Session 226

Relatedness, Dominant Logics, and Other Diversification Logics

Track F

Date: Tuesday, October 13, 2009

 

Time: 14:30 – 15:45

Common Ground

Room: Meeting Room 11


Facilitator:
Margarethe Wiersema, University of California, Irvine

Title: An Integrated Perspective on Corporate Scope, Structural Complexity, and Corporate Divestment

Authors

  • Joseph Beck, Shippensburg University
  • Margarethe Wiersema, University of California, Irvine

Abstract: Corporate divestment is an important aspect of corporate restructuring, yet our understanding of divestiture as a strategic decision influenced by corporate-level considerations is limited. Utilizing transaction cost economics and the resource-based view we develop an integrated theoretical framework to examine the role of both internal governance costs and the economic advantages of resource leveraging and strategic fit in determining a manageable strategic scope for the firm, and its potential impact on corporate divestment. We contribute to our understanding of divestment by highlighting the importance of the role of the firm’s corporate scope in the firm’s decision to divest.

Title: Corporate Relatedness and Wealth Creation in the Machinery Industry

Authors

  • Florian Geiger, European Business School

Abstract: In this paper we shed additional light on relatedness research and examine how capital markets value different value chain integration and diversification strategies in mergers. We focus on a sample of 330 machinery industry transactions, as this industry compromises strongly varying business strategies concerning focus on core business, diversification and vertical integration. We find a generally positive relationship between strategic relatedness and excess returns, supporting the theoretical benefits outlined in academic literature, including efficiency improvements, diversification of risk, mitigation of information asymmetries and increased market power. However, we observe that capital market reactions for vertical/complementary transactions are twofold. While integration of downstream industries is almost value neutral, control over subsequent stages of production (upstream mergers) shows similar positive returns as horizontal transactions.

Title: Differentiation Relatedness Across Industries: Dominant Logic Compatibility in Acquisitions

Authors

  • Rhett Brymer, Miami University

Abstract: Acquisitions continue to be a popular corporate strategy, despite high failure rates and very few known antecedents to post acquisition performance success. Dominant logic, as defined in Prahalad and Bettis’ landmark paper (1986), describes the resource allocating schemas held by the top managers of a firm. Though dominant logic was a construct describing a predictor of diversification performance, it has yet to be applied empirically to acquisitions, even though acquisition is common to corporate strategies. The following proposal describes an operationalization of the dominant logic framework to acquisitions, where the heuristic profiles are calculated vis-à-vis isomorphic industry averages and Euclidean distance between acquirer and target profiles are derived. I hypothesize that higher compatibility between acquiring firm and target firm dominant logics will lead to higher financial performance, moderated by relative target size of the acquiring firm prior to acquisition.

Title: Exploring and Exploiting Within and Across Governance Modes: The Domain Separation Approach

Authors

  • Uriel Stettner, Tel Aviv University
  • Dovev Lavie, Technion-Israel Institute of Technology

Abstract: We advance the notion of domain separation which enables firms to balance exploration and exploitation without facing resource allocation tradeoffs and conflicting routines typical of temporal or organizational separation. We acknowledge interdependence in firms’ exploration and exploitation activities across governance modes, namely internal development, acquisitions, and alliances. Refuting conventional wisdom, we suggest that balancing exploration and exploitation within discrete fields of organizational activity undermines performance. In turn, exploring in one domain while exploiting in another, enhances performance, with balancing across governance modes providing additional benefits. We enhance understanding of the means by which firms explore and exploit and underscore their performance implications. We move beyond the question of whether firms should balance exploration and exploitation to consider how exploration and exploitation should be balanced.

Title: Hold-Up Problem and Non-exclusive Franchising Contract: A General Equilibrium Analysis

Authors

  • Chih-Ning Chu, Chung Yuan Christian University
  • Wai-Man Liu, University of New South Wales
  • Grace C. Su, University of Illinois-Urbana Champaign

Abstract: This paper develops a general equilibrium model that examines (i) the existence condition of exclusive franchise contract, and (ii) the emergence of non-exclusive franchise contract in the presence of franchisor hold-up problem. Our model of endogenous franchising network underscores the trade-off between the cost associated with specifying and enforcing the contractual terms and the cost associated with broadening the relationships with multiple franchisors. We show that when the contracting cost relative to the relational cost is high and if the economies of specialization is low, non-exclusive franchise contract is an optimal contractual arrangement to mitigate franchisor opportunism. Franchisor can strategically utilize the non-exclusive contract to expand the franchise network and then enhance the performance of its franchise system.

Title: Unique Demand Complementarities: A Demand-Based Theory of Diversification

Authors

  • Jens Schmidt, Aalto University
  • Thomas Keil, University of Zurich

Abstract: In this paper we contribute to the emerging demand based theory of strategic management. We extend demand-based theorizing to the question of how firms set the scope of their activities complementing prior diversification research that has emphasized supply-based efficiencies. Whereas prior research has emphasized relatedness in terms of underlying resources or dominant logic, our theorizing focuses on commonalities in demand structures and the value creation opportunities these create. Through analytical modeling and in-depth case studies, we show how unique demand complementarities arise from an existing customer base and how a firm can deliberately leverage its existing customer base through diversification. We further show how customer heterogeneity in the existing customer based and the target market’s customer base affect diversification decisions.

All Sessions in Track F...

Sun: 10:00 – 11:30
Session 260: Writing Workshop for Doctoral Students and Junior Faculty
Sun: 13:00 – 14:30
Session 261: Shareholder Primacy and Corporate Policy
Sun: 15:00 – 16:30
Session 262: The Role of Government in M&A Activity
Sun: 16:30 – 17:30
Session 310: Corporate Strategy & Governance, IG Meeting
Mon: 12:45 – 14:00
Session 198: Perspectives on CEO Succession
Session 228: Business Groups, Alliances, and Contracts
Mon: 15:45 – 17:00
Session 229: Alliances and Corporate Strategy
Session 230: Ownership Determinants and Consequences
Mon: 17:15 – 18:30
Session 194: CEOs and Top Management Teams
Session 197: Diversity, Identity, and Corporate Governance
Session 233: Top Executives and Directors in Organizational Dynamics
Tue: 10:00 – 11:15
Session 199: Executive Compensation
Session 200: Social Psychological Perspectives of CEOs
Tue: 11:30 – 12:45
Session 195: Competitive Dynamics of Business Groups
Session 234: Constraints and Catalysts on Corporate Growth
Tue: 14:30 – 15:45
Session 226: Relatedness, Dominant Logics, and Other Diversification Logics
Session 231: Institutions and Agents
Wed: 10:00 – 11:15
Session 227: Corporate Strategy & Diversification
Session 232: Stakeholders in the Corporate Governance Equation
Wed: 11:30 – 12:45
Session 196: Behavioral Perspectives on Boards of Directors
Session 225: Acquisitions and Corporate Strategy


Strategic Management Society

Washington DC