SDEIS Assistant Professor Joseph Cabral Uncovers a Link Between Internal Resource Allocation Processes and External Alliancing Activity

January 8, 2021


Joseph Cabral
                              Joseph Cabral

BATON ROUGE- Stephenson Department of Entrepreneurship and Information Systems Assistant Professor Joseph Cabral, along with co-authors Chaoqun Deng (Baruch College, CUNY) and Shyam Kumar (Rensselaer Polytechnic Institute), recently had a paper accepted for publication by the Journal of Management Studies titled "Internal Resource Allocation and External Alliance Activity of Diversified Firms."

In this study, the authors investigated and added nuance to traditional strategy concepts of diversification and alliancing activity. One of the early justifications of diversified organizations was the ability to share resources across business units. As a result, it is often taken for granted that diversifying into related industries where resources can be shared holds an advantage over diversifying into unrelated areas where the ability to share excess capacity is limited.

 While this makes a lot of sense, the authors suggest there is an often-overlooked cost with this decision, mainly that only one business unit can access resources at a time. On the one hand, unit managers could simply wait their turn or could develop their own resources, but the former can be detrimental when speed is imperative, and the latter removes much of the original benefit of diversification.

However, the authors proposed a third option: firms may look external to market-based solutions via alliances to get access to their needed resources. This challenges the implicit assumption that firms always ally when they lack an internal resource by pointing out that the resources may exist internally, but in some situations not all business units that need them can access or leverage them. In support of this view, the authors find that diversified firms form more alliances when compared to their single business counterparts. Second, and counter intuitively, this effect is more pronounced when units of the diversified firms have larger differences in their growth opportunities. Finally, using textual analysis of 10-K documents, the authors find that the effect is weakened when firms emphasize coordination and hierarchical control mechanisms as part of their operations. The study suggests a link between internal resource allocation processes and external alliancing activity, while highlighting that alliances may play an important role in how diversified firms manage the inefficiencies that arise within their firm boundaries.

The full study is available online here:  http://dx.doi.org/10.1111/joms.12570 

Consistently highly ranked in the Management category of the ISI Journal Citation Reports, the Journal of Management Studies (JMS) is a globally respected, multidisciplinary journal with a long-established history of excellence in management research. JMS publishes innovative empirical and conceptual articles which advance knowledge of management and organization broadly defined, in such fields as organization theory, organizational behavior, human resource management, strategy, international business, entrepreneurship, innovation and critical management studies. JMS has an inclusive ethos and is open to a wide range of methodological approaches and philosophical underpinnings.

About the Stephenson Department of Entrepreneurship and Information Systems

The Stephenson Department of Entrepreneurship and Information Systems at LSU’s E. J. Ourso College of Business combines teaching and research to create a rich learning experience for its students. Relationships with industry and state agencies enable the department to assist organizations with issues related to entrepreneurship, information systems, analytics and business intelligence, as well as innovation and technological change, and offer enhanced career opportunities for its graduates. Collaborative research efforts of its diverse faculty have resulted in major grants from the National Science Foundation and the state of Louisiana. For more information, visit lsu.edu/business/sdeis.

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Bridget Conrad
E. J. Ourso College of Business
225-578-4184
bconra2@lsu.edu