Turnaround and Failure:

Resource Weaknesses and the Rise and Fall of Jarvis

Dr Andrew Wild
Nottingham University Business School
The University of Nottingham
Jubilee Campus
Nottingham
NG8 1BB
Andrew.Wild@nottingham.ac.uk

Professor Andy Lockett

Warwick Business School
University of Warwick
Coventry
CV4 7AL
Andy.Lockett@wbs.ac.uk

Abstract

Research employing the resource-based view (RBV) has overwhelmingly focused on the upside of
resources, namely those that provide benefits to the firm. However, an emerging research stream
suggests that the downside of resources, namely resource weaknesses, may be crucial in gaining a
greater understanding of the key factors that contribute to firm performance and the ability to turn
around failing companies. We examine the infamous case of Jarvis, a firm that achieved a
turnaround, but then experienced catastrophic failure. In so doing we explore the emergence of
resource weaknesses, their nature and ability to combine to create a fatal organisational outcome.

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 Turnaround and Failure:

Resource Weaknesses and the Rise and Fall of Jarvis

Introduction

The quest to find the actions needed to turnaround a failing firm has progressed slowly and

with little success. After more than twenty years since Pearce and Robbin’s review of the

turnaround literature, what we know about decline and turnaround is far outweighed by

what is unknown and understudied.1 In particular, little theoretical headway has been

made, although a resource-based focus has been highlighted as having potential in this

regard.2 Turnaround research in the business history literature has tended to focus on the

decline and rise of particular industries, with business evolution, rather than business

revolution being prominent.3 Whilst evolutionary incrementalism is an important aspect of

the corporate landscape, so too are events of a more rapid, discontinuous nature, with

turnarounds providing valuable microcosms to examine such cases of dramatic change.4 We

find the current scenario unfortunate as the skills that business historians can bring to the

study of business turnarounds, encompassing a depth of analysis, contextual understanding,

and an appreciation of change in the long-run, are exactly the type of attributes lacking in

turnaround research.

Despite the use of historical case studies being noticeably absent in many areas of

management research, in recent years a number of studies in the business history literature

have sought to develop strategy (and management) theory through the use of cases.5

Included within this group are a number of articles employing the resource-based view of

the firm (henceforth RBV).6 To date the overwhelming focus of RBV research has been on

the set of factors that provide benefit to the firm, particularly those that may result in a

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sustainable competitive advantage. In relation to turnarounds, contributions made by

scholars of the small number of resource-based studies have centred on the acquisition of

new capabilities or the redeployment of existing resources in-order to create resource

strengths that can elevate firm performance. 7 Turnarounds frequently involve the

installation of new management, who are not entangled in the current practices of the firm,

and therefore, may sometimes perceive alternative ways in which to utilise existing

resources.8

Scholars have recently employed the RBV to explore the positive contribution of

resources to firm performance with respect to turnarounds.9 The singular focus on the

upside of resources, however, underplays the potential contribution the RBV can make to

the study of turnarounds. Firm performance is dependant not just on positions of strength,

but also weaknesses, and it is the interaction between these opposing factors that influence

organizational outcomes.10 The small number of papers relating to the influence of resource

weaknesses on firm performance have primarily been conceptual in nature, which we find

surprising given the potential relevance of the concept of resources weaknesses to assist

our understanding of turnarounds. 11 Relatedly, Trahms et al. argue that investigation into

resources that detract from a firm’s ability to generate rent may be crucial in understanding

limitations to the ability of a firm to turnaround. Furthermore, Trahms et al. argue that in

order to understand more about corporate turnaround, fine-grained analysis is required

that not only examines instances of sustained turnaround, but also cases where the final

outcome is one of failure, with the firm being forced to cease trading.12

To address this research gap we explore the characteristics of resource weaknesses that

may hinder and prevent a sustained turnaround, ultimately leading to business demise,

through a longitudinal case study of Jarvis. In so doing, we build on the work of West and

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DeCastro, who highlight the nature of resource weaknesses and inadequacies, but call for

future developmental work, believing that the idiosyncratic nature of weaknesses and their

evolution over time requires rich case studies and longitudinal research in order to help

explore the origins and categories of resource weaknesses. In their conceptual work, West

and DeCastro propose that weaknesses must be rare with respect to both industry and the

firm within its strategic context. A firm may exhibit a certain kind of weakness, but if

unrelated to strategic context and behaviour, it would not be a critical point of weakness. In

developing this further, West and DeCastro point out that weaknesses may become more

pronounced if either firm strategy or industry changes take place, thus making their

presence salient.13 We explore the type of strategic change that may result in resource

weaknesses becoming more salient, and therefore more dangerous, to the performance of

the organization.

Closely linked to the work of West and DeCastro, Arend’s conceptualization of

weaknesses as strategic liabilities draws on Barney’s RBV tenets (valuable, rare, inimitable

and non-substitutable) to define strategic liabilities as those resources that damage and

destroy a firm’s ability to generate rents. They are “firm factors that are costly, supply-

restricted (scarce and economically inconvertible) and appropriated (economically non-

transferable)”, 14 with reasons for economic inconvertibility being similar to those for

economic inimitability and non-substitutability, arising due to characteristics such as

immobility, inseparability, and path dependency.15 Resource stocks cannot be changed

instantaneously, an argument that may pertain as much to resource weaknesses as it does

to resource strengths. The dismantlement of a firm’s resource weaknesses may, therefore,

only be effectively accomplished over a period of time.16 It follows that for a struggling

4
company trying to improve performance, the nature and severity of the firm’s resource

weaknesses may be critical to the chances of turnaround or failure.

Arend suggests definitions of performance-related characteristics of strategic liabilities

that mirror those that have evolved for strategic assets: Firms with more strategic liabilities

perform worse; a strategic liability that fulfils the relevant characteristics more fully affects

its owner’s performance more unfavourably; and firms with strategic liabilities that are

complementary and firms without offsetting strategic assets, performance worse. Arend

continues briefly to suggest that where complementary strategic liabilities exist, costs to the

firm are higher than if the two liabilities existed separately. Whilst the notion of

complementary resource weaknesses is clearly intriguing, further discussion, examination

and development of these factors fall outside the scope of Arend’s research.17 To this end

we heed Sirmon et al.’s call to explore the concept of complementarities between resource

weaknesses, exploring how they may arise, the nature of interactions between resource

weaknesses including how they may combine and reinforce one another over time, and

their potential impact on firm performance.18

In summary, our research has three clear objectives. First, we seek to make a theoretical

contribution to the study of turnarounds, an area where theory has been noticeably lacking

to date, employing the RBV and in particular the concept of resource weaknesses.19 Through

a detailed analysis of the case of Jarvis we explore the factors that may hinder or prevent

turnarounds, ultimately leading to business failure.20 In so doing, we seek to develop

insights into the type of categories and characteristics of resource weaknesses, addressing

calls for future research by scholars of resource weakness, and turnarounds.21 Second, it has

been agued that strategic change may result in particular resource weaknesses becoming

more salient and hence more damaging to the firm.22 We examine the potential for

5
resource weaknesses to become more damaging over time, through which we explore the

type of strategic actions that can increase the relevance and liability of resource weaknesses

to management. Third, the concept of complementarities between resource weaknesses

has been highlighted as an area warranting further investigation.23 We explore the potential

complementarities between resource weaknesses, and examine how they may have highly

destructive consequences for organizational performance.

Method and data

Our research design consists of four main stages of activity. First, we engaged in

purposeful case selection. Jarvis has previously been identified as a turnaround firm, moving

from three years of poor performance to three years of high performance, measured by

changes in ROCE relative to both industry participants and firms across the economy during

the period 1989-2003.24 Given the high level of publicity in the company, we were also

aware that Jarvis had been forced into administration a number of years after the

turnaround. In charting the ongoing performance of the firm since 2003 it became clear that

Jarvis had accumulated critical weaknesses that had led to a catastrophic fall. Jarvis,

therefore, provided a valuable case in which to examine the reasons why a business that

had achieved the rare label of turnaround, was unable to sustain the improved

performance. By the time of its demise, Jarvis had become a toxic company in the eyes of

media commentators, with destructive weaknesses.

Second, we constructed a historical case for Jarvis gathering data for a twenty-two year

period (1989 to 2010 inclusive), drawing from a plethora of sources. Whilst annual reports

provided useful information, there was a need to search much more widely in order to gain

a richer detail about the company, triangulate evidence and obtain intelligence that those

6
leading the organisation may not have been inclined to share. The case of Jarvis was one of

particular public sensitivity in light of the company’s links to the Potters Bar train crash

tragedy and therefore it is probably not surprising that interviewees from within the

company at the time, nor those associated with its subsequent insolvency, were not

forthcoming. Likewise, despite an exhaustive search across UK archives, no record of

internal documents was available for consultation and contact with the firm’s insolvency

practitioners also provided no awareness of internal documents being kept for the

company. Despite this absence, a myriad of other valuable sources were available, far more

plentiful than our early hopes. Financial press, other broadsheets, trade journals, academic

journals, business magazines, investment analyst reports, government investigations and

reports, client reports, insolvency report to creditors, books and web-based publications

were all consulted. Source criticism constitutes a key element of historical methodology and as per

the guidance of Kipping, Wadhwani and Bucheli, we sought to establish source validity, credibility,

and expectations of source transparency. This process is “designed to allow researchers to

understand not just what a source tells us about a development or topic of interest, but also the

limits on relying on that particular source”.25 Sources produced by different authors with different

motives and perspectives constitute an important part of historical research procedures for

overcoming the limitations identified for a particular source. In evaluating the various data

sources, we maintained an awareness of the conditions and intentions that may have

underpinned their creation, seeking to provide a critical engagement with the records of the

past. In assessing the observer we drew on the recommendations of Howell and Prevenier,

questioning to what extent was the author’s report selective? What particular kinds of things would

have interested this author? What events or nuances would the author have been likely to ignore?

What prejudices would have informed the account? 26

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 The financial press provided a particularly prominent source in the study, especially in

light of its influence on the resource weaknesses that developed in the firm. Company

annual reports also contained a wealth of valuable data. Both sources, however, required a

degree of caution in their analysis. We were fortunate to be able to draw from government

commissioned reports that interviewed all Jarvis clients, as well as investigations

undertaken by the clients themselves. Sometimes this data provided supportive

triangulation of evidence, but occasionally revealed instances that jarred with those

presented in the press or other sources, which we openly then subjected to further critical

evaluation in the text, enabling a more nuanced appreciation of the resource weaknesses

and the effects of their interactions to emerge.27 Given the acquisitive nature of Jarvis, it

was often necessary to perform similar searches for purchased organizations, therefore

providing further detail, including an appreciation of capabilities brought to the group. In

Gephart's terms, we were able to collate "a substantial archival residue" from the different

published sources.28

Third, we analysed the data consistent with Langley’s approach to longitudinal

research. 29 First, a timeline and narrative concerning the development of Jarvis was

constructed, as presented in figure 1. Second, temporal bracketing was undertaken,

identifying two distinct periods for the organization. The periods were separated by a major

break, hence permitting “the constitution of comparative units of analysis for the

exploration and replication of theoretical ideas”.30 We present the historical narrative in the

next two sections. Period 1 captures the turnaround of Jarvis; and period 2 examines the

decline and failure of Jarvis.

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 FIGURE 1
Jarvis Timeline 1850-2010
Year Key Events
1850 Jarvis founded as a building and decorating business
1959 Becomes a public company
1986 Last family member retires
Operations across the UK undertaking medium-to-large-sized construction projects
1990 Acquires Shephard Hill civil engineering business
1992 Significant project delays
Losses of £3.7m and cash call via rights issue
1993 Realisation of major pricing errors
1994 New CEO appointed
News strategic plan put to shareholders – shift to construction services and niche
focus
1995 Workforce cut by one-fifth
1996 Purchase of Northern Infrastructure Maintenance Company (NIMCO)
1998 Acquisitions: Relayfast and Fastline in rail, Streamline in roads.
2000 Market leader for school PFI work
Contracts signed for capital value £242m with estimated £1bn whole life cost over
25-30 years.
2002 Potters Bar rail crash
Legal action started against Railtrack and Jarvis by victims
2003 Kings Cross express train derailment
Network Rail announced Jarvis management team to be subject to ‘special audit’
Jarvis announced it will quit track maintenance work
Delays to schools’ work hits national news
CEO announced he will step down
Scaling back of refurbishment work with aim to focus on new builds
2004 Teachers’ union campaign against contract being awarded to Jarvis
Turnaround consultants brought in
Retrenchment plan initiated
£256m loss announced
Major FT article on Jarvis troubles
BBC Money Programme on Jarvis
Flagship Lancaster University project delayed and accusations of poor workmanship
CEO resigns
Plans to exit PFI work
Roads unit sold
Sale of Tubelines stake
Debt for equity swop
2006 Focus on track renewal and plant hire
Failure to find buyer for 31 facilities management contracts
2009 Fifteen percent of workforce cut in reaction to failure to capture new work
2010 Failure to secure agreement with lenders
Company forced into administration

Finally, we used the two time periods as comparative units of analysis for the exploration

of theoretical ideas. In exploring the turnaround and subsequent failure of Jarvis we

9
engaged in a process of theorization, meshing together both inductive and deductive

reasoning. In doing so, we moved back and forwards between the theory and the data,

linking our inductive ideas with existing concepts and frameworks.31

Turnaround and failure: The case of Jarvis

We present the case of Jarvis in the next two sections, and then progress to our

theorization of the case in the discussion section.

Period 1: The turnaround of Jarvis

Jarvis was founded as a building and decorating business in Shoreditch, London, by John

Jarvis in 1850. The company gradually expanded its building activities in the 1920s and 30s,

undertaking a range of projects, from underground stations and municipal garages, to

factories and offices, seeking to build a reputation for high quality workmanship sufficient to

increase its client base.32 Jarvis became a public company in 1959, with the Jarvis family still

actively involved and eager to further grow the business. Profits of £43,000 in 1961 had

increased to £118,000 by 1968, and a decade later had risen to £519,000.33 As per the

experience of many in the construction industry, there were also challenging years. Sir

Adrian Jarvis noted the difficulties of maintaining returns in periods of full employment in

the 1960s.34 Similarly challenging were periods of recession in the 1970s, where margins fell

to less than 2%. 35 With low gearing and often substantial cash resources, the firm

weathered these adversities and continued to increase its work-flow, recording a profit of

over £700,000 by the early 1980s. 36 By the time the last family member retired in 1986,

Jarvis had grown substantially from its London origins, primarily undertaking medium to

large-sized construction projects for a wide spectrum of clients across a much larger

10
geography, but now also encompassing a property development and investment business.

Seeing opportunities for further expansion, Mr H. Bard, a London property investor,

together with his venture partner, Mr M. Rueben, acquired a controlling interest in Jarvis in

1987, bringing new board members and an aggressive expansion plan for the company,

aimed at rapidly creating a national construction capability, both by organic and acquisitive

growth. They were joined by Patrick Rogers in 1988 to further this strategy, moving from his

corporate finance and investment research position in the City.37 Within eighteen months

Jarvis had already doubled in size and the new approach had not gone unnoticed by industry

observers: “Throughout the recession, Jarvis has gained a reputation as a vulture company

poised to pick up the pieces of broken companies. From the outside it may seem as if Jarvis

is hell bent on building an empire while the going is good”.38 Acquisitions such as Auldyn

Building and H. Webb construction expanded geographical coverage, whilst the company

also expressed a desire to add complementary construction skills to the business, taking

advantage of the recession to buy failed companies from the receivers.39 In 1990 Jarvis

acquired both a shop-fitters and a civil engineering firm. Whilst the new Chairman had

stated his intention to grow by both organic and acquisitive growth, in reality it was the

latter that was the primary driver of the expansion. The acquisition of the Shephard Hill civil

engineering business, with a turnover of £53m, substantially extended the productive

opportunity set of Jarvis, with expertise added to the group in roads and bridges, water

supply and treatment, dams and reservoirs, and coastal defence works.40 Shephard Hill’s

failure had been triggered by the collapse of one of its bankers, to which it owed £4.5m, but

despite the harsh recessionary climate, the performance of the civil engineering business

was soon helping to offset some of the poor returns from Jarvis’s construction operations,

with the group achieving a pre-tax profit of just £238,000 in 1991.41

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 The following year saw group performance fall significantly further, with losses of £3.7m

resulting in a cash call via a rights issue. Demand was failing to match the new scale of the

construction operations and with a shortage of work, turnover fell from £119.7m to £92.1m

and excess capacity resulted in the announcement of redundancies. Problems with existing

contracts were in evidence, with delays to three projects exacerbating the financial woes. A

year later, little improvement had been made, with losses of £3.15m and delays to major

contracts in both the building division and civil engineering works being cited as

contributory factors. From a relatively conservative company, with net borrowings of just

11% of shareholders’ funds, rapid expansion had led to a scenario that in 1993 a rights issue

was needed to improve liquidity.42 Jarvis was also feeling the impact of errors it was now

making in its aggressive pricing of contracts:

“…contracts are only won if optimistic assumptions are made about progress,
productivity, ground conditions and the weather. Inevitably, some of these
assumptions prove to be incorrect, but the attainable margins are insufficient to
cover the risk of this occurring and the anticipated positive contribution turns
into a significant loss which has to be financed, even if there is an expectation of
an eventual improvement. The company had to contend with a number of such
contracts during the year.”43

With financial pressure quickly mounting, Jarvis needed a turnaround. Changes in

leadership were initiated with a new CEO and investor recruited, Paris Moayedi, coupled

with three new directors.44 As the company announced losses of £4.9m in 1994, a new

strategic plan was put to shareholders, comprising the following key elements: (i)

rationalisation of construction businesses and a shift to becoming managers of construction

services; (ii) development of niche markets, through Jarvis Projects, including education and

healthcare, by offering construction-related professional services; and (iii) overhead

reductions. Integral to the measures was the conversion of the £3m overdraft facility with

12
National Westminster Bank into a five-year loan and an additional £1.2m being made

available to the company via a new overdraft facility.45

With immediate effect, a re-organization ensued, with numerous construction offices

closed, new senior management appointed, a reduction in the total workforce of almost

one-fifth, and a concerted effort to win new work, resulting in an increased order book.

Efforts were soon rewarded with a modest profit of £510,000 in 1995, but more dramatic

changes were on the horizon. Five years prior, Jarvis’s purchase of the civil engineering

business Shephard Hill from the receivers had opened up new opportunities for the group.

Shephard Hill’s skill base in road schemes, bridges and water supply, had been cited as

important capabilities associated with the acquisition. One of these areas, the construction

of bridges, had led to a number of projects being undertaken for Railtrack, including bridge,

station and platform building work. By 1995, “rail schemes” had been added to the list of

niche markets that were the focus of the civil engineering division.46

While just a small part of the overall group at this time, the link with the railways soon

took on a whole new magnitude. Shares in Jarvis rose by 40% in May 1996 with an

announcement that the company had purchased a railway maintenance company, backed

by a rights issue. The Northern Infrastructure Maintenance Company (NIMCo) was the last

of the seven regional infrastructure companies to be privatised by the UK government and

undertook most of its work for Railtrack. The £9m purchase price appeared highly attractive,

with contracts in place lasting for three to five years and generating operating profits of

£14.8m on a turnover of £126.4m.47

Within just two years of assuming leadership of Jarvis, Paris Moayedi had facilitated a

repositioning of the company and now stated his intention to focus on expanding the

facilities management business and finding efficiencies in the railway track maintenance

13
division.48 Amidst the euphoria of the deal, Jarvis’s management acknowledged “we do have

a lot of our eggs in one basket with Railtrack”.49 Further acquisitions in the proceeding two

years bolstered the rail business. To supplement the railway infrastructure operations, a

track renewal capability was acquired via the purchase of Relayfast and Fastline, giving the

group the ability to maintain and renew track anywhere in Britain.50 Relayfast also brought

with it heavy plant resources and the combined companies gave Jarvis such a commanding

position in the track renewals business that the takeover was only approved by the

Monopolies and Mergers Commission on condition of Jarvis hiring out equipment to other

operators.51 By 1998, turnover was up to £355m, with profits amounting to £37m.52

Expansion wasn’t just restricted to the rail business. A dispute between Railtrack and

Jarvis over pricing had provided a warning signal that helped fuel a desire to try and avoid

an over-reliance on rail. Railtrack had argued Jarvis’s prices were up to six times higher than

those of other contractors for similar work and had threatened to suspend Jarvis from

bidding on other projects unless it cut its prices.53 Within hours of the disagreement going

public, both sides said they had resolved their differences and looked forward to

“continuing their constructive relationship”,54 but the event had provided a stark example of

the potential consequences of any fallout with their dominant client.

In 1998, Jarvis acquired Streamline Holdings for approximately £185m. Streamline’s

specialist road service businesses in the UK and Europe were viewed as complementary to

Jarvis’s operations in the rail sector and provided an opportunity to help create a broader

transport infrastructure company. 55 While the track renewal businesses had been

considered as a good deal for Jarvis, reuniting the maintenance and renewal operations of

railway infrastructure that had been split from each other as part of the government’s

privatisation programme, Streamline was regarded by analysts as a “full-price” purchase,

14
with Moayedi left justifying “you cannot get a bargain buying a public company in a niche

market which is producing margins of 10 per cent”.56 Within a period of around four years,

the market capitalisation of Jarvis had gone from about £10m to close to £1bn.57

In addition to the railway and road businesses, Jarvis was also making progress towards

becoming a more “niche-focused” construction operator, both in the education sector and

healthcare.58 In particular, Jarvis was having considerable success in winning bids to build

and maintain schools, as well as contracts for the construction of university student

accommodation. The company was becoming highly adept at seizing Private Finance

Initiative (PFI) work, even creating a specific PFI unit to deal with the increasing number of

opportunities in the area.59 By 2000, Jarvis had become the market leader for school PFI

work, securing eight of the nineteen contracts that had become available, and bringing

Jarvis’s total school facilities projects to 47. Contracts signed in the year 1999 to 2000 had a

combined capital value of £242 million and estimated at nearly £1bn in terms of whole life

costs over 25-30 years.60 Although the scale of activity was now stretching the company’s

operational capacity beyond its limits, requiring a much greater reliance on sub-contractors,

the success rate of the division was much lauded, moving from initial submission to

preferred bidder status in 43% of cases.61

The Chairman commented in 2001: “The success of Jarvis’s strategy is demonstrated by

the number of significant contract signings and our appointment as preferred bidder on

other major projects during the year”.62 The growth of Jarvis Projects, coupled with the

Streamline acquisition had helped to reduce the dominance of rail within the company, with

the Chairman now referring to the group as a “well-balanced portfolio of high-added value

services”.63 The CEO, Moayedi, emphasised the change process from “high risk, low margin”

general contracting to “high tech, lower risk operations where price is not the only criterion

15
for selection”. 64 The evidence suggested that Moayedi had achieved a substantial

turnaround in performance, elevating Jarvis’s return on capital from amongst the poorest to

one of the highest relative to both its industry compatriots and firms across the economy.65

As further PFI and railway work poured in during 2001, some commentators viewed the

“specialist” Jarvis shares as having significant potential.66

Period 2: The decline and failure of Jarvis

In May 2002, a train travelling at high speed derailed at Potters Bar station, killing seven

with over 70 injured. The track in question was part of Jarvis’s maintenance contract and the

company quickly raising the possibility of sabotage on the line as a potential cause, an

argument later rejected by the Health and Safety Executive.67 Despite Jarvis’s efforts to

diversify the business, rail still counted for £303m of the £677m turnover and shares in the

company reacted with a fall of 22% in just two days due to concerns over potential liabilities

and the impact on future maintenance work. 68 One analyst commented “we don’t

necessarily know with these contracts or any other contract where the buck stops for a

major disaster”.69

As turnover increased to £949m and profits to £46m in the year to March 2002, with

Jarvis’s Chief Executive and Chief Operating Officer benefiting from cash pay rises, news of

the company in the press was turning increasingly hostile.70 By the end of 2002, victims of

the crash had already started legal action against Railtrack and Jarvis, and then in May 2003,

an official report by the Health and Safety Executive stated the cause of the crash to be the

result of a failure of points that were in poor condition and had been poorly maintained.71

Network Rail, which had by then taken over Railtrack’s role, announced it was

“fundamentally altering the way rail maintenance is done in the UK”.72 Jarvis’s reputation

16
suffered again when a derailment of an express train at London’s King Cross station

occurred in September 2003. Jarvis explained that the accident occurred because its staff

failed to disconnect equipment that allowed trains to be routed over a piece of track

removed during maintenance. The event bore similarity to an incident with a freight train

near Rotherham the previous November, again a track maintained by Jarvis. Whilst there

were no injuries, the accident caused further reputational damage to Jarvis and Network

Rail announced they would be subjecting Jarvis’s management to a special audit concerning

the firm’s working practices.73

On October 10 2003, Jarvis announced it would quit track maintenance work, the CEO

commenting that “the reputational risks that are associated with this business for Jarvis

overshadow the very successful other parts of the business”.74 A timely announcement that

Jarvis had won the UK’s largest student accommodation contract (£339m), to build and

manage rooms for Lancaster University, came as a welcome relief to the market.

Accommodation services had quickly risen to account for around one-third of group

turnover in the previous year, with Jarvis being the market leader for outsourced

accommodation, a portfolio that included contracts to provide rooms for about 20,000

students, accommodation for schools, the NHS, local authorities and many more. Citing a

forward order book of £4.2bn, albeit including projects at the preferred bidder stage, there

were high hopes that the division would drive considerable future growth for the

company.75

Whilst Jarvis’s executives had hoped the exit from rail maintenance would see Jarvis

escape from being a regular feature of the news headlines, they were mistaken. In

November 2003, Jarvis was in the news again concerning delays to a PFI project that had

resulted in five schools opening a week late for the start of term, with further work

17
outstanding.76 Although an inconvenience, in normal circumstances the event may not have

been worthy of national print, but as one journalist commented “since the rail accidents,

any problem with a Jarvis contract, from schools to the underground, had been headline

news”.77 A shareholder noted “it has become difficult to work in a spotlight”.78 Pressure

started to mount from some investors for Paris Moayedi to stand down, whilst others were

less convinced that this would be enough to repair reputational damage. One analyst stated

“the name Jarvis is the biggest liability rather than Paris”, 79 while another analyst

emphasised “the press pressure on Jarvis has got to the point where it is affecting the

business”.80

Jarvis was starting to find it harder to win contracts and following a board meeting, an

announcement was made that Moayedi would step down and Stephen Norris, a former

Conservative Transport Minister, would become Non-executive Chairman.81 In the same

month, Jarvis announced it was scaling down school refurbishment work to concentrate on

new-build school contracts after running into a number of problems on existing sites. The

Chief Executive of Jarvis’s Accommodation Services explained that refurbishment projects

were “by their very nature risk-heavy and you can say that the extent of the risk has been

learned from experience”, referring to the delays to the Wirral schools and a similar

experience at schools in Kirklees.82 The extent of hostility towards the company was

highlighted further by a Derby teachers’ union campaign against a PFI contract being

awarded to Jarvis, with the union saying “We are opposed to privatisation in principle. But

within the process that exists in Derby … we are absolutely opposed [to Jarvis being

awarded the contract]. We are more opposed to Jarvis than others”.83 The representative

went on to say they were opposed to Jarvis mainly due to the company being at the centre

of an investigation into the Potters Bar rail crash, but also because of delays on other school

18
PFI contracts.84 The PFI project manager at the Council stated “it would be foolish in the

extreme to pretend that the council is not aware of some of the publicity that Jarvis as an

organisation attract”.85 At a University of Lancaster Council Meeting, reference was made to

the implications for Jarvis of the recent rail crash at Potters Bar. Noting that the company

would be fully aware of the force of public perceptions and that “this should be taken into

account by the negotiating team in deciding what had to be accepted on behalf of the

university.”86

Jarvis was beginning to look as though it was in a financially precarious position.87 The

company had become highly dependent on front-end cash flow from new contracts and as

new business dried up, so did this cash flow.88 The settlement of a major claim with Network

Rail, coupled with provisions made against problems in the accommodation services division

meant that banking covenants would be breached. A new CEO, Kevin Hyde, argued for a

dramatic shift away from the company’s aggressive growth strategy, putting forward a plan

for retrenchment around core operations and cost reductions. A fundamental review of all

activities resulted in a recovery strategy, which was to: (i) implement strategic disposals to

reduce debt; (ii) exit non-core activities; (iii) focus on core infrastructure services; (iv)

recover outstanding debts; (v) reduce the cost base; and (vi) scale back and exit higher risk

activities.89 The core and non-core businesses of Jarvis are presented in table 1.

19
 TABLE 1
The core and non-core businesses of Jarvis in 2004

Core Establish Non-core

Rail Track renewals Rolling stock maintenance Rail maintenance
Signals & projects Freight haulage On track plant
Train operations International sales Tube lines
Estonia
Ultramast
Rail training
Roads Highway maintenance USA sales Prosign
Prismo Veluvine
Optima Traffiroad
Fleet management TWS
Small plant hire Laybond
JAS PFI project integration Construction
Facilities management David Wylde Project
Finance
Asquith Jarvis
PatientFirst
Property
Chapel Wharf
JMPC
JTM
Central Property management Braddons
Agilisys

Source: Annual Report, 2004, p5.

To assist with the change effort, the board appointed a Chief Restructuring Officer (CRO)

from the turnaround and restructuring specialists, AlixPartners. The CRO spent four weeks

identifying the causes of distress, which were diagnosed as: (i) an unnecessarily complex

business portfolio; (ii) inadequate control systems; (iii) inadequate liquidity; (iv) a “revenue-

oriented” contract portfolio; (v) dangerous levels of management turnover; and (vi)

excessive debt and contingent liabilities.90 Additional AlixPartners consultants were brought

in to assist in the turnaround, including a crisis manager to oversee daily operations, a

consultant tasked with responsibility for treasury operations, and a consultant with

expertise in construction management to assess the true financial state of active building

projects and estimate how much money would be required to bring them to completion.91

20
Negotiations with lenders and other stakeholders gave the company a life-line, while the

sale process of dozens of non-core assets ensued. 2004 saw Jarvis deliver a loss of £256m.92

A key problem for Jarvis concerned the PFI contracts it had entered into. The company’s

success rate at moving from submission to the award of contract resulted in a winner’s

curse, with aggressive pricing meaning that assumptions tended to be overly optimistic and

sufficient due diligence frequently lacking. Risks were consistently underestimated and the

resultant under-pricing left Jarvis locked into unattractive contracts that would cost the

company for years to come.93 The case of Kirklees schools provided an all too familiar story

for the company. In bidding for work, Jarvis had failed to conduct any surveys beyond those

provided to them by the council’s Estates and Property Services, which were “neither

intensive nor intrusive”.94 The bid by Jarvis Projects was recommended to the panel as the

most affordable and the only one that represented value for money.95 Jarvis had bid £96.2m

compared to the other bids of £115m and £119m. It was noted in a later report,

commissioned by the council, that given the unlikely scenario that Jarvis had taken the

contract as a loss leader, they had underestimated the true costs and had massively under-

priced the work. At the time, the panel had been informed that although Jarvis were PFI

market leaders, their expertise was in new-build and not refurbishment. There were other

contractors at the time that specialised in construction refurbishment projects of this

nature, but they had not applied to be put on the tender list.96 The construction phase had

started slipping relatively early: “alarm bells about the contractor’s performance had begun

to ring as early as 3 or 4 months into the project”.97 Schools also commented on the poor

quality of the workmanship, materials and finishes, which was put down to the contractor’s

under-pricing and financial difficulties.98

21
 Further bad publicity came from a substantial Financial Times article, detailing the trail of

delays and dissatisfaction concerning Jarvis’s accommodation services projects. The

problems that had been present the pre-turnaround Jarvis, including poor risk assessment,

delays, quality issues and consistent under-pricing, were manifest again. In addition to a

plethora of school blunders, the article also raised awareness of Jarvis’s problems with

university student accommodation contracts, including its flagship contract with Lancaster

University, again delivered late amidst calls of shoddy workmanship. Whilst the head of

Accommodation Services resigned, accusations of late payments to subcontractors

damaged credibility further, and in the Financial Times report, as in virtually every other

news story, the name Jarvis was followed by a line reminding readers that this was the

company at the centre of investigations concerning the fatal Potters Bar rail crash.

Recognising the liability in its name, Jarvis attempted to rebrand some of its subsidiaries

bidding for PFI work, using “Engenda” for new schools and healthcare projects, but a BBC

Money Programme report suggesting Jarvis faced construction losses of over £5m on the

refurbishment of just five schools, provided further bad publicity. The press reports of errors

made by Jarvis in their PFI construction activities could not be denied with respect to their

accuracy, with client and government reports echoing many of the failings.99

In hindsight, however, the press intensity and ferocity directed towards the construction

operations of the company may have been particularly severe when examining the

performance of Jarvis in relation to other PFI construction companies. A study

commissioned by the Department for Education and Skills into PFI projects post-contract

signing, interviewed all schools where Jarvis had been lead contractor. Surprisingly, despite

the high level of negative publicity, satisfaction scores for projects where Jarvis had a lead

role were slightly higher than the average, both for the buildings and services. Lower

22
satisfaction levels were recorded for pricing variations, whereby Jarvis was suspected of

elevating pricing of contract variations, a likely attempt to claw-back monies lost from their

under-pricing of the main contract. Criticisms were also levelled at the poor integration of

bidding, construction and facilities management businesses. 100 The findings of the

investigation were barely reported at the time, but are worthy of considerable note. At a

time when media reports of the failings of Jarvis and its construction activities were at their

height, presenting an image of a dysfunctional firm and the laggard of its industry, actual

satisfaction ratings with both its PFI buildings and services were above average. Regardless

of the performance of the company relative to its peers, the public image of Jarvis meant

that new projects were becoming almost impossible to acquire. The Jarvis brand was now a

major resource weakness and the “unusually low success rate in winning PFI projects” was

now creating further unrecoverable bid costs.101

Turnover in the top management team increased with the resignation of the Finance

Director and then the new Accommodation Services Chief Executive, the latter having only

been in the post for five months.102 After three profit warnings in as many months, a further

write-off of £156m was announced, with questions now being raised as to the likely survival

of the group.103 Politicians were quick to iterate that there would be no public sector

assistance for the company.104 Shares had been commensurately falling as worries grew,

losing 80% of their value within six months.105 Despite Jarvis’s struggle, shares in other large

PFI construction companies remained surprisingly firm, with analysts believing that poor

management, rather than poor opportunities, to be culpable for the failure. This viewpoint

was supported by national concerns that many of the construction companies undertaking

PFI work were doing so at excessively high margins, making the losses of Jarvis even more

embarrassing for the company.106 One analyst commented “PFI gave them [Jarvis] an

23
opportunity to grow very, very quickly, and they grabbed that opportunity too aggressively.”

One competitor noted “Anybody who has been bidding for school contracts often found

themselves second to Jarvis [because they were offering lower prices]”.107

The scenario was now very different for Jarvis, with potential clients looking at a much

wider picture. Fife council in Scotland chose to revoke the company’s status as preferred

bidder on a £177m contract to build and maintain ten schools, a particularly worrying sign

given that the recent recovery plan was built on the assumption of retaining existing clients

and continuing to win new contracts. The project solicitor at the council stated that Jarvis’s

financial position and the fact that its restructuring plan could not be resolved within the

time-table envisaged for the project, had prevented Fife from reaching final agreement on

the contract. Meanwhile, further delays in the handover of university accommodation

accompanied an announcement that Jarvis would not be bidding for future work in the area,

with the team responsible for bidding for PFI projects being sold.108

Introduced by the Conservative government in 1992 then expanded by the Labour

government after 1997, PFI had been intended as a way to harness the private sector’s

efficiency, management and commercial expertise to bring greater discipline to the

procurement of public infrastructure. PFI essentially enabled a shift of funding and

management of public sector projects to the private sector to enable rapid improvement of

public infrastructure without politically unacceptable tax rises. The initiative aimed to

transfer appropriate risks to the private sector and focus on the whole life costs of

projects.109 By 2001 over 350 PFI projects were under consideration.110 Despite the clamour

for work, many in the construction industry had concerns from the outset, with a survey of

builders and civil engineers viewing the excessive shouldering of risk by the private sector as

their number one concern.111 For many large contractors, the size of the PFI market was too

24
large to ignore, but not large enough to be a single source of business. In addition, the

sporadic nature of PFI projects, their variability in size, scope, and balance of construction

and operations, coupled with long gestation periods and risk of government regulatory

changes, created a degree of unpredictability for contractors.112 Bid costs were also a

consideration, being much higher than for traditionally tendered work due to the

complexity and longevity of contracts.113 Despite the risks, many construction firms bid for

PFI work in the hope of obtaining higher levels of profitability and long-term income

streams. 114 Whilst the profitability of PFI for the private sector has been subject to

considerable debate, research has suggested that for many firms, PFI projects have provided

attractive returns, placing pressure on government to be more aggressive in negotiating

contracts.115 Whilst many profited, however, Jarvis was not the only construction firm to get

into difficulties through its PFI projects, with Sir Robert McAlpine, Ballast UK and Metronet

being other exemplars of firms beset by cost overruns and delays.

For Jarvis, the disconnect between the PFI bidding team and the rest of the business was

mentioned by numerous Jarvis clients in the DfES investigation, making proper risk

assessment of projects a rarity.116 A Jarvis staff member acknowledged that even if the

company had failed to find a buyer for the PFI team it would be “going come what may”.117

An ill-considered incentive scheme had also meant that the PFI team were rewarded for

deals done, without due consideration of adequate margins. The result was a team adept at

winning work, but at prices and risk levels that damaged the future health of the

organisation. The future cash flows from many of the company’s investments in school PFI

and university projects were sold for a loss of £6m.118 Recognising the errors in governance,

the company announced it would combine the bidding, construction and facilities

management functions into a single entity, operating out of a single location, but it was a

25
move already too late in the decline. The new board initiated a review of internal control

processes and procedures, with the resulting observations that the company had significant

shortcomings in the information provided to the board concerning the key features of

significant transactions and insufficient independent review and challenge of complex

commercial, legal and contractual issues. In particular, poor appreciation and handling of

risk was raised, with new systems designed to embed risk identification and evaluation

within the operational process of the organisation. Heads of each operating division would

be required to report monthly on key risk matters and the agenda of the executive

committee would be revised to separately address risk considerations on a regular basis.119

By the end of 2004, the CEO in charge of the turnaround effort had also resigned. Of the

nine directors listed in the 2003 Annual Report, only two now remained. The news that five

executives who had left the firm received bonuses of £800,000 for the year in which the

Potters Bar crash occurred, further dented an image that was now looking far beyond

repair. 120 To make matters worse, the incoming CEO, who had undertaken an urgent

review, announced that the financial situation was worse than expected, with total group

cash outflow likely to be £80m higher than previously forecast. The Chairman warned that a

substantial proportion of the proceeds from ongoing asset sales would now be needed for

working capital rather than for debt repayment. Shares tumbled a further 60% on the news

to 13p, a sharp contrast to the 575p price obtained just over two and a half years prior. The

company was now in a vicious circle. With sub-contractors not getting paid, work was

grinding to a halt, therefore, incurring financial penalties for failing to meet deadlines.121

With debts standing at an estimated £240m, strategy was changing by the week. In

December 2004, plans were detailed to exit all PFI work and concentrate on plant hire and

building roads and railways for Network Rail and local authorities. Less than two weeks

26
later, the roads unit had been sold for £24.5m.122 Further efforts to improve corporate

governance were made, “focusing directly on the shortcomings of processes and procedures

that led the Company to its current position”, with risk analysis being a key factor in the

committee’s work.123 Pre-tax losses widened to £354m in 2005, but the sale of a one-third

stake in Tubelines, a private consortium to manage, maintain and upgrade a third of the

London Underground network, and then a debt-for-equity swop, provided a further life-line

for the company, with shareholders giving up 95% of their ownership in exchange for the

£350m of debt. A more manageable balance sheet emerged with a net debt of £22.2m. The

company bonus scheme was suspended for 2005. Ironically the bonus scheme had been

based on objectives that included profitable forward order book growth and effective risk

management, both features that had been markedly lacking in prior executive performance,

despite bonus payments being made.124 As part of the corporate governance review, further

changes were made to the processes aimed at evaluating business risks, with risk

management reviews being incorporated into the whole commercial “tender to delivery”

process.125

By early 2006, the business focus had shrunk primarily to track renewal and plant hire,

the winding down of the construction business helping to stem the cash outflow, although

Jarvis had yet to find a buyer for 31 of its facilities management contracts, five of them loss-

making.126 Ironically, following the rash of disposals, the rail sector now accounted for the

majority of turnover once again at approximately 65%.127 As some saw Jarvis “emerging

from the intensive care ward,” the fragile state of the company was still of concern.128 The

exit of the CEO that had been at the helm of the latest restructuring did little to calm fears

and the future was now pinned on the rail business being chosen as one of four major

contractors appointed by Network Rail for significant track renewal work.129

27
 To the surprise of some, Jarvis was selected as one of the four, but the promise of an

immediate uplift in activity was short-lived. Network Rail announced its intention to

increase overall renewal volumes in the medium term, but reduce volumes in the short-

term, unfortunately a critical time for Jarvis. Management reacted to the news by cutting

450 staff, 15% of the workforce, but lenders were becoming concerned for the viability of

the company without new orders coming through. 130 For continued lender support,

guarantees of future payments from Network Rail were required, but meetings between

Jarvis, its lenders, and Network Rail officials, failed to secure any such agreement and a

formal statement to the stock exchange was issued: “following negotiations with the

company’s secured lenders, it has become clear that sufficient support will not be extended

to the company to enable it to continue trading as a going concern”. 131 One commentator

summarised the position: “Jarvis, one of the most infamous names in the world of British

engineering over the last ten years, has finally been forced into administration”.132

Discussion

Despite the RBV now being a mainstream theory in strategy and management research, its

application to the study of turnarounds has so far been limited.133 Where utilised, there has

been an overwhelming focus on the upside of resources, namely where they may result in a

sustained competitive advantage, yet this may overlook the other side of the ledger, the

resources that damage profitability for the firm. Calls have been made for detailed

longitudinal case studies to build on the conceptual work on resource weaknesses

undertaken by West and DeCastro, and Arend. 134 The business history field appears

particularly well placed to help achieve such an aim, and in so doing, promote greater
135
connectivity between mainstream management and business history research.

28
Furthermore, studies of turnarounds can provide further evidence within the business

history literature of more radical and discontinuous change, to complement the

considerable wealth of business history studies that deal with incremental evolution.136 An

examination of resource weaknesses in the case of Jarvis, a firm that made desperate efforts

to turnaround, yet eventually succumbed to failure, provides valuable insight into factors

that may hinder or prevent turnaround.

With over a century of trading, Jarvis had gradually grown to become a well respected

construction firm, undertaking a range of medium to large sized projects for wide client

base, under the guidance of the Jarvis family. Like many other construction firms, the

company had suffered in numerous cyclical downturns, yet had showed substantial

resilience, in part due to a conservatism that ensured relatively low debt levels were

maintained. New ownership in the 1980s brought ambitions expansion plans, with debt-

financed acquisitions quickly taking the company to a new scale and scope. As turnover

increased, profitability fell, and as the company struggled to find sufficient work in the

recessionary climate, financial concerns escalated to the extent that a change in leadership,

coupled with a further injection of funds, was required to ensure the continuation of the

firm. The early stages in the turnaround of Jarvis followed a familiar formula of leadership

change, refocusing and repositioning.137 Unaddressed, however, was an underlying resource

weakness in the evaluation and management of construction risks, which had emerged

during the period of rapid expansion. In a highly competitive environment where new

business was hard to obtain, Jarvis was finding it had persistent problems in its existing

activities, with recurring errors in the assessment and management of contracts damaging

profitability. Inadequate due diligence as to the likely risks and potential costs of projects

resulted in consistent under-pricing, and work managed by Jarvis was often subject to

29
subsequent delays in completion. 138 Whilst the weaknesses were recognised by the

management team, new leadership believed the best course of action to be the re-

orientation of the company from a traditional construction firm to a manager of

construction services, with niches in areas such as education and healthcare. 139 At the time

the sale of a number of rail maintenance and renewal companies, as part of the UK

government’s rail privatisation programme, presented an opportunity to fast track the

strategic re-orientation of the company.

The purchase of one such organization, NIMCo, realised Moayedi’s ambitions to become

a service-oriented company in a niche market for what many regarded to be a low price

given the limited competition and long-term assured contract.140 Whilst a bold move, path-

breaking acquisitions of this nature have been highlighted in the turnaround literature as a

potential way of rapidly bringing new capabilities to an organisation where a fundamental

shift in strategic focus is desired.141 For a firm that had found itself with capabilities no

longer able to provide competitive advantage, such an approach offers a potential escape

route, yet one that also contains an element of risk that may be not be fully recognised by

the incumbent leadership. Whilst the CEO, Moayedi, believed that in turning Jarvis around

the company had moved from “…high risk, low margin” general contracting to “…high tech,

lower risk operations..,” 142 in reality, through further debt-finance acquisitions, the

company had moved into an area with considerable risk and a degree of unfamiliarity for

the management team.

Much as been written concerning the identification, development and exploitation of

resource strengths over time, with complexity and causal ambiguity being cited as factors

that may benefit a firm by hindering imitation by competitors.143 In contrast, West and

DeCastro point to complexity and causal ambiguity as being potential dangers with respect

30
to resource weaknesses, with liabilities remaining hidden before emerging suddenly to

damage profitability.144 In the case of Jarvis, however, management showed an awareness

of their deficiencies, yet also believed that the performance problems of the company could

be overcome by strategic reorientation to more lucrative business areas.145 The existing

literature on turnarounds highlights the important role of the environment in turnarounds,

in particular its role in relation to decline. 146 Research examining external causes of

organizational decline has focused on a range of factors (not exhaustively) including:

environmental jolts, technological changes, industry decline, and competitive dynamics.147

For Jarvis and many other construction companies, however, changes in the environment by

way of government shifts to PFI work, were cautiously viewed as a new opportunity, and

one that was too large to be ignored. On the surface, the turnaround strategy appeared to

be effective. Jarvis was one of the first movers to take advantage of the government’s PFI

scheme in the education sector. Contracts usually encompassed both a build and

maintenance agreement, resulting in long-term revenue streams. With a conversion rate

from bid submission to signed contract ahead of its peers, Jarvis rapidly became recognised

as the market leader. As Jarvis benefitted from the generous margins in its rail business,

coupled with upfront payments on its PFI projects, both turnover and profits grew apace,

while market capitalisation escalated from £10m to almost £1bn.148

Within the turnaround strategy, however, the seeds of future problems had already been

sown. Failure to address the resource weaknesses present in the assessment and

management of construction risk ensured their continuation as Jarvis moved into new

activities. Much of the PFI work involved refurbishment of existing buildings. Whilst Jarvis

had a good track record in the construction of new premises, they were less skilled in

undertaking refurbishment contracts. As highlighted in the DfES report, interviews with

31
Jarvis’s clients commonly resulted in the comment “Jarvis were fine in the new build but for

the refurbishment was not of a standard we would expect”.149 By their very nature,

refurbishment projects carry a greater degree of risk, with under pricing a higher likelihood

due to the emergence of unforeseen problems and costs. In-depth due diligence, including a

thorough appraisal of potential risks, may go some way in circumventing such occurrences.

In both these areas, however, the approach taken by Jarvis was regarded as lackadaisical,

with later corporate governance committees highlighting the absence of appropriate risk

evaluation throughout the organisation. To make matters worse, the PFI bidding team,

incentivised to get deals done, were disconnected from the construction operations of the

company, resulting in a scenario where contracts were frequently won at prices that could

not be profitably delivered.

From a resource-based perspective, the rapid expansion of a firm can bring critical

challenges. Penrose emphasises the risks that “there are times when the difficulty of making

the necessary administrative adaptations may result in a very critical period in a firm’s

growth during which its continued existence hangs in the balance”.150 In particular, Penrose

notes that the risks that may evolve from expansion of a complex nature, not only due to

the “greater variety of managerial tasks to perform”, but also by way of the integration with

the rest of the firm.151 For Jarvis, as expansion increased, the corporate governance and risk

management processes of the firm became inadequate for the new demands placed upon

it, a factor frequently overlooked in the resource-base of a firm.152 As management failed to

evaluate and control the new risks, the lack of integration between activities only

exacerbated problems further.

The process of success and failure is central to Penrose’s view of the resource-based

view. Penrose discusses the fact that the future can never be known with accuracy, and that

32
manager’s decisions “are based on expectations about the future that which are held with

varying degrees of confidence”.153 As managers are forced to take decisions on the basis of

imperfect information in an uncertain environment, some decisions will inevitably turn out

ex post to have been unfortunate despite having been made with the ex ante intention of

maximizing profits. Where managers do not deploy the resources in an efficient manner,

their actions may reveal information that will enable them to learn and make more

informed decisions over time, and if not the firm may fail and the resources be re-circulated

in to the economy to be used by others. The process of success and failure, therefore, are

central to Penrose’s view of the resource-based view, and is one that aligns closely with

Austrian economics.154

In addition to the problem of imperfect information, Penrose highlighted the influence of

path-dependence on managerial decision-making. She argued that: “the services that

resources will yield depend on the capacities of the men using them, but the development

of the capacities of men is partly shaped by the resources men deal with. The two together

create the special productive opportunity of a particular firm.”155 Hence, the managers of

every firm confront a different set of resources leading them to make different strategic

decisions that, in turn, further modify the resource bundle. In addition to the problems of

imperfect information, therefore, firm failure may arise through the path dependent nature

of managerial choices that lock firms in to corridors of activity and/or may hinder the

managers of the firm from learning over time. In the case of Jarvis, the market changed

around how government contracted for the long-run maintenance of public sector infra-

structure through the PFI initiative. The problem for the management of Jarvis was that they

systematically misdiagnosed the risk and under-priced the contracts they won, which then

locked them into long-run losses. The nature of the contracts significantly reduced

33
management’s ability to address their decisions, even if they were able to fully learn from

their mistakes.

Relatedly, West and DeCastro suggest that weaknesses are not static, and may become

more pronounced if either firm strategy or industry changes take place.156 For Jarvis, the

shift to focus on niche PFI contracts unwittingly had the effect of significantly increasing the

long-term value destruction emanating from the resource weakness.157 As Jarvis won more

and more long-term PFI contracts, the salience of the resource weaknesses vis-á-vis its

competitors became more pronounced. As upfront payments accumulated, in the short-

term, management were unaware of the underlying dangers in their construction activities

and focus was drawn to the rail side of the company.

Scholars of the RBV suggest that the resource-base of a firm cannot be changed

instantaneously, and it has been proposed that like strengths and competencies,

weaknesses and inadequacies will take time to develop and manifest themselves.158 The

Jarvis case, however, raises the possibility that for resource weaknesses, there may

sometimes be a greater immediacy of change, highlighting a potential asymmetry with the

characteristics of resource strengths. Asymmetry allows for the causes leading to an

outcome to be different from those leading to the absence of the outcome. 159 For instance,

if one were to model the inverse of high performance, the results of a correlational analysis

would be unchanged, except for the sign of the coefficients. In contrast, a causal

understanding of necessary and sufficient conditions suggests that the set of causal

conditions leading to the presence of the outcome may be different from the set of

conditions leading to the absence of the outcome. Even though the presence of a particular

combination of causes may lead to high performance, it may not be merely the absence of

34
this combination, but the presence of an entirely different set of causes, that leads to low

performance.

The possibility of asymmetries between resource strengths and weaknesses has been

raised in the resource weakness literature, yet the dimension of time has not been

explored.160 The Potters Bar rail crash in 2002 occurred on a stretch of track maintained by

Jarvis, and by the end of the year, victims had already begun legal action against both Jarvis

and Railtrack.161 For Jarvis, the creation of a critical resource weakness, by way of a toxic

company brand, was immediate, with deep reputational damage and hostility towards the

firm. The Jarvis case suggests that resource weakness stocks may be accumulated very

quickly, and as such, may have a more rapid impact on firm performance outcomes than

resource strengths. The handling of resource weaknesses following their manifestation may

be particularly important given their destructive nature, with the Jarvis case demonstrating

how poor management of resource weaknesses may elevate their potency, further reducing

the likelihood of turnaround. In addition, the case highlights the risks to firm performance

that just a small number of resource weaknesses can bring. Whilst the resource-based

literature suggests that value is created from the combinative effects of a range of resource

strengths, Jarvis demonstrates the potentially terminal impact of just a very small number of

resource weaknesses. Rather than mirroring the properties of resource strengths, resource

weaknesses may have different properties that are more immediate and have far greater

performance implications than their resource strength counterparts. Consequently,

resource weaknesses may be of central importance for our understanding of the historical

performance of companies and the decision-making of current management teams.

Whilst the resource weakness of Jarvis’s toxic brand was highly destructive on its own, it

soon became clear that the weakness had the potential to interact with, and elevate the

35
destructive nature of other weaknesses within the company. Arend proposes that

complementary strategic liabilities may exist where weaknesses combine and reinforce one

another. In such cases, the costs to the firm will be greater than if the two liabilities existed

separately.162 Further exploration of this matter was beyond the scope of Arend’s research,

but the case of Jarvis provides a valuable opportunity to do so. Despite the new focus within

the construction business, the resource weaknesses in construction risk assessment and

management persisted. Failure to undertake thorough due diligence and take account of

the likelihood of unforeseen problems occurring during each project resulted in continuous

under-pricing and delays. In normal circumstances, running late on one project would be

unlikely to prevent work with other clients, however, given the ferocity of press attention

on Jarvis that had emerged due to their involvement with the Potters Bar rail crash, each

construction blunder was heavily publicised. Consequently, potential clients across the

country were aware of the company’s failings, impacting on the accumulation of new

contracts and further increasing the reputation damage to the firm. Virtually every mention

of Jarvis in the press was followed by a note to remind readers that this was the company

connected to the Potters Bar train crash. Despite the known shortcomings of Jarvis’s

refurbishment work, interviews with clients suggested the overall quality of the firm’s

construction activities was little different to other companies undertaking PFI work and in

some instances, Jarvis was even above average for satisfaction levels.

From a resource-based perspective, it has been suggested that resource weaknesses can

be assessed in a similar manner to resource strengths, utilising approaches derived from the

work of Barney. 163 For Jarvis, its weaknesses in construction operations certainly

contributed to the destruction in firm value, but were not rare vis-à-vis other competitors.

The potency of the weaknesses, however, were elevated to a height much beyond is rivals

36
when combined with the brand weakness suffered in connection with the Potters Bar rail

crash. The case provides a clear example of how resource weaknesses may combine with

devastating effect on company outcomes. Gaining new work became increasingly difficult

for Jarvis, and in one instance, even a campaign was launched aimed at preventing the firm

from winning a PFI contract due to its history.164 The resource weakness of the Jarvis brand

that had emanated in the rail division, combined with the resource weaknesses in

construction operations, created a near perfect storm. In building on Arend’s work, the case

not only demonstrates how resource weaknesses may interact with one another to

destructive effect, but also suggests that some resource weaknesses may have a greater

propensity to combine with others. A resource weakness in the form of a toxic brand may

have a high level of transferability within an organisation, therefore, creating a heightened

risk that it may combine with other resource weaknesses inside the firm. For Jarvis, whilst

transferable within the company, the brand weakness was economically non-transferable

away from the firm, with efforts to rebrand failing to distance the company from the

liability.

In answering calls for further examination of the categories and characteristics of

resource weaknesses, we suggest that the case of Jarvis provides insight into the nature of

resource weaknesses and combinations thereof that can prevent turnaround and ultimately

lead to firm failure.165 Jarvis had a persistent weakness in assessing and managing risk, with

a lack of due diligence and a failure to account for the potentiality of unforeseen

construction problems resulting in poor pricing, cost and time overruns. Failure to

adequately address this weakness ensured its persistence over time and the weakness

became more salient due to changes in firm strategy. The weaknesses made current

contracts unprofitable for the business, destroying value. We categorise these as “Type 1

37
Resource Weaknesses”: Resource weaknesses that cause value destruction in existing

operations.

In the case of Jarvis we see an underlying Type 1 resource weakness take on a much

greater salience as the firm changed its strategy to move into new areas of business

characterized by long contracts. In itself, although the Type 1 resource weakness increased

in salience due to the strategic re-orientation of Jarvis, its presence may not have been

terminal. We note that the actions of the leadership of the firm, in failing to grasp the firm’s

weakness in relation to contracting, led the firm to take on greater risk associated with

longer contracts. Being locked into longer contracts merely increased the salience of the

Type 1 resource weakness, which was to increase through the duration of the contracts.

In addition, the brand weakness resulting from the train crash and aftermath meant that

trust in the company was so low that the acquisition of new contracts was extremely

difficult. We categorise this as a “Type 2 Resource Weakness”: Resource weaknesses that

prevent new value creation opportunities, as presented in table 2. Each of these resource

weaknesses in isolation can cause serious problems for the firm, but may not be fatal. Type

1 means current contracts may be unprofitable, but still allows for the firm to invest in

reducing the weaknesses so that future contracts may be assessed and managed differently.

Type 2 means new contracts are hard to attract, but if existing contracts are still earning

returns there is still time to invest in reducing this weakness in the hope it can be overcome

in the long-run.

38
 TABLE 2

Resource Weakness Categories

Resource Weakness Category Resource Weakness Case Impact of Resource Weakness

Example: Jarvis in Jarvis case
Type 1 Resource Weakness: Weakness in the assessment Current contracts unprofitable
Destroys value in the existing and management of risk, – poor pricing, frequent
activities of the firm. persistently inadequate due unforeseen construction
diligence. problems, cost and time
overruns.
Type 2 Resource Weakness: Emergence of a toxic brand, Rapid decline in trust. Company
Prevents future value creation primarily from the involvement under intense scrutiny ‘working
opportunities for the firm. of Jarvis in the Potters Bar rail under a spotlight’ in all of its
crash and handling of the business areas – eg., errors
aftermath. made in the construction
business amplified through
national media, preventing
Jarvis from winning new
contracts.

We suggest that the combination of Type 1 (destroying existing value) and Type 2

(destroying future value creation opportunities) may be fatal to any organisation. Investing

to overcome Type 1 (Jarvis risk assessment and management) is only worthwhile if new

value creation opportunities can be quickly gained, which Type 2 (Jarvis toxic brand) makes

extremely unlikely. Overcoming Type 2 weaknesses require investment over the long-term,

and can only be successful if the firm is still generating value from existing operations for

long enough to provide time to reduce the weakness; and Type 1 prevents this option by

destroying value in existing operations, therefore, resulting in the firm running out of time

to trade itself back into a position of sustainability. In summary, we propose that firms

possessing resource weaknesses that are both Type 1 and Type 2 concurrently, may be at

greater risk of catastrophic failure. In essence, Jarvis was caught in a resource weakness

“catch 22”, whereby the Type 1 and Type 2 resource weaknesses re-enforced one another

and led to the demise of the firm.

39
 The case of Jarvis provides a cautionary study in the consideration of both turnaround

research methods and turnaround strategies. There have been criticisms of the short time

frames used to assess the success of corporate turnaround efforts, with calls to undertake

more longitudinal analysis of corporate turnarounds, studying performance over much

larger time frames.166 The case of Jarvis lends further weight and urgency to this call, with

the turnaround strategy and ultimate failure of the company being inextricably linked.

Further research is needed that seeks to examine the performance of turnarounds for a

substantial period after the event, to enable us to develop a greater understanding of the

benefits and risks that may emanate from particular turnaround strategies. Second, for

turnaround practitioners, the case of Jarvis highlights important issues. Whilst path-breaking

acquisitions have been suggested as a potential route out of persistent failure, rapid

expansion into new areas of activity brings inherent risks, in particular the concern that

management fail to fully comprehend the new organisation, creating a heightened risk that

a resource weakness, or combination of weaknesses, may emerge. Where managers fail to

remedy these weaknesses, or choose strategies that greatly rely on these deficient

resources, performance consequences can be catastrophic.

Conclusion

Through the case of Jarvis we have sought to gain a greater understanding of the factors

that may hinder or prevent sustained turnaround, ultimately leading to firm failure. The

RBV, and in particular the concept of resource weaknesses, provide us with valuable insights

into the importance and nature of resources that detract from firm performance, destroying

value. The case of Jarvis demonstrates the dangers that may result from failure to address

resource weaknesses and the risk that strategic shifts to more “attractive” niches may not

40
always enable a firm to escape prior weaknesses. Indeed we suggest that an analysis of

resource weaknesses as part of strategic change efforts during turnaround attempts may be

crucial to ensure that any actions taken do not make existing resource weaknesses more

salient and destructive for the firm. In addition, contrasting with the belief that resource

stocks cannot be changed instantaneously, the immediacy and level of the decline in

resource stocks experienced by Jarvis, resulting from its involvement with the Potters Bar

rail crash, raises the possibility of important asymmetries between resource strengths and

resource weaknesses. In addition, whilst value may be created from the combination of

numerous resource strengths, the Jarvis case shows how only a small number of resource

weaknesses can have a devastating impact on firm performance, with the management of

such weaknesses therefore being critical. Finally, the notion that resource weaknesses may

combine to create costs to the firm greater than if existing in isolation has been mooted in

previous research.167 The case of Jarvis shows such factors at work, creating a fatal outcome

and in so doing enables us to propose categories of resource weaknesses that when

concurrently held, may reduce the likelihood of turnaround.

41
Notes

1. Pearce and Robbins, “Toward Improved Theory”; Pandit, “Recommendations for

Improved Research”; Trahms et al. “Organizational Decline and Turnaround.”
2. Pandit, “Recommendations for Improved Research”; Morrow et al. “Creating Value”;
Trahms et al. “Organizational Decline and Turnaround.”
3. Chapman, “Decline and Rise of Textile”; Jones and Zeitlin, Handbook of Business
History”; Killick, “Transformation of Cotton Marketing”; Sogner, “Fall and Rise of the
Norwegian IT Industry”.
4. Jones & Zeitlin, Handbook of Business History.
5. Whittington, “Alfred Chandler.”
6. Connell, “Entrepreneurial Enterprise”; Jones and Miskell, “Acquisitions and Firm
Growth”; Lee and Xuehua, “The Origins of Business Groups”; Lockett and Wild, “A
Penrosean Theory”; Wild, “Underestimating Strategic Change”.
7. Lockett and Wild, “A Penrosean Theory.”
8. Bibealt, Corporate Turnaround; Hofer, “Turnaround Strategies”; Kanter, “Psychology
of Turnarounds”; Penrose, The Theory, 84.
9. Lockett and Wild, “A Penrosean Theory; Wild, “Underestimating Strategic Change.”
10. West and DeCastro, “The Achilles Heel of Firm Strategy.”
11. Arend, “Strategic Liabilities”; West and DeCastro, “The Achilles Heel.”
12. Trahms et al. “Organizational Decline and Turnaround.”
13. West and DeCastro, “The Achilles Heel of Firm Strategy.”
14. Arend, “Strategic Liabilities,” 1022.
15. Ibid., 1007.
16. Diereckx and Cool, “Asset Stock Accumulation”; West and DeCastro, “The Achilles
Heel of Firm Strategy.”
17. Arend, “Strategic Liabilities.”
18. Sirmon et al. “The Dynamic Interplay.”
19. Pandit, “Recommendations for Improved Research”; Trahms et al. “Organizational
Decline and Turnaround”; West and DeCastro, “The Achilles Heel of Firm Strategy.”
20. Trahms et al. “Organizational Decline and Turnaround.”
21. Arend, “Strategic Liabilities”; Trahms et al. “Organizational Decline and Turnaround”;
West and DeCastro, “The Achilles Heel of Firm Strategy.”
22. West and DeCastro, “The Achilles Heel of Firm Strategy.”
23. Arend, “Strategic Liabilities.”
24. Wild, “Underestimating Strategic Change.”
25. Kipping, Wadhwani and Bucheli, “Analyzing and Interpreting,” 316.
26. Howell and Prevenier, From Reliable Sources, 66; Kipping et al., “Analyzing and
Interpreting,” 318.
27. Bucheli and Wadhwani, Organizations in Time.
28. Gephart, “The Textual Approach,” 1469.
29. Langley, “Strategies for Theorizing.”
30. Ibid, 703.
31. Walsh and Bartunek, “Cheating the Fates.”
32. Annual Report 1989, 2.
33. Jarvis Filed accounts.
34. Jarvis Filed accounts, 1962.

42
35. Jarvis Filed accounts, 1976.
36. Jarvis Filed accounts, 1980, 1981.
37. Annual Report, 1989, 2.
38. Construction News Plus, “Turnover New Leaf in Jarvis”
39. Annual Report 1990, 2; Taylor, “Gloomy Jarvis.”
40. Annual Report 1990, 5; Taylor, “Jarvis Takes Over.”
41. Annual Report 1991; Taylor, “Jarvis Takes Over.”
42. Annual Report 1992, 5; Annual Report 1993, 5-7.
43. Annual Report 1993, 10.
44. Annual Report 1994; Whittington, “Jarvis Announces Plan.”
45. Annual Report 1994.
46. Annual Report 1995, 4-5.
47. Taylor, “Jarvis Shares Jump.”
48. Gordon, “Jarvis is Bolstered.”
49. Taylor, “Jarvis Shares Jump,” 29.
50. Annual Report 1998.
51. Sharewatch, “Jarvis”; Guthrie, “Jarvis Considers Sell-offs”; Guthrie, “The Dealmaker.”
52. Annual Report 1998, 4.
53. Batchelor & Adams, “Railtrack Deal”; Simonian, “Railtrack and Jarvis Settle.”
54. Simonian, “Railtrack and Jarvis Settle,” 17.
55. Annual Report 1998, 5; Ford, “Jarvis to Take Over.”
56. Guthrie, “The Dealmaker,” 21.
57. Pretzilk, “Jarvis Tempers.”
58. Annual Report 1997, 12.
59. Annual Report 1998, 10-12.
60. Annual Report 2000, 14.
61. PwC, “The Value of PFI”, 13.
62. Annual Report 2001, 4.
63. Ibid, 5.
64. Annual Report 2000, 4.
65. Wild, “Underestimating Strategic Change.”
66. Batchelor, “Jarvis Sees Slow Progress”; Batchelor, “Jarvis and Kier Win.”
67. Blitz, “Rail Crash”; Jowitt, “Potters Bar.”
68. Felsted, “Rail Maintenance Shares.”
69. Ibid, 2.
70. Wendlandt, “Rail Group Jarvis.”
71. Blitz, “Rail Crash”; Odell and Tait, “Railtrack and Contractor Sued.”
72. Blitz, “Rail Crash,” 4.
73. Wright, “Jarvis in the Dock”; Wright, “Jarvis to Quit Track Work.”
74. Wright, “Jarvis to Quit Track Work,” 3.
75. Annual Report 2003, 2; Smy, “Jarvis Lands £339m.”
76. Felsted, “Jarvis Faces Criticisms.”
77. Smy, “Pressure of Being in the Spotlight,” 2.
78. Ibid.
79. Ibid.
80. Ibid.

43
 81. Smy, “Moayedi Set to Step Down.”
82. Felsted, “Jarvis to Scale Down,” 2.
83. Felsted, “Teachers in Bid to Stop Jarvis,” 22.
84. Ibid.
85. Ibid.
86. Lancaster University, “Council Minutes”, 9.
87. Deloitte, “Report to Creditors”, 3.
88. Simonsen and Cassady, “From Off-the-rails.”
89. Annual Report 2004, 2-5.
90. Simonsen and Cassady, “From Off-the-rails,” 115-116.
91. Simonsen and Cassady, “From Off-the-rails.”
92. Annual Report 2004, 2.
93. Leftly, “The Fall of Paris”; Simonsen & Cassady, “From Off-the-rails.”
94. Kirklees Investigation Report 1, 2.
95. Ibid, 19.
96. Kirklees Investigation Report 1, 19; Kirklees Investigation Report 2, 7.
97. Kirklees Investigation Report 2, 8.
98. Ibid, 14.
99. Felstead, “Jarvis to Change Name”; Annual Report 1993, 7, 10; Felsted, “Schools
Out”; Harris et al., “Jarvis Shares Fall.”
100. DfES, “Schools PFI”, 14, 15.
101. Annual Report 2004, 19.
102. Annual Report 2004, 22; Felsted, “Chief of Troubled Unit.”
103. Harris et al., “Jarvis Shares Fall.”
104. Pesola, “Jarvis may Face Talks.”
105. Cave and Pesola, “Jarvis rivals in PFI.”
106. Carrillo et al. “Participation, Barriers and Opportunities.”
107. Cave and Pesola, “Jarvis rivals in PFI.”
108. Felsted, “Jarvis Denied”; Felsted, “Jarvis Moves.”
109. HM Treasury, “A New Approach”, 15.
110. Morton, “Construction”, 26.
111. New Civil Engineer (1994). NCE/NB PFI Supplement, July 1994.
112. HM Treasury, “PFI Signed Projects”; Leiringer and Schweber, “Managing Multiple
Markets”.
113. Carrillo et al. “Participation, Barriers and Opportunities.”
114. Ibid.
115. Toms et al. “Profitability of UK PFI”.
116. DfES, “Schools PFI”, 15.
117. Rogers, “Jarvis offloads PFI”.
118. Ibid.
119. Annual Report 2004, 15, 76, 77.
120. Tricks & Tucker, “Departure Finally Draws a Line”; Annual Report 2003; Annual
Report 2004.
121. Tassell, “Jarvis Shares Fall.”
122. Davoudi, “Jarvis Plans an Exit”; Davoudi, “Jarvis Sells Road Unit.”
123. Annual Report 2005, 5.

44
124. Annual Report 2005, 61; Annual Report 2006, 5; Blitz, “Jarvis Sees Continuity.”
125. Annual Report 2007, 16.
126. Davoudi, “Jarvis Comes Back”; Griggs and Boxell, “Jarvis Signals.”
127. Davoudi, “Jarvis Plans an Exit.”
128. Dewson “Jarvis,” 26.
129. Parkinson, “Jarvis Strategic Review”; Dewson, “Jarvis”; Shand, “Rail Shake-up.”
130. Foster, “Jarvis Derailed”; Jameson et al., “With a £50m Deal”; Osborne, “Jarvis Cuts”;
Shand, “Rail Shake-up.”
131. Macalister and Kollewe, “2,000 Jobs at Risk”, 35.
132. Ibid.
133. Lockett and Wild, “A Penrosean Theory.”
134. West and DeCastro, “The Achilles Heel of Firm Strategy”; Arend, “Strategic
Liabilities.”
135. Brady, “Finding a History”; Clark & Rowlinson, “The Treatment of History”; Godfrey
et al., forthcoming “History and Organization Studies”; Kieser, “Why Organization
Theory”; Rowlinson, Hassard and Decker, “Strategies for Organizational History”;
Zald, “Organization Studies.”
136. Jones and Zeitlin, Handbook of Business History.
137. Bibeault, Corporate Turnaround; Hambrick and Schector, “Turnaround Strategies”;
Hofer, “Turnaround Strategies.”
138. Annual Report 1993.
139. Annual Report 1994, 1995; Hall, “Paris Moayedi.”
140. Lumsden, “Cool Heads”; Sharewatch, “Jarvis.”
141. Wild, “Underestimating Strategic Change.”
142. Annual Report 2000, 4.
143. Barney, “Firm Resources”; Barney, “Resource-based Theories”; Dierickx and Cool,
“Asset Stock Accumulation”; Wernefelt, “A Resource-based View.”
144. West and DeCastro, “The Achilles Heel of Firm Strategy.”
145. Annual Report 1993, 1994.
146. See: Trahms et al. for a review.
147. Billings et al., “A model of crisis”; Christensen, “The Innovator’s Dilemma”; Dowell
and Swarminathan, “Entry Timing”; Grinyer and McKiernan, “Generating Major
Change”; Van Witteloostuijn, “Bridging Behavioural.”
148. Pretzilk, “Jarvis Tempers.”
149. DfES, “Schools PFI”, 28.
150. Penrose, The Theory, 208.
151. Ibid, 207-208.
152. Barney, Wright and Ketchen, “The Resource-Based View.”
153. Penrose, The Theory, 56.
154. Lockett and Thompson, “The Resource-Based View and Economics.”
155. Penrose, The Theory, 78–9.
156. West and DeCastro, “The Achilles Heel of Firm Strategy.”
157. Felsted, “Schools Out”; Leftly, “The Fall of Paris”; Simonsen & Cassady, “From Off-
the-rails.”
158. Diereckx and Cool, “Asset Stock Accumulation”; West and DeCastro, “The Achilles
Heel of Firm Strategy.”

45
159. Black and Boal, “Strategic Resources”; Miller, “Organizational Configuratons”; Ragin,
“Redesigning Social Inquiry.”
160 . West and DeCastro, “The Achilles Heel of Firm Strategy.”
161. Odell and Tait, “Railtrack and Contractor Sued.”
162. Arend, “Strategic Liabilities.”
163. West and DeCastro, “The Achilles Heel of Firm Strategy”; Barney, “Firm Resources.”
164. Felsted, “Jarvis to Scale Down.”
165. Trahms et al. “Organizational Decline and Turnaround”; West and DeCastro, “The
Achilles Heel of Firm Strategy.”
166. Wild, “Learning the Wrong Lessons.”
167. Arend, “Strategic Liabilities.”

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