Does break up lead to break down? Effects of parent and industry influences on spinoff firms
Founding research in the strategic management literature supports the argument that firm success is predicated upon fit between firm and environment (Lawrence & Lorsch, 1967; Ansoff, 1965). Likelihood of firm success increases when firms are able to match their own strengths and weaknesses to industry opportunities and threats (Porter, 1980). In addition, subunits within multibusiness organizations often face pressure to conform to parental norms and expectations. This duality often creates conflict, whereby subunits may be at odds with their industry peers.
Spinoff firms serve as an ideal laboratory in which to analyze the impact of parent and industry pressures on subunits towards strategic conformity. As wholly divested entities absolved of parental ties, spinoffs may adjust their strategic profiles to conform more closely to industry peers. The impetus, implications, and impact of such adjustment are the focus of this study.
Using a sample of 119 American spinoffs which took place from 1990-1995, we analyze questions regarding changes in spinoff strategy as a reflection of parent and industry requirements, as well as the implications of such change. Results show that at the time of the spinoff, spinoff firms had strategic profiles which were much more divergent from their industry than a set of match firms. Additionally, subunits which were strong relative to their parent conformed less to their parent and more to their industry prior to the spinoff. Strong performance also lowers the tendency to increase levels of conformity with the industry post-spinoff. We also find evidence that a third relationship, parent proximity to industry, is an important predictor of spinoff's tendency to increase levels of conformity after the spinoff. In addition, results show that continuity of the management team leads to greatest increases in conformity after the spinoff.
Taken together, these results suggest that multi-divisional firms often hamper subunit ability to adapt to industry requirements. Then, once the unit is released from the firm, its strategic actions to conform to industry norms are insufficient to ensure superior performance.