Knowledge that Transforms

This paper develops a model of multinational corporate structure in which each of the five structures—worldwide product, worldwide functional, area, international division and matrix—is explained in terms of domain parameters, management orientation and generic strategy. The strategic contingency model (SCM) is developed by integrating recent theoretical and empirical literature into one holistic model. The SCM delineates specific independent variable relationships which predict multinational corporate structure and explains anomalies in recent research finds.

A framework is presented that helps managers systematically evaluate strategic alternatives. We empirically illustrate how to use the framework, and show how changes in beliefs about environmental factors affect the payoffs of specified strategic alternatives.

Recent studies of corporate restructuring have arrived at conclusions that are contradictory when applied to conglomerates. Studies, often based only on manufacturing firms, argue for and against the benefits of conglomerate diversification. This paper reviews the more recent developments in this literature. We then construct a comprehensive sample of conglomerates that allows us to examine changes in conglomerate behavior over the period 1975–84 as manifested in acquisition and divestiture decisions. Our results suggest that conglomerate managers are reducing the complexity of the conglomerate enterprise by decreasing the average number of businesses managed, and by increasing the degree of business‐relatedness within the conglomerate enterprise.

This paper highlights the significance of escalating commitment to strategy formulation, briefly examines behavioral explanations of escalating commitment to a losing course of action, and finally proposes an economic theory of the escalating commitment phenomenon. An example of escalating commitment to an outdated technology is presented. It is shown mathematically that there are economic justifications for escalating commitment to a failing strategy. Strategic implications for the first move advantage and for the U.S. steel, auto and semiconductor industries are discussed.

An assessment of opponents' reactions to strategic and functional area policy decisions is shown to require knowledge concerning opponents' beliefs about the firm's behavior. This study introduces a methodology for incorporating such conjectures into the business planning process. It presents an analytical measure for these conjectural variations and discusses several illustrations. Examples of the application of the framework are provided by the Japanese flat glass industry and the U.S. domestic coffee roasting industry. The use of a broad range of conjectural variations in competitor analysis is discussed, and implications for business strategy formulation are highlighted.

The paper offers a possible explanation for the discrepancy between the observed increase in the number of diversified firms in the U.S. and the evidence from finance studies which at best offers only weak support for value creation in diversifying acquisitions. It is argued that the acquisition could be the culmination of a series of related strategic moves by the acquiring firm to enter a new industry, and therefore a significant fraction of the gains from synergy could have been anticipated by the capital market well ahead of the acquisition. Results from an event study of the stock market's reactions to the antecedents of the recent acquisition of Rolm Inc. by IBM lend support to this argument.

Empirical studies conducted at the Institut de Recherche de l'Entreprise (Lyon, France) show that, in ‘stalemate industries’ (cf. the BCG's typology, 1981), differentiation strategies are effective and profitable alternatives to the usual strategic recommendations. The knowledge of customers' behavior shows up several opportunities for differentiation, hidden by some kind of ‘strategic presbyopia’. Total quality or ‘zero default’ strategy (product quality regularity, punctuality of deliveries, quick response to unexpected orders, quick and correct answers to requests, short delivery times) is the major opportunity for differentiation. Such strategies are compatible with a low‐cost position; excellent companies which succeeded in building this ‘total advantage’ (diferentiation + low cost) over their competitors enjoy the highest market share growth and profitability.

Hypotheses relating to market, organizational and managerial determinants of profitability and growth are developed and tested using data collected by structured interviews in 45 randomly selected companies in the electrical engineering industry. Multiple regression analysis suggests that market share and barriers to entry are the principal determinants of profit margins, but that tightness of control of working capital and aggressive management style also have an important influence. Centralization of decision‐taking among smaller companies, too, was associated with greater profitability, whilst more extensive budgetary control and planning of acquisitions or diversification were both negatively correlated with the latter. Profitability was the single most important predictor of the rate of company growth of sales but constraints from organized labor, from sources of finance, and conservative management styles, the rate of product change, R&D intensity, and decentralization all entered significantly.

Joint venture activity and internal corporate venturing represent two administrative innovations receiving increased attention in strategic management research. This study investigates a new hybrid form of administrative innovation: internal corporate joint ventures , which combine the equity involvement typically found in joint ventures with the internal staffing of a semiautonomous unit typical of internal corporate ventures. Drawing on both a process model and a variance model, the structuring, development and performance of 53 such ventures in an industry‐specific setting is examined.