Tag Archives: scope of the firm

[10-A]. Growth As Reallocation: Industry-Level Correlations in Firm Growth Modes

Jagadeesh Sivadasan, Natarajan Balasubramanian, Ravi Dharwadkar, and Charlotte Ren. February 10, 2025. Available at SSRN: https://ssrn.com/abstract=5131225 or http://dx.doi.org/10.2139/ssrn.5131225

Abstract. How firms grow is an important topic of investigation both from research and policy perspectives. In a recent paper (Sivadasan et al., 2025), we examined the economic importance of several important growth modes using a comprehensive and granular decomposition of firm employment growth. One of the important insights from that study was to reiterate that firm growth is a process of reallocation of resources (of human capital in that study) and that growth modes can be viewed as reallocation channels. In this note, we elaborate on that insight by providing some additional evidence on inter-sectoral variations in and correlations among growth modes. We briefly recast the results on overall growth modes from Sivadasan et al.(2025) (Table 1) to illustrate how growth modes can be viewed as reallocation channels. We then examine sector-level correlations among those modes and discuss the findings in the context of related literature in strategy and industrial organization.

Note: This is an SSRN working paper (preprint). It is not included in my publication count and is listed separately only to make the citable version available. Click here for the SSRN working paper.

[10]. How Do US Firms Grow? New Evidence from a Growth Decomposition

Jagadeesh Sivadasan, Natarajan Balasubramanian, Ravi Dharwadkar, and Charlotte Ren. Strategic Management Journal, 2024, 46(1): 49-81. https://doi.org/10.1002/smj.3641

Research Summary. Although firms grow using many modes, studies typically examine individual modes, usually transactional. This impedes our understanding of the relative importance of growth modes, correlations amongst them, and their associations with competition and firm performance. To shed light on these aspects, we decompose employment growth in all U.S. firms (2004–2013) into seven modes. We find that organic modes such as opening or closing plants contribute more than transactional modes such as acquisitions and sell-offs, and that growth modes exhibit age-size differences and are generally positively correlated within firms. Trade competition in manufacturing increased closures and decreased acquisitions but had no effect on new units. Transactional growth positively correlates with future survival, unlike organic growth. Together, these findings expand our understanding of firm growth and compel us to view it as a composite of multiple modes.

Managerial Summary. Managers have many ways to grow a firm, but studies typically emphasize transactional modes such as acquisitions and selloffs. Using data on all US firms over 2004–2013, we study seven growth modes in an integrated and comprehensive model. We find that organic modes contribute more to growth than transactional modes, that young, large firms grow less relative to old, large firms, that when firms grow (shrink), they tend to grow (shrink) using multiple modes simultaneously and that growth modes vary in their association with competition. Importantly, transactional growth positively correlates with future survival, unlike organic growth. Together, these findings not only suggest that growth modes vary in their contribution to firm growth but also that they may differently influence subsequent performance.

[6]. Should I stay or should I go now? Integrating the learning and selection views on firms’ successive make-or-ally decisions for product innovation

Louis Mulotte, Charlotte Ren, Pierre Dussauge, and Jay Anand. In F. Contractor and J. Reuer (Eds). Frontiers of Strategic Alliance Research. Cambridge University Press. 2019 (pp. 423-436).

Abstract. Previous literature on inter-firm collaborations has documented how firms can learn from their partners with experience and eventually develop adequate capabilities to go it alone. On the other hand, some literature also suggests that firms are less likely to switch from previously successful strategies, so firms with successful collaborative experience may persist with further collaborations. We identify these strands of literature as the “learning” and “selection” views, and develop propositions on the implications of the two alternative views. We conduct preliminary tests of our propositions using data on new product introductions in the aircraft industry. Our theoretical and empirical analyses help in integrating of these seemingly opposing views and allow for the development of theoretical and managerial implications.

[5]. Does experience imply learning?

Jay Anand, Louis Mulotte, and Charlotte Ren. Strategic Management Journal. 2016, 37(7): 1395-1412. 

Abstract. Strategic management research traditionally uses experiential learning arguments to explain the existence of a positive relationship between repetition of an activity and superior performance. We propose an alternative interpretation of this relationship in the context of discrete corporate development activities, which are generally self-selected on the basis of superior performance expectations. We argue that firms are likely to choose to repeat successful activities, thereby accumulating high experience with them. To demonstrate this ‘self-selection’ effect, we examine the performance of 437 aircraft projects launched through three introduction modes. We show that the positive performance effect of the firm’s experience with the focal mode vanishes after accounting for experience endogeneity. We suggest that in a general case, experience with corporate development activities may be tinged with both learning as well as selection effects. Therefore, omitting experience endogeneity may lead researchers to draw incorrect conclusions from an “empirically observed” positive experience-performance relationship.

Note: Click here for the paper: Anand-Mulotte-Ren_2016 SMJ

[4]. Disentangling the Performance Effects of Efficiency and Bargaining Power in Horizontal Growth Strategies: An Empirical Investigation in the Global Retail Industry

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.

Note: Click here for the paper: Moatti-Ren-Anand-Dussauge 2015SMJ

[1]. Niche Width Revisited: Organizational Scope, Behavior and Performance

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.

Note: Click here for the paper: Sorenson-McEvily-Ren-Roy_2006SMJ