The Evolution of Intracorporate Domains: Divisional Charter Losses in High-Technology, Multidivisional Corporations

Abstract

Modern corporations have become synonymous with the multidivisional form of organization. Variously interdependent divisions are “chartered” to look after one or more business areas, in effect defining the “turf” of the division and its purpose within the corporation, and collectively defining the corporate domain. However, once created, these divisional charters should not be regarded as rigid; they are susceptible to change. Particularly in fast-paced environments, such as in high-technology industries, divisional charters are liable to change as divisions add or subtract businesses to their charter responsibilities. These charter changes are seen as an adaptive device for large, multidivisional corporations in fast-paced environments. This paper presents a process model of how divisions change their domains in hypercompetitive contexts, focusing on the specific question of how divisions lose all or portions of their business charters. The paper is based on a larger inductive study of charter changes in ten divisions, both domestic and foreign, of a large, multinational, high-technology corporation. Data were collected over an 18-month period and included formal interviews, questionnaires, company documents, group interviews, media publications and direct observations of strategy formation sessions. Over 80 informants were interviewed across several managerial levels. Our data revealed three distinct patterns and logics of charter loss depending upon what phase of core business development a division found itself: (1) Divisions starting-up new core businesses lost these charters because of a combination of their failure in the new area and competition with other divisions in the company—the process revealed a competitive market for new charters; (2) Divisions rapidly growing new core businesses lost peripheral business areas in order to focus on the core business—the process emphasized a focus logic for charter change: finally (3) Divisions with mature charter areas were found to shed their core business areas because of an emerging misfit between their skills and culture and the nature of competition in the industry—the process emphasized the emerging nature of corporate mis-alignment and the abrupt charter changes that can follow. This paper contributes to organizational theory by exploring the evolution of large, diversified corporations, focusing on the organizational responses to fast-moving, competitive environments. It also contributes to strategy by revealing a “re-combinant” multidivisional organizational form, by which timely charter changes can be used by large corporations to keep pace in these turbulent contexts.

Asset divestiture following horizontal acquisitions: a dynamic view

“…Galunic and Eisenhardt (1996), for instance, examine means by which firms undertake substantive changes to intra-divisional charters, emphasizing how the growth of new core businesses affects the decline of established charters. Galunic and Rodan (1998) and Singh and Zollo (1997) argue that firm-level innovation rests on the ability to realize novel combinations of firm resources.…”

“…This business dynamics argument takes its root in the resource-based view of the firm (Penrose, 1959;Wernerfelt, 1984), evolutionary economics (Nelson and Winter, 1982), and theories of intra-organizational change (Kogut and Zander, 1992;Galunic and Eisenhardt, 1996). The core argument is that acquisitions help targets and acquirers reconfigure their businesses in the face of the strong inertial forces that constrain their actions (Capron, Dussauge, and Mitchell, 1998).…”

An Information Company in Mexico: Extending the Resource-Based View of the Firm to a Developing Country Context

“…No hypotheses nor theories were developed before data collection; rather, it was desired that the data analysis drive the theoretical lens used for interpretation rather than vice versa (Galunic and Eisenhardt 1996).…”

Where firms change: internal development versus external capability sourcing in the global telecommunications industry

“…Dynamic capabilities are "the antecedent organizational and strategic routines by which managers alter their resource base -acquire and shed resources, integrate them together, and recombine them-to generate new value-creating strategies" Martin, 2000:1107). Reconfiguring firm capabilities can take place within the firm (Galunic and Eisenhardt, 1996;Szulanski, 1996;Hansen, 1999) or by establishing linkages with external partners (Gulati, 1999;Capron, Mitchell and Swaminathan, 2001). Rosenkopf and Nerkar (2001) distinguish between internal boundaryspanning exploration and external boundary-spanning exploration.…”