• The risk implications of business and geographic diversification: A comparison and empirical test

      Alessandri, Todd; Mammen, Jan; Weiss, Martin (2015)
      The link between diversification and organizational risk has received a great deal of attention from scholars. However, much of the attention has focused on one theoretical perspective at a time and/or one type of diversification. In this study, we approach the phenomenon of diversification from a broader perspective, integrating multiple theories to understand the implications of both business and geographic diversification on organizational risk. We explore the theoretical similarities and differences between business and geographic diversification, in terms of risk effects. Specifically, we examine arguments from the resource- based view and bounded rationality to explain the risk effects of both business and geographic diversification. In addition, we explore the impact of the liability of foreignness on the geographic diversification--risk linkage. We then integrate these theoretical implications to form testable hypotheses. We suggest that, while these two forms of diversification share some similarities, their differences, from a theoretical perspective, result in differing risk profiles. We then empirically test these hypotheses using a panel dataset of S&P 500 firms. We find partial support for our hypotheses, with business diversification having a negative effect on our two measures of organizational risk, while geographic diversification has a positive effect on both risk measures. Finally, we find interaction effects of both forms of diversification on our two risk measures, although only when business diversification is decomposed into its related and unrelated components.
    • Towards a dynamic theory of corporate strategy: Portfolio dynamism heterogeneity and performance

      Weiss, Martin; Koenig, Andreas; Mammen, Jan; Junge, Sebastian; Hungenberg, Harald (2014)
      We provide a new explanation of corporate-level performance by introducing the concept of portfolio dynamism heterogeneity (PDH)─the cumulative variation across businesses in the industry dynamism represented in a company’s business portfolio. Dynamic capability theory suggests that managerial challenges and appropriate capabilities differ substantially depending on the level of dynamism in a given industry. We argue that it is therefore counterproductive for companies to simultaneously manage businesses from industries that differ strongly with regard to their dynamism; furthermore, these consequences of PDH are likely to be exacerbated to the extent of a corporation’s asset intensity. However, we also propose that companies could eventually (over)compensate for the hazards inherent in PDH if they flexibly adjust their portfolios. We find support for our theory but also counterintuitive results, when testing it on a global sample of 275 companies in the years 2003 to 2010. Our study is the first to combine research on dynamic capabilities and the corporate strategy literature to develop and test comprehensive measures of market dynamics and PDH. We portray PDH as a key concept in corporate strategy and envision possible approaches to managing PDH as first steps towards corporate-level dynamic capabilities and ambidexterity in corporate strategy.