Organizational capital and the choice between specialization and diversification

This paper specifies a model in which the preservation of organizational capital is the principal factor motivating corporate diversification decisions. Alternative hypotheses of the determinants of diversification are then subjected to empirical test with data for 96 US industrial firms in the 1967–71 period. Consistent with the model, variables associated with unfavorable expectations on the marginal returns to investment in existing activities proved dominant in explaining ‘desired’ increases in diversification. Alternative explanations, namely, the role of managerial attributes, of absolute advantages of some firms, and of opportunities created by research and development, had more modest explanatory power.     

A model for resource allocation in complex hierarchies

Most models of resource allocation activity usually assume either a black box or a simple pyramidal hierarchy of black boxes as the organizational context for decision making. However, there are a number of resource allocation activities that take place in more complex hierarchies. These cases have been slighted by researchers, in part, because of a lack of practicable models. This paper presents a multiple-criterion resource allocation model specifically directed towards non-pyramidal hierarchies and other more complex organizational structures. A number of examples are discussed and a numerical example is presented.     

Corporate Capital Budgeting Decisions and Information Sharing

Firms must overcome agency and information asymmetry problems to make efficient corporate capital budgeting decisions; this is particularly true for firms with multiple units dispersed across geographic locations. Internal communication and coordination may therefore be crucial in reducing information asymmetry and achieving efficient resource allocation. We examine the relationship between corporate capital budgeting decisions and the degree of internal information sharing using a dataset of 342 U.S. firms from 1993 to 2002. Information sharing is measured by the internal linkages observed in firms’ research and development activities worldwide. The efficiency of a firm's capital budgeting decisions is measured by the deviation of the firm's estimated marginal q from the theoretical tax‐adjusted benchmark. We observe a significant relationship between value‐enhancing capital budgeting decisions and stronger internal linkages. Specifically, corporate overinvestment is significantly reduced with better information sharing across units. All results are robust to firm‐ and industry‐level controls.     

Technological Expansion: the Interaction Between Diversification Strategy and Organizational Capability

This study analyses technological expansion by examining the interaction between firms' diversification strategy and internal capabilities. We argue that when new technologies emerge, firms that were actively pursuing diversification do not have equal intention to adopt the technologies. For firms that possess internal capabilities similar or relevant to the new technologies, their diversification strategy facilitates technological expansion, otherwise diversification strategy negatively affects technological adoption. This study improves our understanding on technological expansion. Existing studies try to identify organizational characteristics that facilitate or impede firm entry into new technological fields. This research reveals that the same organizational characteristic (e.g. diversification strategy) can exhibit different effects on technological adoption. It facilitates technological expansion if firms' existing capabilities can be applied to new technologies, otherwise it impedes new technological adoption.     

Strategic human resource management and firm effectiveness in industries experiencing decline

Unstable economic conditions, in conjunction with other external and internal influences, have prompted attempts to understand the nature of organizational decline. While a number of issues have been carefully considered in recent theory and research, little effort has been made to consider the implications of human resource management practices for firms in declining industries. The present study examined human resource practices in three industries that experienced decline, and investigated the relationship of organizational performance with effective human resource management.     

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.     

Organizational Transformation in Transition Economies: Resource-based and Organizational Learning Perspectives

ABSTRACT The capitalist and socialist societies of the twentieth century assigned firms different roles within their economic systems. Enterprises transforming from socialist to market economies thus face fundamental organizational restructuring. Many former state-owned firms in the transition economies of Central and Eastern Europe have failed at this task. These firms have pursued primarily defensive downsizing, rather than strategic restructuring, as a result of both internal and external constraints on restructuring strategies.
Building on the organizational learning and resource-based theories, we analyse strategies available to management in privatized, former state-owned enterprises in transition economies to restructure their organization. Both internal forces promoting or inhibiting the restructuring process, and external constraints arising in the transition context are examined. A model and testable propositions are developed that explain post-privatization performance. Implications of our research point to the ways in which firms should manage and develop their resource base to transform to competitive enterprises.     

Munificence,Dynamism, and Complexity: How Industry Context Drives Corporate Sustainability

Does external industry context exert an influence on the development of corporate sustainable development? In keeping with the view that environmental responsibility generates new and competitive resources for firms, we posit that three distinct industry contextual characteristics, namely munificence, dynamism, and complexity, can influence corporate environmentally responsible behaviors. Our conceptual framework is supported by empirical evidence that draws on a sample of 746 Chinese listed firms in manufacturing sectors. Our findings suggest that dynamism increases the likelihood of firms behaving in environmentally responsible ways, whereas complexity decreases this likelihood. The relationships between dynamism and environmental responsibility are stronger in firms with low levels of organizational slack. Moreover, we find that resource‐abundant firms are more likely to behave responsibly toward the natural environment in a high‐munificence industry context. Copyright © 2015 John Wiley & Sons, Ltd and ERP Environment     

The integration–differentiation puzzle: a resource-capability perspective in international human resource management

This paper is concerned with the management of the human resource agenda in international business. It begins by examining the critical question of how to balance the organizational need for co-ordination and control (integration) at the centre and the increasing pressures for sensitivity and flexibility (differentiation) at the subsidiary or unit level. A resource-capability (RC) view is then offered to re-examine the integration–differentiation (IN–DI) debate, proposing how firms might resolve some of the dilemmas inherent in IN–Dl decisions by cultivating their stock of knowledge and expertise. This perspective also enables us to assess the underlying paradigmatic foundation upon which strategic decisions in international human resource management are based.     

Internal Resource Allocation and External Alliance Activity of Diversified Firms

Prior research suggests that diversified firms are often unable to match resources to the market needs and opportunities of their divisions due to factors such as influence activities. In this research, we propose that when such internal inefficiencies arise, diversified firms may form alliances to access resources externally to support their divisions in their industries and operations. Using a sample of US firms between 1997 and 2006, we find that, on average, diversified firms form more alliances within industries that they currently operate in when compared to single business firms. The alliancing activity in related industries increases when businesses with diverse growth opportunities exist within the same firm, and it decreases with the intensity of internal control and coordination mechanisms. Our study suggests a link between internal resource allocation processes and external alliancing activity, while highlighting that alliances may play an important role in how diversified firms manage the inefficiencies that arise within their boundaries.     

Cleaner production: organizational learning or business as usual? An example from the domestic appliance industry

It is frequently argued that approaches to minimizing the environmental, health and safety impact of industry (i.e. cleaner production) require that firms engage in a process of participative learning involving all levels of the organizational hierarchy. This paper examines the key concept of organizational learning, particularly in terms of the associated concepts of ‘participation’ and ‘empowerment’, drawing on a study of a large, environmentally pro‐active firm and recent critical literature on the experience of work. It is suggested that, although contemporary management philosophy pays lip service to increased workforce participation and empowerment, there are formidable structural and cultural barriers to such change. Initiatives within firms to stimulate learning and continuous improvement around cleaner production can be understood in terms of firstly the relative power of individuals and groups within organizations to define and activate learning agendas and secondly the emphasis given to low cost, low skill and low trust as a route to competitiveness, particularly in a UK business context. Finally, attention is drawn to the weakness of external mechanisms for supporting genuine participation and empowerment within enterprises around health, safety and environmental issues. Copyright © 2000 John Wiley & Sons, Ltd. and ERP Environment     

Organizational capacity for change and firm performance in a transition economy

This study explored some human resource and human systems' aspects of the competitive dynamics for firms attempting to survive and prosper within Russia, a highly volatile transition economy. Overall, this study adds to our understanding of international strategic human resource management, dynamic capabilities, and the generation of competitive advantage within transition economies.

We found that a relatively new construct derived from the dynamic capabilities and organizational change literatures, known as ‘organizational capacity for change,’ is positively associated with firm performance within a wide variety of Russian firms. Furthermore, we find that the relationship between organizational capacity for change and firm performance is stronger when there are relatively high levels of uncertainty with the task environment. Finally, we found that organizational capacity for change is an important attribute in all sizes of organizations, not just for large organizations as hypothesized.     

Managing Knowledge in Loosely Coupled Networks: Exploring the Links between Product and Knowledge Dynamics

The contemporary literature concentrates on ‘make or buy’ decisions in design and production activities, assuming that decisions about the underlying fields of technological knowledge will automatically be the same. Building on previous research on multitechnology firms and products, this paper argues that firms know more about technology than they apply in their own production. We propose two major dimensions according to which firms should adjust their knowledge and production boundaries, namely systemic interdependencies across components and uneven rate of change across components’ underlying knowledge bases. We analyse the implications of this less‐than‐perfect overlap between knowledge and production boundaries for the management of firms’ external relationships.     

International diversification of manufacturing operations: Performance implications and moderating forces

The strategic importance of diversifying international manufacturing for firms with global operations has been extensively documented in a series of studies. There is a lack of studies, however, of the performance implications of strategically spreading manufacturing operations across the globe. In fact, most research on international manufacturing to date has generalized from findings by researchers that examine international diversification at the level of the whole value chain, rather than specifically looking at the performance impact of dispersing production operations. Building on the concept of international manufacturing diversification, we show that its relationship with financial performance is inverted U-shaped, and that this relationship is positively moderated by product diversification and co-location of manufacturing and sales activities in the same geographic market. We place the development of international manufacturing diversification processes in the context of the resource based view and transaction costs economics. Hypotheses are tested using data on 38 firms with home base in 15 countries and car and light truck production activities in 45 countries from 2002 to 2008.     

Should we worry about the decline of the public corporation? A brief survey of the economics and external effects of the stock market

In recent years, the number of listed companies has been declining in many countries across the world. This paper provides a selective survey of the literature on the real economic effects of the stock market to assess the potential effects of this decline and determine whether it is likely to continue. The leading economic role of the stock market’s primary market, in which firms raise capital by issuing new shares, is to help growing firms secure financing. We discuss providing and certifying information, coordinating investors, and easing the redeployment of capital as the means through which capital allocation can be efficiently achieved. The main economic roles of the stock market’s secondary market, the trade in existing shares, is to provide liquidity to shareholders, to aid in price discovery and to provide diversification opportunities. Positive external effects from an active stock market may arise for consumers, labor and private firms due to increased corporate investment, more socially responsible business strategies and a more positive business climate. Negative external effects on capital allocation and productivity can arise from short-termism, market mispricing, and increased cross-ownership. Local stock markets can spur innovation and foreign direct investment (FDI) and reduce the risk of early cross-border acquisitions. Given the myriad of useful economic functions the stock market performs, a future entirely absent of public companies is difficult to imagine and the decline is therefore likely at some point to come to an end. Whether we need to worry about the decline depends on the relative importance of the positive and negative external effects, a topic we feel warrants more research.     

A model for outsourcing and governing of maintenance within the process industry

Many industrial firms motivate structural changes by an increased focus on core activities and reduced ownership of non-core activities. However, classifying maintenance activities as either core or non-core can be difficult, since maintenance is a support function strongly linked to the production core within a manufacturing firm. Based on a multiple case study that included four buying firms and four suppliers within the process industry, this paper investigates how the relative capabilities of the firms affect the governance decision about maintenance outsourcing. A conceptual framework built on a distinction between core-close and core-distant maintenance and between different maintenance capabilities is presented. The subsequent empirical analysis illustrates how the developed framework can be used for both analyzing and guiding firms’ decisions about outsourcing and governance regarding maintenance.     

An analysis of non-financial factors associated with financial distress

This article examines factors associated with financial distress among 1006 Spanish manufacturings (SMEs), distinguishing high and low technology industries. Financial distress is analysed using industrial organizational theory through the Porter's five competitive forces model (external factors) and the resource based view through strategic variables (internal factors), such as training, planning, innovation, technology and quality. Two different sources of information were used in the study: Qualitative information related to environmental conditions and strategic variables was gathered through a questionnaire addressed to the firm manager. Quantitative information to identify whether the firm was in financial distress was gathered from the balance sheets and earning statements of the firms. Evidence from this study shows that environmental conditions and some strategic variables are associated with financial distress. The results found that young SMEs with low technology and in a highly competitive environment had a higher probability of financial distress. High bargaining power of buyers and high degree of rivalry among existing competitors were positively associated with financial distress. Financial distress in high-technology industries was not affected by external factors. However, firms with a quality certification have better quality control procedures that ultimately improve financial performance of firms in the technology industries.     

External corporate venturing modes as new way to develop dynamic capabilities

Today, firms encounter scarce resources and rapid technology change which render formerly successful business models obsolete. Research shows that some firms perform better than others in continuously discovering, evaluating, and exploiting opportunities in volatile environments and that this is dependent on firm’s dynamic capabilities. Besides obtaining dynamic capabilities through internal R&D activities, firms have open up their innovation process to pursue dynamic capabilities outside their organizational boundaries through external corporate venturing by accessing startup's technological capabilities necessary to innovate. External corporate venturing is a means to develop new distinctive capabilities and businesses by exploring and exploiting business opportunities outside a firm’s existing boundaries. Drawing on the dynamic capability literature, we use a multiple case study approach to examine the contribution of external corporate venturing to firms’ dynamic capabilities. Our results reveal that firms indeed use corporate venturing to identify and exploit startup’s technological knowledge and competencies to increase firm’s dynamic capabilities. But our empirical data also shows that not every firm is fully profiting from all dynamic capability phases as their corporate venturing modes are not linked with each other and cumulative effects are not realized.     

Strategic entrepreneurship and competitive advantage of established firms: evidence from the digital TV industry

Although strategic entrepreneurship in established firms is recognized as a vital source of sustainable competitive advantage, this field has no clearly developed research paradigm. This study proposes a conceptual framework to investigate dimensions of strategic entrepreneurship and its function in sustainable competitive advantage of established firms in a modern volatile environment, through the lens of the dynamic capability view. By conducting a systematic literature review of previous research documents and considering conceptual interrelationships between strategic entrepreneurship and dynamic capabilities, we propose categories that comprise dimensions of a firm’s strategic entrepreneurship: environmental sensing, opportunity seizing, strategic flexibility, entrepreneurial orientation and organizational learning. We establish a conceptual framework of strategic entrepreneurship in which entrepreneurs’ managerial capabilities of environmental sensing, opportunity seizing, strategic flexibility and entrepreneurial orientation closely interact with organizational learning, thereby facilitating sustainable performance of established firms. Following empirical studies of established firms in the digital TV manufacturing industry, the proposed conceptual framework suggests that each dimension of strategic entrepreneurship plays a critical role in competitive advantage of firms. In addition, case study results indicate that a firm’s position and evolutionary path form antecedent factors influencing entrepreneurs’ managerial capabilities and organizational learning of established firms.     

High technology localization and extra-regional networks

Firms in spatial concentrations of advanced-technology activities do not constrain their knowledge inputs to opportunities found within their industrial cluster. Rather, firms seeking extra-regional markets augment their in-house resources by means of material (embodied technology) and knowledge inputs obtained from sources at the extra-regional scale in addition to within the region. Literature is reviewed on the clustering of firms and their network geography, models of open and closed industrial systems, and absorptive capacity. The latter is used to interpret the search for knowledge undertaken by firms, which are discussed in terms of their organizational differences and strategic choices. A sample of manufacturing establishments from the electronics cluster in the Toronto metropolitan region (Canada) shows firms that are export-intensive have significantly stronger international input connections, especially with consultants and alliance partners. Export orientation is associated with higher levels of expenditure on the in-house generation of knowledge, more innovation inputs from external sources, and distinctive network geographies. Differences in network relations occur within and between three organizational groups of firms – foreign affiliates, multi-location and single-location domestic firms. Geographically wide-ranging networks are interpreted in terms of opportunities in extra-regional locations compared with local supplies. Regional innovation policy implications are considered.