Harrison Munro-Clark

What is the most effective way to distribute organizational objectives across managers? While prior work suggests managers should each focus on a single objective, we draw on Barnard's original insights on corporate purpose to identify conditions when managers pursuing the full set of objectives is advantageous. Using a computational model, we find that moderate strategic diversity amongst managers enables practice sharing to generate sufficiently valuable distant search to offset the additional complexity incurred during local search, creating a “common purpose advantage.” The advantage is stronger with fewer objectives, moderate objective correlation, less diversification, and moderate turbulence. Under other conditions, it dissipates or reverses. This work unifies scattered findings on multi-objective firms, contributes to diversification research, and revives interest in the Managerial Theory of the Firm.

Do corporate parents really differ in the value they add to the subsidiaries they own? Answering this question is difficult because a subsidiary’s performance reflects both (i) the value the parent adds and (ii) what the subsidiary would achieve independent of its parent. The corporate effect, the conventional measure of how much subsidiary performance differs across parents, records the two together. I separate them by following the same subsidiary across changes in parent in U.S. banking from 1971 to 1998, where state and federal law let a parent acquire a bank but not absorb it, so that the same subsidiary is observed under each parent. Parents differ substantially in the value they add, and at least as much in the persistent performance of the subsidiaries they own. If the two were unrelated, differences across parents would account for about 31 percent of the variance in subsidiary profitability. But parents choose which subsidiaries to own in light of where they expect to add value, and in banking the parents that add more value systematically acquire subsidiaries with lower persistent performance. The two offset one another, and the corporate effect is only about 15 percent, so the parents that add the most value are not necessarily those whose subsidiaries perform best. The value added arrives first as lower costs and later as faster growth. The effect was largest where administration had weighed most on the subsidiary, consistent with parents taking on administrative work and freeing subsidiary managers to expand. Assessing the value a parent adds, whether in allocating capital to acquirers or in evaluating the executives who run them, requires attending both to what the parent does for the subsidiaries it owns and to which subsidiaries it chooses to own. This paper recasts the corporate effect as the joint outcome of parenting and of choosing which subsidiaries to own, and contributes to renewed interest in the corporate parent as a central actor in strategy.

Coordinating an activity across businesses constrains business adaptation, because no business can change the activity on its own, and can also benefit business adaptation, when a change made to serve one business opens improvements another business would not have found alone. Prior work finds that the benefit does not offset the cost. The cost lasts as long as an activity is coordinated, whereas the benefit arises only when the corporate parent changes the activity, so which prevails depends on whether the corporate parent keeps changing coordinated activities. Using a computational model, this paper proposes that whether the benefit offsets the cost depends on corporate priority, defined as the relative importance the corporate parent gives each business. A corporate parent that holds priority fixed soon exhausts the changes it will make. A corporate parent that gives each business greater priority in turn keeps changing coordinated activities, and its closely related businesses adapt better than their standalone counterparts. The advantage requires that greater priority return to each business and depends on the businesses’ relatedness and the interdependence of their activities. Whether coordination helps or hinders adaptation, then, depends on how corporate priority governs changes to coordinated activities, which makes corporate priority a means of corporate parenting.