2. What is the Meaning of Corporate Effect?
Authors analyze, reinterpret, and retest
Rumelt’s essay
Rumelt’s argument
Argument’s Implication
Brush and Bromiley’s point of view
He did not interpret statistical metrics well
enough
What he found was not as telling as he
believed
Authors construct simulation
3. Rumelt’s Results
Caused stir, provoked rebuttal
Rumelt’s finding
46 percent of variance explained by business unit
effects
8 percent by industry effects
1 percent by corporate effects.
Rumelt’s claim
firms do not have ability to transfer success between
product lines
firms have few resources (in the RBV view) which
can be applied internally to help them survive
4. Authors’ Counter Arguments
Counter argument: What results appeared to say was
not what they meant
Tact to establish rebuttals
Construct a Simulation
Test for two questions
1) how does the size of the corporate effect pan
out in the variance component?
2) what might happen to the variance component
if we don’t assume homogeneous corporate
effects over business units?
5. Authors’ Findings
When scale is 1: similar variance component measures
When scale is .6: the variance component under represents this at .38
When the scale is .2: the component variance is essentially zero at .03.
A scale of .20: relevant importance of the corporation is 20 percent
Conclusion:
Variance component magnitudes do not reflect importance in a linear
manner
Variance components appear to be the square of importance.
Size of industry variance components is 1/6 size of the business unit
variance does not imply that the importance of the first is 1/6th the
importance of the second.
The results vary significantly over simulations.
Rumelt’s findings should be interpreted to mean:
1) corporate effect is not overwhelming
2) corporate effect is smaller than business unit effect (but not
unimportant).
6. Final Words
Authors critique methods of a past scholar, whom they
respect.
I question the use of “scale” as measures
I admire the care and rigor of the authors
Whether right or wrong, I would love to see Rumelt’s
response
Liven the debate in strategy and challenge an erroneous
study
Field would benefit from this challenging of theories in
order to synthesis and test results.
7. Final Words
Authors critique methods of a past scholar, whom they
respect.
I question the use of “scale” as measures
I admire the care and rigor of the authors
Whether right or wrong, I would love to see Rumelt’s
response
Liven the debate in strategy and challenge an erroneous
study
Field would benefit from this challenging of theories in
order to synthesis and test results.
