Strategic control systems and relative r&d investment in large multiproduct firms

Abstract

This paper hypothesizes that tight financial controls associated with large diversified Mform firms lead to a short-term, low-risk orientation and thereby lower relative investment in R& D. Further, it is hypothesized that increasing levels of diversification require different control systems which have signifcant implications for investing in R&D. Results of the study of 124 major U.S. firms suggest that less diversified U-form firms invest more heavily in R&D than more diversijied M-form firms after controlling for size and industry effects. Additionally, dominant business firms invested more in R& D than either related or unrelated business firms. Finally, the relationship between R&D intensity and market performance was negative for related and unrelated firms. The findings suggest that the market evaluates R&D investment more positively for firms that are organized to seek synergy than for those that are organized to pursue a hedging (or diversification) strategy.

Redirecting Research Efforts on the Diversification–Performance Linkage: The Search for Synergy

“…From an incentives-to-conduct-research perspective, Hoskisson and Hitt (1988) argue that the tight financial control that characterizes M-form, large, diversified firms tends to induce these firms to engage in a risk-minimizing and short-term-oriented decision making process, and hence, reduces investment in R&D. In line with this prediction, the study finds that U-form firms that are less diversified tend to have a higher R&D investment compared to more diversified M-form firms. However, subsequent research also suggests that -despite the change in incentives associated with diversification -firms are able to adapt their structure in order to foster risk-taking at the divisional level (Cardinal & Opler, 1995).…”

Inter-divisional Domain Overlap and Product Differentiation

“…Unlike the argument that structure follows strategy, the hypothesis that structure affects strategy has not drawn sufficient attention from scholars in the strategic management field. (Notable exceptions are [14] and [42]). Most of the relevant studies have not focused on the impact of structure on firm's strategic behavior, but they rather focused on (1) the direct effect of organizational structure on performance: [15], [38], [41], [58]; or (2) the implications of organizational structure on performance from the perspective of contingency theory: [39], [40].…”

Linguistic gender marking gap and female staffing at MNC’s

“…The flexibility, agility and complexity of this network of international subsidiaries underpin the competitive advantage of the MNC as suggested by Junni, Sarala, Tarba, and Weber (2015), but leveraging them requires effective control (Brock et al, 2008) by means of ownership, managerial oversight, direct monitoring, accounting information systems, reward or incentive systems, behavioural control (Heimerik, Schijven, & Gates, 2012;Hoskisson & Hitt, 1988;Snell, 1992), or the assignment of expatriate staff (Brock et al, 2008;Martinez & Jarillo, 1989). Minimising internal organisational costs emphasises the role of organisational control when the parent company transmits relevant directives for subsidiaries to follow in order to achieve combined organisational goals.…”