Personality, perceptions and retrenchment decisions of managers in response to decline: Evidence from a decision-making study

Drawing on the strategic leadership and leadership cognition literature, we develop a theoretical framework linking personal characteristics of strategic leaders with their perceptions of organizational decline and retrenchment activities. Our hypotheses are tested using a sample of 110 experienced MBA students in a scenario-based study. The findings of this exploratory study suggest that strategic leaders' perceptions of the severity of a firm's decline play an important role in the recommendation of extensive retrenchment activities in response to decline. However, perceptions of the severity of decline vary substantially across decision makers and are influenced by an individual's locus of strategic control, functional background and maturity. The study's findings that perceptions of decline and planned responses to decline vary substantially and predictably across individuals are discussed in light of existing theory and practice.