A Simultaneous Equation Model of Corporate Strategy

Abstract

Over the past decade strategy has become a concept of value to management as it relates the firm to the threats and opportunities of an increasingly turbulent environment. However, empirical tests of the validity of the strategy construct have been limited, as have been the managerial applications of the models used to test the construct. Early research efforts, both analytical and empirical, have shown that quantitative modeling of strategy could be a tool of value in helping top management achieve the goal is of the firm [Gershefski, George W. 1969. Building a corporate financial model. Harvard Business Rev. (July-August) 61-72; Guth, W. D. 1972. Product differentiation and concentration in the brewing industry. J. Business Policy. 2 (3) 31-36.]. Prior research has been limited to single equation models linking strategy and environment to only one performance goal, profitability. While there is some controversy about it, complex organizations set multiple, and sometimes conflicting goals, creating a need for models that car; encompass more than a single performance goal. Moreover, the interactive effects of strategic variables governing the efficiency of daily operations, suggests that single equation models of strategy cannot capture the complexity of the modern firm. This research explores the use of a simultaneous equation model of corporate strategy as a means of overcoming the multiple performance goal problem, while capturing the complex patterns of the strategic, operating, and environmental variables that influence goal achievement. The difficulties of estimating the model, including the problems of sample heterogeneity so important to this type of work, are identified and discussed using data and results taken from the U.S. brewing industry.planning: corporate, economics: econometrics, industries: food

To be different, or to be the same? It’s a question (and theory) of strategic balance

“…Future research should examine if strategic balance theory applies in other markets facing strong competitive and institutional pressures, such as hospitals or drug manufacturers. The specific strategic resource commitments in these markets may vary (Chandler, 1962;Schendel and Patton, 1978). For instance, R&D expenses and advertising expenses may be important in the pharmaceutical industry (Cool and Schendel, 1987), whereas technical sophistication in non-routine treatments may be important in hospitals (Ketchen, Thomas, and Snow, 1993;Westphal, Gulati, and Shortell, 1997).…”

Measurement of Business Performance in Strategy Research: A Comparison of Approaches

“…For example, in Cell 1, the operationalizing scheme for business performance entails the use of financial performance data obtained from secondary sources (e.g.. Beard & Dess, 1981;Rumelt, 1974), while in Cell 2, the focus is on eliciting financial data directly from target organizations (e.g., ROI in PIMSbased studies). In Cells 3 and 4, the focus Is on operational indicators collected from secondary sources (e.g., market share data in Schendel & Patton, 1978) and primary sources (e.g., data on market share positions in PIMS-based studies) respectively. It is readily apparent that these four approaches have a narrow perspective on the notion of business performance.…”

Linking hypercompetition and strategic group theories: strategic maneuvering in the US insurance industry

“…First, a range of studies finds that the number of groups in an industry does not change dramatically over time. Indeed, in the industries studied in Schendel and Paton (1978), Harrigan (1985), Hatten and Schendel (1987), Cool and Schendel (1988), Mascarenhas (1989) and Fiegenbaum and Thomas (1990), the number of basic groups was stable, varying between three and five over the time periods studied. From a hypercompetition point of view, the stability evidence is limited, as the researchers did not consider the introduction of new competitive dimensions by firms in their formulation frameworks.…”