Prescriptive and descriptive perspectives on business unit structure and performance: The influence of business strategy, general manager, and external and intracorporate environments

The project of strategic management research includes the explanation and prediction of organizational performance (Hambrick, 1989). Hence it is to a large extent a prescriptive project. In particular, many researchers have advanced and empirically supported the proposition that, in the interests of economic performance, organizations should align their strategies and structures. A classic example is provided by Rumelt\u27s (1974) study of corporations. Rumelt\u27s classic study is based on a prescriptive structural contingency theory. It is prescriptive, in that it includes a recommendation, or prescription, to be followed in the interests of organizational performance. It is based on contingency theory, in that the prescription is one of fit between structure and a contingency variable (corporate strategy). However, not all theories of organizational structure are prescriptive. Others are descriptive, in that they offer explanation and prediction of what managers and organizations actually do, whether or not their actions improve organizational performance. For example, from the institutional perspective, organizations within a given field tend towards similarity, rather than towards efficiency (DiMaggio & Powell, 1983). This dissertation adopts and tests both prescriptive and descriptive perspectives. The research described here is to a large extent a generalization (Tsang and Kwan, 1999) of prior descriptive and prescriptive research. Its distinctive contribution to these streams of research is that its unit of analysis is different from those of prior studies. The unit of analysis of this dissertation is the business unit of the multibusiness corporation. Little prior research has taken as its unit of analysis the business unit. The paucity of research at this level is surprising in the light of the robust finding that a considerable proportion of variance in performance is due to business unit effects (Rumelt, 1991). Hence choice of this unit of analysis is consistent with strategic management\u27s performance-oriented project. Results from this study show positive association between the strategic variable of low cost and the structural variable of formalization. They further show a negative effect on performance associated with similarity amongst business units of the same corporation