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Business expansion and firm efficiency in the commercial banking industry: Evidence from the US and China
Abstract
Despite a consensus that business expansion drives firm effectiveness, extant literature has neglected the exact relationship between business expansion and firm efficiency. Using secondary data from the US and Chinese banking industries, this study explores two efficiencies of exploratory expansion (i.e., investing in new business, outside the scope of the firm’s existing business) and exploitative expansion (i.e., expanding target markets in the existing business)—profitability and marketability. The empirical results reveal that exploratory expansion decreases profitability but increases marketability. Meanwhile, exploitative expansion has no significant effect on profitability, but it can increase marketability. Furthermore, the study reveals that Chinese banks are likely to benefit more from exploratory expansion, whereas US banks would benefit from exploitative expansion.
... Research on non-performing loan or NPL against profitability shows significantly negative influence as described by Arif (2012), Malik (2015), and Rodriguez (2014), whereas it is also found as to have no effect on profitability whatsoever by Jha and Hui (2012). Research on income ratio other than interest or income diversification against profitability indicates significantly positive influence as recorded by Sawada (2013), Bhatia et al. (2012), Alper and Albar (2011), Rodriguez (2014) and , while Wang et al. (2015) and Afza et al. (2008) found no effect of this measure on profitability. Research on operational cost efficiency shows significantly negative effect as found by Bhatia et al. (2012), Almazari (2014) and Maredza (2014), whereas Rodriguez (2014 and Karim and Alam (2013), found no effect. ...
... He showed that profitability positively affects company value, while loan to asset efficiency and income diversification do not affect company value and that credit risk quality negatively affects company value. Wang et al. (2015) carried out a research on the effect of income diversification against profitability and company value in banks in China and the USA. They figured out that income diversification positively affects company value, but it does not affect profitability. ...
... The descriptive statistics table shows that the standard deviation of Income Diversification is 0.69649, far lower than mean Income Diversification, at 1.0533, which indicates that public banks are still conventional or rely heavily on income from interests. Results of this research agree with those of Wang et al. (2015) and Afza et al. (2008). ...
Company value that tends to decline is a problem that must be addressed. This is in line with the theory of company which mentions that the goal of a company is to maximize it value. This study is aimed at analyzing the effects of Loan to Deposit Ratio (LDR), Non-Performing Loan (NPL), Income Diversification and Operational Cost and Return (BOPO) on company value, with Price Book Value (PBV) and Return on Asset (ROA) as intervening variables. The study population consists of companies listed on the Indonesian Stock Exchange between 2010 and 2015. The sampling technique employed was purposive sampling and 26 companies were sampled according to the pre-determined criteria. Analyzes were carried out using the SPSS program, with the data undergoing a statistical testing beforehand. Results from the first regression model show that LDR has positive and significant effect on ROA, BOPO has negative and significant effect on ROA, while NPL and Income Diversification does not have any effect on ROA. On the other hand, results from the second regression model show that LDR has negative and significant effect on PBV; Income Diversification has positive and significant effect on PBV, whereas NPL and BOPO do not have any effect on PBV. Statistically, this study also shows that ROA has a mediating effect on the relationship between Income Diversification and BOPO against PBV.
... In recent years, Chinese commercial banks continue to strengthen their capability of innovation and risk management through product innovation, which is also regarded as an important strategy for the improvement of their core competitiveness [1,2]. A thorough analysis of commercial banks' product innovation performance is essential to promoting the banks' competitiveness and sustainable development [3]. ...
... Based on the data of the 25 commercial banks in 2013, 2015 and 2017, their product innovation performance values in specific years can be obtained through Models (1) and (2). The results are shown in Figure 2. The efficiency change of the four types of commercial banks during the observation period can be found in Figure 3. ...
A thorough analysis of commercial banks’ product innovation performance is essential to promoting bank product innovation capabilities and sustainable development. In this paper, the product innovation performance of commercial banks is defined as the conversion efficiency of input and output factors. The credit risk of product innovation of banks is considered as an undesirable output and incorporated in the performance evaluation system. Depending on whether there is a synchronous relationship between innovation income and risks, a Fixed Correlation model (FCM) and a Variable Correlation model (VCM) are then constructed based on Data Envelopment Analysis (DEA) method for the evaluation of commercial bank product innovation performance. In addition, an output optimization model of the objective function is also constructed to estimate the target income of commercial banks’ product innovation in the FCM and VCM. Finally, the proposed model is applied to Chinese listed commercial banks for estimating the performance and target income of product innovation.
... Second, technical and administrative changes both should make organizations more adaptable to markets and environments (Leana & Barry, 2000;Staber & Sydow, 2002) and more flexible, thereby contributing to performance and long-term survival, especially if those firms operate in the turbulent, changing markets of emerging economies, in which internal and external knowledge are changeable. Market adaptability is critical for firms to acquire and integrate information (Wang, Huang, & Shou, 2015). Although technical change may smooth out market uncertainties in customer demand (Zhou et al., 2006), administrative change allows for new organizational structures that better satisfy turbulent markets (Damanpour & Evan, 1984). ...
... Moreover, our study context involves high-tech firms, in which technical-based organizational change represents an industry norm, so it seems unlikely that major coordination would arise. However, technical change is unlikely to increase coordination costs and do not increase demands for management efficiency among functional departments (Wang et al., 2015). Technical change directly relates to basic work activities (e.g., production, new product development), not to organizational structures and management systems (Zhou et al., 2006). ...
In emerging economies, organizational change is both a difficult challenge and a common phenomenon for high-tech firms. Change can enhance adaptability and leverage knowledge based on dynamic capability perspective, but it can also increase coordination costs and—according to the organizational inertia perspective—prompt conflict. Existing findings about the effect of organizational change on firm performance are inconsistent. Accordingly, this survey study of 213 firms in the Chinese high-tech industry investigates the curvilinear and differential effects of technical and administrative organizational change, as moderated by customer participation and innovation ambidexterity. The results reveal that the effects of technical and administrative change are both U-shaped. At a low level of change, increasing technical or administrative change hinders firm performance, but as the levels increase beyond a critical point, the effect of change becomes positive. Although customer participation strengthens the effect of technical change on firm performance, both customer participation and innovation ambidexterity attenuate the effect of administrative change on firm performance.
... We used a dummy variable to control for CEO succession origin (1 = outside, 0 = internal). Further, with the increase of the business scope, a firm may invest in new businesses, which requires managers to acquire and absorb new knowledge and skills (Wang, Huang, & Shou, 2015). However, CEOs alone may not make it, as they have limited rationality and energy (Lo & Fu, 2016). ...
Managers make comprehensive strategic decisions to cope with environmental challenges. Questions remain that how different types of leadership styles influence top management team (TMT) strategic decision comprehensiveness (SDC) and firm performance. This study explores the impact of two different CEO leadership styles on TMT SDC and subsequent firm performance, considering the moderating role of TMT cognitive conflict. Based on data from 357 questionnaires of 126 firms in China, we found that 1) CEO empowering leadership positively affects SDC; 2) CEO directive leadership generates an inverted U-shaped effect on SDC; 3) the effect of SDC on firm performance is positive; 4) TMT cognitive conflict weakens the relationship between CEO empowering leadership and SDC. This study takes a systematic approach by integrating CEO-TMT dynamics into SDC, which in turn affects firm performance, and thus offers a holistic view of how upper echelons influence firm performance.
... According to the upper echelons literature, CEOs with international experience can better leverage such experience to deal with competition from foreign entrants than CEOs without such experience (Carpenter, Geletkanycz, & Sanders, 2004). Given the Penrosian constraints on the limits of firm resources and coordination costs (Meyer, 2006;Rawley, 2010;Wang, Huang, & Shou, 2015), when CEOs with international experience defend against the onslaught of foreign entrants, they may choose to reallocate scarce managerial and financial resources and attention away from noncore businesses. Instead, these CEOs may focus on core businesses and consequently reduce product diversification. ...
Previous diversification research has largely focused on product relatedness, but ignored institutional relatedness—the degree of informal embeddedness with the dominant institutions that confer resources and legitimacy. We argue that during institutional transitions, political ties and international experience represent different types of institutional relatedness linking firms, respectively, to political institutions and market institutions. Specifically, CEOs’ political ties may help firms access critical resources, sense new market entry opportunities, and gain board support to increase firms’ product diversification. CEOs’ international experience may help firms leverage different market-based capabilities, engage in international competition, and then lead firms to grow on a different path by expanding internationally. We further investigate a crucial contingency factor: the degree of economic freedom. Data from 11,992 firm-year observations based on firms listed on China’s stock exchanges
Salah satu sektor riil yang perlu difokuskan adalah industri kreatif yang dapat menjadi pertumbuhan penting dan mengambil bagian dalam perekonomian Indonesia. Ada banyak peluang dalam industri kreatif, salah satunya adalah industri fotografi. Dengan alasan ini, kita dapat menyimpulkan bahwa itu adalah industri yang prospektif dan akan menjadi alasan utama bagi Fauve Imagine untuk terlibat di dalamnya. Namun, setelah satu tahun melakukan bisnis, Fauve Imagine telah menemukan beberapa masalah terutama di pasar dan promosi yang menyebabkan penjualan menurun. Untuk mengidentifikasi kondisi lebih lanjut dari Fauve Imagine, perusahaan telah melakukan analisis internal dan analisis eksternal. Analisis internal adalah segmentasi, penargetan dan positioning (STP) dan bauran pemasaran. Analisis pelanggan menggunakan SERVQUAL sebagai dasar wawancara dengan dimensi yang ada, nyata, keandalan, responsif, jaminan dan empati. Analisis Benchmark menggunakan bauran pemasaran untuk mendapatkan wawasan tentang tolak ukur. Selanjutnya, Fauve Imagine menggunakan analisis SWOT untuk mengidentifikasi kekuatan, kelemahan, peluang, dan ancaman. Kekuatannya berkualitas baik, harga kompetitif, paket variatif dan waktu yang fleksibel. Kelemahannya adalah operasi, pasar terbatas dan baru ke pasar. Peluang adalah pembentukan pameran pernikahan, vendor lain membutuhkan waktu lebih lama untuk melakukan pasca produksi, mengubah preferensi pelanggan potensial dan kemitraan dengan konsultan pernikahan atau penyelenggara. Ancaman adalah pesaing yang sama dengan layanan yang ditawarkan sama, pintu masuk baru dengan harga terjangkau dan penukaran mata uang. Terakhir, Fauve Imagine menggunakan analisis akar penyebab untuk menemukan penerbitan terperinci yang menyebabkan penurunan penjualan Fauve Imagine. Ada orang, peralatan, promosi, lingkungan dan strategis. Fauve Imagine fokus pada isu strategis dan promosi. Hasil analisis menghasilkan ekspansi bisnis, perilaku pelanggan di Mdean, promosi online, promosi offline dan pemasaran omni-channel, yang didasarkan dari analisis pasar yang merangkum dari pelanggan fotografi pernikahan, tolak ukur fotografi pernikahan dan ahli dari pasar pernikahan. Tujuan ekspansi bisnis adalah untuk meningkatkan pendapatan dengan menciptakan pasar baru bagi perusahaan. Strategi perilaku pelanggan akan menentukan target pasar yang memiliki kesamaan dengan target pasar saat ini. Strategi promosi online diperlukan untuk mendukung ekspansi bisnis ke pasar baru diikuti dengan promosi offline dan pemasaran omni-channel. Durasi rencana akan menjadi satu tahun dengan perkiraan anggaran 71 juta rupiah. Selain itu, perusahaan mengharapkan peningkatan eksposur di pasar baru yang akan melibatkan peningkatan penjualan. Solusi berikut ini dengan rencana implementasinya akan mengatasi masalah utama Fauve Imagine yang merupakan penurunan penjualan.
Kata kunci: Saluran pasar baru, saluran-omni, SERVQUAL, layanan, fotografi
The selection process of a suitable credit applicant firm becomes a more complex decision making process as the decision makers in the banking industries have to assess a wide range of firms based on a set of conflicting financial ratios. This study investigates the new model of the multi-objective optimization on the basis of ratio analysis and the goal programming method together to solve credit lending decision making problems for firms as frequently encountered in real-time commercial banking environments. A multi-objective credit evaluation model is developed to use in all the stages of the credit evaluation process.
This study examines how different rhythms of change relate to firm performance. An explorative analysis of 67 European insurance companies between 1995 and 2004 reveals that corporate strategic changes occur in four distinct rhythms, which are classified as either regular or irregular (focused, punctuated, and temporarily switching). Subsequent quantitative analysis shows that companies that change regularly outperform those that change irregularly. This finding prevails under different internal and external contingencies, under different change characteristics, and over time periods. We also find that the rhythm and frequency of change have distinct performance effects. Our findings contribute to research on the change-stability paradox by showing that a regular and sequential balance between change and stability is associated with long-term success.
Drawing on the chain-of-effects model as a unifying framework, this meta-analysis indicates that firm innovativeness indirectly affects firm value through its effects on market position and financial position. In addition, the findings suggest that innovativeness has direct positive effects on financial position and firm value. Moreover, the metaanalysis provides evidence of reverse causality in the innovativeness-firm value relationship. Importantly, the results also reveal that the positive effects of firm innovativeness on market position and financial position are stronger for larger firms, for firms that invest more in advertising, for firms in high-tech industries, for innovativeness outputs and for radical innovations. Finally, the meta-analytic evidence also indicates that the relationship between innovativeness and firm value is stronger for smaller firms, for firms that invest more in advertising, for firms in lowtech industries, for innovativeness inputs, for innovativeness culture, and for radical innovations.
We propose a relational theory of how change agents in organizations use the strength of ties in their network to overcome resistance to change. We argue that strong ties to potentially influential organization members who are ambivalent about a change (fence-sitters) provide the change agent with an affective basis to coopt them. This cooptation increases the probability that the organization will adopt the change. By contrast, strong ties to potentially influential organization members who disapprove of a change outright (resistors) are an effective means of affective cooptation only when a change diverges little from institutionalized practices. With more divergent changes, the advantages of strong ties to resistors accruing to the change agent are weaker, and may turn into liabilities that reduce the likelihood of change adoption. Analyses of longitudinal data from 68 multimethod case studies of organizational change initiatives conducted at the National Health Service in the United Kingdom support these predictions and advance a relational view of organizational change in which social networks operate as tools of political influence through affective mechanisms.
This paper was accepted by Jesper Sørensen, organizations.
The authors present a unified strategic framework that enables competing marketing strategy options to be traded off on the basis of projected financial return, which is operationalized as the change in a firm's customer equity rel- ative to the incremental expenditure necessary to produce the change. The change in the firm's customer equity is the change in its current and future customers' lifetime values, summed across all customers in the industry. Each customer's lifetime value results from the frequency of category purchases, average quantity of purchase, and brand-switching patterns combined with the firm's contribution margin. The brand-switching matrix can be esti- mated from either longitudinal panel data or cross-sectional survey data, using a logit choice model. Firms can ana- lyze drivers that have the greatest impact, compare the drivers' performance with that of competitors' drivers, and project return on investment from improvements in the drivers. To demonstrate how the approach can be imple- mented in a specific corporate setting and to show the methods used to test and validate the model, the authors illustrate a detailed application of the approach by using data from the airline industry. Their framework enables what-if evaluation of marketing return on investment, which can include such criteria as return on quality, return on advertising, return on loyalty programs, and even return on corporate citizenship, given a particular shift in cus- tomer perceptions. This enables the firm to focus marketing efforts on strategic initiatives that generate the great- est return.
The authors develop a conceptual framework of the marketing-finance interface and discuss its implications for the theory and practice of marketing. The framework proposes that marketing is concerned with the task of developing and managing market-based assets, or assets that arise from the commingling of the firm with entities in its external environment. Examples of market-based assets include customer relationships, channel relationships, and partner relationships. Market-based assets, in turn, increase shareholder value by accelerating and enhancing cash flows, lowering the volatility and vulnerability of cash flows, and increasing the residual value of cash flows. ABSTRACT FROM AUTHOR Copyright of Journal of Marketing is the property of American Marketing Association and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts)
Effective organizations are configurations of management practices that facilitate the development of the knowledge that becomes the basis for competitive advantage. A market orientation, complemented by an entrepreneurial drive, provides the cultural foundation for organizational learning. However, as important as market orientation and entrepreneurship are, they must be complemented by an appropriate climate to produce a ''learning organization''. The authors describe the processes through which organizations develop and use new knowledge to improve performance. They propose a set of organizational elements that comprise the learning organization and conclude with recommendations for research to contribute to the understanding of learning organizations.
Both customer and innovation assets are important to firm performance. Prior research has mostly examined these assets at the firm level and has not distinguished between the effects of asset depth relative to competitors and asset breadth across different segments. Using configuration theory and the resource-based view of the firm, the authors propose that how these assets interact to influence performance depends on both depth and breadth because these features reflect whether the assets are likely to create and/or appropriate value when deployed. Empirical results from two studies - one using secondary data and another using primary data from a survey of senior managers - indicate that performance is highest when firms employ configurations using deep customer and broad innovation assets or deep innovation and broad customer assets. In contrast, firm performance variability decreases in the presence of deep-deep and broad-broad asset configurations. The effect of configuration strategies on firm performance also is typically greater in dynamic than in stable environments.
The purpose of this study is to provide the knowledge to understand and the skills to manage innovation at the operational and strategic levels. It integrates the management of market, technological and organizational change to improve the competitiveness of firms and effectiveness of other organizations. The analysis suggests that it is no longer sufficient to focus on a single dimension of innovation, as technological, market, and organizational change interact. Instead of following the ‘one best way' school of management, this study identifies the links between the structures and processes that support innovation. One way of developing technologies, products, and processes by firms involves venturing outside their existing core competencies. Firms establish internal corporate ventures (ICVs) in order to exploit underutilized resources in new ways; to introduce competitive pressure on to internal suppliers; to divest non-core activities; to satisfy managers' ambitions; to spread the risk and cost of producst development; to combat cyclical demands of mainstream activities; and to diversify the business. However, firms may also establish ICVs in order to grow new businesses based on new technologies, products, or markets. A new corporate venture requires a clear business plan and an intrapreneur who must raise the finance, as well as manage the development and the growth of the businees. Such an intrapreneur should resemble a traditional entrepreneur in a high level of motivation and need for autonomy. However, unlike their counterparts, intrapreneurs also need to have good political and social skills in order to deal with internal politics and bureaucracy. Firms that are consistently successful at corporate venturing are characterized by four factors: (1) in assessing failed ventures, they draw a distinction between bad decisions and bad luck; (2) they measure progress of ventures against agreed milestones, and change the direction if necessary; (3) if a venture is not successful, they terminate it, rather than making further investments; and (4) they perceive venturing as a learning process, and learn from both failures and successes. The present study examines the nature of innovative small firms and the issues particular to their creation, management, and growth. Focuses on a subset of small and medium-sized enterprises (SMEs) which are based on new technologies, and differ from other SMEs because they are usually established by highly qualified personnel, require large amounts of capital, and face greater technical and market risk. While new independent ventures and corporate ventures have similar requirements concerning management and organization, certain differences exist. While corporate entrepreneurs have the advantage of the financial, technical, and marketing resources of the parent firm, they must seek high levels of affiliation and need great social skills in order to deal with internal politics and bureaucracy. Their independent counterparts, on the other hand, must raise finance and develop functional expertise, but have the advantage of independence and managerial and technical autonomy. (AT)
When a company operates outside of its home country, it may suffer a ‘liability of foreignness.’ Does this a priori theoretical expectation hold in the global banking industry? Banks increasingly compete outside of their home countries, and operating environments often differ sharply across countries, both in terms of financial markets and credit risk. In this paper, we report the results of an empirical test of the liability of foreignness in the global banking industry, using Fitch–IBCA BankScope data for the period 1989–96. Our findings strongly support the liability of foreignness hypothesis. Further, the data show some evidence that the X-efficiency of a foreign-owned bank is strongly influenced by the competitiveness of its home country and the host country in which it operates. Lastly, we find that in some environments U.S.-owned banks are more X-efficient than other foreign-owned banks in some environments, but less X-efficient in others. Copyright © 2002 John Wiley & Sons, Ltd.
We examine how managerial growth logics combine with financial and human resource slack to influence the short-term revenue growth of a sample of 112 manufacturing firms drawn from a unique database provided by the Ewing Marion Kauffman Foundation. Our results provide evidence that firms pursuing product expansion logics generally grow more slowly than firms that are not expanding their product base, but that financial slack positively moderates this relationship. We also find that human resource slack enhances short-term market expansion, but slows down short-term product expansion. We discuss the implications of these results for resource-based views of growth. Copyright © 2004 John Wiley & Sons, Ltd.
This paper provides an approach for assessing generalizable effects of strategic actions on firm performance. We identify five key issues that need to be addressed before one can have confidence in the obtained strategic generalization. In addition, we suggest a methodology for attacking each of these five issues. We then illustrate this framework using the example of demand-side returns to R&D spending. We document two empirical generalizations in this research. First and foremost, we show that demand returns to R&D spending depend on whether the firm has ability and motivation to take advantage of the R&D investment. Thus, only firms with high ability motivation leverage the R&D investment into monopoly rents in the form of subsequent price increases. Second, we show that the concept of a firm needing both ability and motivation to sustain returns from a strategic action generalizes across strategic actions. We make two other conclusions about empirical approaches to strategy research. First, to produce valid empirical generalizations about the effects of strategic actions on firm performance requires a study to address adequately the five issues we establish herein. Second, one readily available strategy database, PIMS, enables the researcher to address each of these issues.
As China continues to transition toward a market economy, how strategic orientation affects firm performance has received
significant attention. This article reviews the extant literature with a framework that depicts contemporary work on strategic
orientation, the drivers of strategic orientation, and its boundary conditions. We identify important research gaps and propose
to integrate institutional theory, dynamic capability perspective, and the knowledge-based view within the strategic orientation
research stream for future investigations.
This paper addresses a little examined intersection between the problem loan literature and the bank efficiency literature. We employ Granger-causality techniques to test four hypotheses regarding the relationships among loan quality, cost efficiency, and bank capital. The data suggest that problem loans precede reductions in measured cost efficiency; that measured cost efficiency precedes reductions in problem loans; and the reductions in capital at thinly capitalized banks precede increases in problem loans. Hence, cost efficiency may be an important indicator of future problem loans and problem banks. Our results are ambiguous concerning whether or not researchers should control for problem loans in efficiency estimation.
This paper surveys 130 studies that apply frontier efficiency analysis to financial institutions in 21 countries. The primary goals are to summarize and critically review empirical estimates of financial institution efficiency and to attempt to arrive at a consensus view. We find that the various efficiency methods do not necessarily yield consistent results and suggest some ways that these methods might be improved to bring about findings that are more consistent, accurate, and useful. Secondary goals are to address the implications of efficiency results for financial institutions in the areas of government policy, research, and managerial performance. Areas needing additional research are also outlined.
This paper focuses on dynamic capabilities and, more generally, the resource‐based view of the firm. We argue that dynamic capabilities are a set of specific and identifiable processes such as product development, strategic decision making, and alliancing. They are neither vague nor tautological. Although dynamic capabilities are idiosyncratic in their details and path dependent in their emergence, they have significant commonalities across firms (popularly termed ‘best practice’). This suggests that they are more homogeneous, fungible, equifinal, and substitutable than is usually assumed. In moderately dynamic markets, dynamic capabilities resemble the traditional conception of routines. They are detailed, analytic, stable processes with predictable outcomes. In contrast, in high‐velocity markets, they are simple, highly experiential and fragile processes with unpredictable outcomes. Finally, well‐known learning mechanisms guide the evolution of dynamic capabilities. In moderately dynamic markets, the evolutionary emphasis is on variation. In high‐velocity markets, it is on selection. At the level of RBV, we conclude that traditional RBV misidentifies the locus of long‐term competitive advantage in dynamic markets, overemphasizes the strategic logic of leverage, and reaches a boundary condition in high‐velocity markets. Copyright © 2000 John Wiley & Sons, Ltd.
This book represents a milestone in the progression of Data Envelop ment Analysis (DEA). It is the first reference text which includes a comprehensive review and comparative discussion of the basic DEA models. The development is anchored in a unified mathematical and graphical treatment and includes the most important modeling ex tensions. In addition, this is the first book that addresses the actual process of conducting DEA analyses including combining DEA and 1 parametric techniques. The book has three other distinctive features. It traces the applications driven evolution and diffusion of DEA models and extensions across disciplinary boundaries. It includes a comprehensive bibliography to serve as a source of references as well as a platform for further develop ments. And, finally, the power of DEA analysis is demonstrated through fifteen novel applications which should serve as an inspiration for future applications and extensions of the methodology. The origin of this book was a Conference on New Uses of DEA in 2 Management and Public Policy which was held at the IC Institute of the University of Texas at Austin on September 27-29, 1989. The conference was made possible through NSF Grant #SES-8722504 (A. Charnes and 2 W. W. Cooper, co-PIs) and the support of the IC Institute.
This paper focuses on dynamic capabilities and, more generally, the resource-based view of the firm. We argue that dynamic capabilities are a set of specific and identifiable processes such as product development, strategic decision making, and alliancing. They are neither vague nor tautological. Although dynamic capabilities are idiosyncratic in their details and path dependent in their emergence, they have significant commonalities across firms (popularly termed ‘best practice’). This suggests that they are more homogeneous, fungible, equifinal, and substitutable than is usually assumed. In moderately dynamic markets, dynamic capabilities resemble the traditional conception of routines. They are detailed, analytic, stable processes with predictable outcomes. In contrast, in high-velocity markets, they are simple, highly experiential and fragile processes with unpredictable outcomes. Finally, well-known learning mechanisms guide the evolution of dynamic capabilities. In moderately dynamic markets, the evolutionary emphasis is on variation. In high-velocity markets, it is on selection. At the level of RBV, we conclude that traditional RBV misidentifies the locus of long-term competitive advantage in dynamic markets, overemphasizes the strategic logic of leverage, and reaches a boundary condition in high-velocity markets. Copyright © 2000 John Wiley & Sons, Ltd.
This paper focuses on dynamic capabilities and, more generally, the resource-based view of the firm. We argue that dynamic capabilities are a set of specific and identifiable processes such as product development, strategic decision making, and alliancing. They are neither vague nor tautological. Although dynamic capabilities are idiosyncratic in their details and path dependent in their emergence, they have significant commonalities across firms (popularly termed 'best practice'). This suggests that they are more homogeneous, fungible, equifinal and substitutable than is usually assumed. In moderately dynamic markets, dynamic capabilities resemble the traditional conception of routines. They are detailed, analytic stable processes with predictable outcomes. In contrast, in high-velocity markets, they are simple, highly experiential and fragile processes with unpredictable outcomes. Finally, well-known learning mechanisms guide the evolution of dynamic capabilities. In moderately dynamic markets, the evolutionary emphasis is on variation. In high-velocity markets, it is on selection. At the level of REV, we conclude that traditional REV misidentifies the locus of long-term competitive advantage in dynamic markers, overemphasizes the strategic logic of leverage, and reaches a boundary condition in high-velocity markets. Copyright (C) 2000 John Wiley & Sons, Ltd.
We provide a comprehensive review of the strategic change literature from the perspective of three theoretical lenses: the rational, learning, and cognitive lenses. We identify empirical patterns and discuss the theoretical and methodological contributions and limitations of each lens. We address the key methodological issues that hamper integration of these lenses and develop an integrative framework that builds on their theoretical synergies. We note this framework's contributions and present two research questions that provide an agenda for future research.
Understanding sources of sustained competitive advantage has become a major area of research in strategic management. Building on the assumptions that strategic resources are heterogeneously distributed across firms and that these differences are stable over time, this article examines the link between firm resources and sustained competitive advantage. Four empirical indicators of the potential of firm resources to generate sustained competitive advantage-value, rareness, imitability, and substitutability are discussed. The model is applied by analyzing the potential of several firm resources for generating sustained competitive advantages. The article concludes by examining implications of this firm resource model of sustained competitive advantage for other business disciplines.
The basic premise of the strategy implementation literature is that different business strategies require different configurations of organizational practices to achieve optimal performance. Sales force management is a key functional activity and should contribute to the successful implementation of business strategy. In this study, we examine the relationship between multiple sales force management practices and performance within each of Miles and Snow's (1978) strategy types. The explanatory power of the eight models tested is quite high (incremental adjusted R2 ≥ 0.25 for six of the eight models). Thus, we find substantial support for the general proposition that the different strategy types require individualized profiles of sales force management practices for optimal effectiveness and that sales force management is important to the successful implementation of business strategy. Copyright © 2000 John Wiley & Sons, Ltd.
Emerging economies are low-income, rapid-growth countries using economic liberalization as their primary engine of growth. They fall into two groups: developing countries in Asia, Latin America, Africa, and the Middle East and transition economies in the former Soviet Union and China. Private and public enterprises have had to develop unique strategies to cope with the broad scope and rapidity of economic and political change in emerging economies, This Special Research Forum on Emerging Economies examines strategy formulation and implementation by private and public enterprises in several different regional settings and from three primary theoretical. perspectives: institutional theory, transaction cost economics, and the resource-based view of the firm. In this introduction, we show how different theoretical perspectives can provide useful insights into enterprise strategies in emerging economies. We discuss the special methodological as well as empirical challenges associated with doing research in emerging economies. Finally, we briefly summarize the individual contributions of the works included in our special research forum.
Although managers are interested in the financial value of customers and researchers have pointed out the importance of stock analysts who advise investors, no studies to date have explored the implications of customer satisfaction for analyst stock recommendations. Using a largescale longitudinal data set, the authors find that positive changes in customer satisfaction not only improve analyst recommendations but also lower dispersion in those recommendations for the firm. These effects are stronger when product market competition is high and financial market uncertainty is large. In addition, analyst recommendations at least partially mediate the effects of changes in satisfaction on firm abnormal return, systematic risk, and idiosyncratic risk. Analyst recommendations represent a mechanism through which customer satisfaction affects firm value. Thus, if analysts pay attention to Main Street customer satisfaction, Wall Street investors should have good reason to listen and follow. Overall, this research reveals the impact of satisfaction on analyst-based outcomes and firm value metrics and calls attention to the construct of customer satisfaction as a key intangible asset for the Investor community.
This paper focuses on a radical change, in which organizations abandon an institutionalized template for arranging their core activities, that is likely to occur in organizational fields that have strong, local market forces and strong but heterogeneous institutional forces. We examine the role of market forces and heterogeneous institutional elements in promoting divergent change in core activities among all U.S. rural hospitals from 1984 to 1991. Results support the view that divergent change depends on both market forces (proximity to competitors, disadvantages in service mix) and institutional forces (state regulation, ownership and governance norms, and mimicry of models of divergent change).
Drawing on the dynamic capabilities perspective as the overarching theoretical underpinning in the context of IJVs, this study
investigates (1) how exploitation capability and exploration capability as two critical building blocks of dynamic capabilities
are independently and interactively associated with IJVs’ financial and competitive outcomes in an emerging economy, and (2)
how the two context variables (IJV autonomy and organizational culture distance of IJV partners) moderate the effect of exploitation
capability and exploration capability on IJV performance. Using a sample of 102 IJVs in an emerging economy, this study finds
general support for the theoretical model. Results suggest that IJVs in a foreign emerging economy tend to perform better
when they possess greater abilities to exploit current resources as well as by dynamically renewing their competitive advantage.
Moreover, exploitation capability and exploration capability interact in such a way that they “reinforce” each other. Lastly,
the contribution of exploitation capability and exploration capability to IJV performance is stronger when IJVs enjoy greater
autonomy and when the organizational culture distance between partners of IJVs is small. Theoretical and managerial contributions
are discussed and limitations and future research are explored.
The dynamic capabilities view, by addressing the question of how firms can cope with changing environments, has gained increasing attention in the management literature in recent years, not only in the concept’s original domain (strategic management) but also in many other areas within business administration. However, such remarkable growth has been associated with a proliferation of definitions of the focal construct as well as the emergence of a complex and disconnected body of research. In addition, the approach has also received some recurring criticisms. In this study, the author reviews the diverse research streams on dynamic capabilities, identifies main limitations and challenges, suggests a new conceptualization of dynamic capability as an aggregate multidimensional construct, and provides guidance about promising avenues for future research.
Why do some organizations learn at faster rates than others? Why do organizations "forget"? Could productivity gains acquired in one part of an organization be transferred to another? These are among the questions addressed in Organizational Learning: Creating, Retaining and Transferring Knowledge. Since its original publication in 1999, this book has set the standard for research and analysis in the field. This fully updated and expanded edition showcases the most current research and insights, featuring a new chapter that provides a theoretical framework for analyzing organizational learning and presents evidence about how the organizational context affects learning processes and outcomes. Drawing from a wide array of studies across the spectrum of management, economics, sociology, and psychology, Organizational Learning explores the dynamics of learning curves in organizations, with particular emphasis on how individuals and groups generate, share, reinforce, and sometimes forget knowledge. With an increased emphasis on service organizations, including healthcare, Linda Argote demonstrates that organizations vary dramatically in the rates at which they learn-with profound implications for productivity, performance, and managerial and strategic decision making. © Springer Science+Business Media New York 2013. All rights are reserved.
Although there is significant evidence that customer satisfaction is an important driver of firm profitability, extant literature has largely neglected two intermediate outcomes of customer satisfaction, namely, a firm’s advertising and promotion efficiency and its human capital performance. On the basis of longitudinal analyses of large-scale secondary data from multiple sources, the authors find that customer satisfaction boosts the efficiency of future advertising and promotion investments. This finding can be explained by the possibility that customer satisfaction generates free word-of-mouth advertising and saves subsequent marketing costs. In addition, customer satisfaction has a positive influence on a company’s excellence in human capital (employee talent and manager superiority). This finding is highly novel, indicating that human resources managers should have a strong interest in customer satisfaction as well. Finally, the authors investigate the moderating influence of market concentration on both relationships. The uncovered results have important implications for marketers in their dialogue with financial executives and human resources managers.
We provide a comprehensive review of the strategic change literature from the perspective of three theoretical lenses: the rational, learning, and cognitive lenses. We identify empirical patterns and discuss the theoretical and methodological contributions and limitations of each lens. We address the key methodological issues that hamper integration of these lenses and develop an integrative framework that builds on their theoretical synergies. We note this framework's contributions and present two research questions that provide an agenda for future research.
This paper examines the role of technological capability in product innovation. Building on the absorptive capacity perspective and organizational inertia theory, the authors propose that technological capability has curvilinear and differential effects on exploitative and explorative innovations. The findings support the proposition that though technological capability fosters exploitation at an accelerating rate, it has an inverted U-shaped relationship with exploration. That is, a high level of technological capability impedes explorative innovation. Strategic flexibility strengthens the positive effects of technological capability on exploration, such that when strategic flexibility is high, greater technological capability is associated with more
explorative innovation.
A detailed spectroscopic study was carried out on Ti(IV)-containing catalysts obtained by grafting titanocene dichloride on silica supports with different morphological features. The surface acidity and the local coordination and accessibility of Ti(IV) active centers in Ti(IV)-grafted materials were studied by FTIR and diffuse reflectance (DR) UV−vis−NIR spectroscopies supplemented by the use of probe molecules. DR UV−vis−NIR spectroscopy was also used to follow the formation of Ti(IV) catalytic sites and the removal of cyclopentadienyl moiety during thermal treatment. The use of CD3CN and CO as molecular probes has provided complementary information on the accessibility and coordination of the Ti(IV) centers. In particular, CO adsorption performed at 100 K has evidenced the presence of Ti−OH groups and was helpful in detecting different coordination environments and connectivities of Ti(IV) active centers. Ti(IV)-grafted materials were tested in the epoxidation reaction of limonene using both tert-butyl hydroperoxide (TBHP) and H2O2 as oxidants. The interaction of TBHP or H2O2 with Ti(IV) active sites was investigated by DR UV−vis spectroscopy. This study has clarified that the use of H2O2 leads to a rapid and irreversible deactivation of the grafted Ti(IV) active sites; in fact, when H2O2 was used as oxidant no production of limonene oxide was detected.
Strategy research has a long-standing interest in the performance consequences of corporate diversification. In theory, resource sharing should yield economic benefits in related multi-business firms, but the extensive empirical research remains equivocal. To explore this paradox, this paper examines the process of implementing a related diversification strategy. Working from existing theory, a formal model is constructed that describes the process and performance implications of a related diversification move. The model is analyzed using computer simulation, and the analysis suggests that successful diversification strategies require managerial policies that maintain organization slack. In the absence of such policies, related diversification can negatively impact firm performance even when substantial synergy opportunities exist. The analysis also demonstrates, contrary to existing theory, that diversification strategies based on a very high degree of relatedness can lead to lower performance than less related strategies in some circumstances. Counter-intuitively, extracting potential synergies may require additional investment in shared resources. Copyright © 2005 John Wiley & Sons, Ltd.
Sharad L. Joshi is the Director at Vishwakarma Institute of Management, Kondhwa (BK), Pune 411048, India, tel. 0091-20-26932800, sharadjoshi@vimpune.ac.in. The paper is based on the doctoral research work of first author at Birla Institute of Technology and Science (BITS) Pilani, India. The second author is the doctoral research guide. The authors would like to sincerely thank Dr. James Gentry, editor-in-chief of AMSR and the three anonymous reviewers for their valuable comments, suggestions, and editing work. EXECUTIVE SUMMARY Market expansion is a very important strategic option in the developing economies. Literature on marketing to the "bottom of the pyramid" and the "blue ocean" strategy has brought to the fore the issue of direct involvement of manufacturers or corporations in expanding markets. Though the "bottom of the pyramid" and the "blue ocean" strategy frameworks are important references for development of conceptual framework for market expansion, neither of these can be considered as a complete conceptualization in itself. The authors synthesize extant knowledge on the subject and provide a conceptual framework by looking into fundamental issues such as what is a market, what is market expansion, and what factors affect market expansion. Unlike in case of the "blue ocean" strategy framework, this paper is not based on any premise as to whether market expansion is a strategic alternative to market share or not. The authors have conceptualized a market expansion strategy as a strategy of increasing primary demand for a product category by converting non-customers into customers of an industry and/or by increasing the usage rate of the industry"s existing customers. They also conceptualize a market expansion continuum across which market expansion strategy can be practiced. At one end of the continuum lies the prospect of increasing demand for a product form and at the other end lies the prospect of increasing demand by increasing the size of wallet of the consumers.
Examines the correlation between the exploration of new possibilities and the exploitation of old certainties in organizational learning. Also discusses the difficulty in balancing resource management between gaining new information about alternatives to improve future returns (i.e., exploration) and using information currently available to improve present returns (i.e., exploitation). Two models which evaluate the formation and use of knowledge in organizations are developed. The first is a model of mutual learning in a closed system having fixed organizational membership and stability. The second is a model which considers the ways in which competitive advantage is affected by knowledge accumulation. The analysis indicates that the choice to rapidly develop exploitation over exploration might be effective in the short term, but is potentially detrimental to the firm in the long term. (SFL)
Banking sectors in transition economies have experienced major transformations throughout the 1990s. While some countries have been successful in eliminating underlying distortions and restructuring their financial sectors, in some cases financial sectors remain underdeveloped and the rates of financial intermediation continue to be low. We estimate indicators of commercial bank efficiency by applying a version of Data Envelopment Analysis (DEA) to bank-level data from a wide range of transition countries. In addition to stressing the importance of some bank-specific variables, the censored Tobit analysis suggests that (1) foreign ownership with controlling power and enterprise restructuring enhances commercial bank efficiency; (2) the effects of prudential tightening on the efficiency of banks vary across different prudential norms; and (3) consolidation is likely to improve the efficiency of banking operations. Overall, the results confirm the usefulness of DEA for transition-related applications and shed some light on the question of the optimal architecture of a banking system.
Despite nearly 30 years of academic research on the benefits of related diversification, there is still considerable disagreement about precisely how and when diversification can be used to build long-run competitive advantage. In this paper we argue that the disagreement exists for two main reasons: (a) the traditional way of measuring relatedness between two businesses is incomplete because it ignores the ‘strategic importance’ and similarity of the underlying assets residing in these businesses, and (b) the way researchers have traditionally thought of relatedness is limited, primarily because it has tended to equate the benefits of relatedness with the static exploitation of economies of scope (asset amortization), thus ignoring the main contribution of related diversification to long-run, competitive advantage; namely the potential for the firm to expand its stock of strategic assets and create new ones more rapidly and at lower cost than rivals who are not diversified across related businesses. An empirical test supports our view that ‘strategic’ relatedness is superior to market relatedness in predicting when related diversifies outperform unrelated ones.
The resource-based view (RBV) is one of the most widely accepted theories of strategic management. However, to date no systematic assessment of the RBV's level of empirical support has been conducted. In response, a sample of RBV-grounded empirical articles was analyzed from which it was found that the RBV has received only modest support overall and that this support varies considerably with the independent variable and theoretical approach employed. It is therefore suggested that scholars avoid the tendency to test models reflecting early incarnations of the RBV and instead test those that incorporate its more contemporary theoretical extensions. Copyright © 2007 John Wiley & Sons, Ltd.
Utilizing recent developments in data envelopment analysis (DEA), this paper examines the performance of the top 55 U.S. commercial banks via a two-stage production process that separates profitability and marketability. Substantial performance inefficiency is uncovered in both dimensions. Relatively large banks exhibit better performance on profitability, whereas smaller banks tend to perform better with respect to marketability. New context-dependent performance measures are defined for profitability and marketability which employ a DEA stratification model and a DEA attractiveness measure. When combined with the original DEA measure, the context-dependent performance measure better characterizes the profitability and marketability of 55 U.S. commercial banks. The new approach identifies areas for improved bank performance over the two-stage production process. The effect of acquisition on efficiency and attractiveness is also examined.
The proliferation of transition economies provides a unique opportunity to study the formation and behavior of social and
economic structures, and literature exploring these issues has grown dramatically in recent years. Sociologists have made
important contributions to the study of transition, particularly to theories of organizations and organizational change in
China. In this article, I provide a critical assessment of the state of sociological literature on the transition process.
I take stock of research that studies the emergence of new organizational forms, the growth of entrepreneurship, and the development
of markets in China. I conclude with suggestions for resolving central debates and otherwise extending the literature.
This study examines the impact of resource configuration, specifically diversification and resource concentration, on the
performance of business groups in an emerging economy. Diversification indicates the product/market portfolio of a business
group, while resource concentration illustrates the degree of resource dispersion among different affiliates within a business
group. Based on the data collected from 125 Taiwanese business groups from 2004 to 2007, this study finds that resource concentration
positively influences the performance of business groups, while diversification has a negative impact on the performance of
business groups. The findings of this study provide support to the resource-based view and the market power perspective of
business groups. This study also finds that the appropriate organizational form may change over time, confirming the institution-based
view of business groups in emerging economies.
KeywordsDiversification-Resource concentration-Performance-Business groups
A nonlinear (nonconvex) programming model provides a new definition of efficiency for use in evaluating activities of not-for-profit entities participating in public programs. A scalar measure of the efficiency of each participating unit is thereby provided, along with methods for objectively determining weights by reference to the observational data for the multiple outputs and multiple inputs that characterize such programs. Equivalences are established to ordinary linear programming models for effecting computations. The duals to these linear programming models provide a new way for estimating extremal relations from observational data. Connections between engineering and economic approaches to efficiency are delineated along with new interpretations and ways of using them in evaluating and controlling managerial behavior in public programs.
Significant difficulties in commercial banking in the late 1980s raise questions about bank performance and efficiency. With the use of data envelopment analysis (DEA), we consider the relative technical efficiency of 201 large banks from 1984 to 1990. Bank technical inefficiency averages just over 5 percent, much lower than found in existing estimates. Larger and more profitable banks have higher levels of technical efficiency. At the same time, however, larger banks are more likely to operate under decreasing returns to scale.