Diversification: The growing confusion

Over the years the concepts of diversification have been simplified and a system of shorthand has developed for discussing the issues surrounding the strategy. Because of this a confusion in terminology has developed and sight of the fundamental principles involved has been lost within the vagaries of fashion. Selection of a particular strategy ought to be based on the clear identification of the benefits that the strategy will offer. Those benefits should be used to help solve specific problems. Only by returning to this type of thinking can the legitimacy of diversification be revived and the alternating acclamation and denunciation of the strategy be overcome.     

From Experience: Linking Product Innovation to Business Growth

Industry pundits often take managers to task for their supposedly myopic approach to planning and decision making. These sweeping generalizations gloss over the complex challenges confronting the managers who must ensure that their firms enjoy ongoing revenue growth opportunities. In place of pat answers, those managers require analysis and planning tools that offer clearer insights into the effects their decisions have on their firms' continued business success. As Marv Patterson points out, however, determining the effects of product innovation decisions poses a particular challenge for management, because the consequences of those decisions typically do not become evident until long after the decisions have been made. Presenting a conceptual model that links product innovation activities to revenue growth, he identifies three drivers of revenue growth, and explains how these growth drivers are linked by a set of mathematical relationships that can be presented in the form of an enterprise-specific growth table. He applies the model to three types of enterprises, and he discusses the key implications that the model holds for the business leaders who must keep shareholders satisfied. He depicts the relationship between a company and its customers as a closed-loop system in which the company converts labor, parts, and material into products, which it delivers to customers. The company invests a portion of the resulting revenue stream in the resources that generate new products. By effectively and continually applying a sufficiently large investment in this innovation engine, the company creates an ongoing stream of new products. The revenues from these new products more than offset the drop in revenues from products that are approaching obsolescence. He identifies three factors that drive revenue growth from these investments in the innovation engine: the fraction of revenues invested in product innovation, new product revenue gain, and the behavior of revenue over time for a particular business. Using a graph called a product vintage chart, he demonstrates that for a large company, the revenue contributions of a particular new-product year (or vintage) fall into a regular pattern over time, which enables a company to determine mathematical relationships for revenue growth as a function of R&D investment and new product revenue growth. In this way, senior managers can gain clearer understanding of the interplay between product innovation, R&D investment, revenue growth, and profitability over time.     

The Effect of Unions on Productivity Growth, Investment and Employment: A Report on some Recent Work

Using two British microeconomic data sets, this paper reports the following. (1) Union firms experienced faster productivity growth during 1980–4, but there was no difference in performance in 1975–9, or 1985–6. So unions do not necessarily reduce productivity growth. It is also unlikely that the above pattern can be explained by changes in union legislation. (2) Unionism appears to have no significant effect on in vestment, once one allows for the effects of differential productivity growth. (3) Wages in union and non-union firms are equally responsive to changes in the capital–labour ratio. (4) Contrary to what is often alleged, unionism per se does not reduce employment growth. Instead, the negative correlation observed in 1980–4 probably arises from a significant reform of working practices in unionized firms during 1980–4.     

Trade Unions and Productivity: The German Evidence

This paper provides a brief review of the empirical evidence on union productivity effects in Germany. The influence of trade unions on productivity is the net effect of conflicting forces which can lead to higher or lower productivity. Although the German dual system of workers' representation via unions and works councils is quite favourable to the existence of productivity-enhancing 'voice' effects, various empirical studies have not been able to detect significant positive net effects of these institutions on productivity.     

Demand-Driven Technical Change and Productivity Growth: Theory and Evidence from the Energy Policy Act

We present novel evidence on the effect of market size on technology adoption and productivity. Our tests exploit a natural experiment in the U.S. corn industry where changes to national energy policy created exogenous increases in demand. Difference-in-difference estimates show that the demand shock caused technical change as corn producers adopted higher quality seeds which in turn raised productivity by 7%. We develop a simple model that formalizes the mechanisms underlying our results.     

The Firm Size Distribution and Inter-Industry Diversification

We show that the stylized facts of the Firm Size Distribution (FSD) by age cohorts, as shown in Cabral and Mata (2003), bind within 4-digit manufacturing industries in the UK and Belgium. This paper investigates whether the time to build a portfolio of products from inter-industry diversification is a mechanism that helps explain the stylized facts of the FSD by age cohorts. We find that the degree of inter-industry diversification has a separate impact on firm size when controlling for age, amongst other factors. Using the techniques of Cabral and Mata, we find that inter-industry diversification does shift the FSD to the right, and more so in older age groups.     

Diversification and sophistication of livestock products: The case of African countries

This study assesses the level of sophistication of livestock products in Africa by evaluating technology intensity and economic complexity of each product. Using trade data from 1995 to 2012, livestock commodity exports are classified based on technology intensity. Employing a method of reflection in computing the economic complexity of export products, we find that one fifth of African livestock commodity exports are manufactured with low technology while the rest is composed of raw materials. The results also show that the ten most complex livestock commodities represent about a third of African livestock total exports while the world level is almost double this figure. Yet African countries spend a huge share of their wealth on importing complex products. The results imply that by exporting non-complex products Africa loses nearly a third of the total value of its livestock exports. To boost the value of livestock products, African countries should exploit their untapped potential while securing the domestic market to achieve import substitution. This can be done by integrating with global value chains or developing niche markets at the regional or international markets and improving productive capabilities.     

Organizational Attributes,Market Growth,and Product Innovation

Extensive research has shown that organizational attributes affect product innovation. Extending this literature, this article delimits two general categories of organizational attributes and relates them to product innovation. Organizational attributes can be either control oriented or flexibility oriented. Control‐oriented organizational attributes strive to realize organizational activities as intended, while flexibility‐oriented attributes allow organizational activities to emerge in a directed way. The classical institutional theory suggests that organizational attributes, no matter whether they are control oriented or flexibility oriented, serve two major functions: a constraining function and an enabling function. Recognizing the dual functions of organizational attributes, this article argues that both types of organizational attributes are indispensable for the functioning of innovative organizations and that the impacts of control‐oriented organizational attributes on product innovation decrease with market growth, while the impacts of flexibility‐oriented organizational attributes on product innovation increase with market growth. Empirical results largely support these hypotheses. Strategic planning, as a control‐oriented organizational attribute, is positively associated with product innovativeness, regardless of the market growth rate. The effectiveness of other organizational attributes, including formalization and organizational redundancy, varies with market conditions. As the rate of market growth increases, formalization becomes less effective for, but never becomes detrimental to, product innovativeness. Conversely, as the rate of market growth increases, organizational redundancy becomes more effective for product innovativeness. Overall, the results show that both control‐oriented and flexibility‐oriented elements are indispensable for the design of innovative organizations.     

Diffusion at Sub-National Levels: A Regional Analysis of New Product Growth

Nearly all studies of diffusion in the business literature focus attention on the rate of diffusion over time. In contrast, William Redmond draws our attention to spatial dimensions of innovation diffusion. His research examines sub-national units within the U.S. for differences in diffusion rates and relates there differences to relevant variables representing socioeconomic characteristics. Sales data on color TV and VCRs reveal differences in regional diffusion rates; these differences are associated with purchasing power, age, and mobility. This approach extends diffusion research into spatial dimensions and has implications for both adoption and diffusion theories.     

International Diversification and Performance: Evidence from Singapore

This study focuses on how international diversification affects a firm in terms of multiple performance measures (accounting-based, market-based, and intangible value creation). The study is unique as it uses segment data made available only recently, which enables the examination of both product and international diversification with performance. The period studied coincided with Singapore firms performance during the Asian Financial Crisis. In contrast to previous studies on Singapore, our results show that product diversification is negatively correlated to all measures of performance, while international market diversification is positively correlated. We attribute the difference to the time period which covers both upswings and downturns of the economy, unlike previous studies which considered only the former. Other control measures were incorporated; firm size is highly significant in explaining all measures of performance but not so for firm age, leverage, risk and industry. For top managers, we suggest that regardless of economic climate, the dominant diversification strategy is to take a focused approach to product diversification, but a broad approach to international diversification.Dr. Er and Dr. Kwok are assistant professors in the Department of Finance & Accounting, National University of Singapore (NUS). Mr Lin recently graduated with a B.B.A. honours (1st class) degree from NUS.     

基于DEA的中国能源生产率增长变动及影响因素研究

本文基于生产率和效率的内涵界定,探讨了能源生产率、能源效率及变化率的衡量指标,指出若要度量能源利用的动态变化情况,生产率增长指标比效率改进指标更为合适;同时全要素框架下测算能源生产率增长率(即全要素能源生产率增长率)应比单要素能源生产率增长率更能准确反映能源生产率变动情况。通过将这两个指标用于2000~2010年能源生产率增长情况,本文发现两者在反映能源生产率增长率的纵向变化趋势时基本一致,但在横向比较时有一定差别。本文还发现受经济周期和政策环境变动的影响,2000~2010年我国全要素能源生产率增长率的演化趋势可分为4个阶段。最后,利用计量模型考察全要素能源生产率增长率的影响因素,并对在"五年规划"纳入节能指标对能源生产率的影响进行定量评估。     

产品标准与产品质量监督的关系

从产品标准与产品质量监督目的和对象的共同性、产品标准是实施产品质量监督的技术依据、产品质量监督是产品标准贯彻实施的重要手段、产品质量监督是产品标准更新和修改的原动力之一，产品标准的更新发展促进了产品质量监督水平的提高等五个方面，论述了产品标准和产品质量监督之间的相互关系。指出，产品标准和产品质量监督是一种相互依存、相互促进的关系。     

Diversification and performance: evidence from East Asian firms

We examine the impact of diversification on performance for firms operating in different institutional environments during a relatively stable period and during a major economy‐wide shock. We locate our study in six Asian countries at different levels of institutional development. Results indicate that diversification negatively impacts performance in more developed institutional environments while improving performance only in the least developed environments. Even in the least developed institutional environments, diversification offers limited benefits when an economy‐wide shock strikes. Though successful diversifiers are sometimes affiliated with business groups, diversification is associated with poorer performance for both affiliated firms and independent firms. In sum, we find that the outcomes of diversification are influenced by institutional environments, economic stability and affiliation with business groups. Copyright © 2007 John Wiley & Sons, Ltd.     

产品市场与金融市场的战略互动与经济增长

产品市场与金融市场作为信息集散和企业监控机制在功能上具有一定的替代性；同时，当事人在两个市场上的战略行动又会产生溢出效应，从而形成两个市场间的战略互补关系。两市场间的这种相互作用客观上弱化了各自的协调失灵问题。进一步引入不确定性，发现当事人知识的差异性也会导致专业分工，从而刺激具有不同专业知识的人采取有溢出效应的战略行动，结果导致了两市场之间的战略互补关系。这种不确定性引发的两市场战略互补对经济增长有重要影响，并且其中也有乘数效应。     

Labor Market Regulation and Productivity Growth: Evidence for Twenty OECD Countries (1984–2004)

We present empirical evidence for a cross section of twenty OECD countries (1984–2004) that a relatively regulated and coordinated ("rigid") industrial relations system promotes long-run labor productivity growth. This conclusion is reinforced when we differentiate between (three) categories of OECD industrial relations systems and test for differences in productivity performance.     

Diversification and diffusion: A social networks and institutional perspective

We examine the diffusion of a major firm strategy, unrelated diversification, among a population of Chinese listed firms during the 1991 to 2002 period. We propose that a firm??s social network can serve as both an information disseminator and a channel of influence in the diffusion of the diversification decision. Further, we investigate how the institutional environment alters the role of a network over time. We find that firms are more likely to diversify into conglomerates if (1) they occupy a central position in the network; (2) they have higher levels of government shareholding; and (3) the firms with which they have network ties diversify. Moreover, as the institutional environment strengthens over time, the influence of a firm??s network partners decreases. Consistent with these results, we contend that diversification is not only a response to economic and agency concerns, but also a function of the social and institutional context in which a firm is embedded.     

Product and Process Modularity's Effects on Manufacturing Agility and Firm Growth Performance

Modularity in product design has been hailed as a way to speed new product development (NPD), to reduce NPD cost, and to enhance customization possibilities for consumers. Modularity in process design may speed new product manufacturing setup times, reduce costs, and enhance the profitability of the lower volumes that customization often entails. However, empirical evidence is scarce that either product or process modularity—individually, jointly, or sequentially—actually produce these or other proposed benefits (e.g., performance growth). This study builds on general modular systems theory (GMST) by examining the theoretical relationship between product and process modularity and the effects of each on firm growth performance. Using structural equation modeling, partial versus complete mediation by manufacturing agility is also scrutinized. In one pair of models, product modularity and process modularity are separate direct antecedents to manufacturing agility, which is modeled to affect firm growth performance; in a second pair of models, product and process modularity are related antecedents to manufacturing agility, with product modularity preceding process modularity. Results from the best‐fitting model show that product modularity directly and positively affects process modularity, manufacturing agility, and firm growth performance. Process modularity was unrelated to manufacturing agility, and neither process modularity nor manufacturing agility predicted growth performance. Consistent with GMST, the study provides empirical evidence of the power of one element of a modular system to orchestrate a fit between a firm's product and manufacturing strategies and to directly drive system performance. Thus, modularity in product design is revealed as the key to understanding GMST effects concerning how changes in one system generate changes in other systems.