A Virtual Special Issue edited by Matthias Wenzel, Sarah Stanske, and Marvin Lieberman

Currently, the pandemic crisis is affecting the lives of people and organizations around the world. As the coronavirus continues to spread, more and more governments are implementing strong measures to save people’s lives, such as the prohibition of events, lockdowns, and shutdowns. These measures contribute to slowing down the spread of the coronavirus in order to avoid lethal capacity overloads of national healthcare systems. At the same time, they threaten the survival of firms across all sectors and industries at a global scale—with potentially devastating individual, societal, and economic outcomes, such as massive job losses and social precarity. Therefore, the corona crisis raises important questions about how firms can respond effectively to crises such as the current pandemic.

In this Virtual Special Issue, we gather and discuss key articles published in the journals of the Strategic Management Society (SMS) that shed light on how firms respond to crisis. Our overview focuses on 13 articles that substantially inform our understanding of this issue.

Based on our overview, we identity four strategic responses to crisis: retrenchment, persevering, innovating, and exit. Retrenchment refers to cost-cutting measures that potentially reduce the scope of a firm’s business activities. Persevering relates to the preservation of the status quo of a firm’s business activities in times of crisis, e.g., through debt financing and the consumption of available slack resources. Innovating refers to conducting strategic renewal in response to crisis. Exit refers to the deliberate discontinuation of a firm’s business activities.

This virtual special issue extends understanding of strategic responses to crisis for both strategy scholars and practitioners. The main contribution of this Virtual Special Issue to strategy research is to make sense of the burgeoning work on strategic responses to crisis by developing a taxonomy, one that surfaces “time horizon” as an important dimension when considering the value of such responses. This taxonomy opens up promising directions for future research, especially on the temporal dynamics of responding to crisis in time as well as shifts between strategic responses to crisis over time.

For managers, this Virtual Special Issue raises awareness of the variety of potential responses that managers have available. It also raises doubts concerning the effectiveness of retrenchment as a common but rarely effective strategic response, especially when crises last longer. Importantly, this Virtual Special Issue also includes exit as a strategic response to crisis. As this virtual special issue highlights, an exit may not be the end of the road, as often assumed, but the starting point of a new venture, one that is able to do justice to the changed business conditions that the crisis has created.

Read the Details Here

Introduction to the Virtual Special Issue

Papers included in the Virtual Special Issue

Chakrabarti, A. (2015). Organizational adaptation in an economic shock: The role of growth reconfiguration. Strategic Management Journal.

DOI: 10.1002/smj.2309

Abstract: Studies suggest that firms navigating an economic shock can adapt and improve performance by targeting perceived growth opportunities. A puzzle, however, is that an economic shock increases environmental uncertainty and therefore the risk associated with growth reconfiguration. This study finds that growth reduced performance and increased the risk of firm failure during the Asian economic shock of 1997. Growing firms differed in the extent to which they were able to mitigate the constraints imposed by the shock. However, the presence of developed external institutions played a more systematic role in their adaptation than did organizational resources represented by financial slack or product diversification. The deliberate attempt to reconfigure augmented the adverse effect of the economic shock on firm performance and survival.

Cuervo-Cazurra, A., Doz, Y., & Gaur, A. (2020). Skepticism of globalization and global strategy: Increasing regulations and countervailing strategies. Global Strategy Journal.

DOI: 10.1002/gsj.1374

Abstract: We analyze how skepticism of globalization, the socially constructed vulnerability that emanates from global interdependencies, affects global strategy. We argue that inequality, identity, and influence drive this skepticism and propose that the increase in rhetoric against globalization and for new regulations do not seem to result in significant reductions in cross‐border economic flows. We explain this discrepancy by proposing that multinationals’ strategies counteract the impact of politicians’ regulatory reactions to the skepticism of globalization. Specifically, we propose that firms increase flexibility in global value chains in response to skepticism of cross‐border trade, rework the localization of global operations to deal with skepticism of cross‐border investment, use lobbying in global finance to address skepticism of cross‐border finance, nativize the global workforce in reaction to skepticisms of cross‐border labor, and protect global knowledge to solve the skepticisms of cross‐border knowledge flows.

Dai, L., Eden, L., & Bemish, P. W. (2017). Caught in the crossfire: Dimensions of vulnerability and foreign multinationals’ exit from war‐afflicted countries. Strategic Management Journal.

DOI: 10.1002/smj.2599

Abstract: When war occurs in a country, some foreign multinational enterprises (MNEs) stay on, while others flee. We argue that MNE responses to external threats depend on the firm’s vulnerability, which we decompose into exposure (proximity to threat), at‐risk resources (potential for loss), and resilience (capacity for coping). We test the independent and interactive effects of these dimensions using a geo‐referenced sample of 1,162 MNE subsidiaries in 20 war‐afflicted countries between 1987 and 2006. We find that highly valuable resources can become liabilities when exposed to harm, and the best way to cope with external threats may be to exit. Our findings extend the resource‐based view and real options theory by demonstrating the bounded value of resources and options in the face of environmental contingencies.

De Carolis, D. M., Yang, Y., Deeds, D. L., & Nelling, E. (2009). Weathering the storm: the benefit of resources to high‐technology ventures navigating adverse events. Strategic Entrepreneurship Journal.

DOI: 10.1002/sej.68

Abstract: Technology ventures must often navigate through difficult times during their existence. In the entrepreneurship literature, however, relatively little research explores the question of how ventures weather the more acute adverse event. Analogous to captains who prepare their vessels for tumultuous waters, entrepreneurs establish the organizational characteristics to enable the survival of the initial shock of an adverse event. Thus, in this article we address the research question of what firm characteristics mitigate the impact of an adverse event based on the resource‐based perspective and organizational slack literature. Our findings point to the importance of building capabilities to enable a venture to navigate difficult times.

de Figueiredo, R. J. P., Feldman, E. R., & Rawley, E. (2019). The costs of refocusing: Evidence from hedge fund closures during the financial crisis. Strategic Management Journal.

DOI: 10.1002/smj.3026

Abstract: This paper investigates the costs of corporate scope reduction (“refocusing”). Using data on hedge fund firms that were quasi‐exogenously driven to close funds during the 2007–2009 financial crisis, we find evidence that refocusing imposes meaningful economic costs on firms. To better understand the mechanisms behind this result, we disaggregate refocusing costs along two dimensions: the degree of relatedness between the business that was closed and its sister divisions, and the duration of time over which the costs persist. The results suggest that refocusing imposes meaningful, yet transitory, adjustment costs on firms, and destroys synergies when related businesses are closed, creating more persistent costs. Accordingly, our work contributes to the corporate strategy literature by characterizing and evaluating the costs of refocusing.

Dowell, G. W. S., Shackell, M. B., & Stuart, N. V. (2011). Boards, CEOs, and surviving a financial crisis: Evidence from the internet shakeout. Strategic Management Journal.

DOI: 10.1002/smj.923

Abstract: We examine whether corporate governance matters more for firms facing financial distress. We theorize that financial crisis changes the relative costs and benefits of governance mechanisms and that more independent and smaller boards become more valuable in distressed firms. We further hypothesize that CEO power becomes increasingly beneficial as concentrated power allows the firm to respond more rapidly to the crisis. Event‐history analysis of the failure of publicly traded Internet firms over the period 2000–2002 confirms our hypotheses. Our results suggest that the association between governance and survival depends on firm and environmental context and that one‐size‐fits‐all prescriptions for governance mechanisms are therefore likely to be ineffective.

Gartenberg, C., & Pierce, L. (2017). Subprime governance: Agency costs in vertically integrated banks and the 2008 mortgage crisis. Strategic Management Journal.

DOI: 10.1002/smj.2481

Abstract: This study uses the 2008 mortgage crisis to demonstrate how the relationship between vertical integration and performance crucially depends on corporate governance. Prior research has argued that the vertical integration of mortgage origination and securitization aligned divisional incentives and improved lending quality. We show that vertical integration improved loan performance only in those firms with strong corporate governance and that this performance‐integration relationship strongly decreases and actually reverses as governance quality decreases. We interpret these findings as suggesting that the additional control afforded by vertical integration can, in the hands of poorly monitored managers, offset gains from aligned divisional incentives. These findings support the view that corporate governance influences the strategic outcomes of a firm, in our case, by influencing the effectiveness of boundary decisions.

Helfat, C. E. (1997). Know‐how and asset complementarity and dynamic capability accumulation: The case of r&d. Strategic Management Journal.

DOI: 10.1002/(SICI)1097-0266(199705)18:5<339::AID-SMJ883>3.0.CO;2-7

Abstract: Dynamic capabilities enable firms to create new products and processes and respond to changing market conditions. This empirical investigation of dynamic R&D capabilities deals with the role of complementary know‐how and other assets in the context of changing conditions in the U.S. petroleum industry during the 1970s and early 1980s. The analysis suggests that, in response to rising oil prices, firms with larger amounts of complementary technological knowledge and physical assets also undertook larger amounts of R&D on coal conversion (a synthetic fuels process).

Li, S., & Tallman, S. (2011). MNC strategies, exogenous shocks, and performance outcomes. Strategic Management Journal.

DOI: 10.1002/smj.918

Abstract: This paper examines the effect of international diversification on multinational corporation (MNC) performance in the face of exogenous shocks in the global business environment, and the extent to which MNCs’ internationalization aids or impedes post‐shock performance. We use the September 11, 2001 attacks as a research setting to investigate the relationship between international diversification and MNC performance after a sudden change in the environment. The empirical tests on a sample of 191 U.S. MNCs and a matched sample of non‐U.S. MNCs indicate that the level of pre‐September 11 international diversification is negatively correlated with immediate cumulative abnormal returns to shares, but positively correlated with longer‐term performance. 

Lim, E. N.-K., Das, S. S., & Das, A. (2009). Diversification strategy, capital structure, and the Asian financial crisis (1997–1998): Evidence from Singapore firms. Strategic Management Journal.

DOI: 10.1002/smj.752

Abstract: We use agency theory to predict the influence of related and unrelated product diversification on a firm’s level of debt financing. Further, we argue that the link between diversification and capital structure is moderated by the environment in which firms operate. Using SAS PROC MIXED, we fit a mixed‐effects model to our unique six‐year longitudinal dataset (1995–2000) of 245 publicly listed Singapore firms. Our data spans the period of the Asian Financial Crisis (1997–1998). We find that firms pursuing unrelated product diversification take on less debt financing in stable environments, but more debt financing in dynamic environments. Using longitudinal structural equation modeling, we find a reciprocal relationship between a firm’s product diversification strategy and its debt financing level.

Oh, C. H., & Oetzel, J. (2011). Multinationals’ response to major disasters: how does subsidiary investment vary in response to the type of disaster and the quality of country governance? Strategic Management Journal.

DOI: 10.1002/smj.904

Abstract: We investigate the response of multinational corporations (MNCs) to major disasters at the subsidiary level. We examine the type and severity of the disaster and whether and how country governance moderates the relationship between exogenous disaster risk and subsidiary investment. We test our hypotheses with a panel dataset of 71 large European MNCs and their subsidiaries (2001–2006) with 31,285 total observations. Findings suggest that the number of a firm’s foreign subsidiaries is likely to decrease in response to terrorist attacks or technological disasters but not natural disasters, regardless of the severity of the event. For terrorist activities, MNC subsidiary‐level disinvestment is less likely when the quality of host country governance is higher.

Reymen, I. M. M. J., Andries, P., Berends, H., Mauer, R., Stephan, U., & van Burg, E. (2015). Understanding dynamics of strategic decision making in venture creation: A process study of effectuation and causation. Strategic Entrepreneurship Journal.

DOI: 10.1002/sej.1201

Abstract: This study draws upon effectuation and causation as examples of planning‐based and flexible decision‐making logics and investigates dynamics in the use of both logics. The study applies a longitudinal process research approach to investigate strategic decision making in new venture creation over time. Combining qualitative and quantitative methods, we analyze 385 decision events across nine technology‐based ventures. Our observations suggest a hybrid perspective on strategic decision making, demonstrating how effectuation and causation logics are combined and how entrepreneurs’ emphasis on these logics shifts and re‐shifts over time. We induce a dynamic model that extends the literature on strategic decision making in venture creation.

Wan, W. P., & Yiu, D. W. (2009). From crisis to opportunity: Environmental jolt, corporate acquisitions, and firm performance. Strategic Management Journal.

DOI: 10.1002/smj.744

Abstract: This study incorporates the external environmental context into the study of corporate acquisitions by examining the performance implications of corporate acquisitions during an environmental jolt that alters the levels of environmental munificence. We posit that compared to the periods before and after an environmental jolt, corporate acquisitions during a jolt would be positively related to firm performance. Furthermore, we suggest that organizational slack would improve firm performance and accentuate the positive relationship between corporate acquisitions and firm performance during an environmental jolt; however, it would have negative impact on firm performance and make the acquisition‐performance relationship more negative before and after a jolt. Using the Asian Economic Crisis as a natural experiment, we found general support for our core arguments based on a sample of firms from Hong Kong and Singapore. Our work demonstrates that firms can capitalize on the opportunities created by the changes in an environmental jolt.