, and even regional laws shape what’s possible—big firms survive more but adapt slower, while U.S. bankruptcy rules differ from Japan’s, affecting outcomes.
Measuring success is a mess. Some studies use stock prices (market-based), others use profits (accounting-based), and both have flaws—markets overreact, profits can be fudged. The authors call for better metrics, maybe mixing numbers with softer stuff like reputation or patents. They also spot gaps: most research is U.S.-centric, ignores recovery phases, and doesn’t connect the dots between moves, timing, and context.
Their data shows publication spikes after crises (e.g., 1980s M&A wave, 2008 crash), hinting at a coming “high tide” of studies post-2008. They reviewed 1040 articles, narrowed to 276, from 25 top journals across five fields. Samples lean Anglo-American (154 U.S.-based studies), with an average lag of 7.62 years from crisis to publication. This broad sweep beats narrower reviews like Trahms et al. (2013), which stuck to 40 management articles.
For business owners, the takeaway is practical but nuanced: no one-size-fits-all fix exists. Cutting costs or swapping leaders might feel good, but without cash or a clear recovery plan, you’re just delaying the inevitable. Context—like your industry or country—flips the script on what works. The authors push for future research to test these moves together (e.g., how debt cuts pair with layoffs), use global data, and nail down success metrics. It’s a call to action for both scholars and practitioners to get smarter about saving dying firms.
10 Practical Insights for Business Owners and Managers
Here are 10 actionable insights drawn from Schweizer and Nienhaus’s research:
- Cut Costs Early, but Don’t Stop There: Slash expenses like staff or overhead fast when cash is tight—it buys you time. But don’t expect it to save you alone; only 1 in 10 firms fully recovers with just cuts.
- Cash Is Your Lifeline: Boost liquidity however you can—stretch payables, cut dividends, or renegotiate loans. Financial fixes like these often work faster than anything else to dodge bankruptcy.
- Think Twice Before Firing the Boss: Swapping the CEO might signal change, but it’s no magic bullet. Do it early if they’re the problem—late changes just waste time and morale.
- Sell Smart, Not Desperate: Offload unprofitable assets to refocus, but don’t dump your best stuff cheap—creditors might push you, but it can tank your recovery odds.
- Know Your Enemy: Figure out if your mess is internal (e.g., bad decisions) or external (e.g., industry slump). Internal fixes need control (e.g., process tweaks); external ones need adaptation (e.g., new markets).
- Time Your Moves Right: Act fast with cuts to stabilize, then shift to growth—like innovation or new investments—once you’re steady. Skipping recovery keeps you limping.
- Size Matters: If you’re small, you can pivot quicker but might lack cash reserves. Big firms survive more but get stuck in old ways—play to your strengths.
- Talk to Your People: Layoffs hurt reputation and morale, but involving staff in the plan (e.g., explaining why) keeps commitment up and eases the blow.
- Watch the Rules: Laws where you operate—like U.S. bankruptcy protection vs. Japan’s stricter codes—shape your options. Know them to avoid traps or seize chances.
- Measure What Counts: Don’t just trust profit sheets or stock jumps—both can lie. Track real signs of health, like cash flow or customer trust, to know if you’re truly turning around.
These insights mix the article’s data with common sense for folks running businesses. They’re about acting fast, prioritizing cash, and tailoring moves to your situation—not just copying what others do. Survival’s a grind, but the research shows it’s winnable with the right playbook.