The Multibusiness Phenomenon beyond Conglomerates and Business Groups: A Corporate Management Perspective

Businesses and not multibusiness firms are the ones that compete. While each business needs its own competi- tive strategy, multibusiness firms require corporate management for capturing synergies. The competitive view has triggered the emergence of multiple businesses within a single firm. Despite this, it is common to find managers who are unaware of the benefits that joint management brings to the performance of a multibusiness company. Managing multibusiness firms implies facing a paradox: leveraging business uniqueness while creating joint value for the multi- business company. This paper characterizes the multibusiness phenomenon from the existence of ownership ties and coordinated actions, by qualitatively researching 21 Colombian multibusiness firms. It contributes to the managerial knowledge of these types of firms in two different ways: by identifying the multibusiness phenomenon in a variety of companies, and by highlighting the benefits of the joint management of a multibusiness firm.

The Effects of Relative Size, Profitability, and Growth on Corporate Capital Allocations

Resource allocation in firms is often done in relative terms. Allocations to each project or, in the case of multibusiness firms, business segments are not made independently but through comparisons among the options. In that context, it becomes particularly important to identify the organizational factors that might influence those processes, as well as the mechanisms that create that influence. In this article, we investigate one of those potential factors—the size of a business segment relative to the rest of the organization—and two possible accounts. One is a naive tendency to spread out allocations evenly over the firm’s segments that would cause managers to relatively ignore differences in size and favor smaller segments over larger ones, holding other variables constant. The second is a tendency to direct larger allocation to the segments with the most political power and clout within the organization, which would normally favor larger segments, as those generally possess more influence. We investigate these competing hypotheses in a cross-section of firms to conclude that both mechanisms are partially at play. We find that both the smallest and the largest of segments are favored in the capital allocation process. Moreover, we find that the segment’s growth and profitability as well as corporate management ownership of the company moderate those effects.

Bringing a Resource and Capability Lens to Resource Allocation

This article highlights a perspective that has been underexplored in resource allocation research. By viewing resource allocation through a resource and capability lens, three connections are developed between resource-based theories of strategy and strategy research on resource allocation. First, the lens is applied to frame capital investments as investing in capabilities. This framing provides a theoretical path connecting the strategic purpose of investments, through value creation from resource commitments, to the creation of competitive advantage. Second, resource allocation for the purpose of capability development is related to a resource-based model of asset accumulation. Placing resource allocation decisions in the context of capability development suggests that key features of the asset accumulation process can usefully inform research on the resource allocation process. Last, corporate capital allocation is connected to resource redeployment in multibusiness firms. This connection explicates ways in which corporate headquarters can add to firm value. These connections illustrate the potential that resource-based theories have to contribute insights to resource allocation research.