Organizational Contingency Theory Research Articles

How market orientation induces small business performance: The role of strategic fits

The purpose of this study is to shed light on how strategic fits between market orientation and the prospector strategy leads to higher performance of small businesses in Vietnam. This study draws from the contingency theory of organization to propose that strategic fits in small businesses represent by prospector strategy's mediating effects on the link between market orientation and these small businesses' performance. Data collected from 161 small businesses in Vietnam was examined. PLS-SEM was used to assess the research framework. The results reveal that the fit between market orientation and the prospector strategy, represented by the full mediating effects of this strategy, is essential to determine the performance improvement of small businesses in Vietnam. For the findings, this study provides some practical implications for small business owners in Vietnam. This study also contributes to the strategic management literature by providing empirical evidence, which suggests the strategic fits between prospector strategy and market orientation induces performance. This study also overcomes the limitations relating to the proposals of the analytic framework to assess strategic fits. Lastly, this study extends to strategic management literature by examining the role of strategic fit in small businesses' contexts.

Store Closings and Retailer Profitability: A Contingency Perspective

Retailers constantly face the decision of whether to close existing stores and/or to open new ones. Closing a store may reduce a retailer’s costs, while opening a new store may increase revenue. Thus, it is far from obvious which action yields the maximum profit. Furthermore, retailers need to align these store-by-store tactical decisions with their overall distribution strategies to achieve a superior performance. Using a sample of 157 public retailers from 1999 to 2015, this study examines how store closings and openings are associated with retailer profitability. To complement extant research, we construct a parsimonious measure that captures a retailer’s store management decision, namely, net store closings (NSC). Drawing on the contingency theory of organizations, we develop a comprehensive framework that studies the moderating roles of retailer competencies, retailer resources, and retail environment. Through panel fixed effects estimation, we identify ten contingent factors that significantly moderate the relationship between NSC and profit. Specifically, e-tail experience, total experience, receivables intensity, retailer innovativeness, industry e-tail prevalence, and industry concentration positively moderate the association between NSC and subsequent profitability, while inventory turnover, sales force intensity, capital intensity, and firm size negatively moderate this association. In addition, we explore how individual measures (i.e., store closings and store openings) are associated with retailer profitability and find consistent results. Anecdotal and statistical evidence indicates that NSC is a sufficient measure of store management actions. The study has important implications for how retailers should manage their channel distribution strategies and resource allocation decisions.

Weathering the Storm! The effects of the external environment on police efficiency in Peru

Purpose The purpose of this paper is to examine the effect of external factors on police efficiency in a sample of Peru’s municipalities. Drawing on the postulates of the contingency theory of organizations, this study argues that because of the public nature of police organizations’ activities, they are heavily influenced by the environment in which they operate, which invariably affects their efficiency. Design/methodology/approach The study examines police efficiency using a four-stage Data Envelopment Analysis model in a sample of 619 Peruvian municipalities (“distritos”). After adjusting the inputs to the external environment, the remaining inefficiencies are presumed to result from managerial issues and other internal organizational factors. Findings The results indicate that police efficiency improves after adjusting police inputs to the effect of external factors. The mean efficiency scores improved by 39 percent from 0.57 to 0.79. Because the effects of the external environment can be stronger in larger municipalities, these experience larger improvements in efficiency than smaller municipalities. Research limitations/implications There are two important limitations. First, the sample of municipalities in Peru is limited and the results must be interpreted with caution. In addition, the external factors included in the second stage analysis represent only a proportion of all potential external factors which can influence police efficiency. Second, the results presented here explain only one aspect of contingency theory. An important implication of this study suggests that for police managers to make more informed decisions on resource use and allocations, they need a more thorough understanding of the environments in which police operate. Social implications It can assist researchers to ascertain the effects of the external environment on police performance. More importantly, it can assist police managers in making informed decisions about resource use and allocation. Consequently, a better use of resources could lead to better policing and improved citizen safety and security. Originality/value This study introduces a new and innovative methodological approach to measure police performance. This multi-stage approach has not been used in the context of democratic policing in Latin America and the Caribbean. The current research fills an important gap on how to measure police performance in developing countries.

Consolidation of Police and Fire Services in the United States

More than 100 municipalities across the United States have consolidated their police, fire, and emergency medical services into a single, consolidated agency. Typical reasons for such consolidation are to reduce costs or improve efficiency. As initial reasons to consolidate change or diminish, some agencies have deconsolidated, but many remained consolidated. In this work, we use perspectives of contingency theory and institutional theory of organizations to explore why agencies may remain consolidated. Using a mixed-methods approach, we first recruited two expert panels of consolidated agency leaders and others knowledgeable about consolidation and deconsolidation across the United States. From these experts, we gathered insight into a broad range of issues related to public-safety consolidation. We then conducted a series of seven case studies among communities chosen for their location and community features, interviewing agency executives and line staff as well as local officials. We found contingency theory helps explain why many of these agencies consolidate. We also found, as institutional theory would predict, that many conformed to standards of other bodies or even created their own “cultural” standards. This work highlights the importance of both theoretical perspectives in assessing the growth and persistence of these agencies.

Determinants Of Ethical Climate In The Firm: The Role Of Governance Control Systems And Environmental Uncertainty

Corporate governance mechanisms essentially reside in the control structure/systems of most organizations and provide, theoretically at least, a conduit to support a better organizational ethical climate. This linkage, however, has seldom been portrayed this way in the literature and, correspondingly, there are virtually no empirical studies to offer increased understanding, especially with respect to the professional accountant in practice. Accordingly, this paper empirically assesses the governance mechanisms sanctioned by the International Federation of Accountants (2009) as determinants of an organizations ethical climate based on evidence from a Canadian sample of CFOs/controllers. The ethics/leadership literature relating to ethical climate provides the theoretical underpinnings while organizational contingency theory supports examining the moderating effects of perceived environmental uncertainty (PEU). Increases in corporate governance control mechanisms are found to positively influence ethical climate. A significant relationship persists under both low and high levels of PEU but, as expected, it is much stronger when the level of PEU is low which raises concerns about how to embrace a stronger ethical climate when uncertainty is high. This paper contributes to the governance and ethics literature by providing empirical evidence that normative directives on evaluating and improving governance in organizations from global accounting authorities, such as the IFAC, are effective in shaping firms ethical climates in practice.

Changing Organizational Designs and Performance Frontiers

This paper develops and tests a multilevel organizational contingency theory for designing headquarters–subsidiary relations. We use frontier analysis to overcome problems that have hampered advancements in organizational contingency theory in general and headquarters–subsidiary relationships in particular. Based on a longitudinal study of a large medical group practice of 32 local community clinics, we compute the relative distance of clinics from a best-performance frontier, determine what proportions of changes in clinic performance are due to factors that are endogenous or exogenous to the clinics, and examine the organizational factors that may explain these performance changes. We find that uniform headquarters policies have differing effects on the performance of subsidiary units, benefiting some and hindering others through no fault of their own. We also find significant performance volatility with different types of unit designs, suggesting the need to examine the risks of changing organization designs.

Using structural equation modelling for investigating the impact of e-business on ICT and non-ICT assets, processes and business performance

This paper investigates the impact of adopting an e-business strategy on two organizational characteristics which have gradually become highly important for organizations in the last 20 years, information and communication technology (ICT) assets and business processes, and also on a ‘traditional’ one, the non-ICT (regular) assets, and finally through them on business performance. Its theoretical foundations are the Contingency Theory of Organizations in combination with the Cobb-Douglas Production Function. Advanced quantitative techniques of structural equation modelling (SEM) have been employed, which allow the estimation of complex multi-layer models including mediator variables that are both dependent (i.e. affected by others) and independent (i.e. affecting some others) at the same time, and enable the investigation of complex networks of relationships. Firm-level data collected through a survey of 271 Greek firms have been used for estimating a SEM connecting the above variables. The results show that the adoption of e-business strategy by Greek firms leads to adaptation of their business processes, which has a positive impact on their business performance, but not to additional investment to ICT or non-ICT assets. In particular, e-business drives Greek firms’ processes adaptations aiming mainly to increase the non-hierarchical decentralized coordination within the firm, in order to cope with the higher task complexity and uncertainty that e-business gives rise to, and also to respond to the specific technical and operational requirements that this strategy poses.

Contingency theory of capacity planning: The link between process types and planning methods

Although the reliability of production plans is crucial for the performance of manufacturing organizations, most practitioners use considerably simpler planning methods than what is recommended in the operations management literature. This article employs the contingency theory of organizations to explain the gap between the practice and the academic models of production planning. Arguments on the contingency effects of process complexity lead to a hypothesis that expects simple capacity planning methods to be most effective in certain production processes. A strong inference research setting is used to test the contingency hypothesis against a conventional hypothesis that expects the most sophisticated planning techniques to always be most effective. Multisource data from the machinery manufacturing industry support the contingency hypothesis and reject the universalistic hypothesis. The findings are explained using the concepts of task interdependence and bounded rationality. The results have several managerial implications, and they elaborate how classic concepts in organization theory can bring practically relevant insights to operations management research.

Aligning Industrial Relations Risk, Budgetary Participation, and Budgeting Measures of Performance: Impact on Managerial Performance

While previous contingency studies in managerial accounting conceived environmental or contextual factors as affecting control systems design such as budgeting in terms of markets, technology, or task environment, not much prior empirical research considered the industrial relations environment as an important contextual factor affecting the design and functioning of organizational control systems. In this study, industrial relations is a type of organizational risk arising from industrial relations related actions such as employee work stoppages, actions of trade union officials, conflicts between trade unions, and linkage of trade unions with national political parties, which could be expected to play a significant role in an organization's control systems design and use. Using Lawrence and Lorsch's (1967) contingency theory of Organizations and Environment, we extend the contingency management accounting research literature by empirically assessing the performance consequences of the fit or alignment between industrial relations risk, budgetary participation, and budgetary measures of performance. More specifically, drawing from Drazin and Van de Ven's (1985) Alternative Forms of Fit in Contingency Theory this paper seeks to achieve two goals. First, we examine whether greater use of budgetary information for performance evaluation is likely to be dependent on the positive association between industrial relations risks and budgetary participation. Second, we assess whether managerial performance enhances when there is an alignment or fit between industrial relations risk, budgetary participation, and budget use. The results from a sample of 55 Australian coal mining companies provide strong support for the hypotheses developed. The results suggest that managerial performance improves with increasing use of budgets in performance evaluation under increased industrial relations risk only when there is a provision for high levels of employee budgetary participation. This study adds to the limited knowledge of the interaction of accounting and industrial relations in organizations.

Elaborating the Contingency Theory of Organizations: The Case of Manufacturing Flexibility Strategies

What determines which manufacturing flexibility strategies are feasible and which are not? In this paper, I build both theoretical and empirical understanding of task‐environmental contingencies that may either enable or constrain the selection of various flexibility strategies. The special emphasis is on the various plant‐level actions that are used to seek manufacturing flexibility. Demand uncertainty and variability, technology, and competitive strategy emerge as the most important contingencies, although not in ways that are immediately apparent. Finally, managerial implications at both the corporate as well as manufacturing unit levels are discussed.

Designing a New Organization at NASA: An Organization Design Process Using Simulation

The challenge for NASA’s Systems Analysis Integrated Discipline Team (SAIDT) is to develop a new organization design capable of performing complex modeling and analysis tasks, using team members at various NASA centers. The focus is on: (1) design as a process, (2) the effect of design tools on the process as well as alternative designs, (3) the fit between the tools and their fit with the organization, (4) the effect of an ongoing agencywide transformation, and (5) implications for organizational contingency theory.

The changing nature of the measurement of the economic impact of nursing care on health care organizations

This paper adapts the perspective of organizational contingency theory to consider the changing nature of how the economic impact of nursing care upon health care organizations is measured. It is argued that useful measures of the economic impact of nursing care are a function of environmental, organizational, and technological circumstances. The increasing and diverse demands of health care consumers (environmental), the dramatic restructuring and re-engineering of the health care delivery system (organizational), and recent developments in the capabilities of and insights from information measurement practices (technological), have all provided opportunities for more meaningful measurement of the contributions of nursing care to the economic well-being of health care organizations.

Interaction Value Analysis: When Structured Communication Benefits Organizations

We present a mathematical model that predicts and explains the circumstances under which a management-defined communication structure can add value to an organization. This model provides a game-theoretical basis for contingent organizational design by relating empirical observations of real organizations to the solution of a rational choice model based on game theory. We constructed a multiple-player, noncooperative game in which players have full knowledge of, and universal communication access to, each other. These players allocate the scarce resource of their attention among potential interaction partners. It struck us that this game sometimes did and sometimes did not have a “core,” i.e., a confluence of individual optima (Nash equilibrium) that was also optimal for the whole group. Some circumstances allow the best structure to emerge from many individual decisions, whereas other circumstances require the imposition of structured communication channels by a central decision maker. Strong management control of communication structure adds no value in business environments where the game has a “core” i.e., where a centrally imposed optimum would dictate the same communications patterns as those defined by the Nash equilibrium that emerges spontaneously when each participant optimizes locally. Trade in an ideal market is the iconic example of such environments. In our model, other combinations of conditions fail to yield a core, even though a single stable Nash equilibrium always exists. The difference between aggregate effectiveness at the Nash equilibrium and the maximal feasible aggregate effectiveness that could be centrally dictated is the value that management can provide through enforcing the globally optimum communication regime. The predictions of this simple model about the conditions that favor more- or less-structured communications agree surprisingly well with accepted organizational contingency theory. Our simple model thus provides a sound theoretical foundation for many aspects of contingent organizational design.

Erratum: Return on Assets Loss from Situational and Contingency Misfits

We develop a rule-based contingency misfit model and related hypotheses to test empirically the Burton and Obel (1998) multi contingency model for strategic organizational design. The model is a set of if-then misfit rules, in which misfits lead to a loss in performance; they are complements to the strategy and organizational contingency theory fit rules. Using data from 224 small- and medium-sized Danish firms, misfits are categorized and identified. Then, performance hypotheses are developed and tested using regression models. We confirm the hypotheses that firms with situational misfits or contingency misfits, or both, incur performance losses in return on assets compared with firms with no misfits. Contrary to our hypotheses, we did not find that additional misfits lead to increased performance loss. Our results suggest that just one misfit of any kind may significantly compromise performance. These results yield a deeper understanding of organizational contingency theory, as well as implications for the rule-based fit-misfit organizational design model.

Return on Assets Loss from Situational and Contingency Misfits

We develop a rule-based contingency misfit model and related hypotheses to test empirically the Burton and Obel (1998) multi contingency model for strategic organizational design. The model is a set of “if-then” misfit rules, in which misfits lead to a loss in performance; they are complements to the strategy and organizational contingency theory fit rules. Using data from 224 small- and medium-sized Danish firms, misfits are categorized and identified. Then, performance hypotheses are developed and tested using regression models. We confirm the hypotheses that firms with situational misfits or contingency misfits, or both, incur performance losses in return on assets compared with firms with no misfits. Contrary to our hypotheses, we did not find that additional misfits lead to increased performance loss. Our results suggest that just one misfit of any kind may significantly compromise performance. These results yield a deeper understanding of organizational contingency theory, as well as implications for the rule-based fit-misfit organizational design model.

OWNERSHIP ORGANIZATION AND FIRM PERFORMANCE

▪ Abstract This essay reviews research on the type and degree of fragmentation of firm ownership with an emphasis on the consequences of ownership organization for firm performance. We use a property rights approach to synthesize sociological, organizational, legal, and economic research that has examined the effect of ownership organization on firm performance. Agency theorists generally assume that shareholders are homogenous and that their influence on firm performance is directly proportional to the percentage of equity they hold. However, empirical research following this approach has failed to produce definitive evidence. Class analysis perspectives interpret these inconclusive results as demonstrating that, regardless of ownership organization, firms are run to serve the capitalist class. An alternative interpretation is that shareholders are not homogeneous but that certain types of shareholders use their formal authority, social influence, and expertise to “capture” property rights and strongly influence firm performance. The influence of different types of owners may depend on industry characteristics, and we review literature pointing to a contingency theory of ownership organization.

Beyond Mass Production: Competitive Transformation Trends in the US Textile Industry

This paper concludes our analysis of competitive business adaptation to the changing market dynamics in the US textile industry. We present a summary of modern manufacturing trends that describe the emerging paradigm of agile, intelligent production and the current ‘state-of-the-art’ in US textile manufacturing. The research results are based on a multiple-case study of advanced textile producers of fiber, yarn, fabric, and fabricated goods that have undergone strategic transformations for sustained market leadership. The complexity of modern manufacturing development is rationalized by using a holistic management approach based on systems thinking and the contingency theory of organization. Overall, the paper presents a textile-specific interpretation of the recent industrial shift beyond mass production, made possible by advanced application of information technology in support of innovative models of organization and operation. The research approach and conclusions contribute to the understanding of modern industry and organizational transformation, essential to both management practitioners and academics. The insights can be used across industry and national boundaries to guide systematic manufacturing change adapted to the new requirements for production and competition in the global marketplace.

Strategic compensation in South Korea's publicly traded firms

This strategic compensation model based on contingency theory of organizations proposes that a fit between the organization's business environment and compensation system will affect the firm's performance (Rockmore, 1991; Rockmore and Scarpello, 1994). This proposition was tested with a set of Korean sample data of seventy-five publicly traded companies within thirty-four three-digit Standard Industrial Classification codes. The cluster analysis applied to the 7-item task environment uncertainty components resulted in two group classifications that face relatively ‘more certain’ and ‘more uncertain’ environments. Principal component factor analysis of the 8-item compensation system components resulted in three compensation system factors and subsequent cluster analysis classified firm pay plans into two clusters, which we labelled ‘more traditional’ and ‘more innovative’. Discriminant analysis confirmed the resulting classifications of both task environment and compensation system types. With both ROA and EPS measures, significantly more ‘fits’ (firms in stable environment that use traditional compensation system or firms in uncertain environment that use innovative compensation system) showed financial gains compared with ‘nonfits’. This financial impact of the contingency was more salient for those firms that face uncertain environment. The same results were obtained when ANOVA was performed.

Dyadic Business Relationships and Customer Technologies

Based on the contingency theory of organization, a structural model of product exchange, inter firm social structure, inter firm adaptation, and relationship age in dyadic business relationships is formulated and analyzed with regard to different customer technologies. Relationships with unit and mass production technology customers are found to have similar structures, whereas process technology relationships are different.

Marketing in Turbulent Environments: Decision Processes and the Time-Sensitivity of Information

The authors study the relationship among information processing, marketing decisions, and performance in turbulent markets—i.e., markets in which the time-sensitivity of information is a major factor in decision making. Drawing on both organizational contingency theory and individual behavioral decision research, the authors suggest that successful performance depends on the congruence between the level of marketplace turbulence and the information-processing style and associated decisions adopted. They focus by way of example on the decision processes embodied in formal planning procedures. Using the results from an experiment conducted with a strategic marketing simulation game, they show that “planning” leads both to an underweighting of the time-sensitivity of marketplace information and toward a bias in favor of certain marketing decisions over others—decisions that, in this case, result in inferior performance in turbulent markets when compared with that of decision makers not engaged in formal planning. They discuss the implications of the findings for managerial behavior in turbulent markets.