The impact of marketing capability, operations capability and diversification strategy on performance: A resource-based view

Using resource-based view (RBV) of the firm as a theoretical backdrop; we aim to find out the relative impact of a firm's functional capabilities (namely, marketing and operations) and diversification strategies (product/service and international diversification) on financial performance. We hypothesize that this linkage depends on the firm's relative efficiency to integrate its resource-capabilities-performance triad. Using archival data of 102 UK based logistics companies, we find marketing capability is the key determinant for superior financial performance. This study highlights that a market-driven firm is likely to have better business performance than a firm focusing solely on operational capabilities. Also, firms are better off when they focus on a narrow portfolio of products/services for the clients and concentrate on a diverse geographical market. Our findings provide a new perspective to model a firm's functional capabilities and diversification strategy on its financial performance and offer a benchmarking tool to improve resource allocation decisions.     

Opportunity costs and non‐scale free capabilities: profit maximization,corporate scope,and profit margins

The resource‐based view on firm diversification, subsequent to Penrose ( 1959 ), has focused primarily on the fungibility of resources across domains. We make a clear analytical distinction between scale free capabilities and those that are subject to opportunity costs and must be allocated to one use or another, thereby shifting the discourse back to Penrose's ( 1959 ) original argument regarding the stock of organizational capabilities. The existence of resources and capabilities that must be allocated across alternative uses implies that profit‐maximizing diversification decisions should be based upon the opportunity cost of their use in one domain or another. This opportunity cost logic provides a rational explanation for the divergence between total profits and profit margins. Firms make profit‐maximizing decisions to increase total profit via diversification when the industries in which they are currently competing become relatively mature. Due to the spreading of these capabilities across more segments, we may observe that firms' profit‐maximizing diversification actions lead to total profit growth but lower average returns. The model provides an alternative explanation for empirical observations regarding the diversification discount. The self‐selection effect noted in recent work in corporate finance may not be indicative of inferior capabilities of diversifying firms but of the limited opportunity contexts in which these firms are operating. Copyright © 2010 John Wiley & Sons, Ltd.     

Does good governance prevent bad strategy? A study of corporate governance,financial diversification,and value creation by French corporations, 2000–2006

Building on and extending prior research, we propose a comprehensive framework which posits that free cash flow moderates the impact of corporate governance on financial diversification. We argue that because it increases CEO perceived risk, alignment devices increase rather than decrease financial diversification. In a sample of 59 publicly traded French corporations during 2000–2006, we show that financial diversification negatively impacts shareholder return and firm value. We obtain support for several of our hypotheses: at high levels of free cash flow, CEO variable compensation increases financial diversification, whereas chairman/CEO non‐duality reduces it. In contrast, independent directors increase financial diversification at low values of free cash flow (although weakly). We also find that ownership concentration only reduces financial diversification when free cash flow is low.Copyright © 2012 John Wiley & Sons, Ltd.     

Why strategic factor markets matter: “New” multinationals' geographic diversification and firm profitability

This study examines firm profitability differences among “new” multinational enterprises (NMNEs) pursuing geographic diversification into two distinct types of geographic locations based on the development of strategic factor markets. Building on strategic factor markets theory, we propose that firm‐specific advantages of NMNEs contribute differentially to firm profitability because they evolve differently given strategic factor market differences in host compared to home countries. Using a sample of Korean manufacturing MNEs during the 1993–2003 period, we find that geographic diversification into resource‐poorer host countries has a positive relationship with firm profitability, whereas geographic diversification into resource‐richer host countries has a U‐shaped relationship with firm profitability. Our study demonstrates why strategic factor markets—an important and often overlooked contextual factor—matter in exploring rationales for geographic diversification. Copyright © 2014 John Wiley & Sons, Ltd.     

Opportunity costs,industry dynamics,and corporate diversification: Evidence from the cardiovascular medical device industry, 1976–2004

This paper examines how demand conditions across alternative markets impact diversification decisions and firm performance by influencing the opportunity costs of deploying non‐scale free capabilities. Using data within the cardiovascular medical device industry, this study shows that: (1) firms with a larger stock of pre‐entry innovation experience are more likely to diversify; (2) firms in a current market with greater relative demand maturity are more likely to diversify; (3) diversification is associated with a performance decrease in the current market; and (4) diversification is associated with a performance increase at the corporate level. These findings shed new light on the self‐selection process of corporate scope, the conceptualization of firm capabilities, and the connection between industry dynamics and resource deployment. Copyright © 2013 John Wiley & Sons, Ltd.     

Sourcing decisions of project tasks with exponential completion times: Impact on operating profits

When managing a project, a firm must evaluate multiple strategic factors and operational issues before deciding which tasks to keep in-house and which to outsource. We focus on one operational aspect of this evaluation process by examining the impact of different sourcing decisions of project tasks with exponential completion times on operating profits. As an initial attempt, we present two stylized models that capture two simplest types of projects: (a) a project with two “parallel” tasks that can be performed simultaneously and (b) a project with two “serial” tasks that must be performed sequentially. For each model, we determine the optimal operating profit for the case when the firm outsources zero task, one task, or two tasks. These operating profits can be informative for making sourcing decisions of different project tasks.     

Core business regulation and dual diversification patterns in the telecommunications industry

A firm is confronted with the separate decisions of product and international diversification. It is suggested that these postures are linked to external contingencies in firms who face core business regulation. A technique is developed to explain dual diversification patterns using evidence obtained from the new industry comprised of the Regional Bell Operating Companies (RBOCs).     

Intra‐industry diversification and firm performance

We study how intra‐industry product diversity affects firm performance by analyzing the implications of expanding a firm's product line within its core business. We conjecture that increases in product diversity initially undermine performance because of negative transfer effects but then improve it due to economies of scope. We further theorize that this U‐shaped effect of product diversity becomes more pronounced as the firm increases the intensity of its technology investment, yet is likely to be attenuated by the firm's accumulated experience with intra‐industry diversification. Data on 156 U.S.‐based software firms operating from 1990 to 2001 furnish support for these conjectures. Our study advances emerging research on intra‐industry diversification by underscoring some of its contingent performance effects. Copyright © 2013 John Wiley & Sons, Ltd.     

Impact of Strategic Type on Success Measures for Product Development Projects*

Does the strategic type of firm affect which success measures should be used for product development (PD) projects? This paper theorizes that it should and finds that it does because the PD projects undertaken are usually an expression of the strategic type of the firm. The purpose of this research is to affirm a 1996 survey of members of the Product Development & Management Association (PDMA) that proposes that firms' PD performance measures should vary by their strategic type. Thus, for example, prospectors, the strategic type most likely to introduce new products to new markets, should place greater importance on PD success measures consistent with their characteristic strategies of changing product lines and early market entry. In contrast, defenders, the strategic type most likely to maintain stable product lines for existing markets, should place greater importance on PD success measures consistent with their characteristic strategies of stable product lines and market penetration. Analyzers, a hybrid type between prospectors and defenders, should prefer measures consistent with their characteristic strategies for improving products and being early followers in newer markets. To relate strategic types to specific success measures for PD projects, this paper proposes a model of the relationship based on the degree of project newness to the firm and then catalogs measures of PD project success and groups them according to degree of project newness. The research findings are based on survey responses from 222 individuals who are employed by financial service providers, who identified their firms by strategic type and rated the importance of PD success measures to their firms. The importance of 21 performance measures is compared by strategic type to find significant differences among prospectors, analyzers, and defenders. This research finds several significant relationships. prospectors, for example, attach greater importance to customer satisfaction, launch timeliness, and product return on investment, all of which may be characterized as relating to a higher degree of project newness to the firm. defenders and analyzers, on the other hand, attach more importance than prospectors to measures of unit volume, cost reduction, and margin goals, all of which relate to a lower degree of project newness to the firm. In short, because prospectors seek to introduce new products to new markets, they consider important those measures, which accord with greater product and market newness. The major conclusion of this paper is that strategic type affects the importance of project performance measures and that all firms should not use the same success measures. Firms should contextualize their success in PD projects based on their strategic type. This conclusion resonates with previous findings that strategy is a key determinant of PD success, though it is infrequently included in PD success studies. This paper, therefore, challenges the implicit assumption in the mainstream of PD success literature that success can be determined without regard to firm strategy.     

Pricing process as a capability: a resource‐based perspective

Strategists following the resource‐based view argue that firms can generate rents through value creation. To create value, firms develop and use resources and capabilities that other firms cannot imitate, trade for, or substitute other assets for. Even a firm that has created value, however, may not capture the potential rents associated with that value. To capture rents, a firm must set the right prices for what it sells. Most views of pricing assume that a firm can readily set appropriate prices. In contrast, we argue that pricing is a capability. To develop the ability to set the right prices, a firm must invest in resources and routines. We base our argument on a study of the pricing process of a large Midwestern manufacturing firm. We show that pricing resources, routines, and skills may help or inhibit a firm in setting the right price—and hence in appropriating value created. Our view of pricing as a capability contributes to the resource‐based view because it suggests that strategists should consider the portfolio of value creation and value appropriation capabilities a firm uses to create competitive advantage. Our view also contributes to economics because it suggests that strategic decisions about pricing capabilities have important implications for a fundamental economic action, determining prices. Managers in firms without effective pricing processes may be unable to set prices that reflect the wishes of its customers, so the customers may misuse their resources. As a result, resources may be used ineffectively. Our view of pricing as a capability therefore takes the resource‐based‐view straight to the heart of what is perhaps the central economic question: the best use of resources. Copyright © 2003 John Wiley & Sons, Ltd.     

Diversification and Economic Performance: An Empirical Assessment of Chinese Firms

Integrating the impact of both resource and institutional factors and taking into consideration potential agency problems, this study proposes to investigate the joint effect of both related and unrelated diversification strategies on firm performance in an emerging economy setting and to assess empirically the hypothesized relationship using Chinese firms. The empirical results support the basic contention that both resource building and utilization through concentration and related diversification and institutional environmental management through unrelated diversification are important for firm performance in emerging economies but they must be considered together. This paper concludes with a discussion of its contributions, practical implications, and directions for future research.     

New Product Portfolio Management Decisions: Antecedents and Consequences

This research employs organizational information processing theory to propose and examine the antecedents and consequences of new product portfolio management (NPPM) decisions. Understanding NPPM decisions is an important research area because these decisions affect firm profitability but are difficult to make because of limited reliable information. Recent survey results of Product Development and Management Association members and other NPPM professionals suggest nearly half of initial new product ideas are chosen to advance through the new product development (NPD) pipeline via informal processes. Thus, managers wield considerable influence in NPPM. Yet only limited research quantitatively examines how NPPM decisions impact performance and the role of manager dispositions. Using as the research context a marketing simulation exercise conducted with mid‐level managers, this research reveals important insights into the impact of the three NPPM dimensions—value maximization, balance, and strategic fit—on NPD and firm performance. The analysis suggests a critical role for the NPPM dimension of balance as it is the single dimension impacting performance. However, value maximization is relevant as a criterion for competing because, overall, managers see this dimension as important. At the same time, managers are cautioned in their use of strategic fit as it appears this dimension may constrain innovative choices. Furthermore, three manager dispositions proposed from organizational information processing theory—directive leadership style, need for cognition, and risk perceptions—all influence NPPM dimensions. Managers are recommended to consider the personality traits of managers involved in NPPM decisions to ensure thorough consideration of all dimensions.     

Effects of intra- and inter-regional geographic diversification and product diversification on export performance: Evidence from the Chilean fresh fruit export sector

This study examines individually the effects of intra- and inter-regional geographic diversification on the export performance of firms from the Chilean fresh fruit sector. It also explores the direct effect of related product diversification on export performance and its role as a moderator in the relationship between geographic diversification and export performance. By employing panel trade data of 279 purely exporting firms over a six-years period (2010–2015), we found that both intra- and inter-regional diversification have an inverted U-shaped relationship with export performance, where moderate levels of diversification have positive effects on export performance, but higher levels may be counterproductive. Results also showed that related product diversification has a positive effect on firm export performance and a negative moderating effect on the relationship between inter-regional diversification and export performance. In the case of intra-regional diversification, we did not find any moderating effect from product diversification. By focusing on firms from the agricultural sector based in an emerging economy, this study offers practical implications for firm managers, trade organizations and private export associations, that may also be applicable to other export-based activities and emerging economies.     

Industrial marketing firms and knowledge transfer: Toward a basic typology of community structures

Industrial firm boundaries are dynamic, changing with every new alliance or acquisition. As boundaries evolve, managers must develop organizational structures that effectively leverage knowledge. This paper presents and explains the analytical foundation of a typology of community structures, featuring the basic structures of Crew, Séance, and Guru. This typology is applied to three examples of knowledge transfer in industrial marketing. A competence exploitation example examines knowledge transfer between a firm and a subsidiary established primarily for increasing existing product sales in a new market. A competence creation example examines the community structures for utilizing the product and market knowledge of a subsidiary to benefit the firm's new product development decisions. The final example examines the “tech vs. touch” tradeoffs in interpersonal communication and knowledge transfer. The back-to-basics typology of community structures helps stimulate strategic thinking, and facilitates future explorations of knowledge management in industrial marketing.     

A Bayesian operationalization of the resource‐based view

This paper argues that the gap between the theoretical utility and the practical utility of the resource‐based view (RBV) may be narrowed by operationalizing the theory more consistently with Penrose's original framework. The operationalization proposed here is a twofold approach. First, the RBV may be enhanced by the explicit recognition of Penrose's two classes of resources, namely, administrative resources and productive resources. This distinction suggests a focus on the administrative decisions of managers that lead to economic performance. Second, we argue that the RBV is a theory about extraordinary performers or outliers—not averages. Therefore, the statistical methods used in applying the theory must account for individual firm differences, and not be based on means, which statistically neutralize firm differences. We propose a novel Bayesian hierarchical methodology to examine the relationship between administrative decisions and economic performance over time. We develop and explain a measure of competitive advantage that goes beyond comparisons of economic performance. This Bayesian methodology allows us to make meaningful probability statements about specific, individual firms and the effects of the administrative decisions examined in this study. Copyright © 2004 John Wiley & Sons, Ltd.     

Institutional common ownership and firm value: Evidence from real estate investment trusts

This paper contributes to the ongoing debate about whether and how institutional common ownership (ICO) affects firm behavior. Using a sample of equity real estate investment trusts (REITs), which provide significant advantages for isolating a monitoring channel, we find a robust and positive relation between ICO and REIT firm value. The positive relation between ICO and firm value is driven mainly by motivated investors and becomes stronger when we construct our ICO measures using blockholdings. Our difference‐in‐differences analysis, using mergers between institutional investors, suggests a causal relation exists between ICO and firm value. After investigating various channels through which ICO could affect firm behavior, we conclude that asset allocation decisions and performance are the most plausible explanations. Our finding that the monitoring associated with ICO aids managers in their portfolio disposition strategies further supports this conclusion. This enhanced monitoring leads to increased property portfolio returns, as well as more geographic diversification.     

The role of family management and family ownership in diversification: The case of family business groups

This study undertook a panel data analysis of the top 100 family business groups in Taiwan between the years 1988 and 2002 to investigate the role of family management and family ownership structures in diversification using an agency theory approach. The results show that, in the institutional context under study, family management and family ownership play key roles in diversification decisions in family business groups. Specifically, the likelihood of diversification declines as a controlling family assigns more family members to an affiliate firm’s key leadership positions. In contrast, the level of diversification increases as the degree of pyramidal ownership structure increases. The research findings presented in this study (1) clarify the roles that family management and the pyramidal ownership structure play in the diversification decisions of family business groups and (2) provide insights into family business groups’ growth.     

Speed-to-Market and New Product Performance Trade-offs

When pressed to accelerate a development effort, more than a few managers have responded in terms such as “Good, fast, cheap … Pick any two.” Time-to-market decisions clearly play an important role in determining the ultimate success or failure of a new product. Just as clearly, however, speed to market is not the sole determinant of success. The seemingly offhanded “Pick any two” response points to the tradeoffs that product development managers must make in their decisions about development time and costs. Barry Bayus discusses the relationship between product development time and costs, and he fomulates a mathematical model that simultaneously considers the decisions regarding time-to-market and product performance levels. He applies the model to two competitive scenarios, and he identifies the optimal entry timing and product performance decisions for various market, demand, and cost conditions. In the first scenario, a firm must decide whether to accelerate development efforts to catch a competitor that has just introduced a new product. Analysis of the tradeoffs among the various parameters in the model suggests that fast development of low-performance products is optimal under the following conditions: a relatively short window of market opportunity, a weak competitor, and relatively high development costs. For example, if the competitor is weak, high performance levels are not necessary and the firm can safely reduce time-to-market. Under the same scenario (that is, accelerating development to catch a competitor), the analysis suggests that fast development of products with high performance levels is optimal under conditions of relatively high sales and relatively flat development costs. In the second scenario, the firm must decide whether to speed development efforts to beat the competition to market. Analysis of the various tradeoffs for this scenario suggests that first-to-market status for a product with a high performnace level is optimal under the following conditions: a relatively long window of market opportunity, relatively high sales, and relatively flat development costs. With a long product lifecycle, stable margins, and high sales, the firm can generate sufficient revenue to offset the increased cost incurred in speeding a high-performance product to market. Beating a competitor to market with a low-performance product is never optimal for the cases considered here.     

Teamwork and delegation of decisions within the firm

Teamwork effort is related to a number of firm and workers’ outcomes such as firm productivity, innovation or job satisfaction. Thus, it becomes important to understand the factors conducive to teamwork. In this paper, we analyze the relationship between teamwork and the firm organizational design, with a particular emphasis on the decentralization of decision rights. We develop a simple model allowing for different organizational structures, according to whether or not production and firm strategic decisions are delegated. We find that overall delegation of decision making is positively associated with teamwork. However, when we distinguish between delegation of firm strategic decisions and delegation of production decisions, we obtain that it is just the delegation of firm strategic decisions that induces teamwork. We test the model predictions on a unique dataset of Spanish small and medium size firms that contains information on worker self-reported importance of teamwork. The empirical analysis also corroborates previous findings in the literature regarding the positive relation between cooperation and pay incentives.     

The adoption of radical manufacturing technologies and firm survival

The emergence of dramatically innovative, or radical, new manufacturing technologies can force pivotal and life‐threatening decisions for industry competitors. These technologies can represent a huge cost for adopting firms, but may also offer the chance to achieve competitive advantage through superior manufacturing. While prior research has considered a range of production process decisions (e.g., JIT, mass customization) and outcomes for end‐product technologies, little attention has been given to adoption decisions relative to core manufacturing technologies. This study examines an industry's adoption of major manufacturing technologies over several decades and demonstrates that two groups of contingencies related to adoption (e.g., timing and cumulative effects) have a significant impact on firm performance. Based on a sample of over 1,000 firms, the results provide insights into the effects of adoption timing and ‘manufacturing technology bundles’ on firm survival. We also find that adoption of manufacturing technologies prior to the inflection point of the estimated Bass diffusion curve for each technology leads to significant reduction in firm mortality. Thus, we are able to demonstrate the ability of the Bass model to predict the survival outcomes of firms facing manufacturing technology adoption decisions. The strategic implications of these pivotal decisions are considered. Copyright © 2008 John Wiley & Sons, Ltd.