ESTABLISHED COMPANIES DIVERSIFYING INTO YOUNG INDUSTRIES: A COMPARISON OF FIRMS WITH DIFFERENT LEVELS OF PERFORMANCE (LIFE CYCLE THEORY, EMERGING INDUSTRIES)

CLAYTON GORDON SMITH, Purdue University

Abstract

This research investigates possible reasons for differences in performance levels realized by established companies diversifying into young industries. Relationships between industry performance and the following "corporate level" strategic and organizational variables are examined: Strategic Variables. (1) Degree of Firm Diversification; (2) Firm Size; (3) Financial Strength; (4) Strategic Importance of Business; (5) Time of Entry Into Industry; (6) Vulnerability to Industry Emergence; (7) Maturity of Firm's Product-Markets; (8) Parent-Business Relatedness; (9) R&D Emphasis. Organizational Variables. (1) Business Unit Autonomy; (2) Functional Authority. There are two parts to the research. In the first part, called the "multi-industry study," three "high performing" and three "low performing" established domestic firms are selected from each of five industries. This part considers the strategic variables only. Data on these variables are gathered from secondary sources, and hypothesis tests are conducted which concern expected differences between means or medians of the variables for the two performance groups. In the second part, called the "single-industry study," all of the significant domestic firms within one of the industries are considered. This part of the research looks at both the strategic and the organizational variables. Data for the organizational variables, and also industry performance, are obtained through industry experts. Data for the strategic variables are again gathered from secondary sources, although data for one of the variables is gathered from industry experts as well. Hypotheses concerning expected relationships between performance and the strategic and organizational variables are tested using Spearman's rank correlation coefficient. The findings indicate that the size of the firm's financial base, the time of entry into the industry, the maturity of a firm's markets, and perhaps a firm's degree of diversification are linked to the levels of industry performance realized. Although direct links between performance and the organizational variables were not found, it appears that the maturity of a firm's markets may exert a mediating influence on these relationships. With regard to R&D emphasis, parent-business relatedness, and vulnerability, significant relationships with industry performance were not found.

Degree

Ph.D.

Subject Area

Management

COinS