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- Business and Management x
Donald D. Bergh
Growth strategies have long been a priority for executive leadership. However, growth can also create problems. Leaders may need to use restructuring and divestiture actions to regain control, improve transparency, and re-establish efficiency. Given that leaders benefit from having insights into the antecedents, processes, outcomes, and decisions associated with unwinding growth most effectively, it is essential to consider the body of knowledge that exists in strategic management on restructuring and divestiture. This review seeks to describe what is currently known and not known about restructuring and divestiture and will give future researchers some suggested directions for further developing knowledge about these expensive and risky actions. The assessment is organized round five key questions that have shaped the field’s literature base: Why do firms divest? How do firms divest? Do divestitures create value? What happens to the divested units? And what are some promising directions for future knowledge development? Afterwards, three challenges for knowledge development are presented: What is value creation and for whom does it matter? What to do about incomplete information? And, is there a need for integrating different levels of strategy? Overall, it is important to identify, develop, and analyze the conceptual models of restructuring and divestiture with the purpose of guiding future research to provide knowledge that decision-makers will find useful as they engage in restructuring and divestitures.
Michael K. Bednar
Corporate governance scholars have long been interested in understanding the mechanisms through which firms and their leaders are held accountable for their actions. Recently, there has been increased interest in viewing the media as a type of corporate governance mechanism. Because the media makes evaluations of firms and leaders, and can broadcast information to a wide audience, it has the potential to influence the reputation of firms and firm leaders in both positive and negative ways and thereby play a role in corporate governance.
The media can play a governance role and even influence firm outcomes by simply reporting about firm actions, giving stakeholders a larger voice with which to exert influence, and through independent investigation. However, despite the potential for the media to play a significant governance role, several barriers limit its effectiveness in this capacity. For example, media outlets have their own set of interests that they must strive to fulfill, and journalists often succumb to several cognitive biases that could limit their ability to successfully hold leaders accountable.
While significant progress has been made in understanding the governance role of the media, future research is needed to better understand the specific conditions in which the media is effective in this role. Understanding how social media is changing the nature of journalism is just one example of the many exciting avenues for future research in this area.
Kathryn Rudie Harrigan
Concerns regarding strategic flexibility arose from companies’ need to survive excess capacity and flagging sales in the face of previously unforeseen competitive conditions. Strategic flexibility became an organizational mandate for coping with changing competitive conditions and managers learned to plan for inevitable restructurings. They learned to reposition assets and capabilities to suit their firms’ new strategic aspirations by overcoming barriers to change. Core rigidities flared up in the form of legacy costs, regulatory constraints, political animosity, and social resistance to adjusting firms’ strategic postures; managers learned that their firms’ past strategic choices could later become barriers to adapting corporate strategy.
Managerial insights concerning how to modify firms’ resources changed the way in which they were subsequently regarded. Enterprises saw assets lose their relative productivity and value as mastery of specific knowledge become less germane to success. Managers recognized that their firms’ capabilities were mismatched to market or value-chain relationships. They struggled to adapt by overcoming barriers to change.
Flexibility problems were inevitable. Even if competitive conditions were not impacted by exogenous change forces, sustaining advantage in a steady-state competitive arena became difficult; sustaining advantage in dynamic arenas became nearly impossible. Confronted with the difficulties of changing strategic postures, market orientations, and overall cost competitiveness, managers embraced the need to combat organizational rigidity in all aspects of their firms’ operations. Strategic flexibility affected enterprise assets, capabilities, and potential relationships with other parties within firms’ value-creating ecosystems; the need for strategic flexibility influenced investment choices made to escape organizational rigidity, capability traps and other forms of previously unrecognized resource inflexibility.
Where entry barriers once protected a firm’s strategic posture, flexibility issues arose when the need for endogenous changes occurred. The temporary protection afforded by imitation barriers slowed an organization’s responsiveness to changing its strategy imperatives—making the firm rigid when adaptiveness was needed instead. A firm’s own inertia to change sometimes created mobility barriers that had to be overcome when hypercompetitive conditions arose in their traditional market arenas and forced firms to change how they competed.
Where exogenous changes drove competitive conditions to become more volatile, attainment of strategic flexibility mandated the need to downsize the scope of a firm’s activities, shut down facilities, prune product lines, reduce headcount, and eliminate redundancies—as typically occurred during an organizational turnaround—while simultaneously increasing the scope of external activities performed by an enterprise’s value-adding network of suppliers, distributors, value-added resellers, complementors, and alliance partners, among others. Such structural value-chain changes typically exacerbated pressures on the firm’s internal organization to search more broadly for value-adding innovations to renew products and processes to keep up with the accelerated pace of industry change. Exploratory processes of self-renewal forced confrontations with mobility or exit barriers that were long tolerated by firms in order to avoid coping with the painful process of their ultimate elimination. The sometimes surprising efforts by firms to avoid inflexibility included changes in the nature of firms’ asset investments, value-chain relationships, and human-resource practices. Strategic flexibility concerns often trumped the traditional strengths accorded to resource-based strategies.
John Bryson and Lauren Hamilton Edwards
Strategic planning has become a fairly routine and common practice at all levels of government in the United States and elsewhere. It can be part of the broader practice of strategic management that links planning with implementation. Strategic planning can be applied to organizations, collaborations, functions (e.g., transportation or health), and to places ranging from local to national to transnational. Research results are somewhat mixed, but they generally show a positive relationship between strategic planning and improved organizational performance. Much has been learned about public-sector strategic planning over the past several decades but there is much that is not known.
There are a variety of approaches to strategic planning. Some are comprehensive process-oriented approaches (i.e., public-sector variants of the Harvard Policy Model, logical incrementalism, stakeholder management, and strategic management systems). Others are more narrowly focused process approaches that are in effect strategies (i.e., strategic negotiations, strategic issues management, and strategic planning as a framework for innovation). Finally, there are content-oriented approaches (i.e., portfolio analyses and competitive forces analysis).
The research on public-sector strategic planning has pursued a number of themes. The first concerns what strategic planning “is” theoretically and practically. The approaches mentioned above may be thought of as generic—their ostensive aspect—but they must be applied contingently and sensitively in practice—their performative aspect. Scholars vary in whether they conceptualize strategic planning in a generic or performative way. A second theme concerns attempts to understand whether and how strategic planning “works.” Not surprisingly, how strategic planning is conceptualized and operationalized affects the answers. A third theme focuses on outcomes of strategic planning. The outcomes studied typically have been performance-related, such as efficiency and effectiveness, but some studies focus on intermediate outcomes, such as participation and learning, and a small number focus on a broader range of public values, such as transparency or equity. A final theme looks at what contributes to strategic planning success. Factors related to success include effective leadership, organizational capacity and resources, and participation, among others.
A substantial research agenda remains. Public-sector strategic planning is not a single thing, but many things, and can be conceptualized in a variety of ways. Useful findings have come from each of these different conceptualizations through use of a variety of methodologies. This more open approach to research should continue. Given the increasing ubiquity of strategic planning across the globe, the additional insights this research approach can yield into exactly what works best, in which situations, and why, is likely to be helpful for advancing public purposes.
Tracking the Entrepreneurial Process With the Panel Study of Entrepreneurial Dynamics (PSED) Protocol
Paul D. Reynolds
This is an advance summary of a forthcoming article in the Oxford Research Encyclopedia of Business and Management. Please check back later for the full article.
In the early 1990s, business creation was receiving a great deal of attention, once it was clear that new firms were a major source of job creation. There was not, however, reliable data on the prevalence of persons participating in firm creation, what they would do to implement new ventures, or the proportion of start-up efforts that become profitable businesses. This hiatus led to the development of longitudinal studies of the entrepreneurial process, which have now been implemented in 14 countries, including twice in the United States.
The Panel Study of Entrepreneurial Dynamics (PSED) protocol was designed to provide estimates of the prevalence of individuals involved in business creation and the presence of pre-profit, start-up ventures; to deliver data on the major activities undertaken to implement a new firm; and to track the proportion that completed the transition from start-up to profitable new firm. A number of challenges were involved in implementing the research program, including the development of efficient procedures for identifying representative samples of nascent entrepreneurs and criteria for determining the dates of entry into the start-up process, the transition to a profitable business, and disengagement from the initiative.
Data collection is a three-stage process. The initial stage is identifying nascent entrepreneurs in a representative sample of adults, followed by a detailed interview on the start-up team and activity related to creating a new venture. The third stage is follow-up interviews, completed to determine the outcome of the start-up efforts. A large number of scholars have been involved in development of the interview schedules, and some data sets have considerable information on the perspectives, activities, and strategies of those involved in the start-up process.
Since the initial data sets were made public 15 years ago, there has been considerable research utilizing PSED data sets. One major finding, however, is that the firm creation process is much more diverse and complicated than had been expected. There are substantial research opportunities to be explored. A review of the major features of the PSED protocol and a summary of the existing data sets provides background that will facilitate additional analysis of the firm creation process. Four data sets [Australia, Sweden, and U.S. PSED I & II) are now in the public domain. Critical features of the start-up process have been consolidated and harmonized in a five-cohort, four-country data set that is also available.
Mikko Ketokivi and Joseph T. Mahoney
This is an advance summary of a forthcoming article in the Oxford Research Encyclopedia of Business and Management. Please check back later for the full article.
Which components should a manufacturing firm make in-house, which should it co-produce, and which components should it outsource? Who should sit on the firm’s board of directors? What is the right balance between debt and equity financing?
These three questions may appear different on the surface, but they are all variations on the same theme: How should a complex contractual relationship be governed to minimize cost and create transaction value? Transaction Cost Economics (TCE) is one of the most established theories of management to address this fundamental question.
In 1937, Coase was the first author to highlight the importance of understanding the costs of transacting, but TCE as a formal theory started in earnest in the late 1960’s and early 1970’s, as an attempt to understand and make empirical predictions about vertical integration (“the make-or-buy decision”). In its history, spanning now over five decades, TCE has expanded to become one of the most influential management theories, addressing not only the scale and the scope of the firm but also many aspects of its internal workings, most notably corporate governance and organization design. TCE is therefore not only a theory of the firm but, indeed, also a theory of management.
At its foundation, TCE is a theory of organizational efficiency: How should a complex transaction be structured and governed so as to minimize waste? The efficiency objective calls for identifying the comparatively better organizational arrangement among feasible alternatives to match the key features of the transaction. For example, a highly complex, risky, and recurring transaction may be prohibitively expensive to try to manage through a buyer-supplier contract. Instead, internalizing the transaction through vertical integration offers an economically more efficient approach.
TCE starts by seeking to describe and understand two kinds of heterogeneity. The first kind is the diversity of transactions: What are the relevant dimensions with respect to which transactions differ from one another? The second kind is the diversity of organizations: What are the relevant dimensions in which organizational responses to transaction governance differ from one another? The ultimate objective in TCE is to understand discriminating alignment: Which organizational response offers the least-cost solution to govern a given transaction? Understanding discriminating alignment is also the main source of prescription derived from TCE.
The key points when examining the logic and applicability of TCE are:
1. TCE is not only a theory of the make-or-buy decision but also has broader applicability to the examination of complex transactions and contracts more generally; the buyer-supplier contract is the paradigmatic canonical case.
2. TCE could be described as a constructive stakeholder theory, where the primary objective is to ensure efficient transactions and avoidance of waste. TCE shares many features with contemporary stakeholder management principles.
3. TCE offers a useful contrast and counterpoint to other theories of organizations, such as competence- and power-based theories of the firm. These other theories, of course, symmetrically inform TCE. TCE reminds us that in a world where resources are limited, the economics of organizing are always relevant.
Kathleen R. Allen
For decades researchers have studied various aspects of the technology transfer and commercialization process in universities in hopes of discovering effective methods for enabling more research to leave the university as technologies that benefit society. However, this effort has fallen short, as only a very small percentage of applied research finds its way to the marketplace through licenses to large companies or to new ventures. Furthermore, the reasons for this failure have yet to be completely explained.
In some respects, this appears to be an ontological problem. In their effort to understand the phenomenon of university commercialization, researchers tend to reduce the process into its component parts and study each part in isolation. The result is conclusions that ignore a host of variables that interact with the part being studied and frameworks that describe a linear process from invention to market rather than a complex system. To understand how individuals in the technology commercialization system make strategic choices around outcomes, studies have been successful in identifying some units of analysis (the tech transfer office, the laboratory, the investment community, the entrepreneurship community); but they have been less effective at integrating the commercialization process, contexts, behaviors, and potential outcomes to explain the forces and reciprocal interactions that might alter those outcomes.
The technology commercialization process that leads to new technology products and entrepreneurial ventures needs to be viewed as a complex adaptive system that operates under conditions of risk and uncertainty with nonlinear inputs and outputs such that the system is in a constant state of change and reorganization. There is no overall project manager managing tasks and relationships; therefore, the individuals in the system act independently and codependently. No single individual is aware of what is going on in any other part of the system at any point in time, and each individual has a different agenda with different metrics on which their performance is judged. What this means is that a small number of decision makers in the university commercialization system can have a disproportionate impact on the effectiveness and success of the entire system and its research outcomes.
Critics of reductionist research propose that understanding complex adaptive systems, such as university technology commercialization, requires a different mode of thinking—systems thinking—which looks at the interrelationships and dependencies among all the parts of the system. Combined with real options reasoning, which enables resilience in the system to mitigate uncertainty and improve decision-making, it may hold the key to better understanding the complexity of the university technology commercialization process and why it has not been as effective as it could be.
Keith Leavitt and David M. Sluss
Truthfulness and accuracy are critical for effective organizational functioning, but dishonesty (in the form of lying, misrepresentation, and fraud) continue to be pervasive in organizational life. Workplace dishonesty is an inherently unique behavior that should be distinguished from broader categories of unethical workplace behavior and organizational deviance, in that dishonesty is an overt social behavior—that is, requiring an audience to exist as a behavior. Compared to stealing or cheating, dishonest acts require knowing fabrication of false information, intended to deceive an anticipated audience. Thus, considering the overt social aspect of dishonesty (compared to the relatively clandestine behaviors of cheating and stealing) may add conceptual clarity to the construct of workplace dishonesty, which is surprisingly absent from extant literature. The potential audience for dishonest acts in the workplace is notably critical, in that dishonest organizational actors generally anticipate characteristics of the audience (in terms of relationship closeness, as well as expertise and motivation to evaluate the claim) and likely adapt and tailor their dishonesty accordingly. Historically two underlying paradigms have been used to study workplace dishonesty: the rational actor (economic) paradigm and the behavioral ethics (psychological) paradigm, but an emerging and nascent third paradigm (the social actor paradigm) may offer new opportunities for understanding antecedents of workplace dishonesty that do not occur exclusively for self-interested reasons. This novel paradigm suggests here important areas of inquiry related to the aftermath of workplace dishonesty: when will workplace dishonesty be detected in social interactions; what are the social and relational consequences of discovering dishonesty; how are dishonest actors likely to behave in the aftermath of their dishonest actions. Finally, two varying discrepancies relevant to workplace dishonesty should accordingly be considered when predicting subsequent behavior of the dishonest actor: the magnitude of the discrepancy between the truth and the fabrication, and the temporal discrepancy between the trigger event and dishonest act.