Friend or foe? Corporate control and strategic decision-making speed at the SBU level

Item Type Conference or Workshop Item (Paper)
Abstract

One of the most critical aspects of organizational decision processes is decision-making speed, defined as the time between the first reference to deliberate action to the time in which a commitment to act is made (Eisenhardt, 1989; Judge et al., 1991: 455; Wally et al., 1994). Numerous contributions to the field of strategic management acknowledge that decision-making speed represents a vital influencing factor of organizational processes and a critical success factor of a firm's economic performance (Baum et al., 2003; Bourgeois et al., 1988; Eisenhardt, 1989; Judge et al., 1991; Wally et al., 1994). In spite of its importance, however, the concept of strategic decision speed remains unrelated to the specific context of strategic business units (SBUs).
In multi-business organizations, the behavior of a corporate center has a strong influence on the actions taken at SBUs (Golden, 1992; Goold et al., 1993a; Gupta, 1987). Such corporate control activities - defined as all activities through which the corporate center interacts with and influences the behavior of business units - are perceived as vital for providing directions, guidelines, goals, structures, and systems to SBU managers, allowing them in turn to fulfill their assigned tasks and responsibilities (Collis et al., 1998; Goold et al., 1987a, 1987b; Goold et al., 1994). Even more important, a corporate parent that imposes additional overhead and information-filtering costs on the SBU-level has to justify its existence by either carrying out functions the SBU is not able to perform at all or as efficiently, or by influencing the businesses "to make better decisions than they would have made on their own" (Goold et al., 1994: 308). For these reasons, corporate control activities have a crucial im-pact on strategic decision processes at the SBU level (Bower, 1970; Golden, 1992; Gupta, 1987; Lorsch et al., 1973), which in turn have a vital effect on the overall organization and its strategic and economic outcomes (Golden, 1992; Gupta, 1987). Despite the asserted importance of corporate control behavior - particularly on the SBUs' strategic decision-making processes - existing conceptualizations generally remain partial and fragmented with regards to specific characteristics and effects at the SBU level.
The study presented here fills this gap by combining both qualitative and quantitative approaches to de-velop a taxonomy of corporate control behavior and by examining how it affects decision-making speed at the SBU-level. In particular, we analyzed 40 interviews in 5 multi-business companies and a variety of secondary data sources. Building on the literature of control theory (Jaworski, 1988; Ouchi, 1979; Ouchi et al., 1975), we were able to derive 9 mechanisms of corporate control behavior: (1) financial incentives, (2) target definition, (3) corporate process-related control, (4) HR-/career incentives, (5) arenas for discourse, (6) coercive enforcement, (7) sanctioning, (8) conflict resolution, and (9) corporate content-related control. In a subsequent quantitative analysis, we further relate these corporate control activities to the speed of strategic decision-making.
Our study contributes to the realm of strategic decision making and strategy process research in two ways: first, our study enriches existing research on antecedents and determinants of decision speed. We examine strategic decision-making speed at the SBU level, substantiate existing antecedents, and inductively derive addi-tional determinants at the SBU level related to corporate control. In particular, we explain aggregated effects of corporate control behavior on the speed of strategic decision-making at the SBU-level. This makes internal man-agement processes more comprehensible and more manageable. And second, this study integrates and advances research on corporate control behavior. We inductively conceptualize and integrate various forms of corporate control at the SBU level into a coherent framework. Our conceptualization therefore provides new empirical in-sights on corporate management roles and advances the existing stream of research on typologies, modes, and patterns of organizational interactions between different hierarchical levels within strategy processes.
Moreover, our study applies a distinct methodological approach which focuses on reflective theory de-velopment. Whereas previous decision-speed research largely relies on the deductive introduction of established variables and the testing of existing theoretical models, our methodological approach overcomes rigidities and inflexibilities of previous research by securing the openness and close proximity to the data required for develop-ing well-grounded mid-range theories. The combination of the qualitative grounded theory methodology (Glaser et al., 1967; Strauss, 1987; Strauss et al., 1998) and a quantitative primary component analysis method in the form of the repertory grid method (Kelly, 1955) allow for the development of a substantiated theory on the link between corporate control and strategic decision speed at the SBU level.

Authors Kownatzki, M.; Lechner, Christoph & Walter, Jorge
Language German
Subjects business studies
HSG Classification contribution to scientific community
Refereed Yes
Date 10 October 2007
Event Title 27th Strategic Management Society (SMS) Annual International Conference
Event Location San Diego, CA
Event Dates 14.-17.10.2007
Depositing User Prof. Dr. Christoph Lechner
Date Deposited 30 Nov 2007 08:57
Last Modified 24 Jan 2018 09:19
URI: https://www.alexandria.unisg.ch/publications/41653

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Kownatzki, M.; Lechner, Christoph & Walter, Jorge: Friend or foe? Corporate control and strategic decision-making speed at the SBU level. 2007. - 27th Strategic Management Society (SMS) Annual International Conference. - San Diego, CA.

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https://www.alexandria.unisg.ch/id/eprint/41653
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