Valerie Moatti, Charlotte Ren, Jay Anand and Pierre Dussauge. Strategic Management Journal. 2015, 36(5): 745-757.
Abstract. M&A and organic growth are two common strategies for firms to achieve horizontal growth. In this study, we disentangle two distinct sources of firm performance corresponding to different theoretical perspectives on firm size: firms’ bargaining power with respect to suppliers and customers, and operating efficiency arising from scale economies. We conceptually argue and empirically show that relatively, M&A enhance bargaining power while organic growth enhances operating efficiency. We also find that M&A’s disadvantage on operating efficiency persists over time. In order to disaggregate these effects, we use accounting rather than financial or managerial data and test our predictions in the global retail industry over a 20 year period. We examine implications of these results for sustainability of size-based competitive advantages.
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Olav Sorenson, Susan McEvily, Charlotte Ren and Raja Roy. Strategic Management Journal. 2006, 27(10): 915-936.
Abstract. Although strategy research typically regards firm scope as a positional characteristic associated with performance differences, we propose that broad contemporary scope also provides insight into the routines that govern firm behavior. To attain broad scope, firms must repeatedly explore outside the boundaries of their current niche. Firms with broad niches therefore operate under a set of routines that repeatedly propel them into new market segments, expanding their niche. These niche expansions, however, involve risky organizational changes, behavior that disadvantages generalists relative to specialists, despite the positional value of broad scope. Empirical analyses of machine tool manufacturers and computer workstation manufacturers support this conjecture: (i) generalists introduce new products at a higher than optimal rate, thereby increasing their exit rates; and (ii) generalists also more frequently launch new models with novel features or targeted at new consumer segments rather than improving only incrementally on existing products, further accelerating their odds of failure. After adjusting for these behavioral differences, broad niche widths reduce exit rates, suggesting that they provide positional advantages. The paper discusses how this phenomenon may help to explain the diversification and multi-nationality discounts.
Click here for the paper: Sorenson-McEvily-Ren-Roy_2006SMJ