Wittig crisis and turnaround in german medium sized enterprises; an integrated empirical study (2017)

Familienunternehmen und KMU

Thomas Wittig

Crisis and Turnaround
in German MediumSized Enterprises
An Integrated Empirical Study


Familienunternehmen und KMU
Edited by
A. Hack, Berne
A. Calabrò, Witten/Herdecke
H. Frank, Vienna
F. W. Kellermanns, Charlotte, Vallendar
T. Zellweger, St. Gallen


Both Family Firms and Small and Medium Sized Enterprises (SME) feature a
number of distinct behaviors and characteristics which could provide them with
a competitive advantage in the market but could also lead to certain risks. The scientific series at hand presents research which provides an empirical and theoretical
contribution to the investigation on these specific characteristics and their impact
on business practice. The overall aim of this series is to advance the development of
theory in the areas of family firm and SME management.

Edited by
Professor Dr. Andreas Hack
University of Berne
Professor Dr. Hermann Frank
Vienna University of Economics and
Business

Professor Dr. Thomas Zellweger
University of St. Gallen

Professor Dr. Andrea Calabrò
University of Witten/Herdecke
Professor Franz W. Kellermanns, Ph.D.
University of North Carolina, Charlotte
WHU – Otto Beisheim School of
­Management, Vallendar, Germany


Thomas Wittig

Crisis and Turnaround
in German MediumSized Enterprises
An Integrated Empirical Study
Foreword by Prof. Dr. Andreas Hack


Thomas Wittig
Witten, Germany
Dissertation Witten/Herdecke University, 2016

Familienunternehmen und KMU
ISBN 978-3-658-16385-3
ISBN 978-3-658-16386-0  (eBook)
DOI 10.1007/978-3-658-16386-0
Library of Congress Control Number: 2016956810
Springer Gabler
© Springer Fachmedien Wiesbaden GmbH 2017

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Foreword

V

Foreword
Confucius found errors to be a fruitful ground for experience, for identifying and implementing changes. We, thus, learn from our mistakes and, in extreme cases, from
failure. There is a reason an important part of psychological research looks into experiential learning.
In economic practice, companies make numerous mistakes every day without being
aware of them. Moreover, companies find themselves in financial trouble and are
forced to file for bankruptcy on a daily basis. Accordingly, one would think that economic literature encompasses countless studies investigating companies in crises in
order to derive practical recommendations from their failures. However, surprisingly,
there are very few theoretical / conceptional essays and even fewer empirically substantiated works. This is mainly due to the high complexity of the issue and the special challenges encountered when collecting data in this field.

Thomas Wittig is one of the first scientists in a long time to take up the challenge of
analyzing the topic of crisis management on the basis of empirical data. It is not an
exaggeration to say he not only accepted the challenge, he brilliantly mastered it.
This dissertation thesis specifically focuses on the elaboration of a comprehensive
and consistent conceptional crisis management model and its empirical validation.
Mr. Wittig particularly explains which turnaround measures lead to success for specific causes of crises and in specific critical situations. Moreover, the special situation of
family-owned companies and the influence of restructuring measures on the entrepreneurial family are described.
The theoretical relevance of the underlying research question is to be assessed as
very high, since the present research is probably unique in its multifacetedness and
completeness. The conceptional considerations and empirical statements have the
potential to exert a fundamental influence on crisis management research in years to
come. From the perspective of family company research, as a by-product, so to say,
the paper also provides important clues with regard to changes of ownership and
management structures in specific critical situations and crisis management. The un-


VI

Foreword

derlying database can also be described as unique and has the potential to lay the
foundation for crisis management research in the field of family-owned companies.
Groundbreaking works are expected to be based on interesting research questions,
solid theoretical foundations, and strong databases, but they should also provide
surprising results that shake up current beliefs and stimulate new ways of thinking.
Not many papers are able to fulfil these requirements, but Thomas Wittig’s thesis
has.
This dissertation thesis will dominate economic discussions on crises and crisis
management strategies (especially in family-owned companies) in years to come and
will inspire many theoretical and empirical projects. I am confident that selected findings from this thesis will find their way into the leading journals of our community. Of

equal importance is the fact that the explanations will be taken up by a broad general
readership as the practical implementation of the findings are certain to increase the
effectiveness of crisis management to a considerable extent. Thomas Wittig has rendered us a great service with this thesis.
Prof. Dr. Andreas Hack


Preface

VII

Preface
The compilation of this monograph has been both a challenge and a pleasure. The
topic of crisis and turnaround has been a highly relevant part of my professional life,
both as manager and consultant. While the companies I worked for did experience
other phases of the company lifecycle as well, the time of crisis and turnaround is,
although posing a high risk for the continuation of a company, a time of dynamic
changes and renewal of the corporate identity: The turnaround management includes
both drastic cuts into the corporate substance as well as the opportunity to change
the very character of an enterprise.
Conducting this study brought with it the opportunity to venture beyond the strategic
and operational management challenges in turnaround situations, to investigate the
underlying structure of the turnaround process in a depth that would be unfeasible
outside a dedicated scientific research project. It allowed me to challenge and review
my personal experience in the context of scientific evidence.
The accessibility of this monograph for practitioners is unfortunately obstructed by
the academic setup of such a work. Nonetheless, I am convinced that this study’s
results, which are based on a broad base of empirical evidence and an innovative
conceptual structure, can be of use in gaining additional insights into the crisis and
turnaround process. These insights can offer valuable guidance for the best performance of such a process.
Obviously, this study would not have been possible without the support of many people contributing in different ways to this study.

On the scientific side, I want to thank foremost my doctoral thesis supervisor Professor Dr. Andreas Hack, who is both a brilliant scientific mind and has been a reliable
and critical, but always constructive, advisor for this work. His professional guidance,
both in terms of how to conduct such a research and the empirical research methodology, was invaluable for me.
I want to thank the whole team of Professor Dr. Arist von Schlippe at the WIFU (Witten Institute for Family Business), including all internal and external PHD students. I
appreciated the warm welcome and especially the excellent discussions in the regu-


VIII

Preface

lar research colloquiums. Also, I want to thank Dr. Nils Kraiczy, who taught me the
nuts and bolts of conducting statistical analyses. Similarly of tremendous assistance
was Wilko Ufert, who invested extensive time in both literature acquisition and providing feedback and criticism on earlier drafts of this study. My thanks also go to Thomas Pichote, who shared an office with me during the whole time of this monograph’s
compilation, providing both support and company, but mostly firm friendship.
As this work did rely on the empirical data provided by German banks and their risk
managers, I want to thank those who made it possible to contact and discuss my research objective with them. Foremost, my dear friend Dr. Holmer Glietz, who not only
assisted me with his extensive contacts to the risk management departments of
German banks, but who was also an important discussion partner in relating the
practical side of turnaround management. Similarly, I want to thank Professor Dr.
Arist von Schlippe, Michael Wiendl, Dirk Schlarmann, Felix Schwabedal and Ralph
Rickassel for opening doors and establishing contacts to banks and their respective
heads of restructuring.
As the foundation of this study are the empirical contributions, I want to thank
Deutsche Bank, Commerzbank, DZ Bank and the German Savings Banks Association, but also all other banks that requested to remain anonymous, for the time and
effort invested in the assessment of cases for this study. Specifically, I want to thank
Hans-Helmut Weber, director of the credit restructuring of DZ bank, who made the
success of this study his own concern and helped promote this study among his
peers.
Further, I want to thank the restructuring experts that assisted in the evaluation and

discussion of the conceptual model: Alban Baiker, Holmer Glietz (as mentioned
above) and Felix Schwabedal, as well as the anonymous banks’ risk managers. They
helped to ensure that the scientifically founded conceptual model for crisis and turnaround adequately reflects the real world properties of the crisis and turnaround process.


Preface

IX

I want to express my gratitude to my parents, especially my mother Elisabeth Wittig,
for her continued support of my education and personal development. I want to conclude this preface by thanking my beloved wife Nicole, without whom and without her
role in my life this work would not have been possible. To her and to my daughters
Johanna und Maren I want to dedicate this book.
Thomas Wittig


Table of Contents

XI

Table of Contents
Foreword .................................................................................................................... V
Preface ..................................................................................................................... VII
List of figures .......................................................................................................... XVII
List of tables ............................................................................................................ XIX
List of abbreviations ................................................................................................. XXI
1

2

Introduction ...........................................................................................................1
1.1

Motivation ...................................................................................................... 1

1.2

Research questions and contributions........................................................... 4

1.3

Outline of study ............................................................................................. 7

Overview of literature and applicable theories .................................................... 11
2.1

Selected literature reviews .......................................................................... 11

2.1.1

The conceptual work of Pearce and Robbins (1993) ............................ 12

2.1.2

The survey of John (1993) .................................................................... 15

2.1.3

The meta-study by Pandit (2000) .......................................................... 16

2.1.4

The literature overview by Eichner (2010) ............................................ 17

2.1.5

The review by Trahms et al. (2013) ...................................................... 20

2.2

Selected empirical evidence ........................................................................ 22

2.2.1

The study by Sudarsanam and Lai (2001) ............................................ 23

2.2.2

The study by Eichner (2010) ................................................................. 26

2.2.3

The study by Hauschildt et al. (2006).................................................... 29

2.3

Introduction of selected applicable theories ................................................. 32

2.3.1

Contingency theory ............................................................................... 32

2.3.2

Principal-agent theory ........................................................................... 33

2.3.3

Resource-based view (RBV) ................................................................. 35

2.3.4

Theory of gestalts ................................................................................. 36


XII

Table of Contents

2.4

3

2.4.1

Definition of family firms ........................................................................ 37

2.4.2

Selected studies on family firms in crisis and turnaround ..................... 38

2.4.3

Introduction of selected applicable theories for family firms .................. 42

Theoretical framework......................................................................................... 47
3.1

Basic research context ................................................................................ 48

3.1.1

Five-stage crisis and restructuring model ............................................. 49

3.1.2

Specifics within the crisis and turnaround process in Germany ............ 51

3.1.3

Implications for the data collection process .......................................... 56

3.2

Crisis ........................................................................................................... 58

3.2.1

Definition of crisis and crisis stages ...................................................... 59

3.2.2

Crisis diagnosis ..................................................................................... 61

3.2.3

Crisis typology....................................................................................... 63

3.3

Turnaround management ............................................................................ 70

3.3.1

Turnaround plan.................................................................................... 71

3.3.2

Process of turnaround management ..................................................... 71

3.3.3

Content of turnaround management ..................................................... 73

3.4

Result of turnaround management .............................................................. 74

3.4.1

Company perspective ........................................................................... 75

3.4.2

Owner family perspective ...................................................................... 76

3.5

Internal and external context ....................................................................... 78

3.5.1

Internal context ..................................................................................... 79

3.5.2

External context .................................................................................... 80

3.6
4

Introduction to selected family firm research ............................................... 37

Summary ..................................................................................................... 80

Conceptual model ............................................................................................... 83
4.1

Research criticism and modeling approach ................................................. 85

Table of Contents

4.2

Homogeneity of the research sample .......................................................... 89

4.3

Model of the turnaround result – company perspective ............................... 92

4.4

Model of the crisis........................................................................................ 94

4.4.1

Operational crisis contribution factors (operational CCFs) .................... 95

4.4.2

Managerial crisis contribution factors (managerial CCFs) ................... 101

4.4.3

Portfolio crisis contribution factors (portfolio CCFs) ............................ 107

4.4.4

Financial crisis contribution factors (financial CCFs) ........................... 111

4.4.5

External crisis contribution factors (external CCFs) ............................ 113

4.4.6

Crisis context ...................................................................................... 117

4.4.7

Propositions for the model of crisis ..................................................... 120

4.5

Model of the turnaround management....................................................... 122

4.5.1

Operational restructuring moves ......................................................... 125

4.5.2

Managerial restructuring moves .......................................................... 134

4.5.3

Portfolio restructuring moves .............................................................. 137

4.5.4

Financial restructuring moves ............................................................. 142

4.5.5

Turnaround management context ....................................................... 150

4.5.6

Propositions for the model of turnaround management ...................... 153

4.6

5

XIII

Model of internal and external context ....................................................... 155

4.6.1

Internal context ................................................................................... 157

4.6.2

External context .................................................................................. 170

4.6.3

Proposition for the model of internal and external context .................. 171

4.7

Model of the turnaround result – owner family perspective ....................... 173

4.8

Variable operationalization ........................................................................ 174

4.9

Summary ................................................................................................... 176

Sampling and descriptive results ...................................................................... 179
5.1

Sample collection ...................................................................................... 179


XIV

Table of Contents

5.1.1

Key parameters of the sample collection process ............................... 179

5.1.2

Operational conduct of the sampling process ..................................... 181

5.1.3

Result of the sampling process ........................................................... 182

5.2

6

Results ...................................................................................................... 184

5.2.1

Descriptive statistics ........................................................................... 184

5.2.2

Correlations......................................................................................... 208

5.2.3

Model simplification............................................................................. 210

Analysis of the turnaround performance ........................................................... 213
6.1

Statistical methodology.............................................................................. 213

6.1.1

Introduction of the statistical approaches ............................................ 214

6.1.2

Statistical power and sample size ....................................................... 217

6.1.3

Bootstrapping as robust method ......................................................... 218

6.2

Model of moderating effects ...................................................................... 218

6.3

Approach I: Univariate regression ............................................................. 223

6.3.1

Univariate regression – crisis variables ............................................... 225

6.3.2

Univariate regression – turnaround management variables ................ 228

6.3.3

Univariate regression – context variables ........................................... 230

6.3.4

Regression of the moderation effects ................................................. 232

6.4

Approach II: Complete model .................................................................... 240

6.4.1

Methodology ....................................................................................... 240

6.4.2

Multicollinearity ................................................................................... 241

6.4.3

Results of the complete model ............................................................ 243

6.5

Approach III: Partial models ...................................................................... 245

6.5.1

Methodology ....................................................................................... 246

6.5.2

Results of the partial models ............................................................... 247

6.6

Approach IV: Simplified models ................................................................. 249


Table of Contents

6.6.1

Methodology ....................................................................................... 249

6.6.2

Stepwise regression ............................................................................ 250

6.6.3

Results of the simplified models.......................................................... 252

6.7

7

Discussion ................................................................................................. 254

6.7.1

Comparison of the modeling approaches ........................................... 254

6.7.2

Comprehensive discussion of the results per variable ........................ 257

6.7.3

Conclusion .......................................................................................... 266

Archetypes of crisis and archetypes of turnaround ........................................... 269
7.1

Clustering and segmentation in crisis and turnaround research ................ 270

7.1.1

Classification of crisis .......................................................................... 270

7.1.2

Classification of turnaround management ........................................... 272

7.2

8

XV

Statistical methodology.............................................................................. 273

7.2.1

Clustering variables ............................................................................ 274

7.2.2

Clustering algorithm ............................................................................ 275

7.2.3

Number of clusters .............................................................................. 276

7.2.4

Validating the clusters ......................................................................... 276

7.3

Cluster analysis of crisis characteristics .................................................... 277

7.4

Cluster analysis of turnaround management characteristics ..................... 284

7.5

Relations between crisis and turnaround clusters ..................................... 289

7.6

Discussion ................................................................................................. 291

Impact of turnaround on family ownership and control ...................................... 295
8.1

Definitions.................................................................................................. 298

8.2

Proposition development ........................................................................... 300

8.3

Statistical methodology.............................................................................. 304

8.4

Descriptive analysis of family role changes ............................................... 306

8.5

Univariate analysis of the family role change ............................................ 311


XVI

Table of Contents

8.5.1

Analysis of family ownership change .................................................. 311

8.5.2

Analysis of family control change ........................................................ 313

8.6

8.6.1

Crisis-cluster-specific family role change ............................................ 318

8.6.2

Turnaround-cluster-specific family role change .................................. 319

8.6.3

Combined effects of crisis and turnaround clusters ............................ 320

8.7
9

Crisis and turnaround archetypes and the family role change ................... 318

Discussion ................................................................................................. 324

Conclusions ...................................................................................................... 329
9.1

Summary of key findings ........................................................................... 329

9.2

Implications for managers, shareholders and stakeholders ....................... 336

9.2.1

Managers and shareholders ............................................................... 336

9.2.2

Family shareholders............................................................................ 338

9.2.3

Stakeholders, especially banks ........................................................... 339

9.3

Implications for future research ................................................................. 339

9.4

Limitations ................................................................................................. 341

Appendix 1 – list of restructuring specialists ............................................................ 343
Appendix 2 – questionnaire ..................................................................................... 345
Appendix 3 – correlation tables ............................................................................... 361
References .............................................................................................................. 393

List of figures

XVII

List of figures
Figure 1: Elements and relations in the crisis and turnaround situation. ..................... 5
Figure 2: Chapter structure. ...................................................................................... 10
Figure 3: Pearce and Robbins’ turnaround process model. ...................................... 14
Figure 4: Alternative theoretical perspectives and their relevancy for this study. ...... 20
Figure 5: Trahms’ model of organizational decline and turnaround. ......................... 22
Figure 6: Model design used in the study of Sudarsanam and Lai (2001). ............... 24
Figure 7: Model design used in the study of Eichner (2010). .................................... 27
Figure 8: Model design used in the study of Hauschildt et al. (2006). ...................... 30
Figure 9: Basic three stage turnaround model. ......................................................... 48
Figure 10: Five stage turnaround model. .................................................................. 51
Figure 11: Company and bank perspectives on crisis and turnaround process. ....... 56
Figure 12: Stage models of crisis severity and perception. ...................................... 61
Figure 13: Framework development – crisis. ............................................................ 69
Figure 14: Framework development – turnaround management. ............................. 74
Figure 15: Framework development – turnaround result. ......................................... 78
Figure 16: Framework development – complete framework. .................................... 81
Figure 17: Conceptual model structure derived from theoretical framework. ............ 84
Figure 18: Iterative conceptual model design process – bottom-up research review
and evaluation. ......................................................................................................... 88
Figure 19: Model of the crisis.................................................................................... 94
Figure 20: Conceptual model structure – crisis propositions. ................................. 122
Figure 21: Model of the turnaround management. .................................................. 124
Figure 22: Conceptual model structure – turnaround management propositions. .. 155

Figure 23: Model of the internal and external context. ............................................ 157
Figure 24: Conceptual model structure – context propositions. .............................. 172
Figure 25: Model of the turnaround result. .............................................................. 173
Figure 26: Conceptual model with relevant propositions for this study. .................. 177
Figure 27: Sample characteristics. ......................................................................... 184
Figure 28: Mean comparison for crisis characteristics. ........................................... 191
Figure 29: Mean comparison for turnaround management. .................................... 197
Figure 30: Distribution of context variables in sample – part I. ............................... 203


XVIII

List of figures

Figure 31: Distribution of context variables in sample – part II. .............................. 204
Figure 32: Distribution of the result variables in sample. ........................................ 207
Figure 33: Overview of the statistical approaches in chapter 6............................... 217
Figure 34: Moderation. ........................................................................................... 219
Figure 35: Univariate regression effect strenght – result overview . ....................... 232
Figure 36: Overview of chapter structure (chapter 7). ............................................ 270
Figure 37: Conduct of cluster analysis. ................................................................... 274
Figure 38: Change of agglomeration coefficient depending on the number of crisis
clusters. .................................................................................................................. 278
Figure 39: Crisis cluster characterization. ............................................................... 283
Figure 40: Change of agglomeration coefficient depending on the number of
turnaround clusters. ................................................................................................ 285
Figure 41: Turnaround cluster characterization. ..................................................... 288
Figure 42: Structure of the combination of crisis and turnaround archetypes. ........ 290
Figure 43: Overview of chapter structure (chapter 8). ............................................ 298
Figure 44: Family role change propositions. ........................................................... 304

Figure 45: Changes in family role. .......................................................................... 309


List of tables

XIX

List of tables
Table 1: Variable coding of the crisis variables. ...................................................... 186
Table 2: Descriptive statistics of the crisis variables. .............................................. 190
Table 3: Variable coding of the turnaround management variables. ....................... 192
Table 4: Descriptive statistics of the turnaround management variables. ............... 196
Table 5: Variable coding of the context variables. .................................................. 200
Table 6: Descriptive statistics of the context variables. .......................................... 202
Table 7: Variable coding of the turnaround result variables. ................................... 205
Table 8: Descriptive statistics of the turnaround result variables. ........................... 207
Table 9: Overview of moderate to high correlations. .............................................. 208
Table 10: Selected moderation effects – considered in this study. ......................... 222
Table 11: Univariate regression of crisis variables. ................................................ 225
Table 12: Univariate regression of turnaround management variables. ................. 228
Table 13: Univariate regression of internal and external context variables. ............ 230
Table 14: Regression of the moderation terms. ...................................................... 234
Table 15: Illustrative CEO related moderation scenarios. ....................................... 238
Table 16: Complete model regression. ................................................................... 244
Table 17: Partial model regression. ........................................................................ 248
Table 18: Simplified model regression. ................................................................... 253
Table 19: Overview of the different regression approaches. .................................. 255
Table 20: Variable overview for different regression approaches. .......................... 258
Table 21: Variable assessment based on multiple regression analyses. ................ 266
Table 22: Crisis cluster profiles............................................................................... 280

Table 23: Performance per crisis cluster. ............................................................... 283
Table 24: F-values of crisis clusters. ...................................................................... 284
Table 25: Turnaround cluster profiles. .................................................................... 286
Table 26: Performance per turnaround cluster. ...................................................... 288
Table 27: F-values of turnaround clusters. ............................................................. 289
Table 28: Case distribution on turnaround clusters per crisis cluster ...................... 291
Table 29: Performance of turnaround cluster per crisis cluster............................... 291
Table 30: Variable coding of the family role change variables. ............................... 305


XX

List of tables

Table 31: Family shareholding before and after crisis. ........................................... 307
Table 32: Family control before and after crisis. ..................................................... 308
Table 33: Significance of family role change. ......................................................... 310
Table 34: Correlation between family role change variables. ................................. 310
Table 35: Univariate regression of family ownership change.................................. 312
Table 36: Univariate regression of family control change. ...................................... 314
Table 37: Family role change per crisis cluster....................................................... 319
Table 38: Family role change per turnaround cluster ............................................. 320
Table 39: Case distribution on turnaround clusters per crisis cluster. ..................... 321
Table 40: Performance of turnaround clusters per crisis cluster. ............................ 322
Table 41: Variable assessment based on multiple regression analyses. ................ 333


List of abbreviations

XXI

List of abbreviations
Adj.

adjusted

ANOVA

analysis of variance

BaFin

German Federal Financial Supervisory Authority

beta

regression coefficient

BGH

German Federal Supreme Court

CAPEX

capital expenditure

CCF

crisis contribution factors

CEO

chief executive officer

COX regression

proportional hazards model by Sir David Cox

CRO

chief restructuring officer

Cronbach’s α

Cronbach's alpha

e.g.

for example (exempli gratia)

EOC

escalation of commitment

EPV

events per variable

et al.

et alii

etc.

et cetera

EUR

Euros (€)

F-value

cluster homogeneity measure

fin.

financial

GBP

Great Britain Pound

GNP

gross national product

HR

human resource

i.e.

that is (id est)

IDW

institute of public auditors in Germany

IDW S6

Requirements for the compilation of
restructuring opinions published by the IDW

InsO

insolvency statute (federal German law)

KMO

Kaiser-Meyer-Olkin measure

KPI

key performance indicator

m

million

M&A

mergers and acquisitions


XXII

List of abbreviations

manag.

managerial

MaRisk

minimum requirements for risk management

Max.

maximum

McFadden R²

McFadden’s pseudo coefficient of determination

N

sample size

n.s.

not significant

n/a

not applicable

oper.

operational

opt.

optional

p

probability

P&L

profit and loss

p.

page

part.

partial

port.

portfolio

poss.

possibly

R&D

research and development

R²

coefficient of determination

RBV

resource-based view

ROI

return on investment

SD

standard deviation

seg.

segment

SEW

socioemotional wealth

Sign.

significance

simpl.

simplified

stand.

standardized

TMT

top management team

t-stat.

t-statistic

UK

United Kingdom

US

United States of America

USD

US Dollars

VIF

variance inflation factor

vs.

versus


Introduction

1

1 Introduction
1.1 Motivation
A company crisis threatens the future existence of a firm (Arogyaswamy et al., 1995;
Hauschildt et al., 2006; Pandit, 2000; Slatter, 1984; Trahms et al., 2013; Witte, 1981).
Yet unfortunately, company crises occur frequently (Arogyaswamy et al., 1995;
Bibeault, 1982; Hambrick & Schecter, 1983; Schendel et al., 1976; Slatter, 1984;
Sudarsanam & Lai, 2001). Trahms et al. (2013) found 50% of the S&P 500 firms experience a decline in a five-year period. Buschmann (2006) found one out of four
firms in crisis within a ten-year period. Eichner (2010) found 30% of the companies in
his UK, US and German sample in distress within 6 years. Company crises are not

solely dependent on macroeconomic conditions, indicated by the fact that these also
occur in growing industries. A recent study found over 15% of all researched software firms in decline in the boom period from 1990 to 1996 (Ndofor et al., 2013).
While the occurrence of crisis is common, the recovery from crisis is far from certain.
The empirically observed recovery rates range from 57% to 72% (Buschmann, 2006;
Eichner, 2010; Jostarndt, 2007; Sudarsanam & Lai, 2001).
In a nutshell:


Company crises endanger the existence of a firm.



Company crises are common.



Company crises have poor survival rates.

Consequently, the research on how to reverse a crisis and enhance the possibility of
recovery, turnaround research (similarly defined e.g., by Cater & Schwab, 2008;
Chowdhury & Lang, 1993; Eichner, 2010; Harrigan & Porter, 1983; Pearce &
Robbins, 1993; Pearson & Clair, 1998), is in my opinion one of the most relevant and
interesting subjects in economics.
While the first publications in this research stream mainly addressed the topic of
bankruptcy prediction (e.g., Altman, 1968), the focus has shifted to the reversal of
crisis, the turnaround, i.e., finding the correct strategies and activities to manage the
crisis and allow the recovery of the company.

© Springer Fachmedien Wiesbaden GmbH 2017
T. Wittig, Crisis and Turnaround in German Medium-Sized

Enterprises, Familienunternehmen und KMU,
DOI 10.1007/978-3-658-16386-0_1


2

Introduction

Despite the fact that the understanding of crisis and turnaround has significantly improved since the early days of research in the 1960s, the results up until today have
not been satisfying. I want to highlight three specific concerns as the cornerstones of
my motivation and the starting point for the research questions of this study:


Missing relevancy and consistency



Missing integration



Focus on large publicly-traded companies
Missing relevancy

The practitioners’ perception of the research stream can be illustrated by quoting
Winn (1993; p. 48), who stated: “While companies facing near-bankruptcy, market
losses, or substandard performance are increasing in frequency, strategy researchers have provided little help for the managers charged with turning around deteriorating performance.” Unfortunately, this statement, made over 20 years ago, was
essentially reconfirmed, albeit with more considerate words by Trahms et al. (2013;
p. 1297), stating that: “Indeed, what we do not know or what is currently understudied
far outweighs what is known about decline and turnaround.” In reviewing the empirical and conceptual contributions concerning crisis and turnaround management

characteristics, the amount of contradicting empirical and conceptual findings for
many variables, especially concerning the correct measures in turnaround, is irritating (for an overview, cf. chapter 4). To sum up, it can be established that evidence in
turnaround research is highly inconsistent (Cater & Schwab, 2008; Eichner, 2010;
Faghfouri, 2013; Pandit, 2000; Trahms et al., 2013) and much of the variance is unexplained (Eichner, 2010; Sudarsanam & Lai, 2001).
Missing integration
The turnaround situation is complex. Common approaches struggle to adequately
reflect these complexities (Arogyaswamy et al., 1995). A specific weakness is the
inadequate integration of all the relevant aspects of the crisis and turnaround process
(Liou & Smith, 2006; Pandit, 2000; Pearce & Robbins, 1993). There is both a lack of
integration between the research of company crisis and turnaround research
(Trahms et al., 2013), and a general neglect of the context of turnaround, as it re-


Introduction

3

mains “largely ignored” (Pandit, 2000; p.42). While research has shown, for many
variables individually, that they do have an impact on the turnaround result, there has
been up until now no integrated turnaround model with a reasonable level of complexity, which integrates all relevant elements from crisis, turnaround actions and
context.
This neglect is surprising, insofar as most turnaround publications draw heavily upon
the contingency theory (see section 2.1.4). One of the essential assumptions of the
contingency theory is the insight that any strategy is contingent on the situation it is
applied to (see section 2.3.1).
The focus on large publicly-traded companies
The focus on large publicly-traded companies (Cater & Schwab, 2008; Faghfouri,
2013) might have its reasons (e.g., the availability of company data), but implicitly,
this research approach ignores the largest part of the economy. According to
Günterberg (2012), companies with a turnover below EUR 50m accounted for 99.7%

of all companies, 60.8% of the employees and 39.1% of the total turnover in Germany in 2009. Depending on the respective definition, 55% – 70% of these companies
are family firms (Klein, 2000). But the turnaround research specifically focused on
family firms is very limited (see section 2.4.2). The few studies published have shown
that there are significant differences between publicly-traded companies and family
firms, but their findings have been largely disregarded by mainstream turnaround research.
Because medical analogies have a long tradition in turnaround research (Eichner,
2010; Faghfouri, 2013; Pearce & Robbins, 1993; Schendel et al., 1976; Sudarsanam
& Lai, 2001), I want to illustrate my perception of the research situation in many studies by using a medical analogy.
Imagine a medical study conducted for a group of patients without assessing their
symptoms (crisis characteristics), age, gender and background (context) and characterizing all possible treatments with a single digit number of general options (turnaround actions). Now imagine this study being done only for female patients living in
the Berlin area (large publicly-traded companies), but the results being generalized