This document discusses how management buyouts can lead to entrepreneurial growth through changes in managerial incentives and cognition. It develops a model showing how buyouts can stimulate efficiency gains, catch-up innovations, and radical strategic innovations depending on whether managerial cognition remains managerial or shifts to an entrepreneurial mindset. By expanding managerial discretion and aligning ownership with management, buyouts encourage entrepreneurial thinking and risk-taking that can uncover new growth opportunities beyond just improving efficiency.
This document discusses strategy formation as a process of negotiation that involves the use of power and politics. It outlines two branches of the "power school" - micro power, which looks at strategy making through political games of bargaining and coalition building among actors within an organization, and macro power, which involves an organization negotiating with and controlling external environmental factors. Key aspects of strategy formation discussed include stakeholder analysis, cooperative strategy making, and how politics can both benefit and hinder the achievement of integrated strategic perspectives within organizations.
11.vol. 0002www.iiste.org call for paper no. 2_c reinig & ca tilt _pp176-197Alexander Decker
This document analyzes media releases from 2006 from Australia's four major national banks (ANZ, CBA, NAB, and WBC) to investigate how they communicate corporate social responsibility (CSR) to different stakeholders. A content analysis was conducted to determine the extent and nature of CSR-related media releases, as well as their intended audiences. The findings indicate over one-third of the banks' media releases discussed CSR, predominantly around community involvement. Most CSR-related media releases targeted customers and communities as their intended audiences.
THE EFFECTS OF OWNERSHIP, BOARD COMPOSITION AND TOP MANAGEMENT TEAMS ON STRAT...Floriane G.
This paper aims to examine how different governance devices operate and interact to promote small-and-medium sized firms’ (SMEs) ability to change strategically.
A presentation of Brunninge, Nordqvist and Wiklund (2017°
Explorations of strategic orientation (so) dimensions on small firm growth an...Alexander Decker
This document discusses strategic orientation (SO) dimensions and their relationship to small firm growth. It addresses the following key points in 3 sentences:
The document explores how the six dimensions of SO (analysis, proactiveness, riskiness, aggressiveness, futurity, and defensiveness) may individually or combined contribute to small firm growth, and how a firm's resources may moderate this relationship. It also discusses how both entrepreneurial and conservative strategic orientations through various SO dimensions can promote growth at different stages, but that resource constraints make strategy choice more important for small firm performance. The paper argues that understanding the interaction between SO dimensions, resources, and growth is needed to assess strategic effectiveness for small firms.
This document discusses the politics of strategy and organizational politics. Some key points:
1) Strategy is inherently political as different options are proposed and rejected based on political factors within organizations. Machiavelli's writings on having an overall plan and communicating it effectively are still relevant to modern strategy.
2) Organizational politics arises from structural divisions, issues of uncertainty, external pressures, and past political histories within organizations. Politics is part of normal organizational life as people pursue their self-interested goals.
3) Business elites, through their economic, social, and cultural capital, shape strategic decisions that impact many stakeholders. Elites form inner circles and reproduce themselves through various forms of social mobility.
4
Dropbox is a free service that allows users to access and sync files across multiple devices. Any file saved to the Dropbox folder on one device is automatically synced to all other linked devices. The Dropbox folder works just like any other folder but syncs file changes in real-time. Files can be dragged into the Dropbox folder or accessed online to make them available on all devices.
13. levinthal march 1993 myopia of learningFacultad Cea
This document discusses organizational learning and some of its limitations. It begins by describing how organizational learning has been seen as a way for organizations to gain intelligence and a competitive advantage through experience. However, it notes that learning processes have limitations, as learning involves making inferences from limited and ambiguous experiences. It discusses three forms of "learning myopia" - a tendency to overlook distant times, distant places, and failures. The document concludes that while learning is important, expectations of it should be conservative given its imperfections.
This document discusses strategy formation as a process of negotiation that involves the use of power and politics. It outlines two branches of the "power school" - micro power, which looks at strategy making through political games of bargaining and coalition building among actors within an organization, and macro power, which involves an organization negotiating with and controlling external environmental factors. Key aspects of strategy formation discussed include stakeholder analysis, cooperative strategy making, and how politics can both benefit and hinder the achievement of integrated strategic perspectives within organizations.
11.vol. 0002www.iiste.org call for paper no. 2_c reinig & ca tilt _pp176-197Alexander Decker
This document analyzes media releases from 2006 from Australia's four major national banks (ANZ, CBA, NAB, and WBC) to investigate how they communicate corporate social responsibility (CSR) to different stakeholders. A content analysis was conducted to determine the extent and nature of CSR-related media releases, as well as their intended audiences. The findings indicate over one-third of the banks' media releases discussed CSR, predominantly around community involvement. Most CSR-related media releases targeted customers and communities as their intended audiences.
THE EFFECTS OF OWNERSHIP, BOARD COMPOSITION AND TOP MANAGEMENT TEAMS ON STRAT...Floriane G.
This paper aims to examine how different governance devices operate and interact to promote small-and-medium sized firms’ (SMEs) ability to change strategically.
A presentation of Brunninge, Nordqvist and Wiklund (2017°
Explorations of strategic orientation (so) dimensions on small firm growth an...Alexander Decker
This document discusses strategic orientation (SO) dimensions and their relationship to small firm growth. It addresses the following key points in 3 sentences:
The document explores how the six dimensions of SO (analysis, proactiveness, riskiness, aggressiveness, futurity, and defensiveness) may individually or combined contribute to small firm growth, and how a firm's resources may moderate this relationship. It also discusses how both entrepreneurial and conservative strategic orientations through various SO dimensions can promote growth at different stages, but that resource constraints make strategy choice more important for small firm performance. The paper argues that understanding the interaction between SO dimensions, resources, and growth is needed to assess strategic effectiveness for small firms.
This document discusses the politics of strategy and organizational politics. Some key points:
1) Strategy is inherently political as different options are proposed and rejected based on political factors within organizations. Machiavelli's writings on having an overall plan and communicating it effectively are still relevant to modern strategy.
2) Organizational politics arises from structural divisions, issues of uncertainty, external pressures, and past political histories within organizations. Politics is part of normal organizational life as people pursue their self-interested goals.
3) Business elites, through their economic, social, and cultural capital, shape strategic decisions that impact many stakeholders. Elites form inner circles and reproduce themselves through various forms of social mobility.
4
Dropbox is a free service that allows users to access and sync files across multiple devices. Any file saved to the Dropbox folder on one device is automatically synced to all other linked devices. The Dropbox folder works just like any other folder but syncs file changes in real-time. Files can be dragged into the Dropbox folder or accessed online to make them available on all devices.
13. levinthal march 1993 myopia of learningFacultad Cea
This document discusses organizational learning and some of its limitations. It begins by describing how organizational learning has been seen as a way for organizations to gain intelligence and a competitive advantage through experience. However, it notes that learning processes have limitations, as learning involves making inferences from limited and ambiguous experiences. It discusses three forms of "learning myopia" - a tendency to overlook distant times, distant places, and failures. The document concludes that while learning is important, expectations of it should be conservative given its imperfections.
1) The strategic decision process and organizational structure have a reciprocal relationship, with structure influencing strategy through its effect on decision making.
2) Characteristics of an organization's strategic decision process include the initiation of decisions, the role of goals, the relationship between means and ends, explanations of strategic actions, and the comprehensiveness of decision making.
3) Dimensions of organizational structure that most impact strategic decision making are centralization, formalization, and complexity - with more centralized, formalized, and complex structures placing greater cognitive demands on decision makers.
This chapter discusses the strategic decision of whether firms should integrate activities internally ("make") or use external suppliers ("buy"). Transaction Cost Economics (TCE) argues integration depends on minimizing transaction costs based on factors like asset specificity, uncertainty, and opportunism. Horizontal integration occurs through mergers in the same industry, while vertical integration moves upstream/downstream. Outsourcing involves moving activities to external suppliers. Firms must consider capabilities, resources, costs/risks, and benefits when deciding to make or buy.
This document discusses various theories of strategic management, including the resource-based view (RBV), dynamic capabilities, and the knowledge-based view. The RBV argues that competitive advantage stems from resources that are valuable, rare, imperfectly imitable, and non-substitutable. Dynamic capabilities refer to a firm's ability to integrate, build, and reconfigure resources to address changing markets. The knowledge-based view sees knowledge management as the key to competitive advantage through processes like coordination, communication, and control.
Mergers and acquisitions (M&A) can be motivated by various theories including efficiency, monopoly, valuation, empire building, and raider theories. Research shows M&A failure rates are high between 70-90% often due to poor post-acquisition integration. Speed of integration is important for success, with many recommending completion within 100 days. Success depends on properly matching deals to strategic purpose, paying the right price, integrating correctly, and considering cultural fit and complementarity between firms. Big mistakes include incorrect matching, failure to distinguish transformational from operational deals, overpaying, and improper integration.
The document discusses organizational decline and identity. It proposes a 5R model for organizational turnaround during decline. The model involves five social processes related to organizational identity: retiring attributes adverse to recovery; reclaiming forgotten attributes vital to recovery; reaffirming active attributes vital for recovery; regenerating atrophied but important attributes; and reimagining the identity for new opportunities. These processes help align organizational identity with what is needed for success during decline.
This document discusses strategic change and how it is implemented in organizations. It defines strategic change as involving shifts in an organization's direction, scope, and position over the long term. It notes that strategic change is political due to different stakeholders having things to gain or lose. The document differentiates between types of strategic change and evaluates models of implementing change, such as Lewin's three-step model and Kotter's eight-step model. It also discusses the role of sensemaking, leadership, communication, and resistance in managing strategic change processes.
The document discusses several key aspects and issues related to business exchanges:
1. Exchanges between individuals and groups have both existential and economic meaning, and involve both abstract and concrete elements.
2. Ongoing exchange requires consideration of multiple stakeholders, complex dynamics, and issues of comparative value and power between parties.
3. Stability in exchange relationships can be achieved through various structural and interpersonal arrangements, each with strengths and weaknesses, such as competition, social/cultural norms, family ties, government control, religious institutions, and leadership preferences.
4. Resolving differences and changes over time requires abilities like anticipating issues, assessing multiple perspectives, and clarifying values through open communication
This document provides an overview of transaction cost economics (TCE) from the perspective of Oliver E. Williamson. It discusses how TCE implements the "Carnegie Triple" principles of being disciplined, interdisciplinary, and having an active mind. Section 1 discusses the Carnegie Triple and key quotes anchoring TCE. Sections 2-4 describe how TCE is disciplined by economics, incorporates organization theory and contract law, and has an active mind. Section 5 discusses operationalizing TCE, with conclusions in Section 6. The overview positions TCE at the intersection of economics, law, and organization theory to study governance and transactions.
1. There are different types of strategic change that require varying approaches depending on the context, including the extent of culture change, resources to preserve, and readiness for change.
2. A forcefield analysis can identify blockages and levers for change, while situational leadership suggests adapting the style of managing change to contexts and stakeholder groups.
3. Successful change management requires considering levers like building a case for change, challenging norms, and changing processes, as well as common pitfalls like lack of focus and disconnect from culture.
This document discusses executive compensation and lessons learned from past practices. It provides background on compensation of chief executives, particularly in the United States. Key issues discussed include the many parties involved in executive compensation decisions, long-term rewards not tied to performance, and public outrage over large severance packages. The Dodd-Frank Act aimed to increase shareholder input and tie compensation more closely to performance. While reforms addressed some issues, questions still remain around justifying pay gaps and potential unintended consequences of performance-based compensation.
This document provides an overview of transaction cost economics (TCE) and its application to the boundaries of the firm. It discusses how TCE, pioneered by Oliver Williamson, explains why firms vertically integrate to bring production stages in-house in order to reduce transaction costs, especially when asset specificity is present. The document also briefly describes alternative formal approaches to firm boundaries based on incomplete contracts, like the property rights theory of Grossman, Hart, and Moore, and relational contract theories.
Stuart Briers - Undergraduate Research PaperStuart Briers
This document is a student paper that analyzes how firm size affected capital structure and leverage during the 2007-2009 US Financial Crisis. It hypothesizes that firm size is the most important determinant of leverage. The paper reviews literature on the relationship between firm size and leverage. It finds mixed evidence, with some studies finding a positive relationship for large firms and negative for small firms. The paper will test the Pecking Order Theory which predicts that firms prioritize retained earnings over debt or equity. It will analyze 1,200 US firms to determine the impact of various factors like size, profitability, and growth on leverage during the Financial Crisis period.
Why 'Democracy' and 'Drifter' firms can have abnormal returns, The joint impo...Koon Boon KEE
This study investigates the relationship between corporate governance, earnings quality measured by abnormal accruals, and stock returns. The study finds:
1) Considering only corporate governance (Democracy firms) overrates its effect on performance without also considering earnings quality. Isolating Democracy firms with low abnormal accruals generates an abnormal return of 10.5% per year.
2) Contrary to prior research, Democracy firms with high abnormal accruals have positive future abnormal returns, not negative as expected. This suggests accruals provide a credible signal when accompanied by good governance.
3) Both corporate governance and earnings quality jointly provide important information to investors to distinguish winners and losers, highlighting their complementary relationship.
The central idea of upper echelons theory is that executives act on the basis of their highly personalized interpretations of the situations and options they face. That is, executives inject a great deal of themselves—their experiences, personalities, and values—into their behaviors. To the extent those behaviors are of consequence, say in shaping strategy or influencing the actions of others, organizations then become reflections of their top managers.
El documento describe la taxonomía de Bloom, un sistema de clasificación de objetivos educativos desarrollado en 1956. La taxonomía categoriza los objetivos en dominios cognitivo, afectivo y psicomotor. El dominio cognitivo incluye seis niveles de objetivos - conocimiento, comprensión, aplicación, análisis, síntesis y evaluación - que van de lo más simple a lo más complejo. Los maestros deben considerar estos niveles al planificar actividades para ayudar a los estudiantes a avanzar en su aprendizaje
IPSec is a framework that provides security for communications over IP networks by authenticating and encrypting traffic between hosts. It protects against attacks on private networks and the internet through end-to-end encryption and authentication of data. IPSec uses protocols like AH and ESP to authenticate and encrypt data flowing in transport or tunnel mode between endpoints or gateways. It was created to address security issues in IPv4 like eavesdropping, data modification, spoofing and denial of service attacks.
Msc. carlos antequera n. la elocucion mapa mentalcarlos antequera
Este documento resume los conceptos clave de la elocución y sus formas. La elocución se refiere al modo de emplear las palabras para expresar conceptos en el discurso. Incluye tres elementos: el fondo (pensamientos y sentimientos), el estilo (modo de decir las palabras), y la forma (palabra y cláusulas). Las formas elocutivas principales son la descripción, la narración, el diálogo y la exposición. La elocución también incluye la oratoria, el discurso y la disertación
This document summarizes a research paper that investigated the start-up and growth motives of entrepreneurs who own small and medium enterprises in Bradford, UK. In-depth interviews were conducted with 30 entrepreneurs using a storytelling approach. The findings revealed that entrepreneurs had both "pull" and "push" motives for starting their businesses, while their motives for growth were mainly "pull" motives related to attraction. Based on patterns between growth motives and entrepreneurial outcomes, the entrepreneurs were categorized into three types. The paper discusses implications for practice and opportunities for further research.
The document outlines the vision and strategy for Tamil Nadu's Twelfth Five Year Plan. It discusses the state's strong economic growth during the Tenth Plan but slower growth during the Eleventh Plan. Key priorities for the Twelfth Plan include achieving accelerated, innovative and inclusive growth of 11% annually on average. This will help make Tamil Nadu one of the most prosperous states in India by 2023 and eliminate poverty and regional disparities.
Social attributes in yellow-bellied marmotstina_wey
A talk I presented at Behavior 2011: Joint Meeting of the Animal Behavior Society and International Ethological Conference (Bloomington, IN), summarizing my dissertation.
You can find more information on the research presented here at: https://impactstory.org/TinaWey and https://sites.google.com/site/tweyresearch/home
1) The strategic decision process and organizational structure have a reciprocal relationship, with structure influencing strategy through its effect on decision making.
2) Characteristics of an organization's strategic decision process include the initiation of decisions, the role of goals, the relationship between means and ends, explanations of strategic actions, and the comprehensiveness of decision making.
3) Dimensions of organizational structure that most impact strategic decision making are centralization, formalization, and complexity - with more centralized, formalized, and complex structures placing greater cognitive demands on decision makers.
This chapter discusses the strategic decision of whether firms should integrate activities internally ("make") or use external suppliers ("buy"). Transaction Cost Economics (TCE) argues integration depends on minimizing transaction costs based on factors like asset specificity, uncertainty, and opportunism. Horizontal integration occurs through mergers in the same industry, while vertical integration moves upstream/downstream. Outsourcing involves moving activities to external suppliers. Firms must consider capabilities, resources, costs/risks, and benefits when deciding to make or buy.
This document discusses various theories of strategic management, including the resource-based view (RBV), dynamic capabilities, and the knowledge-based view. The RBV argues that competitive advantage stems from resources that are valuable, rare, imperfectly imitable, and non-substitutable. Dynamic capabilities refer to a firm's ability to integrate, build, and reconfigure resources to address changing markets. The knowledge-based view sees knowledge management as the key to competitive advantage through processes like coordination, communication, and control.
Mergers and acquisitions (M&A) can be motivated by various theories including efficiency, monopoly, valuation, empire building, and raider theories. Research shows M&A failure rates are high between 70-90% often due to poor post-acquisition integration. Speed of integration is important for success, with many recommending completion within 100 days. Success depends on properly matching deals to strategic purpose, paying the right price, integrating correctly, and considering cultural fit and complementarity between firms. Big mistakes include incorrect matching, failure to distinguish transformational from operational deals, overpaying, and improper integration.
The document discusses organizational decline and identity. It proposes a 5R model for organizational turnaround during decline. The model involves five social processes related to organizational identity: retiring attributes adverse to recovery; reclaiming forgotten attributes vital to recovery; reaffirming active attributes vital for recovery; regenerating atrophied but important attributes; and reimagining the identity for new opportunities. These processes help align organizational identity with what is needed for success during decline.
This document discusses strategic change and how it is implemented in organizations. It defines strategic change as involving shifts in an organization's direction, scope, and position over the long term. It notes that strategic change is political due to different stakeholders having things to gain or lose. The document differentiates between types of strategic change and evaluates models of implementing change, such as Lewin's three-step model and Kotter's eight-step model. It also discusses the role of sensemaking, leadership, communication, and resistance in managing strategic change processes.
The document discusses several key aspects and issues related to business exchanges:
1. Exchanges between individuals and groups have both existential and economic meaning, and involve both abstract and concrete elements.
2. Ongoing exchange requires consideration of multiple stakeholders, complex dynamics, and issues of comparative value and power between parties.
3. Stability in exchange relationships can be achieved through various structural and interpersonal arrangements, each with strengths and weaknesses, such as competition, social/cultural norms, family ties, government control, religious institutions, and leadership preferences.
4. Resolving differences and changes over time requires abilities like anticipating issues, assessing multiple perspectives, and clarifying values through open communication
This document provides an overview of transaction cost economics (TCE) from the perspective of Oliver E. Williamson. It discusses how TCE implements the "Carnegie Triple" principles of being disciplined, interdisciplinary, and having an active mind. Section 1 discusses the Carnegie Triple and key quotes anchoring TCE. Sections 2-4 describe how TCE is disciplined by economics, incorporates organization theory and contract law, and has an active mind. Section 5 discusses operationalizing TCE, with conclusions in Section 6. The overview positions TCE at the intersection of economics, law, and organization theory to study governance and transactions.
1. There are different types of strategic change that require varying approaches depending on the context, including the extent of culture change, resources to preserve, and readiness for change.
2. A forcefield analysis can identify blockages and levers for change, while situational leadership suggests adapting the style of managing change to contexts and stakeholder groups.
3. Successful change management requires considering levers like building a case for change, challenging norms, and changing processes, as well as common pitfalls like lack of focus and disconnect from culture.
This document discusses executive compensation and lessons learned from past practices. It provides background on compensation of chief executives, particularly in the United States. Key issues discussed include the many parties involved in executive compensation decisions, long-term rewards not tied to performance, and public outrage over large severance packages. The Dodd-Frank Act aimed to increase shareholder input and tie compensation more closely to performance. While reforms addressed some issues, questions still remain around justifying pay gaps and potential unintended consequences of performance-based compensation.
This document provides an overview of transaction cost economics (TCE) and its application to the boundaries of the firm. It discusses how TCE, pioneered by Oliver Williamson, explains why firms vertically integrate to bring production stages in-house in order to reduce transaction costs, especially when asset specificity is present. The document also briefly describes alternative formal approaches to firm boundaries based on incomplete contracts, like the property rights theory of Grossman, Hart, and Moore, and relational contract theories.
Stuart Briers - Undergraduate Research PaperStuart Briers
This document is a student paper that analyzes how firm size affected capital structure and leverage during the 2007-2009 US Financial Crisis. It hypothesizes that firm size is the most important determinant of leverage. The paper reviews literature on the relationship between firm size and leverage. It finds mixed evidence, with some studies finding a positive relationship for large firms and negative for small firms. The paper will test the Pecking Order Theory which predicts that firms prioritize retained earnings over debt or equity. It will analyze 1,200 US firms to determine the impact of various factors like size, profitability, and growth on leverage during the Financial Crisis period.
Why 'Democracy' and 'Drifter' firms can have abnormal returns, The joint impo...Koon Boon KEE
This study investigates the relationship between corporate governance, earnings quality measured by abnormal accruals, and stock returns. The study finds:
1) Considering only corporate governance (Democracy firms) overrates its effect on performance without also considering earnings quality. Isolating Democracy firms with low abnormal accruals generates an abnormal return of 10.5% per year.
2) Contrary to prior research, Democracy firms with high abnormal accruals have positive future abnormal returns, not negative as expected. This suggests accruals provide a credible signal when accompanied by good governance.
3) Both corporate governance and earnings quality jointly provide important information to investors to distinguish winners and losers, highlighting their complementary relationship.
The central idea of upper echelons theory is that executives act on the basis of their highly personalized interpretations of the situations and options they face. That is, executives inject a great deal of themselves—their experiences, personalities, and values—into their behaviors. To the extent those behaviors are of consequence, say in shaping strategy or influencing the actions of others, organizations then become reflections of their top managers.
El documento describe la taxonomía de Bloom, un sistema de clasificación de objetivos educativos desarrollado en 1956. La taxonomía categoriza los objetivos en dominios cognitivo, afectivo y psicomotor. El dominio cognitivo incluye seis niveles de objetivos - conocimiento, comprensión, aplicación, análisis, síntesis y evaluación - que van de lo más simple a lo más complejo. Los maestros deben considerar estos niveles al planificar actividades para ayudar a los estudiantes a avanzar en su aprendizaje
IPSec is a framework that provides security for communications over IP networks by authenticating and encrypting traffic between hosts. It protects against attacks on private networks and the internet through end-to-end encryption and authentication of data. IPSec uses protocols like AH and ESP to authenticate and encrypt data flowing in transport or tunnel mode between endpoints or gateways. It was created to address security issues in IPv4 like eavesdropping, data modification, spoofing and denial of service attacks.
Msc. carlos antequera n. la elocucion mapa mentalcarlos antequera
Este documento resume los conceptos clave de la elocución y sus formas. La elocución se refiere al modo de emplear las palabras para expresar conceptos en el discurso. Incluye tres elementos: el fondo (pensamientos y sentimientos), el estilo (modo de decir las palabras), y la forma (palabra y cláusulas). Las formas elocutivas principales son la descripción, la narración, el diálogo y la exposición. La elocución también incluye la oratoria, el discurso y la disertación
This document summarizes a research paper that investigated the start-up and growth motives of entrepreneurs who own small and medium enterprises in Bradford, UK. In-depth interviews were conducted with 30 entrepreneurs using a storytelling approach. The findings revealed that entrepreneurs had both "pull" and "push" motives for starting their businesses, while their motives for growth were mainly "pull" motives related to attraction. Based on patterns between growth motives and entrepreneurial outcomes, the entrepreneurs were categorized into three types. The paper discusses implications for practice and opportunities for further research.
The document outlines the vision and strategy for Tamil Nadu's Twelfth Five Year Plan. It discusses the state's strong economic growth during the Tenth Plan but slower growth during the Eleventh Plan. Key priorities for the Twelfth Plan include achieving accelerated, innovative and inclusive growth of 11% annually on average. This will help make Tamil Nadu one of the most prosperous states in India by 2023 and eliminate poverty and regional disparities.
Social attributes in yellow-bellied marmotstina_wey
A talk I presented at Behavior 2011: Joint Meeting of the Animal Behavior Society and International Ethological Conference (Bloomington, IN), summarizing my dissertation.
You can find more information on the research presented here at: https://impactstory.org/TinaWey and https://sites.google.com/site/tweyresearch/home
The document provides an overview of India's economic performance and progress towards inclusiveness during the Eleventh Five Year Plan period from 2007-2012. Some key points:
- GDP growth averaged 8.2% during the Eleventh Plan, higher than the previous plan but slightly lower than the original 9% target. This growth led to increased government revenues.
- Poverty declined at a faster pace than before, by approximately 1 percentage point per year, though still short of the Eleventh Plan's 2 percentage point target. Real rural wages and access to programs promoting inclusiveness increased.
- Thirteen flagship programs were implemented with the goal of increasing rural/urban infrastructure and basic services to boost inclus
Makan atau dimakan (merger or control corporate)Lucianus Kelen
This document provides a summary of a theory of mergers and firm size proposed by Gorton, Kahl, and Rosen. The theory combines managerial motives for mergers with industry-level regime shifts that create potential value-increasing merger opportunities. Anticipation of these opportunities can lead to defensive or positioning acquisitions to increase firm size, even if the acquisitions do not create value. Defensive acquisitions are aimed at avoiding a firm being acquired itself, while positioning acquisitions aim to make a firm more attractive as a takeover target. The theory explains stylized facts about mergers such as negative acquirer returns, merger waves, and the role of firm size.
This document summarizes a study examining the antecedents of budgetary slack. The study hypothesizes that budgetary slack will be influenced by a company's level of diversification, business unit strategy, budget emphasis, and incentive systems. It also hypothesizes that a manager's power distance may moderate the relationship between budget emphasis and budgetary slack. The study involved surveying 101 managers in Indonesia to test these hypotheses using structural equation modeling and moderated regression analysis. Key findings included that diversification and business unit strategy significantly affected budgetary slack indirectly through budget emphasis, while incentive systems did not significantly impact slack. Additionally, the relationship between budget emphasis and slack was found to be stronger for low power distance managers compared to high power
This document summarizes a study examining the antecedents of budgetary slack. The study hypothesizes that budgetary slack will be higher for more diversified firms and firms pursuing differentiation strategies. It also hypothesizes that diversified firms and differentiation strategists will place less emphasis on meeting budgets and rely less on incentive systems tied to budget targets. The study involved surveying 101 Indonesian firms to analyze the relationships between these variables, finding that diversification and business strategy influence budgetary slack indirectly through their effects on budget emphasis. Managers with low power distance reacted more strongly to budget emphasis than those with high power distance.
1) The document discusses the role of the corporate center in assisting business units within a multi-unit firm to achieve financial expectations through the realization of growth synergies.
2) It examines how the corporate center can enable overall company growth in a global supply chain through specific functions like formulating strategy, identifying opportunities, allocating capital, and providing financial controls.
3) The corporate center aims to position business units in attractive markets and realize synergies across units through mechanisms like knowledge sharing, resource transfers, patching of structures, and temporary collaborations between units.
GLOBAL CONFERENCE ON BUSINESS AND ECONOMICS, GLOBE 2018Dmytro Shestakov
Strategic Flexibility as a Key to Innovativeness: Theoretical Framework, Globe 2018, 120-131
Dmytro Shestakov
The article reveals the main strategic changes of the competitive environment, the necessity of flexibility in the new competitive conditions are determined. Flexibility in its various forms has
long played an important role in the organizational change and strategy literature. The theoretical approaches to the definition of the concept of "flexibility", "strategy", "strategic flexibility" are
revealed. Various kinds of flexibility of the company and levels of strategic flexibility are reviewed. With the changed dynamics in the new competitive landscape, firms face multiple discontinuities that often occur simultaneously and are not easily predicted. The article substantiates that managers and government policy makers are encountering major strategic discontinuities that are changing the nature of competition. Firms must be flexible to manage discontinuities and unpredictable change in their environments. Flexibility has been a characteristic of an organization that makes companies less vulnerable to unforeseen external changes or puts it in a better position to respond successfully to change. Strategic flexibility may increase innovation performance of a firm.
Advances In Global
Business And Economics
Proceedings of the GLOBE Conference
in Sarasota, USA, June 4-8, 2018
Editor
Dr. Cihan Cobanoglu
M3 Center
University of South Florida Sarasota-Manatee
USA
This document discusses theories of corporate governance, including agency theory, stakeholder theory, and stewardship theory. Agency theory focuses on the relationship between principals (shareholders) and agents (managers), and how separation of ownership and control can lead to issues. Stakeholder theory considers a wider group beyond just shareholders. Stewardship theory views managers as stewards aiming to achieve high performance. The document argues the best approach combines aspects of stakeholder and stewardship theories.
Most corporations dedicate significant time and attention to managing their shareholder base. Furthermore, companies overwhelmingly prefer “long-term shareholders” to “short-term shareholders.”
There is little rigorous research, however, that conclusively demonstrates the impact that individual investor groups have on corporate decision making, or that quantifies the premium (or discount) that specific shareholder groups add to corporate value.
We explore this topic in greater detail, and ask:
• Does the composition of a company’s shareholder base really matter?
• What substantive impact do shareholder—including activists—have on strategy, investment, and management?
• How long is long-term? How short is short-term?
• Can short-term market pressures be offset by long-term compensation incentives?
Mindful consumption a customer-centric approachto sustainabIlonaThornburg83
Mindful consumption: a customer-centric approach
to sustainability
Jagdish N. Sheth & Nirmal K. Sethia & Shanthi Srinivas
Received: 31 December 2009 /Accepted: 2 August 2010 /Published online: 17 August 2010
# Academy of Marketing Science 2010
Abstract How effectively business deals with the chal-
lenges of sustainability will define its success for decades to
come. Current sustainability strategies have three major
deficiencies: they do not directly focus on the customer,
they do not recognize the looming threats from rising
global over-consumption, and they do not take a holistic
approach. We present a framework for a customer-centric
approach to sustainability. This approach recasts the
sustainability metric to emphasize the outcomes of business
actions measured holistically in term of environmental,
personal and economic well-being of the consumer. We
introduce the concept of mindful consumption (MC) as the
guiding principle in this approach. MC is premised on a
consumer mindset of caring for self, for community, and for
nature, that translates behaviorally into tempering the self-
defeating excesses associated with acquisitive, repetitive
and aspirational consumption. We also make the business
case for fostering mindful consumption, and illustrate how
the marketing function can be harnessed to successfully
implement the customer-centric approach to sustainability.
Keywords Sustainability. Customer-centric sustainability.
Mindful consumption
Introduction
Sustainability is today regarded as a vitally important
business goal by multiple stakeholders, including investors,
customers and policymakers (Epstein and Roy 2003; Hart
2007; Nidumolu et al. 2009; Pfeffer 2010; WBCSD 2008;
WEF 2009; Werbach 2009; Worldwatch Institute 2008).
Writing in Harvard Business Review, Lubin and Esty
(2010) characterize sustainability as an “emerging mega-
trend.” They note that most executives are acutely aware of
the profound significance their response to the challenge of
sustainability may have for competitiveness, and perhaps
even survival, of their organizations.
The term sustainability is defined in many different ways (cf.
Hoffman and Bazerman 2007), and has often focused on
environmental concerns. The discussion in this paper follows a
more comprehensive definition that is gaining worldwide
currency. In this definition, sustainability connotes three
dimensions: economic, environmental and social (Jackson
2006; National Research Council 1999; Seyfang 2009; WCED
1987). As a business goal, sustainability thus construed,
translates into a “triple bottom line” responsibility, with the
implication that assessment of business results should be based
not only on economic performance, but should take into
account the environmental and social impact as well. While
this view has its detractors (see for example, Ambec and
Lanoie 2008; Crook 2005; Franklin 2008), there is little doubt
that leading companies around the world are becoming
increasingly receptiv ...
This document is a dissertation submitted by Mohit Kumar to Leeds University Business School in partial fulfillment of an MSc in Finance and Investment. The dissertation examines the impact of managerial ownership on firm performance during a financial crisis using a sample of 180 UK firms from 2009-2011. The dissertation includes an abstract, acknowledgements, table of contents, literature review on the relationship between ownership structure and firm performance, research methods and methodology, findings and conclusions.
Describe the agency theory and resource dependence theory of corpora.pdfarihantcomputersddn
Describe the agency theory and resource dependence theory of corporate governance. What are
their similarities and what are their differences?
Solution
Agency theory
Agency theories arise from the distinction between the owners (shareholders) of a company or an
organization designated as \"the principals\" and the executives hired to manage the organization
called \"the agent.\" Agency theory argues that the goal of the agent is different from that of the
principals, and they are conflicting (Johnson, Daily, & Ellstrand, 1996). The assumption is that
the principals suffer an agency loss, which is a lesser return on investment because they do not
directly manage the company. Part of the return that they could have had if they were managing
the company directly goes to the agent. Consequently, agency theories suggest financial rewards
that can help incentivize executives to maximize the profit of owners (Eisenhardt, 1989). Further,
a board developed from the perspective of the agency theory tends to exercise strict control,
supervision, and monitoring of the performance of the agent in order to protect the interests of
the principals (Hillman & Dalziel, 2003). In other words, the board is actively involved in most
of the managerial decisionmaking processes, and is accountable to the shareholders. A nonprofit
board that operates through the lens of agency theories will show a hands-on management
approach on behalf of the stakeholders.
Resource dependence theory of corporate governance
The basic proposition of resource dependence theory is the need for environmental linkages
between the firm and outside resources. In this perspective, directors serve to connect the firm
with external factors by co-opting the resources needed to survive. This means that boards of
directors are an important mechanism for absorbing critical elements of environmental
uncertainty into the firm. Environmental linkages could reduce transaction costs associated with
environmental interdependency. The organization’s need to require resources leads to the
development of exchange relationships between organizations. Further, the uneven distribution
of needed resources results in inter-dependent organizational relationships. Several factors would
appear to intensify the character of this dependence, e.g. the importance of the resource(s), the
relative shortage of the resource(s) and the extent to which the resource(s) is concentrated in the
environment .
In this context, many of the resources are directly and indirectly controlled by the government.
Hence, appointing directors that have influence and access to key policy-makers and government
is seen as an important strategy for survival because of their knowledge and prestige in their
professions and communities, firms are able to extract useful resources. This could enhance the
firm\'s legitimacy in society and to help it achieve their goals and improve performance. Through
the resource dependence role, directors may also .
This document summarizes a master's thesis project that examines how organizations structure and produce rational investment decisions. Specifically, it looks at two industries - manufacturing and investment - to compare how they define and standardize rationality in their investment processes. The study uses a qualitative approach and theoretical framework of performativity to understand how economic theory, tools, actors and other factors work together to construct rational investment decisions in practice. It aims to provide new insights into how normative economic theory is applied to and shapes real-world investment activities.
r Academy of Management Journal2015, Vol. 1015, No. 1, 1–9..docxmakdul
r Academy of Management Journal
2015, Vol. 1015, No. 1, 1–9.
http://dx.doi.org/10.5465/amj.2014.4006
FROM THE EDITORS
RETHINKING GOVERNANCE IN MANAGEMENT RESEARCH
In the field of management, the study of gover-
nance has primarily dealt with decision-making by
boards of directors, chief executives, and senior
managers. The corporate governance literature has
generated important insights regarding incentive
alignment, risk taking, and coordination chal-
lenges. Emerging trends, highlighted in this issue,
raise new questions regarding managerial roles,
organizational contexts, internal and social pro-
cesses, and changes in governance over time. We
encourage management scholars to rethink their
approach to governance research by considering
stakeholder engagement, the implications of big
data, social impact, global dimensions, and com-
parative analysis of governance. A broadened con-
ceptualization of governance may also deal with the
dynamics of interorganizational arrangements, in-
cluding the co-creation of organizations of varying
governance forms.
WHAT IS GOVERNANCE?
In this “thematic issue,” we assembled articles
that reflect evolving practices in governance.1
Corporate governance is the system by which
companies are directed and controlled. Boards of
directors are responsible for the governance of
their companies. The shareholders’ role in gover-
nance is to appoint the directors and the auditors
and to satisfy themselves that an appropriate gov-
ernance structure is in place. The responsibilities
of the board include setting the company’s strategic
aims, providing the leadership to put them into
effect, supervising the management of the business,
and reporting to shareholders on their stewardship.
The board’s actions are subject to laws, regulations,
and the shareholders in general meeting (Cadbury,
1992). Corporate governance is therefore about
what the board of a company does and how it sets
the values of the company, but is distinct from the
operational management of the company by full-
time executives.
These views of corporate governance stem pre-
dominantly from a financial perspective. For ex-
ample, Shleifer and Vishny (1997: 737) address
corporate governance as “the ways in which sup-
pliers of finance to corporations assure themselves
of getting a return on their investment. How do the
suppliers of finance get managers to return some
of the profits to them? How do they make sure
that managers do not steal the capital they supply
or invest it in bad projects? How do suppliers
of finance control managers?” These views stem
primarily from an agency theoretical perspective
that investigates the consequences of separation of
ownership and control in the modern corporation
(Jensen & Meckling, 1976). Recent corporate ac-
tivity and views, however, have an expanded view
of governance as involving stewardship and lead-
ership, in addition to the narrower financial pru-
dence role. From a survey of board members from
15 countri ...
This document summarizes and tests two agency models of corporate dividend policies. The "outcome model" predicts that stronger legal protections for minority shareholders will lead to higher dividend payouts, as shareholders pressure insiders to disgorge cash rather than waste it. The "substitute model" predicts lower payouts, as insiders establish reputations for treating shareholders well by paying dividends, in order to facilitate future equity issuances. An empirical analysis of over 4,000 firms in 33 countries finds support for the outcome model - firms in common law countries with better investor protections pay higher dividends than firms in civil law countries. Growth firms in common law countries also pay lower dividends than other firms.
This document discusses organizational downsizing from several perspectives. It examines why organizations downsize, the consequences of downsizing on individuals and the organization, and strategies for successful downsizing implementation. Regarding why organizations downsize, the document discusses economic, institutional, ideological, strategic and other perspectives. It analyzes the negative impacts of downsizing on survivor and victim employees, such as lowered morale, increased stress and decreased commitment. The document also discusses negative organizational consequences, like decreased productivity and increased costs. Finally, it examines strategies for mitigating negative impacts, such as effective communication, managing expectations and helping employees renegotiate their relationship with the organization.
The popularity of Corporate Social Responsibility: A strategic reviewIOSR Journals
Abstract : Purpose: This research paper aims to explore a research question: Why Corporate Social Responsibility (CSR) should be popularized instead of imposed? Methodology: Answering the question CSR literature with the test of both theoretical and practical perspectives by following qualitative interview method. This research paper reviews the practical assessment of latest thinking about CSR. This research investigates three questions, these are: who are the investors of CSR, who makes decisions about CSR and potential implications of CSR? Findings: Most relevant theoretical framework offers guidance to managers where CSR is morally attractive force of business through legislative power. Imposed questions are revealed to answers of first two questions are quiet apparent. The answer of third question is inference that indicates three major findings. These are: the costs of CSR remain unrecognized, it helps the managers to take decisions, and CSR have government and civil society implications which we scarcely think. Practical Implications: The capacity of business can contribute to society that has proved through huge expenditure of firms. This paper concludes to encourage the business sensibly by using the popularity CSR as business duty. Value: This paper provides vital information on CSR as a business function.
Scarcity, resource conservation, and sustainable entrepreneurship: Olivia Aronson
This document proposes a multi-level perspective on sustainable entrepreneurship. It suggests that sustainable entrepreneurship is influenced by individual manager worldviews, strategic group affiliation, and community culture constraints. Three propositions are outlined: 1) Manager worldviews influence sustainable entrepreneurship. 2) Strategic group affiliation influences sustainable entrepreneurship. 3) Variability in community culture influences the level of sustainable entrepreneurship. Limitations and implications for theory and practice are also discussed.
Corporate Governance - A Broader Perspectiveiosrjce
In this paper it is argued that the notion of market-based corporate governance approach should be
broadened to include the problem of owner-controlled firms and large block-holders and should be generalized
to a model of multilateral negotiations and influence-seeking among a number of different stakeholders. In
practice such a model should incorporate checks and balances between various stakeholders and outside
constraints and must take into account how the political and legal system of a country affects this balance. In
fact, even if there is theoretical reason to believe that ownership with its incumbent benefits and costs belongs
to equity, this view is not dominant in most economies outside United Kingdom and United States of America.
The broader notion of corporate governance offers hope for understanding better the developing economies in
particular - and other economies in general - where anonymous stock markets are not likely to promote the
necessary entrepreneurial activity and corporate restructuring. It suggests that other mechanisms, such as
product market competition, peer pressure, or labor market activity, may compensate for this weakness, or more
realistically, may be more promising targets for legal or political reform than the stock market.
Chapter Five Policy Entrepreneurship and the Common GoodThe qui.docxchristinemaritza
Chapter Five Policy Entrepreneurship and the Common Good
The quintessential problem of politics [is] how to judge rightly the lesser evil, the relatively best, the ends that justify the means and the means themselves….
Mary Dietz
The common good … is good human life of the multitude, of a multitude of persons; it is their communion in good living.
Jacques Maritain
We now turn to policy entrepreneurship, or coordination of leadership tasks over the course of a policy change cycle. Leaders who are policy entrepreneurs—such as Marcus Conant, Stephan Schmidheiny, Gary Cunningham, Jan Hively, and many of their colleagues—are catalysts of systemic change (Roberts and King, 1996). Policy entrepreneurs “introduce, translate, and implement an innovative idea into public practice” (1996, p. 10). Like entrepreneurs in the business realm, they are inventive, energetic, and persistent in overcoming systemic barriers. They can work inside or outside government organizations; unlike Nancy Roberts and Paula King (1996), we do not reserve the term policy entrepreneur for nongovernmental leaders.
The essential requirements of policy entrepreneurship are a systemic understanding of policy change and a focus on enacting the common good. This chapter offers an overview of these two requirements; subsequent chapters are devoted to individual phases of the policy change cycle.
Before going further, we should note that public policy has both substantive and symbolic aspects. It can be defined as substantive decisions, commitments, and implementing actions by those who have governance responsibilities (including, but going beyond government), as interpreted by various stakeholders. Thus public policy is what the affected people think it is, and based on what the substantive content symbolizes to them. Public policies may be called policies, plans, programs, projects, decisions, actions, budgets, rules, or regulations. Moreover, they may emerge deliberately or as the result of mutual adjustment among partisans (Lindblom, 1959; Mintzberg and Waters, 1985). Exhibit 5.1 presents brief definitions of public policy and other key terms in this chapter.
Understanding Policy Change
The policy change process can be described as a seven-phase cycle (Figure 5.1), in which a shifting set of change advocates work in multiple forums, arenas, and courts to remedy a public problem. The phases are interconnected and build on each other, but policy entrepreneurs are seldom able to march through them in an orderly, sequential fashion. In the case of a highly complex public problem such as AIDS or global warming, the cycle (and “re-cycling”) may extend over decades. The effort to enact solutions for less complex problems, such as homelessness in a particular city, may be successful in a much shorter period. No matter what, the same set of leaders and constituents who began a change effort may not be able to see the effort all the way through the cycle. Moreover, new leaders and constitue ...
This document provides a 3-part summary of Vietnam's Five Year Socio-Economic Development Plan from 2006-2010:
1) It outlines key achievements and weaknesses of the previous 5-year plan from 2001-2005, including 7-8% GDP growth but weaknesses in economic restructuring and resource mobilization.
2) The new plan's goals are rapid, sustainable growth to industrialize Vietnam by 2020, with targets like 7.5-8% annual GDP growth per capita and reducing poverty to 10-11%. It details strategies across economic, social, and environmental sectors.
3) The plan emphasizes boosting growth through infrastructure, trade integration, and enterprise development while improving social welfare, education and
Mr. Gobinath gave a motivational speech in Tamil to encourage business people at the Biztha Awards. He spoke about organic farming in Tamil Nadu, India which has become a success story. His speech aimed to motivate Tamil business people to become entrepreneurs.
The Nordic countries have strong framework conditions for entrepreneurship and many startups. However, the report finds that Nordic countries struggle to scale up young growth firms into large companies. While Finland has more gazelle growth than other Nordic nations, the region overall lacks entrepreneurial capabilities and skills needed to accelerate firm growth and realize global potential. The report recommends developing entrepreneurial ecosystems to provide young companies with complementary skills, experience, and networks to stimulate growth.
The document discusses economic growth in India from 1950-2006, dividing it into four phases. Phase I from 1950-1965 saw average growth of 3.8% annually. Phase II from 1965-1981 saw slower growth of 3.2% annually. Phase III from 1981-1988 witnessed an acceleration to 4.8% growth. Finally, Phase IV from 1988-2006 had the highest growth of 6.3% annually on average. There is debate around the causes of growth acceleration and role of economic reforms, with some arguing it was minor reforms in the 1980s and others crediting more substantial reforms from the 1990s onwards.
This document outlines the objectives and units of the course "Fundamentals of Entrepreneurship". The objective is to expose students to entrepreneurial culture and industry growth to help them start and manage their own businesses. The five units cover introduction to entrepreneurship including theories and characteristics; analyzing opportunities and conducting environmental analysis; entrepreneurial behavior and social responsibility; entrepreneurial development programs; and the role of entrepreneurs in economic growth, employment, and regional development. Suggested readings on topics like industrial entrepreneurship, venture capital, and project preparation are also provided.
Full thesis patrick onuorah - the role of small and medium sized enterprise...Jarchin Raj
This document discusses the role of small and medium enterprises (SMEs) in Nigeria's economic growth. It begins with an abstract that summarizes the study, which investigated how Nigeria's SME sector has performed and its impact on economic growth. The introduction then provides context on SME classifications in different countries. The literature review covers topics like the characteristics and challenges of SMEs in Nigeria, as well as their potential role in economic development. The study aims to assess SME profitability, employment, and relationship with infrastructure and financial institutions in Matori, Lagos. It concludes that SMEs show potential but face issues like inconsistent policies and infrastructure that limit their impact, and recommends increased government support through policies, financing
Full thesis patrick onuorah - the role of small and medium sized enterprise...Jarchin Raj
This document summarizes a study on the role of small and medium enterprises (SMEs) in economic growth in Nigeria. The study surveyed 200 SMEs in Matori, Lagos state to understand their profitability, impact on employment and infrastructure, and relationship with financial institutions and technology. The results found that while SMEs are profitable, issues like inconsistent policies and poor infrastructure undermine their potential. SMEs employ many people but need more support to hire more. Financial institutions are attracted to areas with SMEs but loans have high interest rates. The study confirms SMEs' role in economic growth and recommends the government provide more support through infrastructure, financing, policies and technology to help SMEs maximize their
The document provides an overview of India's Five Year Plans from the First Plan in 1951 to the Eighth Plan in the 1990s. It discusses the origins and history of planning in India prior to independence. Each Five Year Plan is summarized, including key targets, approaches, and outcomes. The plans shifted focus over time from agriculture and industrialization to addressing poverty, employment, and self-sufficiency. Overall the plans aimed to rapidly develop the Indian economy but faced challenges from drought, conflicts, and economic crises.
This document is a working paper that examines the relationship between entrepreneurship, innovation, knowledge, and economic growth. It discusses how our understanding of these linkages has advanced in recent decades but is still incomplete. The paper aims to shed light on recent research regarding knowledge creation and diffusion through innovation, and the role of entrepreneurs in the growth process. It concludes by discussing policy implications, such as how regulation can influence knowledge production, ownership, entry barriers, labor mobility, and financial markets to facilitate the efficient spread of knowledge and conversion of knowledge into useful innovations and economic growth.
This document summarizes John Williams' speech about the current economic conditions and outlook for monetary policy. Some key points:
1) The economy has strengthened, with GDP and job growth picking up. However, unemployment remains above typical estimates of its natural rate and inflation below the Fed's 2% target.
2) The Fed has begun tapering its asset purchase program but monetary policy remains highly accommodative. Interest rates will stay near zero until unemployment falls further.
3) The Fed has tools like interest on reserves and reverse repos to manage the large balance sheet and control interest rates during normalization of policy. Any rate increases will be gradual and clearly communicated.
The document discusses the economic environment and its impact on business. It defines the economic environment as factors such as economic conditions, economic system, policies, and international economic factors that influence business operations. It describes the primary, secondary, tertiary and quaternary stages of economic activity and how environmental factors like economic, social, political, technological, and demographic elements affect businesses.
This document provides information about different types of economies. It begins by defining an economy and its key features. It then describes the main characteristics of three types of economies: capitalist economies, socialist economies, and mixed economies. Capitalist economies emphasize private property, free enterprise, profit motive, and competition. Socialist economies involve collective ownership, central planning, and prioritize social welfare over individual profit. Mixed economies combine elements of capitalism and socialism, with both public and private sectors coexisting. The document also distinguishes between developed and developing economies based on their level of economic development and standards of living.
Adam Smith argued that economic growth occurs through changes in the division of labor. The author defines entrepreneurship as human actions that lead to changes in the division of labor. Three articles are discussed that provide examples of how entrepreneurship changes the division of labor. The first discusses productive versus unproductive entrepreneurship. The second builds an economic model showing how individuals specialize production. The third highlights how knowledge spillovers from companies and universities lead to spin-offs that exploit innovations.
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Wright2000
1. Entrepreneurial Growth through Privatization: The Upside of Management Buyouts
Author(s): Mike Wright, Robert E. Hoskisson, Lowell W. Busenitz, Jay Dial
Source: The Academy of Management Review, Vol. 25, No. 3 (Jul., 2000), pp. 591-601
Published by: Academy of Management
Stable URL: http://www.jstor.org/stable/259312
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2. Academy of Management Review
2000, Vol. 25, No. 3, 591-601.
ENTREPRENEURIALGROWTHTHROUGH
PRIVATIZATION:THEUPSIDEOF
MANAGEMENTBUYOUTS
MIKEWRIGHT
University of Nottingham
ROBERTE. HOSKISSON
LOWELLW. BUSENITZ
University of Oklahoma
JAYDIAL
Case Western Reserve University
We examine the upside potential of privatization of both publicly traded firms and
state-owned enterprises through the lens of agency and entrepreneurial cognition
theory. In addition to managerial incentives, we argue that significant entrepreneur-
ial progress is made through a cognitive shift from a managerial to an entrepreneurial
mindset. The two perspectives provide a framework for understanding buyouts and
how managerial incentives and individual cognition, considered in tandem, effec-
tively expand managerial discretion and thereby stimulate upside growth.
In most academic treatments of buyouts, re-
searchers have focused on agency-based expla-
nations that limit managerial discretion to cre-
ate gains through a focus on efficiency (Jensen,
1989). Although applications of managerial and
behavioral perspectives have been limited (see
Fox & Marcus, 1992, for an exception), we use an
entrepreneurial cognition perspective in this ar-
ticle to explain how managerial discretion can
lead to upside growth in buyouts.
Buyouts cover a variety of closely related or-
ganizational forms, in which a group of individ-
uals or investors (as opposed to publicly owned
entities) attains significant equity ownership in
an enterprise. The sale of state and local
government-owned enterprises, ultimately
based on disappointment with their perfor-
mance (Megginson, Nash, & van Randenborgh,
1994), is representative of a growing trend to-
ward privatization buyouts and also represents
an increasingly common conduit for change and
entrepreneurial pursuits (Filatotchev, Wright,
Buck, & Zhukov, 1999). We argue that buyout
enterprises, restricted by political and other or-
ganizational constraints, may generate perfor-
mance improvements in three main ways: by
enhancing efficiency, by catching up with in-
dustry-wide innovations, and by exploiting new
and radical innovations. These three rationales
are inherent in the model that we develop in
Table 1 and in the arguments that follow.
MODELDEVELOPMENT
The interrelated theories of agency and prop-
erty rights have application for both the private
(Demsetz, 1967; Jensen & Meckling, 1976) and
public sectors (Andrews & Dowling, 1998;Uhlen-
bruck & De Castro, 1998).1They emphasize the
importance of incentives for efficiency (Kaplan,
1989;Phan & Hill, 1995),and even catch-up inno-
vation or revitalization (Holmstrom, 1989), but
that such incentives are also limited. Further-
more, many buyouts across the global land-
scape have gone beyond efficiency incentives to
become a vehicle for entrepreneurial initiatives
and the expansion of managerial discretion
We thank Hicheon Kim, Bill Wan, three anonymous re-
viewers, and Isabel Gutierrez for their comments on an ear-
lier draft of this article.
'Andrews and Dowling (1998) argue that the public at
large can be seen as the principal and managers as the
agents in state-owned enterprises and that, since the public
has little motivation or power to influence the way a state-
owned enterprise is managed, management may be rela-
tively unconstrained in pursuing its own interests.
591
3. 592 Academy of Management Review July
TABLE1
Incentives and Cognition in Buyouts
Individual Cognition
Managerial Incentives Managerial Cognition Entrepreneurial Cognition
Managerial incentives Quadrant 1: Efficiency-oriented buyout Quadrant 4: Buyout failure
directed toward
efficiency gains Buyout attributes: Combine ownership and Buyout attributes: Financial incentives reward
management to align incentives with efficiency gains, but managers with
productiveness gains in buyouts in need entrepreneurial cognition have innovative
of efficiency gains. skills. Buyout failure is the likely result.
Decision mode: Limit managerial discretion. Decision mode: Expand managerial discretion.
Monetary incentives. Heuristic-based decisions-
representativeness.
Managerial incentives Quadrant 2: Revitalization buyout Quadrant 3: Entrepreneurial buyout
to foster strategic
innovation Buyout attributes: Process and imitation Buyout attributes: Strategic innovation
innovations complement an efficiency emerges because high-powered incentives
focus. After a season of neglect, newly and discretion are given to owner/managers.
privatized firms adapt various incremental Managers with heuristic-based logic pursue
innovations in pursuit of revitalization. radical strategic innovation.
Decision mode: With management and Decision mode: Expand managerial discretion.
ownership aligned, long-term incentives Heuristic-based decisions-
encourage innovation and some representativeness. Long-term monetary
managerial discretion. incentives.
(Zahra, 1995). Accordingly, we propose that sig-
nificant strategic innovations often emerge in
buyouts with a change in managerial mindset.
If there are fundamental differences in the
way buyout managers think and make deci-
sions, these differences might represent sources
of advantage. For example, because it may be
difficult to shift from a managerial to an entre-
preneurial cognitive mindset, the cognitive ap-
proach may represent a source of sustained
competitive advantage (Barney, 1991).2 Alterna-
tively, if the wrong cognitive approach is in
place, "core rigidity" or sustained competitive
disadvantage may occur (Leonard-Barton, 1992).
By recognizing that strategic decisions can ef-
fectively involve heuristics, we point to a possi-
ble connection between cognitive theories of de-
cision making, strategic management, and
buyout performance.
The term heuristics refers to simplifying strat-
egies that individuals (entrepreneurial manag-
ers in this case) use to make strategic decisions,
especially in complex situations where less
complete or uncertain information is available.
Entrepreneurial cognition refers to the more ex-
tensive use of heuristics and individual beliefs
that impact decision making. Managerial cogni-
tion refers to more systematic decision making,
in which management uses accountability and
compensation schemes, the structural coordina-
tion of business activities across various units,
and quantifiable budgets to justify future devel-
opments.
We build a new model to explain incentive
differences from agency theory (short term ver-
sus long term) and describe how fundamental
differences in individual cognitive orientation
(managerial versus entrepreneurial) can be
combined to explain different strategic buyout
attributes. Rooted in cognitive psychology, en-
trepreneurial cognition (Baron, 1998; Busenitz &
Lau, 1996) indicates that strategic decisions are
significantly influenced by individual heuristics
and that an understanding of strategic decision
making is significantly limited without atten-
tion to these cognitive processes (Hitt & Tyler,
2 Our assumption here is that individual differences do
exist and that these differences generally make it difficult
for decision makers to alter their decision mode (systematic
versus the heuristic mode in this article). Although opinions
differ on this issue, in recent empirical work Hitt and Tyler
(1991) and Wally and Baum (1994) found that individual dif-
ferences among decision makers affect strategic decision-
making activities.
4. 2000 Wright, Hoskisson, Busenitz, and Dial 593
1991). This has particular implications for entre-
preneurs, because they regularly find them-
selves in situations that tend to maximize the
potential impact of various heuristics (Baron,
1998).
When probing these cognitive processes, it
is important first to understand the utility of
such decision making. Entrepreneurs typically
operate under the conditions of decision un-
certainty and decision complexity. Given the
level of uncertainty they face, entrepreneurs
frequently use heuristics to piece together lim-
ited information to make decisions in the face
of much turbulence. Without heuristic-based
logic, the pursuit of new opportunities be-
comes too overwhelming and costly for those
decision makers who seek a more factual
base. The decision-making contexts entrepre-
neurs face also tend to be more complex. With-
out the elaborate policies, procedural rou-
tines, and structural mechanisms common to
established organizations, heuristics may be
quite useful in enabling entrepreneurs to
make decisions that exploit brief windows of
opportunity (Hambrick & Crozier, 1985; Tversky
& Kahneman, 1974).
There also may be an important link between
the use of decision heuristics and learning in
the entrepreneurship context. Central to most
models of learning is the issue of achieving new
understandings, interpretations, and insights
(Daft & Weick, 1984). Sources of competitive ad-
vantage are also thought to evolve around
knowledge creation and decision-making capa-
bilities (Barney, 1991). Lower-level learning
tends to follow the more rational model, with a
focus on repetitious observations and routinized
learning. Such learning tends to be short term
and temporary (Fiol &Lyles, 1985).There are few
changes in underlying policies or values (Argy-
ris, 1983), which is consistent with the notion of
single-loop learning. These learning modes
tend to be slower and more imitable (Lei, Hitt, &
Bettis, 1996), in part because decision makers
usually wait on results from repeated outcomes
of success or failure to reach their decisions.
Higher-level learning involves the formation
and use of heuristics to generate new insights
into unsolved problems and opportunities (Lei et
al., 1996). Although heuristic-based logic may
use less information and be less accurate, use of
individual-specific clusters of knowledge facili-
tates quick adjustments to emerging trends
(Krabuanrat & Phelps, 1998). For example, deci-
sion makers can integrate new information with
their heuristic-based logic to make inferences
and adjust evolving innovations (Daft & Weick,
1984; Lei et al., 1996). We suggest that faster
learning is enhanced by the more extensive
use of heuristic-based decision making. Such
higher-level learning also tends to produce
specialization (Levitt & March, 1988) and some-
times a unique understanding of an entrepre-
neurial situation, which may be a source of com-
petitive advantage, because high specialization
is more likely to result in successful outcomes in
rapidly changing environments (Lei et al., 1996).
In sum, we contend that entrepreneurs use a
heuristic-based approach to decision making
more extensively, and this enables them to
make sense out of uncertain and complex situ-
ations more quickly, often leading to faster
learning and unorthodox interpretations (inno-
vations). The more extensive use of heuristics by
entrepreneurs allows them to navigate more
readily through a wide array of problems and
irregularities inherent in the development of
new opportunities.
The different assumptions of our entrepre-
neurial cognition approach, including individ-
ual behavior, role of managerial ownership,
managerial decision situation, view of risk, in-
formation, and innovation are shown in Table 2.
We also compare and contrast these assump-
tions with those of agency theory. The agency
cost and the entrepreneurial cognition perspec-
tives developed here each offer important in-
sights for understanding why different types of
buyouts have emerged in many international
locations.
Accordingly, we now develop each quadrant
of the model in Table 1, using both agency the-
ory and entrepreneurial cognition in a comple-
mentary manner to specify different buyout at-
tributes and the associated managerial decision
modes and incentives that fit the strategic buy-
out purpose. This creates a framework for under-
standing why different buyout attributes have
emerged globally and how to better manage
them.
Efficiency-Oriented Buyouts (Quadrant 1)
Buyout attributes. Proponents of the agency
cost approach as applied to buyouts hitherto
have largely focused upon reducing the prob-
5. 594 Academy of Management Review July
TABLE2
Entrepreneurial Cognition and Agency Theory Comparisons
Attributes Entrepreneurial Cognition Agency Theorya
View of individual Individual behavior is heuristic based. Managers respond only to monetary incentives.
behavior
Role of managerial Firm ownership facilitates exploitation of Ownership and management are combined to
ownership entrepreneurial skills. align incentives.
Managerial decision Heuristics are used to quickly interpret With efficiency as the effectiveness criteria,
situation the complex and changing business decisions are based largely on quantifiable
environment to detect emerging trends. information and corporate procedures.
View of risk Risk concerns are overruled by Individuals are risk averse.
opportunity recognition.
Information Strategic information, unavailable in the Information is a purchasable commodity.
marketplace, emerges from experience
and heuristic-based logic.
Innovation Heuristic-based reasoning complements With some long-term incentives, implemented
entrepreneurial learning, which leads to innovations tend to be incremental and imitated
evolution of radical innovations. from competitors.
a
Adapted from Eisenhardt (1989: 59, Table 1).
lems of overdiversification, overinvestment, and
insufficient accountability that result from the
misalignment of management incentives and
weak monitoring in mature industries with sub-
stantial free cash flows (Jensen, 1989).More con-
centrated ownership, stricter governance, and a
more efficient incentive scheme can effectively
mitigate the downside problems that plague
mature firms when costs become inflated. How-
ever, firms that are focused on efficiency moves
are very likely to further decrease their R&D
intensity from what is already a low base (Long
& Ravenscraft, 1993).In these buyouts the share-
holder value creation more appropriately might
be termed the prevention of value destruction
from overinvestment in mature or declining in-
dustries. Here, the expectation is that financial
leverage will be quite high, acting as a limit on
managerial discretion.
In centrally planned economies, such as that
of the former Soviet system, strategic decisions
generally were made at the center, by the min-
istries, with management carrying out only rou-
tine, planned operations (Pelikan, 1987).Many of
the so-called Red Directors of the former Soviet
system tended to be all powerful within their
enterprises (Puffer, 1994), but the perverse na-
ture of incentives and the inflexibility of central
planning procedures typically led to valuable
inputs being converted into finished goods of
low value (Filatotchev et al., 1999).
However, a privatization buyout, either
through a purchase with debt finance, as in
Hungary (Karsai & Wright, 1994), or through
vouchers, as in Russia (Filatotchev, Hoskisson,
Buck, & Wright, 1996), has facilitated the imple-
mentation of incentive and control mechanisms,
which has increased the probability of a more
viable organizational existence. For example,
the foreign trade company Transelektro
Kereskedelmi (specializing in the management
of foreign construction consortia) was bought
out from the Hungarian government in 1992 for
HUF 800 million. Fourteen managers obtained 72
percent of the equity, and 144 of the 400 employ-
ees obtained 18 percent, with the remaining
ownership retained by the government. Some 75
percent of the purchase price was financed by
debt from two Hungarian banks over a 10-year
period, with interest payable from the start but
debt repayment beginning only 2 years after
buyout. The balance was paid in cash. The
firm's assets were used as collateral, and the
banks obtained informational and control rights
over the financial management of the company.
Since the buyout, the company has improved
efficiency by closing down loss-making busi-
nesses in Germany and Dubai and has focused
primarily on its core work in infrastructure
projects, such as Ganz-Roeck Boiler and Power
Equipment.
Decision mode. In this quadrant business
leaders with a managerial (versus entrepre-
neurial) cognition are likely to respond favor-
ably to the enhanced monetary incentives intro-
duced in a buyout (Jensen & Meckling, 1976).
6. 2000 Wright, Hoskisson, Busenitz, and Dial 595
Empirical studies indicate that efficiency-
oriented buyouts do increase operating perfor-
mance and cash flow (Kaplan, 1989). Although
management discretion in the pursuit of strate-
gic innovations is unlikely in this quadrant,
these buyouts generally occur in mature and
stable industries where a lack of innovation is
less prone to engender competitive disadvan-
tage. Here, the expectation is that financial le-
verage will remain fairly high.
Evidence from Hungarian privatization buy-
outs indicates that although management ob-
tained significant equity holdings, high levels of
debt provided relatively little discretion to make
investment decisions (Karsai & Wright, 1994).
Revitalization Buyouts (Quadrant 2)
Buyout attributes. Business entities often need
to pursue at least some level of innovation and
change for survival, but innovative activity usu-
ally is characterized by long time horizons, high
risk, unpredictability, labor intensity, and nu-
merous idiosyncratic factors (Holmstrom, 1989).
Holmstrom and Milgrom (1990) have shown how
limitations on discretion and incentive align-
ment can be used as substitutes, depending on
whether the loss of efficiency from restricted
managerial discretion is larger or smaller than
the cost of providing the right incentives. Fran-
cis and Smith (1995), however, have provided
evidence that innovation is difficult to accom-
plish through agency incentives and monitoring
and often too costly for diffuse ownership struc-
tures. This is particularly problematic in large,
integrated organizations, which often lack reli-
able performance measures because of in-
creased costs of obtaining information. This, in
turn, leads to bureaucratic measures to ensure
performance. However, these contractual and
bureaucratic arrangements tend to be un-
friendly toward major innovative efforts, since
they restrict experimentation (Francis & Smith,
1995; Holmstrom, 1989).
Similarly, Williamson (1985) tackled the issue
of integrated versus nonintegrated firms and
concluded that high-powered incentives and hy-
brid organizations are required for innovation.
Substituting debt for equity in a moderately
leveraged capital structure can help to con-
centrate ownership, thus creating potentially
higher-powered incentives with longer time
horizons.
These arguments suggest that independence
might be an important antecedent for innova-
tion, and we propose revitalization buyouts as
one organizational hybrid capable of innova-
tion. These buyouts are often directed at firms
with few recent improvements or upgrades, op-
erating at relatively inefficient levels. As shown
in Table 1, this situation provides a good match
for the "managerial cognition" archetype that
typically characterizes the leadership in these
types of buyouts, since bureaucratic measures
of performance are likely to screen out innova-
tive personalities (Holmstrom, 1989: 306). Rela-
tive to Quadrant 1, longer-term incentives are
emphasized, enabling these individuals to ac-
commodate incremental, revitalizing innovation
with long-term payoffs, as well as to meet cur-
rent cash flow demands (Sahlman, 1990).
Privatization by buyout of state-owned enter-
prises might provide the opportunity to intro-
duce improved incentives and control systems.
It also may break the link with ministries, avoid-
ing political interference in management's non-
routine decision making (Boycko, Shleifer, &
Vishny, 1993),and provide the opportunity to ad-
dress a need for revitalization. Consistent with
the overall decline in R&Dintensity that tends to
occur in leveraged buyout (LBO) firms (Long &
Ravenscraft, 1993), we predict that firms in this
quadrant will be frugal with R&D expenditure
but that the limited expenditures will be very
effective (Zahra, 1995).
Prior to the management-employee buyout in
1987, Unipart was the spare parts subsidiary of
the then U.K. state-owned Austin Rover. The ma-
jority of Unipart's sales were to the parent, and
growth and product development were held
back because of restrictions on investment by
the loss-making parent. Shortly after its buyout,
Unipart signed new long-term contracts with the
former parent, undertook investment in a new
parts delivery system, and developed a service
culture among equity-holding employees. In the
medium term, catch-up innovation involved
adoption of Japanese production methods and
the development of a worldwide customer base
that included Toyota and General Motors (GM).
The company remains an independent private
company with a well-articulated focus on the
longer term.
Decision mode. This quadrant extends previ-
ous applications of agency theory to buyouts to
include cases where some degree of innovation
7. 596 Academy of Management Review July
is required. Revitalizing innovation based on a
managerial cognition orientation is most appro-
priate for firms in this quadrant, where manag-
ers need to evaluate and implement innovative
approaches to determine whether to implement
them. Such managers tend to be good at system-
atically evaluating and overseeing specific in-
novations for their financial value to the entire
business.
In going beyond pure efficiency buyouts, the
challenge of this quadrant is to have individu-
als with a managerial cognition orientation as
buyout owner/managers and then to implement
rewards for effective short-term cash flows and
long-term monetary incentives that foster pru-
dent investments in innovation. Usually, these
buyouts have somewhat less leverage and more
equity than those in Quadrant 1 providing more
flexibility.
Entrepreneurial Buyouts (Quadrant 3)
Buyout attributes. Buyouts generally have
been associated with efficiency gains and de-
creases in R&D intensity, but there is evidence
that strategic innovation and R&D intensity are
central to many privatized firms (Wright, Hos-
kisson, Filatotchev, & Buck, 1998; Zahra, 1995).
Long and Ravenscraft (1993) found that R&D-
intensive LBOs outperformed both their non-
LBO industry peers and other LBOs without R&D
expenditures. Given all the agency costs asso-
ciated with innovation, high concentrations of
management ownership become an important
way of encouraging and governing R&Dactivity
(Francis & Smith, 1995). Where major innovation
opportunities exist, however, performance gains
are more likely to result from management with
superior and idiosyncratic skills (Castanias &
Helfat, 1991). Consequently, managers with
more traditional managerial cognition orienta-
tions might be unable to take advantage, even
with enhanced incentives.
In the LBO literature one finds remarkably
little attention given to the entrepreneurial side
of buyouts, in part because of the central em-
phasis of agency theory on managerial incen-
tives. However, we argue that there is also a
need to consider the cognitive skills of the indi-
vidual managers. The heuristic-based logic em-
ployed by entrepreneurial managers facilitates
fresh learning perspectives and decision-
making ability under great uncertainty and am-
biguity. The success of entrepreneurial buyouts
at facilitating entrepreneurial decision modes
(relative to larger organizations attempting to
promote corporate entrepreneurship) results
from high-powered ownership incentives that
encourage risk taking and long-term rewards in
combination with heuristic-based logic, which
nurtures the innovation process.
Management buyouts of divisions of both pri-
vate and public sector corporations often take
place because the infrastructure and informa-
tion-processing capabilities of a diversified firm
are too limiting to allow recognition and exploi-
tation of most entrepreneurial opportunities that
emerge (Hill & Pickering, 1986). Evidence from
over two hundred private and public sector di-
vestments of high-technology divisions indi-
cates that (1) buyout companies were often
non-core businesses, (2) the parent did not un-
derstand the technology, (3) managers sought
autonomy in order to develop their own strategy,
and (4) managers sought to earn greater remu-
neration away from the parents' constrained
system (Robbie, Wright, & Albrighton, 1999).
Istel's public sector privatization from the
highly cash-constrained automobile producer
Austin Rover is instructive (Wright, Thompson, &
Robbie, 1993).Prior to buyout, Istel was regarded
as peripheral to the main automobile-producing
activities of the parent, and prebuyout sales
were focused primarily on a narrow range of
computer services, with cash constraints on the
loss-making parent restricting the ability of the
management of Istel to exploit growth opportu-
nities. The buyout enabled the management to
become a global competitor in advanced tele-
communication services, electronic document
interchange, and factory automation, based on
the company's data communications network In-
fotrac. The radically different market conditions
in which the Istel buyout operated strongly sug-
gest that it was not possible to quantify all the
relevant information before making the decision
to develop these new products. This, in turn,
suggests that an entrepreneurial cognition ap-
proach was operating in the Istel situation.
As in Quadrant 2, substituting debt for equity
helps facilitate incentives by concentrating
ownership. However, leverage likely will be
lower here than in either Quadrant 1 or 2 so that
debt does not crowd out entrepreneurial or in-
novative opportunities or unduly constrain R&D
investments.
8. 2000 Wright, Hoskisson, Busenitz, and Dial 597
Decision mode. In corporate settings manag-
ers with an entrepreneurship orientation are
likely to become frustrated with a bureaucratic
corporate structure and its stifling attitude to-
ward innovations and renewal (Busenitz & Bar-
ney, 1997). When proposals for new ventures are
presented, corporate managers regularly reject
them because of the lack of quantifiable infor-
mation and because the information available
does not fit into formal corporate decision-
making procedures.
One heuristic that might be both particularly
salient and prevalent among entrepreneurs is
representativeness (Busenitz & Barney, 1997).
Representativeness occurs when decision mak-
ers are willing to make judgments about a given
phenomenon based on an available cluster of
information or based on a small, nonrandom
sample (Tversky &Kahneman, 1974).This type of
reasoning typically results in a satisficing
rather than optimal solution that emerges from
rational reasoning and the gathering of large
amounts of relevant data over time (Krabuanrat
& Phelps, 1998). Decision makers using heuris-
tic-based logic will tend to link relevant experi-
ences and personal decision rules quickly to
reach a specific decision regarding the new
problem or opportunities. If the initial decision
solution is rejected, other alternatives will be
developed, facilitating a rapid learning process.
Evidence indicates that severing ties with the
corporate infrastructure through an entrepre-
neurial buyout usually increases buyout man-
agers' flexibility to initiate innovations and
growth opportunities more freely, with potential
long-term rewards (Burgelman, 1995; Wright,
Thompson, Chiplin, & Robbie, 1991). Risk con-
cerns about new ideas and innovations tend to
be overruled because of the opportunity manag-
ers' recognized initially. In essence, entrepre-
neurial buyout managers have expanded dis-
cretion to fund those creative ideas they
perceive have the greatest long-term payoff,
well before solid quantitative data is available
to support the project. Such decision making
also might facilitate speed that is often crucial
to success in entrepreneurial situations.
Buyout Failures (Quadrant 4): Buyout Attributes
Quadrant 4 represents a mismatch that, if im-
plemented, likely would lead to buyout failure.
Entrepreneurial managers want to undertake a
buyout and have the skill set to pursue strategic
innovations; the incentive system imposed by a
system directed at efficiency, however, severely
restricts most creative pursuits of the entrepre-
neurial managers (Ghoshal & Moran, 1996). Ac-
cordingly, the misalignment of an entrepreneur-
ial cognition orientation and agency incentives
creates a high probability of failure. Managers
might be entrepreneurial in applying efficiency,
but these issues are fully covered in Quadrants
1 and 2.
DISCUSSION
In this article we have attempted to explain
more fully the strategic rationales associated
with buyout privatizations by using a matrix of
buyout attributes that both extends previous
application of agency theory to buyouts
(Quadrant 2) and widens the conceptual bases
beyond agency cost explanations to include
an entrepreneurial cognition view (Quadrant
3). The outcomes of heuristic-based logic in
entrepreneurial buyouts may have both up-
side and downside implications for policy
makers and managers.
Heuristic-based logic in decision making is
very economical and usually provides valu-
able estimations of the entrepreneurial deci-
sions (Tversky & Kahneman, 1974), especially
because of the scarcity of quantifiable infor-
mation available for a more rational decision.
It is virtually impossible to undertake an
entrepreneurial endeavor without some confi-
dence in heuristic-based logic. From an
agency point of view, the data are too costly
(see Table 2). The use of heuristics also can
provide the impetus for the venture to press
forward after the "go" decision has been
made. Failing to gather comprehensive infor-
mation can lead to errors, but acting on avail-
able information and heuristic-based infer-
ences allows decision makers to learn and
move ahead with perceived opportunities
quickly.
Of course, in the face of uncertainty and am-
biguity, a heuristic-based logic may lead to bad
decisions in privatizations as well. Entrepre-
neurial managers might make incorrect judg-
ments about where the future of their firm and a
given industry lies. Sometimes, heuristics lead
to severe errors (Tversky & Kahneman, 1974),
and errors in the case of privatization could
9. 598 Academy of Management Review July
likely lead to firm failure (see the case of Coated
Electrodes in Wright et al., 1991). Policy makers
and managers need to consider when heuristic-
based decision making leads to competitive ad-
vantage and disadvantage. In addition, they
may need to identify particular types of incen-
tives with particular buyout attributes and deci-
sion modes associated with each quadrant. For
instance, we might expect to see monetary in-
centives based on cash-flow targets character-
ize Quadrant 1, whereas Quadrants 2 and 3
might include a mixture of equity ownership to
enhance a long-term perspective and monetary
incentives based on sales growth, reflecting the
upside opportunities. Quadrant 2 reflects short-
er-term, incremental revitalization efforts,
whereas Quadrant 3's equity incentives would
be more consistent with the riskier, longer- term
payoffs characteristic of entrepreneurial ventures.
In order to aid policy makers and managers,
further examination is needed in which re-
searchers compare the performance of buyouts
in the different quadrants and also link this to a
buyout manager's cognitive orientation. We also
need additional research regarding how spe-
cialized incentives might be different among the
various quadrants in order to facilitate the ac-
complishment of a buyout's strategic intent.
There are also implications for policy mak-
ers and managers with respect to the condi-
tions under which a move from one quadrant
to another may be more appropriate and how
such a move may be effected. First, consider
privatization buyouts in Central and Eastern
Europe. Individuals with more managerial
cognition skills might be expected to focus
their attention on ensuring the economic via-
bility of the enterprise through cost control
measures and more routine catching up
(Quadrant 1). This "shallow restructuring"
may be appropriate in the short term, but more
radical innovation ("deep restructuring"; Euro-
pean Bank for Reconstruction and Develop-
ment [EBRD], 1997: 76) might be necessary in
the long term, requiring either long-term in-
centives for revitalizing innovation (a move to
Quadrant 2) or heuristic-based logic (a move to
Quadrant 3). Without active investor outside
blockholders or an urgent need to receive out-
side financing (both of which may arise in
Central and Eastern Europe), however, man-
agers (and employees) with significant organ-
izational property rights might engage in
entrenchment behavior at the expense of effi-
ciency improvements. This problem may be
exacerbated by weak bankruptcy legislation
that enables unviable enterprises to remain in
business (EBRD, 1997).
Second, the possibility of buyout failure rep-
resented by Quadrant 4 also raises important
implications. In principle, no buyout type should
fit this quadrant. In the typical buyout environ-
ment of asymmetric information, however, and
where managers have not been running the
business as owner-managers, mismatches may
arise and buyouts may be completed. LBOasso-
ciations and private equity investors might at-
tempt to undertake appropriate screening of po-
tential investees and their management, but in
such circumstances this might be imperfect
(Robbie &Wright, 1995).In order to avoid failure,
investors either may attempt to tightly monitor
management with entrepreneurial cognition at-
tributes or replace them with individuals who
have the managerial cognition attributes. In this
way effort is expended to shift the situation to
Quadrant 1.Alternatively, where there is a need
to undertake strategic innovation (a shift to
Quadrant 3), management may exert pressure to
refinance the buyout to allow this to happen, or
it may be necessary to introduce new manage-
ment with an entrepreneurial cognition perspec-
tive.
Third, in public sector cases, incumbent
managers may not be able to exploit entrepre-
neurial opportunities. In many privatizations
it may be best to change senior management
by creating a management buy-in or investor-
led buyout. These arrangements, combining
ownership, an entrepreneurial orientation,
and more professional management, can lead
to more constructive outcomes, helping to take
the firm to more advanced stages of growth.
This suggests a change from Quadrant 1 to
Quadrant 2, if managers with a traditional
cognitive orientation are brought in from the
outside. More radical change to Quadrant 3
may be possible if managers with an entrepre-
neurial orientation are employed. A move to
Quadrant 2 and 3 may be more difficult, how-
ever, because outside managers do not have
the strategic understanding of incumbent
managers (Baysinger & Hoskisson, 1990). For
researchers, there is a need to examine when
a combination of incumbent and outside man-
agers creates an appropriate mindset that
10. 2000 Wright, Hoskisson, Busenitz, and Dial 599
might prove fruitful for understanding success
of public sector buyouts.
Finally, an important empirical issue is
whether there are significant differences in
the financing and governance structures of the
buyouts in the four quadrants. As we have
suggested, buyouts focusing on efficiency
(Quadrants 1 and 2) may tend to have higher
levels of debt, whereas we expect higher eq-
uity levels in buyouts emphasizing long-term
strategic thinking and innovation (Quadrant
3). Although this inverse relationship has not
been directly tested, Long and Ravenscraft
(1993) found a decline in R&D following an
LBO, but LBOs with high levels of R&D may
actually experience an increase in R&D fol-
lowing an LBO. Robbie et al. (1999) have found
that high-tech buyouts make slightly less use
of senior debt and correspondingly more use
of subordinated debt than non-high-tech buy-
outs. In future research scholars should sys-
tematically examine this issue.
CONCLUSIONS
With our model we seek to provide a more
parsimonious explanation for both publicly
traded and public sector buyout privatizations
oriented toward a variety of strategic pur-
poses. In prior conceptualizations of buyouts,
researchers have focused primarily on limit-
ing managerial discretion, whereas in our ap-
proach we include rationales for buyouts that
expand managerial discretion to foster entre-
preneurial opportunity. To accomplish this, we
develop agency explanations along with those
of the cognitive approach. In so doing, we ar-
gue that significant entrepreneurial progress
is made not through managerial incentives
alone but through a cognitive shift from a
managerial to an entrepreneurial mindset. In
addition, we suggest that our model makes a
contribution to strategic management by illus-
trating how cognitive skills, which are hard to
change, may lead to competitive advantage or
disadvantage.
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Mike Wright is professor of financial studies and director of the Center for Manage-
ment Buy-out Research at the University of Nottingham Business School, England. He
is also a visiting professor at INSEAD and the University of Siena, Italy. His research
interests include management buyouts, venture capital, habitual entrepreneurs, uni-
versity technology transfer, corporate governance, and privatization in emerging
markets.
Robert E. Hoskisson holds the Rath Chair in Strategic Management at the University
of Oklahoma. He received his Ph.D. at the University of California at Irvine, with a
specialty in strategic management. His research interests focus on the strategic
management of large multinational firms, with a particular focus on acquisition and
restructuring and buyout activity, corporate governance, and innovation strategies.
He is also doing research on international strategic alliances and privatization and
restructuring programs in emerging economies.
12. 2000 Wright, Hoskisson, Busenitz, and Dial 601
Lowell W. Busenitz is associate professor of strategic management at the University of
Oklahoma. He received his Ph.D. in strategic management at Texas A&M University.
His research interests focus on strategic decision making, entrepreneurial cognition,
international entrepreneurship, and venture capital.
Jay Dial is assistant professor of management policy at the Weatherhead School of
Management, Case Western Reserve University. He received his DBA in business
policy from the Graduate School of Business Administration at Harvard University. His
current research interests include the relationship between ownership structure and
firm performance and corporate governance.