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Title:Diversity reduction as organizational metamorphosis: A strategic analysis
Author(s):Davis, Rachel
Department / Program:Business Administration, Management
Education, Business
Discipline:Business Administration, Management
Education, Business
Degree Granting Institution:University of Illinois at Urbana-Champaign
Subject(s):Business Administration, Management
Education, Business
Abstract:Over one-third of the firms that were considered to be unrelated diversifiers did an about-face in the 1980s and announced their decision to reduce their diversity. This dissertation researches differences between those unrelated diversifiers that continued their unrelated strategy (continuers) and those that reduced their diversity (reducers).
A metamorphosis model, originally proposed by Tushman and Romanelli, was used to compare the two groups on the basis of firm performance, industry attractiveness and organizational inertia. Each model component was operationalized using two alternate criteria, using publicly available data. Firm performance was evaluated using accounting- and capital-market-based criteria. Industry attractiveness was operationalized as a composite of market attractiveness and firm market power. Organizational inertia was evaluated using succession and governance measures, as well as agency theory-based measures. Each of these alternate operationalizations of the model components were tested for their ability to differentiate between the continuers and reducers. Complete models using alternate operationalizations of all three components were also tested.
The results showed that the continuers had better performance on capital market criteria, participated in more attractive industries, and had a lesser agency problem than the reducers. There are several interesting findings in this regard. First, there appears to be an association between management's ownership stakes and strategic effectiveness. Next, there seem to have been major strategic changes wrought among some unrelated diversifiers, the reducers, without concurrent executive changes. An appropriately designed incentive system which reduces the distance between principal and agent appears to contribute to both the continuity and success of top management teams. Another interesting finding is that a well executed unrelated diversification strategy can lead to good performance, regardless of whether performance is based on accounting or capital market criteria.
A major contribution of this study derives from its exploration of unrelated diversification and strategic change. In answering the initial research questions regarding diversity reduction, a number of additional questions were raised and discussed.
Issue Date:1989
Rights Information:Copyright 1989 Davis, Rachel
Date Available in IDEALS:2011-05-07
Identifier in Online Catalog:AAI9010840
OCLC Identifier:(UMI)AAI9010840

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