Multidivisional structure and capital structure: The contingency of diversification strategy

This study examines the relationship between the implementation of the multidivisional (M-form) organizational structure, capital structure and diversification strategy. Findings indicate that implementation of the M-form structure from a hierarchical (U-form) structure is associated with a general increase in the long-term debt-to-equity ratio for all firms, a result that supports a free-cash-flow argument for the use of debt in restructuring to reduce the opportunism of management. Further, as implied by arguments from transaction cost economics, the debt-to-equity ration differs for different types of diversification strategy.     

THE ADOPTION OF THE MULTIDIVISIONAL FORM OF ORGANIZATION: A CONTINGENCY MODEL*

This article examines the proposition that the multidivisional structure is determined by both power and efficiency imperatives. It is theorized that combining the coalitional power and information-processing perspectives of organizational choice enables us to explain and predict organizational form. The theory is tested on 291 Fortune 500 firms. The results largely confirm theoretical expectations. It is submitted that the multidivisional paradigm illustrates the central premises of the article: (1) a synthesis of efficiency and power perspectives is a viable research programme; and (2) theoretical pluralism increases empirical content and should be valued by those concerned with progress in the emerging field of strategic management.     

An economic analysis of matrix structure,using multinational corporations as an illustration

This paper applies a comparative institutional perspective to the organizational design called matrix structure. After discussing the motivations for a multidimensional form of organization, the paper compares the transaction cost characteristics of the matrix (MX-form) structure with those of the well-known multidivisional (M-form) structure. This analysis reveals three advantages and three disadvantages of the matrix structure as well as two conditions affecting the efficacy of a matrix. Examples from multinational corporations are used throughout the paper to illustrate the analysis. © 1998 John Wiley & Sons, Ltd.     

DIVISIONALIZATION,DECENTRALIZATION AND PERFORMANCE OF LARGE UNITED KINGDOM COMPANIES 1

Questionnaire survey data from 144 large U.K. firms are used to describe and discuss the nature of organization design in major companies. It was found that the majority of firms were multidivisional. However a considerable variation in internal operating procedures was found which emphasized that many multidivisional companies do not behave in the way that the strategy/structure literature predicts. Empirical testing of the relation between structure and financial performance also emphasizes that divisionalization is not necessarily the key to a superior profit performance. Rather it would appear that organizational procedures need to be reconsidered in the light of recent divisional structures established in many companies. It is argued that a powerful divisional head office may weaken overall performance and that instead greater attention should be paid to the opportunity to decentralize operating decisions to the individual business units within each division.     

Strategic stakeholder management,environmental corporate social responsibility engagement,and financial performance of stigmatized firms derived from Chinese special environmental policy

We draw upon the stigma literature and strategic stakeholder management model to develop a framework capable of explaining the link between environmental corporate social responsibility (ECSR) engagement and financial performance of stigmatized firms, taking stakeholder‐oriented governance and density of local stigmatized firms into consideration. Using a uniquely compiled dataset of Chinese firms specifically monitored by the Ministry of Environmental Protection of China, we conducted propensity score matching analysis to estimate the impact of stigma on corporate financial performance and corporate environmental responsibility. The result shows that the financial performance of stigmatized firms is negatively affected by the stigma label, spurring them to engage in more ECSR than their peers to improve their legitimacy. Though ECSR engagement of stigmatized firms is found to be negatively associated with their financial performance in current study. Our results also confirm that (a) the financial performance of stigmatized firms is positively affected by two proxies for corporate stakeholder‐oriented governance (i.e., institutional ownership and corporate transparency) and negatively affected by the density of local stigmatized firms; (b) corporate stakeholder‐oriented governance compensates for the negative effect of ECSR engagement; (c) high intensity of local stigmatized firms provides focal firms with an opportunity to improve their financial performance through ECSR engagement; and (d) the positive effects of corporate stakeholder‐oriented governance are diminished by the density of local stigmatized firms.     

The effect of performance measurement systems on firm performance: A cross-sectional and a longitudinal study

Performance measurement (PM) systems have been popularized over the last 20 years and the operations management literature is replete with discussion of metrics and measurement systems. Yet, a comprehensive nomological network relating types of PM system uses to organizational capabilities and performance is lacking. Furthermore, there is scant empirical evidence attesting to the explanatory efficacy of PM systems as it relates to organizational performance. We view PM system uses through the lenses of the Resource Orchestration Theory (ROT) and explore specific relationships of underlying variables by relying on the Organizational Information Processing Theory (OIPT). Resting on the extant literature, we identify two types of uses which include Diagnostic Use (the review of critical performance variables in order to maintain, alter, or justify patterns in an organizational activity) and interactive use (a forward-looking activity exemplified by active and frequent involvement of top management envisioning new ways to orchestrate organizational resources for competitive advantage) and relate them along with their interaction (i.e., dynamic tension) to organizational capabilities. We further link capabilities to target performance, which subsequently impacts organizational performance (operationalized through both perceptual and objective financial performance measures). The nomological network is tested via a cross sectional study (386 Italian firms) while the efficacy of PM systems to explain organizational performance is examined by using longitudinal panel data approaches over a 10 year period. There is sufficient evidence to suggest that the use of PM systems leads to improved capabilities, which then impact performance. Contrary to the extant literature, however, we discovered that Diagnostic Use appears to be the most constructive explanatory variable for capabilities. On the other hand, in light of a longitudinal study, we also uncovered that Diagnostic Use experienced depreciating returns as far as objective financial measures are concerned. Also, when high levels of Diagnostic Use were coupled with low levels of Interactive Use, they produced the lowest levels of organizational capabilities. Conversely, high levels of both types of PM system use generated extraordinary high levels of capabilities. There is sufficient evidence to suggest that organizations cannot rely merely on Diagnostic Use of PM systems. We also learned that the effects of PM systems (measured via adaptation) fade unless high learning rates are applied. We offer detailed recommendations for future research which have theoretical as well as empirical implications.     

The Impact of Profit Sharing on the Performance of Financial Services Firms*

abstract Relying on macro theories (agency and organizational control) as well as micro theories (goal setting and expectancy), this study investigates the impact of profit‐sharing plan (PSP) adoption on the value creation process of financial services firms. The study relies on a comprehensive methodological approach that is both quantitative, with a dual cross‐sectional/longitudinal (pre‐post) design that compares PSP adopters with a control group of PSP non‐adopter firms, and qualitative through interviews with some adopting firms’ managing directors. Results show that firms adopting a PSP enhance their profitability in comparison to both their own prior performance and to firms that are not adopting a PSP. Results also show that the adoption of a PSP: (a) positively influences only profit drivers that are under employee control; and (b) is more likely to have a long term, positive impact on external profit drivers than on internal profit drivers. Qualitative data from field interviews corroborate and enrich these quantitative findings.     

Peering at the Past Century's Corporate Strategy Through the Looking Glass of Time‐Series Analysis: Extrapolating from Chandler's Classic Mid‐Century American Firms?

ABSTRACT This study has a dual thrust. Substantively , it revisits Chandler's pragmatic fit-performance directive (Chandler's 'efficiency thesis') or his assertion that firms whose structure matches their strategy become more effective than mismatched firms. It is important to revisit the empirical origin of this result in view of its gradual international extrapolation beyond the time and place in which it originated. By gathering the financial data relevant to the firms cited as examples by Chandler, we identify whether the change to the multidivisional structure did indeed lead to improved financial performance in the mid-twentieth century American firms he described. Methodologically , it explores a novel approach to the empirical validation of basic theories. Using historical replication, it undertakes a longitudinal, time-series analysis of a classic theory based on twentieth-century data, and thus investigates the testing of classic data with a modern tool. We undertake multiple replications. Three separate longitudinal studies are performed, consisting of two forecasting methods applied to 11 individual time series, and a comparison technique applied to the same. These are used with the three most common measures of performance at the time of Chandler's writing. All three methods reveal that the differences predicted by his theory are not borne out by the longitudinal analysis of a core group of Chandler's own exemplary firms. The three sets of longitudinal analyses we present raise some substantive questions regarding this cornerstone of classical theory, and carry positive methodological portents regarding the use of historical replication as a stepping-stone for twenty-first-century research.     

Industry 4.0 and circular economy practices: A new era business strategies for environmental sustainability

Amid rising environmental concerns, Industry 4.0 and blockchain technology (BCT) are transforming circular economy (CE) practices and prevailing business models. Recognize the same; this study examines the role of blockchain technology in circular CE practices and their impact on eco-environmental performance, which influences organizational performance. The study collects data from 404 enterprises located in Chinese and Pakistani territories, involved in cross-border supply chain operations. Both countries' sample has great relevance due to the China Pakistan Economic Corridor (CPEC), which possesses several positive fallouts in terms of technology spillovers across firms. Using the partial least squares structural equation modeling (PLS-SEM) modeling framework, this study provides three key findings. First, BCT significantly improves the circular economy practices (circular procurement, circular design, recycling, and remanufacturing). Second, CE practices help improve firms' environmental performance and stimulate their financial performance. Third, higher eco-environmental performance significantly boosts organizational performance. This study sets out the foundations for participating countries/firms that simultaneously achieve financial and sustainable goals by integrating blockchain technology in circular economy practices.     

Radical innovations in new product development and their financial performance implications: An event study of US manufacturing firms

At the dawn of the 21st century, global competition continues to increase at an accelerating rate and radical innovation is recognized as a potent weapon for firms to achieve sustainable competitive advantages. Academics, practitioners and consultants share the view that radical innovation is important to the long-term financial success of firms. Nevertheless, empirical studies on the relationship between radical innovation and firm performance have been dominated by survey research, which provided little concrete evidence on the financial impact of radical innovation. In this study we traced the financial performance of publicly traded manufacturing firms in the United States that introduced radical innovations over the period 1986-2000 and examined whether radical innovation could lead to superior financial performance in these firms. We employed the event-study method, matching each sample firm with a control group of firms in the same industry with similar pre-event performance and firm size. Our results show that while radical innovation helps firms maintain sales growth and return on sales (ROS), firm profitability in terms of return on assets (ROA) is not significantly improved. In fact, manufacturers suffer from a decline in profitability upon the introduction of radical innovations in new product development.     

Workplace innovation,employment relations and HRM: two electronics companies in South Korea

Analysing two electronics companies (unionized LG Electronics and non-union Samsung SDI) in Korea, the present paper investigates the impact of union status on workplace innovations and the effects of workplace innovations on organizational performance. Both case firms are considered highly innovative, model companies in terms of their sophisticated human resource management (HRM) and cooperative employment relations (ER). We first provide a conceptual framework and generate three propositions. The framework is composed of three main components: input, organizational system and output. The major findings include: (1) the adoption of high performance work organizations (HPWO) is highly dependent upon top management and union/employee representatives; (2) the two case firms adopted two different production modes (a team production mode in LG Electronics and a lean production mode in Samsung SDI); and (3) alignment among organizational design and work processes, ER systems and HRM systems would lead to high organizational performance. We also discuss the transferability of HPWO to other cultural settings in a universalism-contingency context.     

Training and business performance: the Spanish case

This paper examines the relationship between training policies and business performance. Our research seeks to enlarge the empirical bibliography about the impact training has on firms and tries to challenge the criticism previous works with similar characteristics received. With this purpose in mind, we have used a theoretical model based on the hypothesis of a ‘cascade-type relationship’ between four types of organizational performance. The results obtained from a sample of Spanish firms show that training policy (based on the human capital theory and the resource-based theory) has a significant impact on firm performance.     

The relationship between resources,entrepreneurial orientation and performance in farm-based ventures

The purpose of this paper is to investigate how firm-specific resources and entrepreneurial orientation (EO) of the firm may influence performance in small farm-based ventures. It builds upon theoretical strands from the resource-based and entrepreneurship perspectives. Research within these fields indicates that these relationships might be dependent on the context within which the firm operates. Hypotheses are developed to test the possible effect of entrepreneurial efforts and resources (financial position, farm size, location, network and unique competence) on short- and long-term performance. Data gathered in 2003 and 2006 from farms engaged in innovative ventures were used to test the hypotheses. The results show that financial capacity, unique competence and entrepreneurial efforts influence performance in the investigated firms. This suggests that firms do get paid back in the long run for engaging in entrepreneurial efforts. Thus, entrepreneurial activities and attitudes represent an important factor enabling firms to create, reconsider and apply their resources in more efficient ways.     

Organizational Culture: A ten Year, Two-phase Study of Change in the UK Food Retailing Sector

This paper argues that much of the current motivation for the study of organizational culture is fuelled by research which finds an association between culture and performance as well as by studies which suggest that culture is comparatively easily changed. However, much of the research upon which these claims are based is largely firm-specific with little critical evaluation of industry macrocultures and the impact that such cultures may have on both the performance of individual firms and the management of organizational culture. Through assessing separate change programmes spaced ten years apart, this paper documents and analyses the similarities and differences in the rationale, form, substance and impacts of two separate culture change initiatives in the same macroculture spaced ten years apart. These analyses suggest a number of conclusions and implications for both theorists and practitioners. In particular, the study argues that researchers examining organizational culture should devote significantly greater attention towards studying the effects of sector or industry macrocultures.     

Conformity or divergence in describing the business concept and profitability

The relationship between conformity or divergence in the way CEOs and chief financial officers describe the business concept, and profitability, was studied in 20 firms in one industry. Measures were obtained for firm size, profitability, degree of conformity, organizational stability, product development and the CEO's influence on strategic decisions. Controlling for the effect of size, the relationship was analysed in stepwise multiple regression analyses. Conformity was positively correlated to profitability in stable organizations, and (weakly) to divergence in unstable ones. These findings are consistent with those reported in studies of top management team consensus and performance, which suggest that environmental turbulence has a moderating effect on the relationship. It is concluded that environmental contingency factors affect the conformity-profitability relationship by way of organizational processes. Consequently, differences in organizational stability should be taken into account in studying the impact of environmental conditions on this relationship.     

Do norms of decision-making styles,organizational design and management affect performance of Japanese firms? an exploratory study of medium and large firms

The success and resilience of Japanese firms have led many scholars and practitioners to theorize and speculate about the impact of what they have termed the 'Japanese management style' upon performance. There have been few studies that have attempted to explore empirically the links between the way Japanese firms organize, manage and decide, and their performance. This paper investigates the association between norms of decision-making style, organizational design and management, and some measures of firm performance. The empirical pattern of norms was assessed on the basis of responses of a random sample (N = 349) of Japanese managers. The study demonstrates that while there appears to be no support for the proposition that certain norms universally affect performance, in some sectors the impacts of norms on decision-making style, organizational design and management may be significant. The study concludes with the implications for theory building of this empirical exploration.     

What drives financial performance-resource efficiency or resource slack?: Evidence from U.S. Based Manufacturing Firms from 1991 to 2006

Extant research in operations management has revealed divergent insights into the value potential of resource efficiency. While one view relates efficiency with good operations management and asserts that slack resources are a form of waste that should be minimized, the other view suggests that limited resource slack can impose heavy costs on firms by making them brittle. In this research, the authors build on these views to investigate the relationship of inventory, production, and marketing resource efficiency of firms with three metrics of financial performance (i.e., Stock-Returns, Tobin's Q, and Returns-on-Assets). The authors evaluate the theoretical framework using secondary information on all U.S. based publicly-owned manufacturing firms across the 16-year time period of 1991-2006. Analysis utilizing a mixed-model approach reveals that a focus on resource efficiency is positively associated with firm financial performance. However, findings also support the arguments favoring slack, indicating that the financial gains from resource efficiency exhibit diminishing returns.     

The impact of a firm's make, pseudo-make, or buy strategy on product performance

The bulk of the product architecture and make-buy choice literature deals with product architecture changes from integral to modular form. This development is often associated with a firm's tendency to change from a make to a buy strategy. However, a few studies investigate the change of product architecture in the reverse direction - from modular to integral form - and the subsequent change in the firm sourcing decision from a buy to a make strategy. These studies hold to the presumption that a firm following a make strategy will outperform firms following a buy strategy in dealing with integral product architectures. Based on the knowledge-based view, we argue for the viability of a sourcing strategy between the pure make and buy strategies - a pseudo-make strategy. We also argue that as product architecture changes from a modular to integral form, firms adopting this pseudo-make strategy are likely to show better product performance than firms following a pure make or buy strategy due to the relative knowledge advantages of the pseudo-make strategy in dealing with the integral product architecture. We examine the impact of the make/pseudo-make/buy strategies on product performance in the U.S. bicycle derailleur and freewheel market from 1980 to 1992 and provide theoretical and managerial implications of our results. Our findings highlight an important distinction between the pseudo-make and make-buy strategies that has not previously been fully appreciated in the extant literature, and as a result increases our understanding of why some firms do not switch strategies from a buy to a make strategy when product architecture changes from modular to integral form as previously expected.     

A multi-level examination of quality-focused human resource practices and firm performance: evidence from the US healthcare industry

In today's business world, the role of quality has become ever more significant for organizations to compete in a global marketplace. Based on the quality management theory, this study empirically examines the relationship between quality-focused human resource practices (QHRP) and organizational performance outcomes. Data from 69 healthcare organizations indicate a strong support for this relationship. A Human Resource (HR) system focused on quality management was directly related to multiple dimensions of organizational performance outcomes (i.e., intangible – employee satisfaction and customer satisfaction – and tangible – profit). Specifically, two measures of QHRP, knowledge management and strategic management, were found to be positively related to the financial performance of firms implementing quality management. Process management is found to be negatively related to employee satisfaction. General Human Resources were positively related to both employee and customer satisfaction. Employee focus of the firms is also positively related to employee satisfaction. In addition, employee satisfaction is also related to both customer satisfaction and financial performance while customer satisfaction is found to be positively related to employee satisfaction. The findings indicate a generally strong positive relationship with the organizational performance outcomes. The results of this study are particularly important in showing HR's contribution to the organization's bottom line.     

Bridging the gaps or fecklessness? A moderated mediating examination of intermediaries’ effects on corporate innovation

Intermediaries are frequently used as external institutions to bridge knowledge gaps and enlarge innovation search. Although there is a consensus that ties with intermediaries have a significantly positive impact on firms’ innovation performance since external knowledge sources are important to firms’ innovative activities, far less is known about how these intermediaries become effective drivers of corporate innovation. From the capacity-based view, this study proposes that intermediaries facilitate the development of dynamic capability which further causes remarkable innovation. A firm's dynamic capability acts as a mediator in the relationship between intermediaries and innovation performance. It is also observed that organizational structure formalization and strategic conformity negatively moderate the mediation effect. This proposed theoretical framework is proven by empirical results from a moderated mediation analysis using a sample of Chinese manufacturing firms.