Costs of Resource Redeployment Strategy under Learning Effects for Diversified Firms

Abstract

Diversified firms may benefit from fungible resources because they can give firms flexibility to adapt to changing environmental conditions. However, the benefits of fungible resources could be limited by costs associated with their reallocation, and also by the opportunity costs of excess fungible resource capacity without a use. In this article, we use two types of learning mechanisms to identify the two different cost impacts on performance: learning by diversifying at the organization level and learning by resource usage at the level of a specific resource. Using data from the Brazilian film industry from 1995 to 2017, we find that the performance of diversified firms with non-scale-free fungible resources increases the higher level of learning by diversifying. Conversely, the higher the level of learning by resource usage, the lower the performance of diversified firms with these resources.