Performance Implications of Diversification Strategies of Business Group and M-form Firms Saptarshi Purkayastha, RajaramVeliyath, and Rejie P. George
Coles Working Paper Series, SPRING20-01, March 2020
Overview This study examined 3,173 diversified Indian companies from 2003 to 2012 to determine the effects of business group (BG) or M-form divisional structure on performance outcomes. The BG structure, exemplified by Wipro, most closely resembles a holding company, with varying degrees of control and influence over a portfolio of often unrelated, independent businesses. In the M-form structure, exemplified by Biocon, a corporate headquarters has integrated and centralized control over many related or unrelated divisions. We find that for both structures, the extent of diversification positively affects firm performance. However, when we assess the effects on related and unrelated diversification separately, the BG form works better when the divisions are unrelated, reflecting its ability to navigate institutional voids and exploit underlying opportunities. In contrast, the M-form structure advances firm performance primarily when the divisions are related, which is typical in developed markets. These results can inform CEOs seeking to configure their organizations to better implement their preferred diversification strategies, bearing in mind the country context.
38 | Working Papers
Made with FlippingBook - Online catalogs