The independent and joint effects of the skill and physical bases of relatedness in diversification

By examining the independent and joint effects of the skill and physical bases of relatedness, this study develops a multidimensional view of relatedness in diversification. The paper compares the ways the two bases identify relatedness, and examines empirically the relationship between relatedness and performance for a sample of 158 large diversified manufacturing firms. Each base of relatedness alone had no significant effect on financial performance. However, when the two approaches were combined, there was a strong positive effect on most indicators of performance. The findings demonstrate how different bases of relatedness complement and extend one another, and they clarify findings of previous studies that used a single base of relatedness. © 1998 John Wiley & Sons, Ltd.     

A resource-based approach to the multibusiness firm: Empirical analysis of portfolio interrelationships and corporate financial performance

The resource-based view of the firm has provided important new insights into corporate strategy (Barney, 1991; Peteraf, 1993); however, there has been only limited empirical research linked to the theory (e.g., Farjoun, 1994). Although a great deal of work has been done on Corporate diversification, the measures and data typically have a weak connection to resource-based theory. Empirical research on resource-based corporate strategy has been particularly dificult because key concepts such as tacit knowledge or capabilities resist direct measurement. This study is an effort to narrow the gap between theory and empirical research on the multibusiness firm. It develops a resource-based approach to modeling interrelationships among businesses and applies it to the analysis of corporate economic performance. This approach proves to be significant in explaining the financial performance of large manufacturing firms, and it promises to be an important source of insight into corporate strategy.     

Business relatedness and performance: a study of managerial perceptions

Understanding of business relatedness and performance effects is the foundation of any diversification decision, but we have limited knowledge of how managers consider relatedness. This study identified relatedness classes and performance effects using perceptual survey data from top industrial executives. Four classes with significant variable differences were found: high, technology, customer, and low relatedness. Technology relatedness had a strong positive performance effect and high relatedness had a negative effect. The findings confirm that perceptions are multidimensional, but may include five key factors rather than the previously identified attribute categories of product–markets, resources, and value chains. Contributions to diversification literature are discussed. Copyright © 2006 John Wiley & Sons, Ltd.     

Resource relatedness,redeployability, and firm value

Our paper elaborates the effects of resource relatedness on value of a multibusiness firm. We emphasize that value results from interplay of benefits of synergy and redeployability. This view, considering how synergy and redeployability interact in determining value, extends prior separate considerations of the two benefits. We also diagnose that the value effect of resource relatedness is contingent on uncertainty and specify this contingent relationship. We use the real option valuation approach and formally evaluate the impacts of the two effects of relatedness. This explication enables us to demonstrate how redeployability contributes to value beyond synergy, and how they contribute in tandem. In this sense, we illuminate previously undiagnosed value in multibusiness firms. Beyond theoretical implications, our results have important empirical and managerial implications. Copyright © 2013 John Wiley & Sons, Ltd.     

Corporate diversification and the value of individual firms: A Bayesian approach

Research summary: Prior theory suggests that the performance effects of a firm's diversification strategy depend on a firm's individual resources and capabilities and the setting within which it is operating. However, prior tests of this theory have examined the average diversification‐performance relationship across all firms, instead of estimating the diversification‐performance relationship at the individual firm level. Efforts to estimate this average relationship are inconsistent with a central assumption of much of strategic management theory—that firms maximize value by choosing strategies that exploit their heterogeneous resources and individual situation. By adopting an approach that allows an evaluation of the diversification‐performance relationship for individual firms, this article shows that firms, both focused and diversified, tend to choose that diversification strategy—focus, related diversification, or unrelated diversification—that maximizes value. Managerial summary: Instead of a universal diversification discount or premium, this article shows that the effect of diversification on performance is heterogeneously distributed across firms and that firms tend to be rational in their diversification decisions. Copyright © 2015 John Wiley & Sons, Ltd.     

Power dependence,diversification strategy,and performance in keiretsu member firms

Conceptualizing the keiretsu as a power‐dependence system, we propose that benefits accruing from keiretsu affiliation differ across member firms, depending on their power in (or dependence on) the keiretsu. By integrating power with governance and internal market perspectives on group affiliation, we develop and find general support for the hypotheses that powerful keiretsu member firms are able to place more emphasis on growth in pursuing product and international diversification, whereas less powerful keiretsu member firms are subject to strong monitoring and emphasize profitability. These findings provide support to the study's proposition that power‐dependence relationships in a keiretsu influence member firms' appropriation of group affiliation benefits in pursuing diversification strategies. Copyright © 2004 John Wiley & Sons, Ltd.     

Resource relatedness and the mode of entry into new businesses: Internal resource accumulation vs. access by collaborative arrangement

When firms seek to enter a new business segment, they have to decide how to best gain access to the required resources. This paper analyzes how resource relatedness influences a firm's decision between internal development and collaborative arrangement as modes of entry. We distinguish between a firm's capacity to transfer its established resources to the new segment (resource transferability) and the integration and synergistic combination of current firm resources with target segment resources in day‐to‐day operations (resource complementarity). Resource transferability makes entry by internal development more likely, but this effect depends on segment characteristics. Synergies from complementary resources can be exploited more easily within firm boundaries than across an alliance interface. However, certain partner characteristics can substitute in part for belonging to the same firm. Copyright © 2014 John Wiley & Sons, Ltd.     

Survey measures of first‐ and second‐order competences

Research summary : This study tests and validates survey measures of first‐ and second‐order competences in order to foster cumulative empirical research and theoretical refinement in the area of dynamic capabilities. Data from two informants and two time periods for a sample of publicly traded U.S. manufacturing firms are used to examine the convergent, discriminant, and nomological validity, and the reliability of scales to measure various levels and types of competences. Findings suggest that customer competence, technological competence, marketing competence, and R&D competence are related but distinct dimensions, evidencing strong validity and reliability. Qualifying this empirical support, it was found that items regarding manufacturing operations and facilities seemed to measure aspects unrelated to the focal competences, and that marketing competence had no relation to future market‐resource accumulation. Managerial summary : This study enhances understanding and measurement of dynamic capabilities, in particular, marketing and R&D second‐order competences. Marketing and R&D second‐order competences are a firm's ability to build new competences to serve new markets or use new technologies, respectively. The ability of a firm to add new market‐related resources (such as brands and distribution channels) and technological resources (such as patents and engineering skills) helps it cope with environmental change and grow in new directions. For firms in stable environments, being able to serve new markets and use new technologies provide opportunities for growth. For firms in turbulent environments, these skills are a matter of survival. Using data collected from publicly traded U.S. manufacturing firms, this study tests and validates questions that can be asked in questionnaires presented to management. It finds that even if a firm has strong skills in serving current customers and great technology, it may not be able to go after new markets or technologies. The survey questions tested here could be used not only by other researchers, but also by practitioners. Managers, management consultants, and industry association advisors could use the scales as diagnostic instruments or to perform benchmarking. Copyright © 2015 John Wiley & Sons, Ltd.     

Firms' technological resources and the performance effects of diversification: a longitudinal study

While agency theory claims managerial self‐interest creates a diversification discount, strategic theory explains that firms with certain kinds of resources should diversify. Longitudinal data on 227 firms that diversify between 1980 and 1992 reveal that the sample firms invest less in R&D and have greater breadth of technology (based on patent citations) than their industry peers prior to the diversification event. Also, acquiring firms may appear to have lower performance because of accounting conventions and because firms that use internal growth rather than acquisition pursue less extensive diversification. These findings help explain how diversification and financial performance are endogenous. Copyright © 2004 John Wiley & Sons, Ltd.     

The impact of modes of entry and resource fit on modes of exit by multibusiness firms

This study examines the choices of modes of entry and exit in the process of new business exploration. We find that exit mode choices are determined by a different set of factors from those that are important for the entry mode decision and the exit decision per se. Our study indicates that when the resource profiles of a parent firm and the business unit are more dissimilar, and there has been less development of firm‐specific idiosyncratic assets, firms are more likely to sell businesses than dissolve them. Further, the study reports a strong relationship between the mode of exit from a line of business (sell‐off vs. dissolution) and the original mode of entry (acquisition versus internal development). Copyright © 1999 John Wiley & Sons, Ltd.     

Curvilinearity in the diversification–performance linkage: an examination of over three decades of research

While an extensive literature examines the diversification‐performance relationship, little agreement exists concerning the nature of this relationship. Both theoretical and empirical disagreements abound. This study synthesizes findings from three decades of research to address major theoretical issues that remain open to debate. We derive three competing models from the literature and empirically assess these using meta‐analytic data drawn from 55 previously published studies. The results of our tests indicate that moderate levels of diversification yield higher levels of performance than either limited or extensive diversification. Thus, we provide support for the curvilinear model; that is, performance increases as firms shift from single‐business strategies to related diversification, but performance decreases as firms change from related diversification to unrelated diversification. The results also indicate major effects from variation in diversification and performance operationalizations. Copyright © 2000 John Wiley & Sons, Ltd.     

Geographic scope,product diversification,and the corporate performance of Japanese firms

The study extends research on the geographic scope, product diversification, and performance relationship by exploring both the antecedents and consequences of geographic scope. In so doing, it addresses a fundamental criticism of the geographic scope–performance relationship; namely, that the observed positive relationship between geographic scope and performance is spurious because it is the possession of proprietary assets that is the foundation of superior performance, not expansion into international markets per se. We tested the research model with data on the corporate performance of 399 Japanese manufacturing firms. In the partial least squares analyses used to examine the study’s six main hypotheses, we demonstrate that geographic scope was positively associated with firm profitability, even when the competing effect of proprietary assets on firm performance was considered. Further, we find that performance was not related to the extent of product diversification, although investment levels in rent‐generating, proprietary assets were related to the extent of product diversification. Copyright © 1999 John Wiley & Sons, Ltd.     

The relationship between product and international diversification: the effects of short‐run constraints and endogeneity

We examine the relationship between growth along the product and international dimension in the short run. We argue that while the presence of fungible intangible resources and economies of scope may create opportunities for a firm to expand along both dimensions, the effect of short‐ run constraints may lead to a trade‐off and a negative association between the two dimensions. In addition, we suggest that rather than being independent, decisions concerning the extent of growth along the two dimensions are likely to be made simultaneously and endogenously by firms after taking into consideration the availability of various resources. We test these propositions by observing a sample of 1,299 firms over the period of 1993–1997. Our results show strong evidence of endogeneity and a negative association between growth along the two dimensions. These findings provide important support for theories of firm growth that have long held that firms are limited in the number of opportunities they can exploit in the short run by various constraints. Copyright © 2008 John Wiley & Sons, Ltd.     

The effects of strategic and market complementarity on acquisition performance: evidence from the U.S. commercial banking industry, 1989–2001

Most traditional research on mergers and acquisitions tends to focus on the role of similarity in explaining acquisition performance. While scholars have recently begun to examine acquisition complementarity, there is still little evidence concerning how complementarity influences acquisition performance. Further, previous research has not drawn the connections between related contexts and the potential benefits from complementarity. In this article, we move the study of acquisition complementarity forward by investigating the effects of strategic and market complementarity on acquisition performance in the context of related horizontal acquisitions. We also propose that two key attributes of acquirers—strategic focus and out‐of‐market acquisition experience—will moderate this relationship. We investigate our research questions in the context of all 2,204 acquisitions made by publicly traded U.S. commercial banks during the 12‐year period from 1989 to 2001. Our findings are generally supportive, suggesting complementarity is an important antecedent of acquisition performance, and raising important issues on the nature of acquisition research in general. Copyright © 2009 John Wiley & Sons, Ltd.     

Technological acquisitions and the innovation performance of acquiring firms: a longitudinal study

This paper examines the impact of acquisitions on the subsequent innovation performance of acquiring firms in the chemicals industry. We distinguish between technological acquisitions, acquisitions in which technology is a component of the acquired firm's assets, and nontechnological acquisitions: acquisitions that do not involve a technological component. We develop a framework relating acquisitions to firm innovation performance and develop a set of measures for quantifying the technological inputs a firm obtains through acquisitions. We find that within technological acquisitions absolute size of the acquired knowledge base enhances innovation performance, while relative size of the acquired knowledge base reduces innovation output. The relatedness of acquired and acquiring knowledge bases has a nonlinear impact on innovation output. Nontechnological acquisitions do not have a significant effect on subsequent innovation output. Copyright © 2001 John Wiley & Sons, Ltd.     

Actions speak louder than modes: antecedents and implications of parent implementation capabilities on business unit performance

Firm boundaries and strategic execution affect the firm's ability to generate rents, grow, and survive. Boundaries are determined through governance mode choices, such as whether to make or buy a particular good or activity. While significant work has addressed the performance implications of this fit, less attention has been directed toward strategic execution, or implementation. In particular, the impact of corporate parents has been understudied. We suggest that parent‐level implementation capabilities of operating expertise gained through related experience and coordination from collocation combine with governance mode choices to jointly affect performance. By employing theories of organizational economics and testing predictions in casual dining chains, this paper unpacks the relationship between implementation, governance mode choice, and performance. Our findings suggest that parent capabilities may be more important than mode choice fit and that parent benefits are contingent upon mode choice and type of performance. Copyright © 2011 John Wiley & Sons, Ltd.     

Using meta‐analytic structural equation modeling to advance strategic management research: Guidelines and an empirical illustration via the strategic leadership‐performance relationship

This paper demonstrates how meta‐analysis can be combined with structural equation modeling (MASEM) to address new questions in strategic management research. We review this integration, describe its implementation, and compare findings from bivariate meta‐analyses, a direct‐effect structural equations model, and two mediating frameworks using data on the strategic leadership and performance relationship. Results drawn from 208 articles that collectively included data on 495,638 observations demonstrate the new insights available from MASEM while also suggesting a revision to conventional thinking on strategic leadership. Whereas some theories posit that boards of directors influence firm performance through monitoring and disciplining the top management team, MASEM provides more support for the view that boards mediate the top management teams' decisions. Implications for applying MASEM in strategic management are offered. Copyright © 2014 John Wiley & Sons, Ltd.