Knowledge that Transforms

Two of the most common objections to laboratory research in strategic management are presented and critically evaluated. Commonly accepted normative models of the research process in strategic management are based on the assumption that field research is appropriate in an emerging field and that laboratory research is only appropriate after sufficient field research has been done. The alternative normative model for research in strategic management presented in this paper involves the simultaneous use of laboratory and field methodologies.

The literature suggests that the appropriate combinations of functional importance (i.e., through resource allocations, type of activities) for high levels of company performance are affected by the type of grand strategy pursued by the firm and the firm's industry type. These relationships were examined for 93 industrial firms. Data on functional importance, grand strategy, and industry type were obtained from top executives while financial data were collected from the Compustat data files. The results showed that both grand strategy and industry type moderated the relationship between functional importance and company performance. These relationships were also examined for each grand strategy by industry type cell to provide data for further research.

There has been considerable debate over the viability of the unrelated product, or conglomerate strategy. The financial arguments for and against its viability are well known. However, the administrative imperatives for its successful implementation have not been well investigated. The paper argues that there are a number of critical administrative contingencies for successful implementation of this strategy which only a few unrelated product firms have recognized. These concern policies dealing with acquisition, divestment, portfolio structure, management and organization. The paper discusses each in turn, describing specific instances of success and failure to illustrate the major points of the argument.

Prior research by Berg and Pitts has shown that there is a difference in the diversification strategies followed by major corporations; this strategy depends upon the type of organizational structure at the corporate level. This paper extends research on diversification strategy by testing the hypotheses that the skills and competence of the incumbent chief executive officer of a major firm are associated with its diversification strategy. Using empirical data spanning the years 1965‐1980 for fifty‐three major U.S. firms that have diversified and grown, it is shown that the background and prior experience of the incumbent CEO of each firm is significantly associated with the diversification strategy of a firm. This has implications for boards of directors in their search for and selection of top level corporate executives, as well as implications for managers in search of executive jobs.

This paper emphasizes the contribution of ‘borrowed experience’ to strategy reformulation. The industry group is described as a particularly important arena in which niche‐related problems and solutions are identified and tested. Industry‐wide mistakes in environmental interpretation and strategic response provide interesting evidence of the importance of this contribution to organizational decision making. An industry oriented view of strategy reformulation requires two kinds of research which are rarely conducted today. We need to know more about the pool of strategic concepts which a group of organizations holds in common at any given time. Spender's study of fork‐lift truck rental companies is reviewed as an example of this kind of work. A second kind of needed research involves change in strategic concepts over time. A study of the perceived import threat to the appliance industry from 1950 to 1975 is summarized as an example of this second kind of research.

A review of research from organizational behaviour supported the guidelines by corporate planners: that is, use an explicit approach for setting objectives, generating strategies, evaluating strategies, monitoring results, and obtaining commitment. To determine whether these findings could be applied to strategic decision making in organizations, a review was made of all published field research on the evaluation of formal planning. Formal planning was superior in 10 of the 15 comparisons drawn from 12 studies, while informal planning was superior in only two comparisons. Although this research did not provide sufficient information on the use of various aspects of the planning process, mild support was provided for having participation by stakeholders. Formal planning tended to be more useful where large changes were involved, but, beyond that, little information was available to suggest when formal planning is most valuable. Future research should assess the formal planning process, the situation in which it is used, and its effects on the total system.

The purpose of this study was to test empirically the relationships between the environmental scanning activities of upper‐level executives and their organizations' strategies, on the premise that executives would scan to reinforce their organization's particular basis for competing. Among the three industries studied, there were differences in the strategy–scanning link. These differences may have been attributable to different dominant environmental requirements existing in each industry.

Two very different models of product innovation are postulated and tested. The conservative model assumes that innovation is performed reluctantly, mainly in response to serious challenges. It therefore predicts that innovation will correlate positively with environmental, information processing, structural and decision making variables that represent, or help to recognize and cope with these challenges. In contrast, the entrepreneurial model supposes that innovation is always aggressively pursued and will be very high unless decision makers are warned to slow down. Thus negative correlations are predicted between innovation and the variables that can provide such warning. Correlational and curvilinear regression analyses revealed that each model was supported by conservative and entrepreneurial sub‐samples, respectively, in a diverse sample of 52 Canadian firms.

The economic theory of barriers to entry is integrated with the corporate strategy concept of relatedness, to develop a model of the choice between internal development and acquisition in diversification entry into new markets. The model is tested on original data collected for this study from PIMS Program participants. These original data cover the parent company characteristics, entry strategy and entry outcome for 59 entrants into 31 markets. These entry‐related data are merged with existing PIMS data on the structure of the entered markets and their incumbents. Results of binary regression analysis show that the choice between the two entry modes is well explained by measures of barriers and relatedness. Higher barriers are more likely to be associated with acquisition entry. Greater relatedness is more likely to be associated with direct entry.

Prior work has shown an association between diversification strategy and profitability. This paper replicates that association using more recent and complete data and goes on to investigate the sources of the association. Theoretical arguments are advanced which predict the association which will remain once the effects of varying industry profitability are removed. Empirical tests verify this prediction and permit the discrimination between the effects of industry and diversification strategy on profitability.