Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

The role of corporate controls and business-level strategy in business unit performance

The role of corporate controls and business-level strategy in business unit performance Corporate controls are mechanisms that corporations use to ensure that the processes and/or outcomes of their business units meet corporate expectations. Challenges in measurement of corporate controls have led many researchers to operationalize them as part of the more ambiguous corporate effects construct, instead of addressing them separately. The purpose of this paper is to examine the significance of “fit” between corporate control mechanisms and business unit strategy in performance of business units.Design/methodology/approachThe authors use ordinary least squares regression analysis on data collected between 2010 and 2012 from surveys from managers of 142 Iranian corporations and 1,822 of their subsidiaries. The authors also use financial and market data collected by an IDRO division and accessed through partnership in a joint project.FindingsThe authors found that while the fit between business unit strategy and corporate controls has a significant effect on business unit financial performance, it does not have a similar effect on market performance. The findings demonstrate that when business unit managers perceive that they are subject to a balance of strategic and financial controls with a slightly greater emphasis on strategic controls, then business units have higher financial and market performance, although the difference in financial performance is not significant.Research limitations/implicationsThe authors find that the misfit between corporate controls and business strategies in such cases could negatively affect the performance of the business unit. However, this research also contributes to a better understanding of the importance of strategic controls to the successful performance of business units. The findings show that while the fit between controls and strategy is most critical for achieving financial performance in business units that pursue product leadership, strategic controls play a more prominent role than financial controls in achieving higher financial or market share performance for all business units.Practical implicationsThe findings of the propositions in this research would discourage corporations with tight financial control from engaging in acquisition of businesses considered to be product leaders in their relative product markets.Originality/valuePast research focusing on the fit between corporate-level factors and business-level factors and their role on business performance are largely limited to conceptual work. The limited empirical studies completed in the past generally reduce control mechanisms to lack or absence of autonomy. This shortcoming has been mainly due to difficulties in measurement of control mechanisms. The empirical study overcomes these barriers and in doing so, reveals surprising findings related to the effectiveness of different control mechanisms. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Strategy and Management Emerald Publishing

The role of corporate controls and business-level strategy in business unit performance

Loading next page...
 
/lp/emerald-publishing/the-role-of-corporate-controls-and-business-level-strategy-in-business-3zgjyoIURc
Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1755-425X
DOI
10.1108/jsma-10-2018-0114
Publisher site
See Article on Publisher Site

Abstract

Corporate controls are mechanisms that corporations use to ensure that the processes and/or outcomes of their business units meet corporate expectations. Challenges in measurement of corporate controls have led many researchers to operationalize them as part of the more ambiguous corporate effects construct, instead of addressing them separately. The purpose of this paper is to examine the significance of “fit” between corporate control mechanisms and business unit strategy in performance of business units.Design/methodology/approachThe authors use ordinary least squares regression analysis on data collected between 2010 and 2012 from surveys from managers of 142 Iranian corporations and 1,822 of their subsidiaries. The authors also use financial and market data collected by an IDRO division and accessed through partnership in a joint project.FindingsThe authors found that while the fit between business unit strategy and corporate controls has a significant effect on business unit financial performance, it does not have a similar effect on market performance. The findings demonstrate that when business unit managers perceive that they are subject to a balance of strategic and financial controls with a slightly greater emphasis on strategic controls, then business units have higher financial and market performance, although the difference in financial performance is not significant.Research limitations/implicationsThe authors find that the misfit between corporate controls and business strategies in such cases could negatively affect the performance of the business unit. However, this research also contributes to a better understanding of the importance of strategic controls to the successful performance of business units. The findings show that while the fit between controls and strategy is most critical for achieving financial performance in business units that pursue product leadership, strategic controls play a more prominent role than financial controls in achieving higher financial or market share performance for all business units.Practical implicationsThe findings of the propositions in this research would discourage corporations with tight financial control from engaging in acquisition of businesses considered to be product leaders in their relative product markets.Originality/valuePast research focusing on the fit between corporate-level factors and business-level factors and their role on business performance are largely limited to conceptual work. The limited empirical studies completed in the past generally reduce control mechanisms to lack or absence of autonomy. This shortcoming has been mainly due to difficulties in measurement of control mechanisms. The empirical study overcomes these barriers and in doing so, reveals surprising findings related to the effectiveness of different control mechanisms.

Journal

Journal of Strategy and ManagementEmerald Publishing

Published: Aug 8, 2019

Keywords: Financial performance; Market performance; Business unit strategy; Corporate controls

References