Journal of Strategy and Management

Matthias Brauer; Markus Schimmer

2010 Journal of Strategy and Management

doi: 10.1108/17554251011041760

Purpose – The paper aims at extending extant research on sources of divestiture gains by suggesting a novel program‐based perspective on divestitures and analyzing the performance of program divestitures in comparison to single “stand‐alone” divestitures. Design/methodology/approach – Based on event study methodology, the authors analyze the abnormal returns of 160 divestiture announcements within the global insurance industry between 1998 and 2007. In contrast to prior research which relied on ex post statistical clustering to identify transaction programs, ad hoc corporate press releases issued with the divestiture announcements are used to categorize program divestitures. Findings – Empirical results suggest that program divestitures generate higher abnormal returns than stand‐alone divestitures. Further analyses into the sources for these higher gains, however, do not provide support for experience effects as significant explanatory factors. Instead, results suggest that the scheduling of divestitures significantly impacts announcement returns. Research limitations/implications – The scope and single industry setting of the study suggest future cross‐industry research on the influence of divestiture program characteristics on divestiture performance and the conditions under which these programs improve divestiture performance. Practical implications – Managers are advised to refrain from piecemeal divestiture behavior lacking clear strategic focus. Instead, they are encouraged to bundle their divestitures as part of a divestiture program with a clear strategic intent and shared business logic. Originality/value – While prior research on divestitures has treated divestitures as isolated events, the paper directs attention towards the analysis of divestiture programs. Further, experience and timing effects, which have been widely absent from prior divestiture studies, are considered.

Anders Pehrsson

2010 Journal of Strategy and Management

doi: 10.1108/17554251011041779

Purpose – The purpose of this paper is to improve the existing knowledge of international strategy antecedents of foreign subsidiary performance. Design/methodology/approach – Hypotheses are developed regarding the impact of perceived relatedness between the foreign subsidiary and the parent firm's core business unit, and the moderating effect of the subsidiary's business strategy. In order to test the hypotheses, the study uses survey data from Europe (Germany and the UK), and the USA, and the subsidiaries belong to Swedish manufacturing firms. Findings – Perceived relatedness regarding intangible resources affects foreign subsidiary performance positively. Competitive differentiation and market knowledge of a foreign subsidiary reinforce the performance impact of the perceived relatedness. Research limitations/implications – A foreign subsidiary's relatedness to the core business unit of its parent firm determines the subsidiary's ability to assimilate the parent firm's core competencies. The relatedness represents a synergy potential that is realized by the subsidiary's core competence exploitation and economies of learning. Originality/value – The paper extends current knowledge of international strategy antecedents of foreign subsidiary performance as it applies the perceptual approach to relatedness and acknowledges the impact of foreign subsidiary strategy.

Mujtaba Ahsan

2010 Journal of Strategy and Management

doi: 10.1108/17554251011041788

Purpose – The purpose of this paper is to empirically examine the impact of capital investments on new capabilities development during competence‐destroying change. The moderating role of uncertainty is also explored. Design/methodology/approach – This paper utilizes two distinct but related research streams; the literature on organizational capabilities and real options, to build the theory and hypotheses. Findings – Data from a sample of 767 alliances between incumbent pharmaceutical firms and new biotechnology firms reveal that incumbent firms who increase capital investments in emerging technological domains despite the uncertainty present in them, are more likely to develop new products based on emerging technology. Research limitations/implications – The results encourage future research on the nexus of managerial cognition, capital investments, uncertainty and the adaptation process. Originality/value – Extant literature implicitly suggests that capital investments are critical for developing new capabilities; yet no prior study has addressed the relationship between capital investments and new capabilities development during competence‐destroying change. This paper addresses this gap in the literature.

Gerwin Van der Laan

2010 Journal of Strategy and Management

doi: 10.1108/17554251011041797

Purpose – Previous empirical research interprets results from pay‐performance studies in the light of either agency theory or managerial power theory. This paper aims to directly estimate the relationship between CEO power, and compensation structure, level, and performance‐sensitivity. In doing so, it seeks to test the crucial assumption in managerial power theory according to which more powerful CEOs are able to enjoy higher and less performance‐sensitive compensation. Design/methodology/approach – The hypotheses are tested on a detailed dataset, covering compensation for CEOs in virtually all Dutch stock‐listed companies, for the period 2002‐2006. The paper tests whether the findings are robust against different lag structures and firm size classes. Findings – In general, most of the multi‐dimensional measures of power do not appear to have a strong effect on compensation, with one exception: non‐Dutch CEOs receive more variable compensation, and receive higher and less performance‐sensitive pay than their Dutch colleagues. Originality/value – This paper contributes to the extant CEO compensation literature, which to date relies on interpretations of findings in pay‐for‐performance studies to argue for either agency or managerial power theory. The direct test of the relationship between power and compensation emphasises the importance of one dimension of a multidimensional power construct. As strong effects of performance of compensation are not found either, the paper suggests that the bipolar debate be extended to include other explanations of compensation arrangements.

Nicholas O'Regan; Abby Ghobadian

2010 Journal of Strategy and Management

doi: 10.1108/17554251011041805

Purpose – The purpose of this paper is to demonstrate how key strategic decisions are made in practice at a successful FTSE 100 company. Design/methodology/approach – The paper is based on semi‐structured interview with the Chief Executive of BP, Dr Tony Hayward. Dr Hayward has introduced his “Forward Agenda” with the aim of turning BP into a more efficient and simpler organisation to achieve operational efficiency. Findings – The paper sheds light on ingredients of successful transformation, key elements of growth, strategy implementation, and the link between corporate responsibility and strategy. Practical implications – The paper presents views of a successful chief executive of a FTSE 100 company. It provides an insight on how strategy is made and executed. Originality/value – The paper bridges the gap between theory and practice. It provides a practical view and demonstrates how a leading chief executive thinks about key strategic issues.