Decision-Making Autonomy and Divisional Effectiveness in Multibusiness Firms: From Contingency Perspective to Cultural Control Perspective

Abstract

Recent academic studies on diversification have argued that the HQ-divisional relations should differ accordingly in order to implement the firm's chosen strategy effectively. When examining the internal differentiation, scholars have adopted an economic and structural approach. That is, the appropriate HQ-divisional relation, particularly divisional autonomy, is determined by contingency variables: when a division is following a differentiation strategy, is facing a volatile environment, and is not sharing resource s with other divisions, the granting of autonomy will lead to improved divisional performance. However, costs and risks may also pertain to autonomy: loss of control, unnecessary and costly repetitions in every division, and insufficient transfer of best practice within the organization. Therefore, we argue that, in addition to autonomy, culture and shared values are important. Shared values create a sense of reciprocity within the organization and help match individual interests with organizational goals. With strong shared values the corporate center will be more willing to grant autonomy without the fear that its divisions will misbehave. Effectiveness thus should be determined by the interaction of autonomy, contingency variables, and shared values. By using the data collected via a questionnaire survey from the large diversified business groups in Taiwan, we provide statistical evidence that supports our predictions.