Showing papers in "Strategic Management Journal in 1988"
TL;DR: In this paper, the authors compare the perspectives of transaction costs and strategic behavior in explaining the motivation to joint venture and propose a theory of joint ventures as an instrument of organizational learning.
Abstract: This paper compares the perspectives of transaction costs and strategic behavior in explaining the motivation to joint venture. In addition, a theory of joint ventures as an instrument of organizational learning is proposed and developed. Existing studies of joint ventures are examined in light of these theories. Data on the sectoral distribution and stability of joint ventures are presented.
3,423 citations
TL;DR: Theoretical and empirical literature on mechanisms that confer advantages and disadvantages on first-mover firms are surveyed and recommendations are given for future research.
Abstract: The use of a fairly standard vehicle width of a little under 2 meters originates from the design of prehistoric carts and sleds as evidenced by rutting in ancient roads which aided in steering Despite dramatic advances in vehicular and infrastructural technologies, the standard has changed little over the millennia The gauges of railroad track, for instance, are now standardized at 4 feet 8 and half inches (1435 mm) across Europe and North America, the same as the first steam railway, and a mere half-inch wider than the typical pre-steam tracks in the mining districts near Newcastle, consistent in size with the wheel gauge used in Roman Britain This standard gauge lasted since it was first used on the Stockton and Darlington railway in 1825, and were adopted by most subsequent lines (Puffert, 2002), despite some railways trying alternatives (eg the Great Western Railway was originally built at 5 feet 6 inches, or 1676 mm) Alternative gauges would have accommodated wider, taller, and faster trains more easily, but the standard gauge that was adopted first acquired advantages as other railways sought compatibility with the standard to obtain access to the uses of earlier lines, and helped lock-in that standard
3,144 citations
TL;DR: In this paper, the authors develop the concept of strategic network, as a tool to understand those cooperative relationships and their role in the strategy of the firm, and show that strategic networks are but a "mode of organization" and analyze the economic conditions of existence of a network.
Abstract: In parallel with a theoretical acceptance of the importance of the laws of competition to formulate strategy, the realization is growing that cooperative behavior among firms is at the root of many success stories in today's management. This situation calls for an effort to develop a theoretical framework to study both aspects of firm behavior (cooperative and competitive) as compatible, complementary aspects of a unique reality. Indeed, the cooperative relationships of a firm can be the source of its competitive strength.
This paper develops the concept of strategic network, as a tool to understand those cooperative relationships and their role in the strategy of the firm. There are three main tasks of the paper: first, to show that strategic networks are but a ‘mode of organization’; second, to study the economic conditions of existence of a network; finally, to analyze the conditions of existence of a network from the point of view of its internal consistency. In a final section some of the most obvious strategic implications of the framework are outlined.
2,457 citations
TL;DR: In this article, the authors present a transaction costs theory of equity joint ventures, and distinguish between scale and link JVs, which arise when parents seek to internalize a failing market, but indivisibilities due to scale or scope economies make full ownership of the relevant assets inefficient.
Abstract: This paper presents a transaction costs theory of equity joint ventures. It distinguishes between ‘scale’ and ‘link’ JVs. Scale JVs arise when parents seek to internalize a failing market, but indivisibilities due to scale or scope economies make full ownership of the relevant assets inefficient. Link JVs result from the simultaneous failing of the markets for the services of two or more assets whenever these assets are firm-specific public goods, and acquisition of the firm holding them would entail significant management costs.
1,890 citations
1,592 citations
TL;DR: Research on reputation-building has formalized the concept and some of the strategic behavioral implications of these formal models are illustrated.
Abstract: A corporate reputation is a set of attributes ascribed to a firm, inferred from the firm's past
actions. While the intuition behind reputation-building is hardly new, recent research has
formalized the concept. We review this research and then, using examples, illustrate some of the strategic behavioral implications of these formal models.
1,258 citations
TL;DR: The findings suggest that customer, economic and competitor sectors generated greater strategic uncertainty than technological, regulatory and sociocultural sectors.
Abstract: Chief executives in 50 manufacturing companies were interviewed about the perceived strategic uncertainty in six environmental sectors, and the frequency and mode of scanning used for each sector. The findings suggest that customer, economic and competitor sectors generated greater strategic uncertainty than technological, regulatory and sociocultural sectors. When sector uncertainty was high, executives reported greater frequency of scanning and greater use of personal information sources. Chief executives in high-performing companies scanned more frequently and more broadly in response to strategic uncertainty than their counterparts in low-performing companies.
1,057 citations
TL;DR: A framework for using joint ventures (and other forms of cooperative strategy) within varying competitive environments is constructed, and hypotheses are developed concerning the impact of particular industry traits upon firms' options in pursuing them.
Abstract: A framework for using joint ventures (and other forms of cooperative strategy) within varying competitive environments is constructed, and hypotheses are developed concerning the impact of particular industry traits upon firms' options in pursuing them. Industry examples illustrate the framework's hypotheses. In this framework, demand traits suggest what types of cooperative strategies are needed. Competitor traits suggest how firms will respond to these needs for cooperation. Since joint ventures can be inherently unstable organizational forms, it is important for managers to (1) select the right cooperative strategy option and (2) modify the autonomy from (and coordination with) sponsoring firms that ventures enjoy as their industry structures evolve. Familiarity with cooperative strategy options is important because (1) as growth slows, (2) as markets shrink or become crowded, (3) as industries become global, or (4) as technological change accelerates to speeds where individual firms cannot recover their initial investments, managers will have less margin for error. If managers do not learn how to use cooperative strategies advantageously their firms may encounter difficulties in delivering adequate value to their customers, replenishing their base of skills, andlor safeguarding their abilities to increase long-term shareholder value.
925 citations
TL;DR: The proposition that the divergence of interest between managers and stockholders has implications for corporate strategy and firm profitability is explored and is tested on 94 Fortune 500 firms drawn from research-intensive industries.
Abstract: This paper explores the proposition that the divergence of interest between managers and stockholders has implications for corporate strategy and firm profitability. Stockholders prefer strategies which maximize their wealth. Managers prefer strategies which maximize their utility. It is theorized that in research-intensive industries, when stockholders dominate, innovation strategies are favored. When managers dominate, diversification strategies are favored. In addition, innovation is argued to be associated with greater firm profitability than diversification. This theory is tested on 94 Fortune 500 firms drawn from research-intensive industries. The results largely confirm theoretical expectations.
812 citations
TL;DR: Using a transaction cost approach, this paper analyzes the relationship between strategy, structure and organizational performance and provides a framework for analyzing corporate strategy choice.
Abstract: Using a transaction cost approach this paper analyzes the relationship between strategy, structure and organizational performance. It addresses three related questions. First, what determines the limit to growth through internalization for a firm pursing a particular strategy? Second, why does a firm pursue different strategies for achieving growth? Third, what determines changes in the strategy and structure used by the firm over time? This analysis serves to integrate work in strategic management and provides a framework for analyzing corporate strategy choice.
699 citations
TL;DR: Level of planning sophistication was found to significantly moderate the previously established strategy-performance baseline, and was associated with significantly higher performance levels than two other groups.
Abstract: This study examined the moderating role of planning sophistication on the strategy-performance relationship in 97 manufacturing firms representing 60 different industries. Cluster analysis was used to group the firms according to their strategic orientation. Five groups emerged. Significant differences in performance across selected groups were found establishing a ‘baseline’ strategy-performance relationship. Strategic orientations emphasizing product innovation or those incorporating ‘efficiency’ and ‘differentiation’ patterns of strategic behavior were associated with significantly higher performance levels than two other groups. The nature of each firm's planning process was then introduced via a two-way ANOVA procedure to determine if ‘process sophistication’ moderated the strategy-performance ‘baseline’. Level of planning sophistication was found to significantly moderate the previously established strategy-performance baseline.
TL;DR: In this paper, the relatedness hypothesis is refined by arguing that relatedness is not a sufficient condition for acquiring firms to earn abnormal returns, rather, only when bidding firms enjoy private and uniquely valuable synergistic cash flows with targets, inimitable, uniquely valuable, synergistic, and unexpected synergisticcash flows, will acquiring a related firm result in abnormal returns for the shareholders of bidding firms.
Abstract: Recent work has suggested that mergers or acquisitions between strategically related firms will generate abnormal returns for shareholders of bidding firms. Empirical evidence on this hypothesis has been mixed. The relatedness hypothesis is refined by arguing that relatedness is not a sufficient condition for acquiring firms to earn abnormal returns. Rather, only when bidding firms enjoy private and uniquely valuable synergistic cash flows with targets, inimitable and uniquely valuable synergistic cash flows with targets, or unexpected synergistic cash flows, will acquiring a related firm result in abnormal returns for the shareholders of bidding firms.
TL;DR: In this paper, the authors hypothesize that tight financial controls associated with large diversified M-form firms lead to a short-term, low-risk orientation and thereby lower relative investment in R&D.
Abstract: This paper hypothesizes that tight financial controls associated with large diversified Mform firms lead to a short-term, low-risk orientation and thereby lower relative investment in R&D. Further, it is hypothesized that increasing levels of diversificati on require different control systems which have significant implications for investing in R&D. Results of the study of 124 major U.S. firms suggest that less diversified U-form firms invest more heavily in R&D than more diversified M-form firms after controlling for size and industry effects. Additionally, dominant business firms invested more in R&D than either related or unrelated business firms. Finally, the relationship between R&D intensity and market performance was negative for related and unrelated firms. The findings suggest that the market evaluates R&D investment more positively for firms that are organized to seek synergy than for those that are organized to pursue a hedging (or diversification) strategy.
TL;DR: Whether and why members of the same strategic group would experience different performance results has received little attention in previous research, and a theory is developed as to how historical differences among strategic group members may result in performance differences.
Abstract: Whether and why members of the same strategic group would experience different performance results has received little attention in previous research. These questions are addressed in this paper. First, conventional theory on the relationship between firm performance and strategic group membership is reviewed. Then a theory is developed as to how historical differences among strategic group members may result in performance differences. An empirical analysis of risk and return relationships is conducted, centered on the nature of environmental change characterizing the industry. The empirical setting throughout is the U.S. pharmaceutical industry over the period 1963–82.
TL;DR: Results indicate that turnover rates in acquired top management teams are significantly higher than ‘normal’ turnover rates, and that visible, very senior executives are likely to turn over sooner than their less-visible colleagues.
Abstract: Little is known about the effects of a merger or an acquisition on an acquired company's management team. This research follows the employment status of target companies' top managers for 5 years from the date of acquisition. Results indicate that turnover rates in acquired top management teams are significantly higher than ‘normal’ turnover rates, and that visible, very senior executives are likely to turn over sooner than their less-visible colleagues. Variations in top management turnover rates, however, are not accounted for by type of acquisition (i.e. related or unrelated).
Abstract: A prevalent view among both academics and managers is that pioneers enjoy an enduring advantage over all later market entrants. The study reported in this paper tests this assertion by comparing the behavior and performance of three entrant categories—namely, pioneers, early followers and late entrants. A population ecology model is used to develop a set of hypotheses and these are tested on samples of start-up and adolescent businesses from the PIMS data base. The results show the three entrant categories to have significantly different strategic profiles and performance levels, with pioneers tending, on the average, to outperform later entrants.
TL;DR: This paper examines the relationship between planning process sophistication and the financial performance of a select group of small firms in a growth industry.
Abstract: This paper examines the relationship between planning process sophistication and the financial performance of a select group of small firms in a growth industry. Multivariate analysis of variance is used to identify statistically significant differences between firms that employ sophisticated plans and those that do not. The results support previous research on strategic planning and financial performance.
TL;DR: Results were generally positive: managerial characteristics not only predicted performance variations within industries—the top performers having significantly different managerial profiles than poorly performing companies—but also that the characteristics of managers within high-performing companies were similar across the five industries.
Abstract: This research tested the relationship between the characteristics and background of U.S. top executives, and measures of corporate performance. Data were obtained from 953 top managers; the dominant coalition of the largest 150 companies within five U.S. industries—dairy, footwear, tyres, mobile homes, and machine tools. Results were generally positive: managerial characteristics not only predicted performance variations within industries—the top performers having significantly different managerial profiles than poorly performing companies—but also that the characteristics of managers within high-performing companies were similar across the five industries.
TL;DR: A framework for assessing and modelling changes in strategy is developed and what methods of observation and analysis are employed to provide a basis for circumscribing, evaluating, and directing future research is reviewed.
Abstract: Confronted by increasingly turbulent and complex environments, general managers have become more interested in understanding the conditions and forces that enable or disable successful changes in organizational strategies. Yet, largely because of their tendency to use fuzzy definitions and inadequate methodologies, empirical studies of changes in strategy have not provided practitioners with a set of well-tested theories. To provide a basis for circumscribing, evaluating, and directing future research, this paper begins by developing a framework for assessing and modelling changes in strategy. After discussing the forces that influence their occurrence and performance outcomes, the paper reviews a representative sample of empirical studies in terms of two major questions: (1) how are changes in strategy conceptualized and modelled? and (2) what methods of observation and analysis are employed? This review concludes with a report of important patterns and concerns followed by suggestions for future research.
TL;DR: The central thesis is that CEO pay is at once both more and less ‘sensible’ than its critics and architects, respectively, contend.
Abstract: Chief executive (CEO) compensation is a potent instrument through which theorists can improve their understanding of organization substance and symbol. This paper reviews and integrates the literature on CEO compensation, focusing on both determinants and consequences of this complex, often controversial phenomenon. The central thesis is that CEO pay is at once both more and less ‘sensible’ than its critics and architects, respectively, contend. Comprehending CEO compensation, whether for purposes of description or prescription, requires the use of multiple perspectives—economic, political, social, and individual.
TL;DR: It is reaffirmed that firms which diversify into related businesses have, on the average, higher profitability than non-diversified firms, although these results are not always statistically significant.
Abstract: Two major diversification strategies of firms are examined: diversification into related businesses and diversification into unrelated businesses. The first strategy attempts to exploit operating synergies. In the second, the firm attempts to gain financial benefits from its ability to increase leverage due to a greater stability of cash flows.
The study utilizes a large sample affirms to assess empirically the benefits and costs of these two diversification strategies by developing a new measure of diversification across business cycles and economic sectors. This new measure is compared with Berry—Herfindahl type measures of total diversification and recent measures of diversification into related businesses.
The results indicate that pure financial diversification is associated with (a) more stable cash flows, i.e. lower operating risk; (b) increased levels of leverage; and (c) lower profitability. These observations are in accord with the theory. We also reaffirm that firms which diversify into related businesses have, on the average, higher profitability than non-diversified firms, although these results are not always statistically significant.
TL;DR: In this paper, the authors examined the time-series behavior of ROI to assess a central element of competitive markets, the lack of persistence of abnormal profits, and examined how strategic and market factors influence this process, which can insulate a firm from competitive forces and so result in longer-term abnormal profits.
Abstract: The time-series behavior of ROI is examined to assess a central element of competitive markets, the lack of persistence of abnormal profits. The analysis first determines the aggregate dynamic process of ROI and then examines how strategic and market factors influence this process. Consistent with abnormal returns resulting from a disequilibrium phenomenon, a mean reverting time-series process approximates the behavior of ROI. While a variety of factors influence the persistence of return, the conditions under which market forces do not drive return back to its competitive rate seem remote, if present at all. Nonetheless, these factors can insulate a firm from competitive forces and so result in longer-term abnormal profits.
TL;DR: In this article, a corporate strategy perspective may complement the traditional financial paradigm in explaining capital structure in large U.S. corporations, and results suggest a managerial choice perspective may help to explain the capital structure choice at the firm level of analysis.
Abstract: The basic thesis of this exploratory investigation was that a corporate strategy perspective may complement the traditional financial paradigm in explaining capital structure in large U.S. corporations. Earlier fusion of strategic and financial literature led to a series of propositions antecedent to this work. Inclusion of Rumelt's diversification categories plus elsewhere validated financial contextual variables led to hypotheses for the present study. Results suggest a managerial choice perspective may help to explain the capital structure choice at the firm level of analysis.
TL;DR: It is explained how culture can be economical, and when different types of cultures will flourish, and it is suggested when they will flourish.
Abstract: Corporate culture is a set of broad, tacitly understood rules which tell employees what to
do under a wide variety of unimaginable circumstances. We explain how culture can be
economical, and suggest when different types of cultures will flourish.
TL;DR: In this article, the authors argue that quasi-vertical integration via franchising can circumvent the problem of monitoring employees in a large enterprise and lead to larger-scale retail outlets, using U.S. Census data from the eating place and motel industries.
Abstract: One consequence of vertical integration is increased firm size with the related problem of monitoring employees in a large enterprise. Writers on the theory of the firm suggest that this phenomenon is part of the entrepreneurial capacity problem. This paper argues that quasi-vertical integration via franchising can circumvent the problem and lead to larger-scale retail outlets. Using U.S. Census data from the eating place and motel industries, the empirical evidence in this paper suggests that physical dispersion of outlets and the value of brand name capital increase the entrepreneurial capacity problem, but that franchising offsets these forces and permits somewhat larger local outlets than using nonfranchised operations.
TL;DR: A typology evaluating the feasibility of strategy combinations is developed and the typology's implications for research and managerial practice are discussed.
Abstract: This paper discusses possibilities for combining collective and competitive strategies. Combinations can be problematic if competitive intentions are disclosed through the information links resulting from collective strategies. After describing how different collective strategies may lead to an uncontrolled disclosure of strategic information, a typology evaluating the feasibility of strategy combinations is developed. The typology's implications for research and managerial practice are discussed.
TL;DR: By examining dominant logic in relation to the functions and systems of corporate management, it is possible to operationalize the concept of dominant logic and identify the key components of relatedness at the strategic level.
Abstract: The importance of Prahalad and Bettis's concept of dominant logic is in emphasizing business relatedness at the strategic rather than the operational level. By examining dominant logic in relation to the functions and systems of corporate management, it is possible to operationalize the concept of dominant logic and identify the key components of relatedness at the strategic level.
TL;DR: A revised model for relating strategy and structure in MNCs is proposed, and a new element of strategy, the relative size of foreign manufacturing, is introduced, and found to be an important predictor of structure.
Abstract: The Stopford and Wells study of strategy and structure in multinational corporations produced a now familiar model relating certain types of structure to certain elements of a firm's international strategy. This paper re-examines the important relationships expressed by the model, using data from a recent study of 34 large U.S. and European multinationals. While some of the relationships are supported, others are not. A new element of strategy, the relative size of foreign manufacturing, is introduced, and found to be an important predictor of structure. Based on the findings, a revised model for relating strategy and structure in MNCs is proposed.
TL;DR: Results show that the way human resources are selected, deployed, compensated and motivated will play a significant role in subsequent export performance.
Abstract: This longitudinal study examines the effect of human resources strategy on the export performance of 388 Florida firms. After controlling for differential firm advantages, managerial perceptions and aspirations, and marketing activities, results show that the way human resources are selected, deployed, compensated and motivated will play a significant role in subsequent export performance.
TL;DR: It is found that diversified firms outperformed specialized firms and there was no evidence that related diversification was more successful than unrelated and the findings conflict with those of earlier U.S. studies.
Abstract: This study examines differences in profit and sales performance between the different Wrigley/Rumelt categories of diversification strategy. Our sample comprised 305 large U. K. manufacturing companies over the period 1972–84. Although diversification strategy explained only a small proportion of inter-firm performance differences, once the influence of other firm and industry variables were taken into account, significant differences did emerge. Our findings conflict with those of earlier U.S. studies. In particular, we find that diversified firms outperformed specialized firms and there was no evidence that related diversification was more successful than unrelated.