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  • McGraw-Hill

    Crisis in the EuropeanAutomobile Industry:An Organizational AdaptationPerspective

    Gianpaolo Abatecola

    DSI Essays Series

    5

    cop5.qxd 3-03-2010 15:38 Pagina 1

  • University of Rome Tor VergataUniversit degli Studi di Roma Tor Vergata

    Department of Business Studies Dipartimento Studi sullImpresa (DSI)

    DSI Essays Series

  • Editor in ChiefRoberto Cafferata University of Rome Tor Vergata, Italy[[email protected]; [email protected]]

    Scientific Committee Alessandro Carretta University of Rome Tor Vergata, ItalyCorrado Cerruti University of Rome Tor Vergata, ItalySergio Cherubini University of Rome Tor Vergata, ItalyAlessandro Gaetano University of Rome Tor Vergata, ItalyClaudia Maria Golinelli University of Rome Tor Vergata, ItalyHans Hinterhuber University of Innsbruck, AustriaJoanna Ho University of California, Irvine, U.S.A.Anne Huff Technische Universitt Mnchen, GermanyMorten Huse - Norwegian School of Management BI, NorwayMarco Meneguzzo University of Rome Tor Vergata, ItalyPaola Paniccia University of Rome Tor Vergata, ItalyCosetta Pepe University of Rome Tor Vergata, ItalyHarald Plamper Zeppelin University in Friedrichshafen, GermanyFrancesco Ranalli University of Rome Tor Vergata, ItalySalvatore Sarcone University of Rome Tor Vergata, ItalyJohn Stanworth - University of Westminster, United KingdomJonathan Williams - Bangor Business School, United Kingdom

    Managing EditorsEmiliano Di Carlo University of Rome Tor Vergata, Italy[[email protected]]

    Sara Poggesi University of Rome Tor Vergata, Italy[[email protected]]

    Mario Risso University of Rome Tor Vergata, Italy[[email protected]]

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  • DSI Essays Series

    Gianpaolo Abatecola

    Crisis in the EuropeanAutomobile Industry:An Organizational AdaptationPerspective

    n. 5

    McGraw-Hill

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  • Crisis in the European Automobile Industry: An Organizational Adaptation Perspective

    Gianpaolo Abatecola1

    Abstract The paper explores the determinants of corporate crisis through an organiza-tional adaptation perspective. In this regard, a research framework recently developed by scholars is at first shown. It is then tested in the European auto-mobile industry through the analysis of the huge Fiat groups economic and financial crisis in the nineties. Empirical findings are drawn from public archi-val sources. The discussion of the main results and of the implications for fur-ther research on the crisis of firms follow.

    Among the different methodological and theoretical perspectives on the de-terminants of firms crisis developed by literature, the paper can help to en-force the scientific conciliation wished by scholars. JEL Classifications: L 11, L 22, L 25, M 10, M 16 Keywords: Adaptation, automobile, crisis, decline, failure, Fiat, niche, population ecology, top management team, turnaround.

    ________________ 1 Research Fellow of Business Management, University of Rome Tor Vergata, Faculty of Economics, Department of Business Studies.

  • Contents 1. Introduction 3 2. Theoretical background 4 3. The Fiat group in the Nineties 6 4. Analysis: environmental determinants 8 5. Ecological and strategic determinants: research methods 10 6. Hypotheses and results 13 7. Discussion and implications for further research 16 References 19 Tables and figures 22 Editorial notes Paper accepted for presentation at the V EIASM Workshop on International Strategy and Cross Cultural Management (Track 2: International Governance and Management Practices), Istanbul, 28-29 September 2007.

  • 1. Introduction The crisis of firms has always been an outstanding topic in management stud-ies. Nowadays, the scientific debate still concerns an effective identification and interpretation of the crisis factors, because of the heterogeneity of the re-search perspectives (e.g. economic, accounting, organizational, strategic, socio-logical and psychological).

    This paper explores the dynamics of corporate crisis through an organiza-tional adaptation perspective. In other terms, the crisis of firms will be deep-ened through the specific observations coming from those management theo-ries which study the competitive relationship between a firm and the external environment in terms of adaptation.

    At least in the last thirty years, the interpretation of the relationship between firms strategy and the environment has been prominent in literature. A num-ber of divergent theories have been developed by scholars and organizational adaptation studies have found a huge relevance in management and organiza-tion theory journals. The scientific debate, more deeply, concerns the role of the firms strategic choice and environmental determinism in defining ad-aptation (Astley, Van de Ven, 1983; Gopalakrishnan, Dugal, 1998; Lewin, Vol-berda, 1999; De Rond, Thietart, 2007).

    Environmental determinists argue that the firms decision makers are sub-stantially dependent on the external environment in planning a firms strategy. Decision makers, more deeply, are fundamentally reactive, sometimes inactive with regard to environmental pressures. In the second half of the twentieth century, this view has been expressed at least by the contingentists (Burns, Stalker, 1961; Lawrence, Lorsch, 1967, Pugh et al., 1968), the technological de-terminists (Woodward, 1965), the population ecologists (Hannan, Freeman, 1977, 1984) and the neo-institutionalists (Di Maggio, Powell, 1983).

    Strategic choice voluntarists oppositely argue that the decision makers are basically independent of the external environment. Their role, as a conse-quence, is fundamentally proactive in shaping the goal of a firm. In the second half of the twentieth century, this view has been expressed at least by the stra-tegic choice theory (Child, 1972, 1997), the resource dependence theory (Pfef-fer, Salancik, 1978), and the upper echelons theory (Hambrick, Mason, 1984). Moreover, determinists and voluntarists have not convergent views on the in-terpretation of the determinants of a firms crisis.

    Over the years, scholars have developed theoretical and empirical studies in which the dycotomy between determinism and voluntarism assumes more convergent configurations. Determinism and voluntarism, more deeply, are

  • 4 G. ABATECOLA

    thought as orthogonal variables and their relationship is changing. Firms, in other terms, can assume a strategic behaviour which is, depending on the case, proactive or reactive to the environmental pressures (Bourgeois III, 1984; Hrebiniak, Joyce, 1985; Pettigrew, 1987; Whittington, 1988; Papadakis, Liou-kas, Chambers, 1998; Cafferata, 2007).

    The paper is structured as follows. The theoretical background is firstly highlighted. In the organizational adaptation perspective, more deeply, a re-search framework on the determinants of a firms crisis, recently developed by scholars, is shown.

    The research framework is then tested in the European automobile industry through the analysis of the Fiat groups economic and financial crisis in the nineties. In this regard, empirical findings are drawn from public archival sources. The discussion of the main results and of the implications for further research on the crisis of firms follow.

    Among the different methodological and theoretical perspectives on the de-terminants of firms crisis developed by literature, the paper can help to en-force the scientific conciliation desired by scholars (Van Witteloostuijn, 1998). 2. Theoretical background Among organizational adaptation scholars, the determinists and voluntarists have not developed convergent interpretations of the determinants of a firms crisis. Determinists, for example, basically agree on the idea that, whenever a crisis occurs, external determinants are more relevant than internal ones. Vol-untarists oppositely argue that crises generally occur because the firms deci-sion makers set up ineffective competitive strategies in their task environment.

    In a recent study, Mellahi and Wilkinson (2004) argue that determinism and v