Showing papers in "Strategic Management Journal in 1993"
TL;DR: In this article, the underlying economics of the resource-based view of competitive advantage is elucidated, and existing perspectives are integrated into a parsimonious model of resources and firm performance.
Abstract: This paper elucidates the underlying economics of the resource-based view of competitive advantage and integrates existing perspectives into a parsimonious model of resources and firm performance. The essence of this model is that four conditions underlie sustained competitive advantage, all of which must be met. These include superior resources (heterogeneity within an industry), ex post limits to competition, imperfect resource mobility, and ex ante limits to competition. In the concluding section, applications of the model for both single business strategy and corporate strategy are discussed.
10,149 citations
TL;DR: In this article, the authors focus on the linkages between the industry analysis framework, the resource-based view of the firm, behavioral decision biases and organizational implementation issues, and connect the concept of Strategic Industry Factors at the market level with the notion of Strategic Assets at the firm level.
Abstract: We build on an emerging strategy literature that views the firm as a bundle of resources and capabilities, and examine conditions that contribute to the realization of sustainable economic rents. Because of (1) resource-market imperfections and (2) discretionary managerial decisions about resource development and deployment, we expect firms to differ (in and out of equilibrium) in the resources and capabilities they control. This asymmetry in turn can be a source of sustainable economic rent. The paper focuses on the linkages between the industry analysis framework, the resource-based view of the firm, behavioral decision biases and organizational implementation issues. It connects the concept of Strategic Industry Factors at the market level with the notion of Strategic Assets at the firm level. Organizational rent is shown to stem from imperfect and discretionary decisions to develop and deploy selected resources and capabilities, made by boundedly rational managers facing high uncertainty, complexity, and intrafirm conflict.
8,121 citations
TL;DR: The imperfections of learning are not so great as to require abandoning attempts to improve the learning capabilities of organizations, but that those imperfections suggest a certain conservatism in expectations.
Abstract: Organizational learning has many virtues, virtues which recent writings in strategic management have highlighted. Learning processes, however, are subject to some important limitations. As is well-known, learning has to cope with confusing experience and the complicated problem of balancing the competing goals of developing new knowledge (i.e., exploring) and exploiting current competencies in the face of dynamic tendencies to emphasize one or the other. We examine the ways organizations approach these problems through simplification and specialization and how those approaches contribute to three forms of learning myopia, the tendency to overlook distant times, distant places, and failures, and we identify some ways in which organizations sustain exploration in the face of a tendency to overinvest in exploitation. We conclude that the imperfections of learning are not so great as to require abandoning attempts to improve the learning capabilities of organizations, but that those imperfections suggest a certain conservatism in expectations.
6,071 citations
TL;DR: In this article, an attempt is made to clarify our understanding of the motives that lead firms to cooperate in their innovative efforts, and attention is paid to both sectoral differences in the motivation for partnerships as well as to contrasts in interorganizational features of technology cooperation.
Abstract: Interfirm strategic alliances appear to have become more important as a part of (international) business. In this contribution an attempt is made to clarify our understanding of the motives that lead firms to cooperate in their innovative efforts. Going beyond general theoretical statements and case studies, attention is paid to both sectoral differences in the motivation for partnerships as well as to contrasts in interorganizational features of technology cooperation. Based on a large sample of alliances the analysis reveals some major differences regarding the research orientation of contractual arrangements and organizationally complex alliances.
2,346 citations
TL;DR: Results imply that incentives to monitor and emphasis on strategic controls reinforced by higher top management team tenure result in less board involvement in restructuring, however, restructuring may be initiated by outsiders on the board when other governance and control mechanisms fail.
Abstract: Board of director involvement in restructuring reveals whether restructuring is brought on as an action by the board in its central oversight role or whether managers are purusing positive strategic action or correction Therefore, based on an integration of organization economics (agency theory and market for corporate control) and strategic management theory (internal control and strategic leadership contingencies), this research examines board involvement in restructuring Board involvement is hypothesized to be contingent on the governance mechanisms used by the board to monitor top management, control emphasis used by managers to process strategic information and board and managerial characteristics The basic premise of the paper is that, due to their oversight role, board members (especially outside directors) become involved in restructuring only when managerial strategy implementation appears to be deficient Top management team equity stakes are found to be negatively related to board involvement in restructuring, while outside director ownership is found to be positively related Emphasis on strategic controls by managers was found to be negatively related to board involvement in restructuring Top management team tenure and top management organizational tenure are negatively related to board involvement Outsider representation on the board is positively related to board involvement in restructuring, while board tenure was found to be unrelated Results imply that incentives to monitor (ownership) and emphasis on strategic controls reinforced by higher top management team tenure result in less board involvement in restructuring However, restructuring may be initiated by outsiders on the board when other governance and control mechanisms fail This implies a substitution process between governance tactics (ownership vs board monitoring) and internal controls (managerial vigilance)
2,274 citations
TL;DR: In this paper, a framework linking intangible resources to capabilities has been devised and is used as the basis of a new technique for identifying the relative contribution which the different intangible resources make to competitive advantage.
Abstract: This article is concerned with the role of intangible resources in business strategy. In particular it is concerned with identifying the intangible sources of sustainable competitive advantage. Sustainable competitive advantage results from the possession of relevant capability differentials. Regulatory and positional capabilities are concerned with intangible assets; functional and cultural capabilities are concerned with competencies. A framework linking intangible resources to capabilities has been devised and is used as the basis of a new technique for identifying the relative contribution which the different intangible resources make to competitive advantage. The results of the use of this technique in six case studies are reported.
2,054 citations
TL;DR: In this article, a normative model of fit has been developed, which including the variables of entrepreneurial style, organizational structure, and mission strategy, determines a measure of the firm's fit with its environment.
Abstract: This paper reports the results of a study designed to investigate entrepreneurship and 'fit' in small and medium sized high technology manufacturing firms. A normative model of fit has been developed, which including the variables of entrepreneurial style, organizational structure, and mission strategy, determines a measure of the firm's fit with its environment. The normative model of fit proposed here is based on variables and relationships found to be important in previous empirical studies. Data on environmental turbulence, entrepreneurial style, organization structure, mission strategy, and financial performance were collected from 82 manufacturing firms. A measure of fit was calculated for each firm. Findings indicate that performance among firms was positively related to the measurement of fit. In short, fit is an important construct for firm success. Implications include prescriptive guidance to assist practitioners in diagnosing and correcting 'misfit' for individual firms.
1,306 citations
TL;DR: Results suggest that an executive's tenure in an industry is a pronounced determinant of CSQ, and has significantly more impact than organizational tenure, and the firm's current performance was found to be positively related to CSQ.
Abstract: Some top executives are more committed to the status quo—particularly to their organization's current strategy and leadership profile—than are others. Most empirical research on upper echelons treats psychological phenomena as a ‘black box’—the unobserved intervening mechanisms—that causes associations between more observable executive characteristics and organizational outcomes. In contrast, this paper attempts to directly examine the determinants of an important element of an executive's psychological orientation—commitment to the status quo (CSQ). We focus on a select set of variables which have been posited in prior research as determinants of executive CSQ, but which have not been directly tested for such a relationship. Based on a large-scale survey methodology, results suggest that an executive's tenure in an industry is a pronounced determinant of CSQ, and has significantly more impact than organizational tenure. As expected, the firm's current performance was found to be positively related to CSQ; this relationship was stronger in high-discretion than in low-discretion industries. Finally, the project reaffirms a well known human tendency: incumbent CEOs tend to believe that their eventual successors should be just like them.
1,003 citations
TL;DR: This research shows that industry participants share perceptions about strategic commonalities among firms, and that participants cluster competitors in subtle ways not reflected in extant academic research on strategic groups.
Abstract: The strategic group concept provides an attractive middle ground between firm and industry for both theory development and empirical analysis. To date, this concept has been defined by researchers in terms of secondary accounting and financial data, and a number of critics have questioned the validity of this work. Our research shows that industry participants share perceptions about strategic commonalities among firms, and that participants cluster competitors in subtle ways not reflected in extant academic research on strategic groups. Decision makers' perceptions and cognitions are phenomena that can be expected to influence industry evolution. They are of research interest as an additional source of data on firm commonalities which helps address concerns about previous strategic group research.
885 citations
TL;DR: This paper examines the multiple scenario approach as an important corporate innovation in strategic planning using a participant/observer perspective and examines such organizational aspects as the need for diversity of views and the importance of simplicity and manageability.
Abstract: This paper examines the multiple scenario approach as an important corporate innovation in strategic planning. Using a participant/observer perspective, I examine how scenario planning tries to meet certain methodological, organizational and psychological challenges facing today's senior managers. Three prime characteristics are identified as setting the scenario approach apart from more traditional planning tools: (1) the script or narrative approach, (2) uncertainty across rather than within models, and (3) the decomposition of a complex future into discrete states. After exploring the intellectual roots of scenario planning, I examine such organizational aspects as the need for diversity of views and the importance of simplicity and manageability. Both benefits and obstacles to using scenarios in organizations are identified. Cognitive biases are examined as well, especially the well-known biases of overconfidence and the conjunction fallacy. Two experiments test the impact of scenarios on people's subjective confidence ranges. Another two experiments test the internal coherence of subjects' beliefs. The psychological benefit of scenario planning appears to tie in the exploitation of one set of biases (e.g., conjunction fallacies) to counteract another (such as overconfidence).
825 citations
TL;DR: Results show that technology policy choices vary widely across firms with different business strategies, and that business strategy affects the strength of the relationship between firm performance and particular technology policies.
Abstract: This paper presents a study of the relationships among select business strategy dimensions, technology policy dimensions, and firm performance. The research sought to identify how these variables interrelate at the bivariate and multivariate levels. Data were collected from 103 manufacturing-based firms representing 28 mature industries. Results show that technology policy choices vary widely across firms with different business strategies, and that business strategy affects the strength of the relationship between firm performance and particular technology policies.
TL;DR: It may be more appropriate to use the diversification factor with both the entropy and Rumelt subjective measures for maximum accuracy (however, using either alone would be acceptable), and the results suggest that the SIC measure may be appropriate in more limited circumstances.
Abstract: This study measures the construct validity of an objective (entropy) approach to measurement of diversification strategy. Results indicate strong convergent, discriminant and criterion-related validity for the entropy measure of diversification. In particular, support for the entropy measure of diversification strategy was demonstrated through associations with the Rumelt subjective measure of diversification (convergent validity); size, debt and RD and accounting and market-based performance (criterion-related validity). Using structural equations modeling, the study reports strong standardized validity coefficients with a diversification factor (0.87 for the entropy and 0.94 for Rumelt's measures). The objective (SIC count) measure exhibits a low standardized validity coefficient (0.44) with the diversification factor. In a discriminant validity test, 70 percent of the variance in the entropy measure is unique to diversification while only 2.8 percent and 7.6 percent are unique to leverage and size, respectively. However, only 6.3 percent of the variance in the SIC count measure is unique to diversification. The study suggests that it may be more appropriate to use the diversification factor with both the entropy and Rumelt subjective measures for maximum accuracy (however, using either alone would be acceptable). Also, the results suggest that the SIC measure may be appropriate in more limited circumstances.
TL;DR: The need to create a 'managerial theory of the firm' that would be more attuned to the premises of the key actors within the firm so as to be able to illuminate the corporate world as seen by managers and encompass the issues that they perceive to be important is argued.
Abstract: Driven by a set of radical changes in their internal and external environments, large global corporations are innovating a new organizational form. Premised on knowledge and expertise rather than capital or scale as the key strategic resource, this new form is fundamentally different from the multidivisional organization that had emerged in the 1920s and had become the dominant corporate model in the post-War years. In this article, we describe this new organization using Asea Brown Boveri (ABB) as an illustration, and highlight its differences from the classic M-form by contrasting its structure, processes and decision-making mechanisms against the models proposed by Chandler (1962), Bower (1970) and Cyert and March (1963). Our conceptualization of this emerging organization is grounded in a managerial perspective that is very different from the disciplinary foundations of existing economic and behavioral theories of the firm. We conclude by arguing for the need to create a 'managerial theory of the firm' that would be more attuned to the premises of the key actors within the firm so as to be able to illuminate the corporate world as seen by managers and encompass the issues that they perceive to be important.
TL;DR: In this article, the authors argue that global market diversification, which provides firms with three distinct options and opportunities over domestic firms, can explain the high return-low risk profile.
Abstract: This paper advances a theoretical rationale to explain Bowman's paradox (1980) that firms with high returns can have low risk. Here we draw on the rich body of international management research and argue that global market diversification, which provides firms with three distinct options and opportunities over domestic firms, can explain the high return-low risk profile. We also argue that no strong theoretical rationale exists in support of either related or unrelated product diversification generating such a favorable risk-return profile. By integrating both the product and the global market dimension of diversification into our analyses and by controlling for the industry effect, this paper sheds new light on the relationship between corporate diversification and the risk-return tradeoff. The results of this research, which are based on the diversification experiences of 125 multinationals, reveal the strikingly important, though so far overlooked, role that global market diversification plays in the joint management of corporate risk and return. Global market diversification here reflects both the multiplicity of international market areas in which a firm operates and the distribution pattern of a firm's industries across these multiple areas.
TL;DR: In this article, an empirical investigation of the importance of specialized assets and other unique characteristics of a firm in explaining the variance in capital structure across firms is presented, suggesting a strong link between strategy and capital structure.
Abstract: This paper presents an empirical investigation of the importance of specialized assets and other unique characteristics of a firm in explaining the variance in capital structure across firms. The results show that firm-specific effects contribute most to the variance in leverage, suggesting a strong link between strategy and capital structure.
TL;DR: In this article, the authors analyze the organizational trade-off between static and dynamic efficiency and show that there is a tendency towards extremes, and that the irreversibility of efficiency orientations tends to tip the balance to be struck between static efficiency toward the latter.
Abstract: Efficiency has been defined in at least two different ways: in terms of the refinement of existing products, processes or capabilities (static efficiency) or the development of new ones (dynamic efficiency). This paper analyzes the organizational trade-off between these two forms of efficiency. It shows that there is a tendency towards extremes, and that the irreversibility of efficiency orientations tends to tip the balance to be struck between static and dynamic efficiency toward the latter. The paper also advances hypotheses about the industry, business and corporate factors that mediate between the choice of a particular efficiency orientation and organizational performance.
TL;DR: In this paper, the authors investigated the relationship between ownership structure and corporate restructuring in a sample of 93 surviving public Fortune 500 firms during the period 1981-87 and found that blockholder ownership is associated significantly with corporate restructuring, suggesting that many managers restructured their corporations only when pressured to do so by large shareholders.
Abstract: This paper investigates the relationship between ownership structure and corporate restructuring in a sample of 93 surviving public Fortune 500 firms during the period 1981–87. The results show that blockholder ownership is associated significantly with corporate restructuring, suggesting that many managers restructured their corporations during the 1980s only when pressured to do so by large shareholders.
TL;DR: By expanding the team turnover context to include environmental and strategic dimensions, in addition to previously examined performance and heterogeneity factors, this study enhances the understanding of managerial turnover as a form of organizational adaptation.
Abstract: Based on an organizational adaptation framework, this study examines the influence of three environmental dimensions–munificence, stability, and complexity–on top management team turnover. In addition to investigating the direct influence of these environmental dimensions, indirect effects through firm performance and strategic change are also examined; the indirect effect of environmental complexity through demographic heterogeneity is also studied. Path analysis indicates that the direct effects of the three environmental dimensions predominate. Indirect effects were nonsignificant except for the effect of instability and munificence through strategic change. By expanding the team turnover context to include environmental and strategic dimensions, in addition to previously examined performance and heterogeneity factors, this study enhances our understanding of managerial turnover as a form of organizational adaptation.
TL;DR: Theoretical insights on technological systems and network externalities are employed to understand Sun's open systems strategy and the changing nature of competition in network industries-industries characterized by network internalities and built around technological systems.
Abstract: An integral part of competition is to deny rivals access to proprietary technical knowledge. Yet, Sun Microsystems provides rivals easy access to its technical knowledge and encourages them to enter its workstation market. This paper employs theoretical insights on technological systems and network externalities to understand Sun's open systems strategy. The paper also explores the changing nature of competition in network industries-industries characterized by network externalities and built around technological systems.
TL;DR: The evidence supports the view that executives are important to postacquisition performance, and it is found that providing one or more executives with top management team status in the newly combined firm leads to better postacquisitions performance.
Abstract: Using a sample of 96 acquisitions that occurred between 1980 and 1984, this study concludes that the departure of executives from acquired firms is harmful to post acquisition performance. The negative effects of departures of the highest ranking executives (such as CEOs, Presidents, and Chairmen) appear to be most severe. Acquisition relatedness, contrary to hypothesis, did not moderate the departure-performance relationship. Finally we find that providing one or more executives with top management team status in the newly combined firm leads to better postacquisition performance. Our study implies that executives from acquired firms are an intrinsic component of the acquired firm's resource base, and that their retention is an important determinant of postacquisition performance. Our evidence supports the view that executives are important to postacquisition performance, and we believe that this evidence extends to other restructuring contexts as well.
TL;DR: An empirical test of this theory using data from the global auto industry yields results consistent with the view that alliances are a device for reducing both the uncertainties that arise from unpredictable demand conditions and those that arose from competitive interdependence.
Abstract: The theory articulated in this paper suggests that the desire to reduce demand and competitive uncertainty are two separate, important motives for alliance formation. Taking this as a starting point, we predict the configuration of horizontal alliances that we might expect to observe within an industry when firms experience these uncertainties to different degrees. An empirical test of this theory using data from the global auto industry yields results consistent with the view (1) that alliances are a device for reducing both the uncertainties that arise from unpredictable demand conditions and those that arise from competitive interdependence, and (2) that variation of demand uncertainty and competitive uncertainty across firms explains differentials in both the intensity and structure of their horizontal alliance activity.
TL;DR: This chapter briefly review prior research on corporate restructuring, and then introduces the articles in the special issue, indicating that restructuring can be performance-enhancing for the firm, but it can also have significant unintended consequences.
Abstract: Corporate restructuring is an area of great interest to researchers in corporate strategy, finance and organizational studies. In this chapter, we briefly review prior research on corporate restructuring, and then introduce the articles in the special issue. In the papers in the issue there are indications that restructuring can be performance-enhancing for the firm, but it can also have significant unintended consequences. The papers in this issue apply a broad range of research methods and theoretical perspectives to corporate restructuring, its initiating forces, and its consequences.
TL;DR: Examination of corporate change and renewal in large, established organizations by examining how different types of innovation strategies affect organizational outcomes shows that at least some innovation, change, and corporate renewal is vital.
Abstract: In this paper we explore corporate change and renewal in large, established organizations by examining how different types of innovation strategies affect organizational outcomes. We start from one of the hallmarks of the management literature: a concern with the trade-off between the flexibility and efficiency of large bureaucratic organizations (March and Simon, 1958; March, 1991). In a classic discussion of this trade-off, Thompson (1967: 148–150) termed its management the paradox of administration. In almost all discussions of this paradox, there is virtual agreement that at least some innovation, change, and corporate renewal is vital; Kanter (1983: 23) argues that organizations cannot survive without innovating. Despite this often espoused critical need for innovation, analysts from March and Simon (1958) to the present (e.g., Tushman and Nelson, 1990; March, 1991) have observed that executing rapid, radical change in large organizations is more difficult and less frequent than executing routine, incremental change.
TL;DR: In this paper, an analysis of the U.S. pharmaceutical industry during the period 1963-82 finds that a substantial decline in industry profitability is not explained by changes in the number and size distribution of firms, in segment interdependence and in strategic distance.
Abstract: An analysis of the U.S. pharmaceutical industry during the period 1963–82 finds that a substantial decline in industry profitability is not explained by changes in the number and size distribution of firms, in segment interdependence and in strategic distance. In contrast, declining industry profitability is strongly associated with increasing rivalry. This increasing rivalry is associated with changes in strategic group structure and a concomitant shift from within group rivalry to between group rivalry.
TL;DR: This study presents a new approach for measuring operational performance, an important facet of performance missing in the current literature concerned with international airline strategy, using 'Data Envelopment Analysis' as a technique to analyze and compare operational performance of airlines.
Abstract: This study presents a new approach for measuring operational performance, an important facet of performance missing in the current literature concerned with international airline strategy. International performance assessments of airlines from published financial information are difficult, because (1) most airlines lease a substantial fraction of their aircraft, and (2) different accounting and taxation rules in various countries result in different impacts of leased assets on profit and balance-sheet information. A possible solution are nonfinancial data. For example, the number of available ton kilometers may reflect aircraft capacity more accurately than flight equipment depreciation. However, different units of measurement introduce new difficulties. Drawing on data from 15 airlines, this study utilizes 'Data Envelopment Analysis' as a technique to analyze and compare operational performance of airlines. The study concludes with an analysis of strategic factors of high profitability and performance in the airline industry.
TL;DR: Working paper (University of Michigan. School of Business Administration. Division of Research) describes the design and implementation of a scalable, scalable, and reproducible approaches to predictive analytics that allow for real-time decision-making in the rapidly changing environment.
Abstract: Working paper (University of Michigan. School of Business Administration. Division of Research)
TL;DR: The study proposes a diametric forces model to address the conflicting pressures for strategic change faced by these organizations, and uses extensive longitudinal data spanning the last decade to examine the ways in which restructuring has been used as a successful adaptive response.
Abstract: This study examines the environmental and organizational forces, counter-forces, and performance consequences of strategic restructuring in the higher education industry. The study proposes a diametric forces model to address the conflicting pressures for strategic change faced by these organizations, and uses extensive longitudinal data spanning the last two decades to examine the ways in which restructuring has been used as a successful adaptive response. The results suggest that, contrary to ecological predictions, restructuring is a predictable, common, and performance-enhancing response to changing environmental conditions. The study concludes by discussing the applicability of its findings for research on corporate restructuring and strategic change.
TL;DR: A transaction costs model is presented that shows how parallel sourcing provides incentives for supplier performance associated with multiple sourcing while preserving claimed benefits of sole sourcing.
Abstract: Japanese auto makers are reported to enjoy high supplier performance through long-term relationships, specific investments, and sole sourcing. Quality management consultants in the U.S. have been strongly advocating adoption of these practices. But economic and management theorists would predict that the combination of a high level of relationship-specific investments and sole sourcing will lead to problems with supplier performance. In fact the Japanese auto makers use a hybrid form of organization we term parallel sourcing. We present a transaction costs model that shows how parallel sourcing provides incentives for supplier performance associated with multiple sourcing while preserving claimed benefits of sole sourcing.
TL;DR: A business firm's ‘niche’ or comparative advantage typically has a half-life of years rather than decades; strategic planning must assure a stream of new ideas that allow the firm to find new sources of comparative advantage.
Abstract: A business firm's ‘niche’ or comparative advantage typically has a half-life of years rather than decades. Strategic planning must assure a stream of new ideas that allow the firm to find new sources of comparative advantage. Strategic planning must focus attention on the initial stages of the decision-making processes—opportunities and occasions for choice, and the design of new action strategies for products, marketing, and financing. Product identification and alternative generation are crucial components of strategy. Strategic thinking must permeate the entire organization. Effective identification of employees with the organization's strategy requires their exposure to the basic postulates that underlie strategic plans.
TL;DR: In this article, the impact of debt on R&D intensity for firms undergoing a leveraged buyout was investigated. And the authors developed seven hypotheses based on capital market imperfection theories and agency theory.
Abstract: This paper deals with the impact of debt on R&D intensity for firms undergoing a leveraged buyout (LBO). We develop seven hypotheses based on capital market imperfection theories and agency theory. To test these hypotheses, we compare 72 R&D performing LBOs with 3329 non-LBO control observations and 126 LBOs with little or no R&D expenditures. The regressions yield four statistically significant major findings. First, pre-LBO R&D intensity is roughly one-half of the overall manufacturing mean and two-thirds of the firm's industry mean. Second, LBOs cause R&D intensity to drop by 40 percent. Third, large firms tend to have smaller LBO-related declines in R&D intensity. Fourth, R&D intensive LBOs outperform both their non-LBO industry peers and other LBOs without R&D expenditures.