Electronic Thesis and Dissertation Repository

Degree

Doctor of Philosophy

Program

Business

Supervisor

W. Glenn Rowe

Abstract

The aim of this thesis is to re-examine the relationship between corporate strategy and business unit strategy. Past research has often failed to deconstruct the notion of corporate effects to properly assess the role of corporate strategy in the behaviour and performance of business units. As a result, conflicting findings have led to researchers disagreeing on the significance of corporate effects and corporate strategy. Through this thesis, I have taken steps to clarify the misunderstood significance of corporate strategy to business-unit-level strategy and performance. This dissertation has drawn on the literature from agency theory, information processing theory, and upper echelons theory, as well as the economic logic that underlies value creation in corporations. Through this dissertation, I deconstruct the notion of corporate effects to theoretically redefine the role of controls as the mediator between corporate strategy and business unit strategy to respond to the research question, “How does corporate strategy influence business unit performance?” In addition, I deconstruct business unit effects to examine the impact of business strategy on business unit performance. Finally, I consider business unit strategy to be an exogenous factor.

To explore the effect of corporate strategy on business-unit-level strategy and performance, I conducted a quantitative analysis of data corresponding to over 2,500 business units from 193 corporations. Building on a proprietary dataset made accessible for this research, I tested the theoretical model for this thesis using previously collected data from each of the studied business units and the corporate headquarters of their corporate parents. The dataset comprises objective measures of business unit financial performance, objective characteristics of corporate headquarters and structure, and more subjective and behavioural data based on surveys that focus on control mechanisms to which business units are subject and the strategic orientation they pursue. The quantitative analysis was undertaken after performing steps for validation of the measures used and in compliance with measures and techniques used in past research.

I find support in my analysis for a partial mediating role of controls in the relationship between corporate strategy and business-unit-level strategy. The results from the analysis demonstrate that the strategic orientations of business units are endogenous to the corporate strategy through the mechanism of controls to which each business unit is subject. I also find support for the moderating effect of certain factors at the corporate level, such as size of corporate headquarters, number of business units managed by the corporation, and the corporate CEO’s background in the relationship between corporate strategy and controls.

The findings of this thesis re-establish the role of corporate strategy in our understanding of business-unit-level strategy and performance. Contrary to past research, I have theorized business-unit-level strategy to be endogenous to corporate strategy. I have also developed the controls construct and have measured it for each business unit studied in order to test my theoretical model. My findings in this thesis take a step towards enhancing our understanding of how corporate strategy influences strategy and performance at the business unit level.

To explore the effect of Corporate Strategy on Subsidiary level strategy and performance, I have conducted a quantitative analysis of data corresponding to over 2500 subsidiaries from 193 corporations. Building on a proprietary dataset made accessible for this research, I tested the theoretical model for this thesis using previously collected data from each of the studied subsidiaries and the corporate headquarters of their corporate parents. The dataset comprises of objective measures of subsidiary and corporate financial performance, objective characteristics of corporate headquarters characteristics and structure, as well as more subjective and behavioural data based on surveys which focus on control mechanisms to which subsidiaries are subject and the strategic orientation they pursue. The quantitative analysis was undertaken after performing steps for validation of the measures used and in compliance with measures and techniques used in past research.

I find support in my analysis for the mediating role of Controls in the relationship between Corporate Strategy and subsidiary level strategy. The results from the analysis demonstrate that the strategic orientations of subsidiaries are endogenous to the corporate strategy through the mechanism of Controls each subsidiary is subject to. I also find support for the moderating effect of certain aspects and characteristics at corporate level such as size of corporate headquarters, number of subsidiaries managed by the corporation, and corporate CEO’s background in the relationship between Corporate Strategy and Controls.

The findings of this thesis re-establish the role of Corporate Strategy in our understanding of subsidiary level strategy and performance. Contrary to past research, I have theorized subsidiary level strategy to be endogenous to corporate strategy. I have also developed the Controls construct and have measured it for each subsidiary studied in order to test my theoretical model. My findings in this thesis take a step towards enhancing our understanding of how Corporate Strategy influences strategy and performance at corporate and subsidiary levels.

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