Towards a dynamic theory of corporate strategy: Portfolio dynamism heterogeneity and performance

Abstract

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.