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The Strategic Competitiveness of U.S. Firms in the Global Marketplace (1)

by Michael A. Hitt


In 1964, Xerox introduced the first commercial fax machine, but in 1989 it had only seven percent of U.S. fax sales. Japanese firms accounted for 67 percent of the U.S. fax market. Raytheon marketed the first microwave oven (called the Radar range) to restaurants in 1947 and sales exploded when it introduced a household version in 1967. However, today, 75 percent of the microwaves sold in the U.S. market are made in Pacific-Rim countries. During the decade of the 1980s, American auto manufacturers closed 13 assembly plants and many more have been closed in the early 1990s, mostly due to General Motors' restructuring. At the same time, Japanese firms built 11 new auto manufacturing plants in the United States .(2)

It is clear that many U.S. firms experienced a decline in their competitiveness during the 1980s. Indicative of the competitiveness problem faced by U.S. firms is the significant amount of restructuring observed in the late 1980s and continuing into the 1990s. For example, over the five-year period from 1987-1991, more than 85 percent of the Fortune 1000 firms initiated major restructuring. Many of these restructurings included downsizing, affecting more than 5 million jobs. In 1993, more than 615,000 employees were laid off and the trend continued at the rate of 3100 layoffs per day through the first six months of 1994. These layoffs affected employees at all levels of the organization, including professional, white collar and managerial employees. (3)

Most executives agree that U.S. firms face a global, competitive challenge of immense proportions. Surveys of 4,000 top executives and of opinion leaders -- economists, political leaders, and CEOs of large corporations -- suggested that a number of U.S. firms had suffered declines in their competitiveness and that the problems predated the 1980s. (4)

It is important to note that U.S. firms are beginning to make a comeback. For example, in recent years, U.S. productivity has markedly increased and U.S. firms have regained their leading position in key technologies. Wages and salaries, adjusted for inflation, increased three percent over the last three years -- the biggest sustained gain since the 1970s. Furthermore, corporate profits have increased dramatically in the last few years. The U. S. economy is changing, and the rules by which companies operate and employees work are significantly changing as well. (5) The primary reasons for these dramatic changes relate to the technological transformation and an increase in global competition. (6) The primary driver of technological change has been the significant developments in computerization. These developments provide opportunities for interactive networks and the flow of information from disparate locations. Increased computer capabilities and access by more people has changed the nature of work for different types of employees. In fact, the overall employed workforce is declining, while at the same time becoming more knowledgeable and highly educated. (7) Increasing global competition is easily observed in the product lines now available to the American consumer. In many industries, the products carry brand names that are manufactured and marketed by international firms. Furthermore, many firms have been acquired by foreign entities, and thus, what was considered a domestic firm may be controlled by a firm with its headquarters outside of the country. The purpose of this work is to delineate the basic problems encountered by U.S. firms in this transformation, and to present the solutions to those problems that can help ensure greater strategic competitiveness.

Competitiveness Problems

U.S. firms have experienced competitiveness problems for a multitude of reasons. Among those are over-diversification, over emphasis on mergers and acquisitions, use of extraordinary debt, lack of effective corporate governance, and over reliance on financial controls. (8)

During the 1960s and 1970s, many large firms followed a corporate strategy of diversifying their product lines, often into unrelated product markets. The diversification trend extended into the 1980s, but federal tax laws and guidelines on enforcement of antitrust laws changed such that there were incentives for firms to reduce their level of diversification. There were other reasons for high levels of diversification, as well. Among those were an interest in spreading the risk of the firm, managerial incentives to diversify, and the implementation of a multidivisional structure.

One of the most common reasons given for diversifying a firm's product lines is to reduce the firm's dependence on any one product. Obviously, if a firm depends heavily on any one product line, and the demand for that product declines, the firm will experience performance problems. However, if the firm diversifies its product lines and has some products where the demand remains high, it will experience fewer performance problems. Thus, diversifying the product line should reduce the firm's overall level of risk. Interestingly, research has not conclusively shown that diversified firms actually reduce their overall level of risk. Diversified firms may reduce certain types of risk, but increase other forms of risk. For example, bankruptcy risk resulting from increased debt to finance the diversification. (9)

Managers may also have special incentives to diversify a firm's product line. For example, while stockholders can reduce their investment risk by diversifying their investment portfolio, managers cannot diversify their employment risk with the firm. If a firm experiences performance declines, executives' risk of maintaining their employment is greatly increased. Therefore, top executives of the firm may prefer to diversify the firm's product lines to reduce their own employment risk. This is often referred to as an agency problem. (10) Furthermore, product diversification provides an easy way to promote growth and increase the size of the firm. Oftentimes, increasing the size of the firm is also in the manager's personal best interest. For example, research shows that firm size and executive compensation are positively related. Thus, managers who are able to increase the size of the firm are likely to receive higher compensation over time. (11)

It is common for firms that diversify their product lines to implement a multidivisional structure. In fact, the multidivisional structure has multiple benefits for managing diverse businesses, each organized around a different product line. For example, it allows decentralization of authority for operational decisions from corporate to division managers who have more expertise and information regarding such operations. According to Oliver Williamson, the multidivisional structure is efficient and promotes profit maximization by division managers. Williamson also suggests that such a structure establishes an internal capital market that reduces managerial opportunism. (12) However, other research suggests that the multidivisional structure is not as efficient as Williamson suggests -- that it may have some unintentional outcomes that are negative for a firm's performance. For example, such a structure has been found to promote a more short-term orientation. It has also been found that a multidivisional structure often promotes further diversification, and could lead to over diversification. (13)

If firms become over diversified, top executives find it difficult to employ strategic controls over divisional managers. (14) To employ strategic controls, requires that top executives understand the business operations and markets of each of the separate businesses or divisions. As firms become more diversified and develop more divisions, top executives cannot maintain their familiarity with each. As a result, they often begin emphasizing financial controls that, in turn, lead to a short-term orientation on the part of divisional managers. This is because financial controls often focus on the achievement of annual financial targets. Divisional managers can maximize short-term profits by reducing long-term investments. In these cases, although short-term profits are higher, firm performance may decline over the long term as competitiveness declines because of fewer new products and older plant and equipment. Therefore, some of the restructuring occurring in the late 1980s and 1990s may be due to over diversification. Firms are beginning to downscope -- divesting of diversified units -- and are strategically refocusing on their core businesses (15)

Mergers and acquisitions have been a popular corporate strategy for many years, but they were particularly popular in the 1980s. In fact, there were over 55,000 acquisitions in the 1980s, valued at just under two trillion dollars. In fact, almost 250 billion dollars alone were invested in acquisitions during 1988. (16) Many analysts argue that restructuring through acquisitions, some based on the market for corporate control, has led many corporations to operate more efficiently. However, there are multiple tradeoffs. First, most acquisitions create larger firms, unless all of the acquired assets are eventually sold off. While size can create some economies -- economies of scale in the purchase and manufacture of products -- mergers also create difficulties in the integration of the separate operations, particularly if they entail related products.

It is difficult to diversify by developing new, but unrelated products through internal research and development. It is often easier to enter a new market by purchasing a firm that is already operating in that market. Acquisitions, therefore, often produce increased diversification. Furthermore, many of the acquisitions, particularly in the 1980s, were financed largely through debt. Both increased diversification and debt have been found to be negatively related to investments in research and development. (17) In addition, managers spend much time and effort in making acquisitions. Because acquiring firms are often large and complex, and require much managerial attention, the acquisition process frequently produces inappropriate control systems and inadequate attention to the strategic management of the firm.

The 1980s evidenced a large amount of acquisition activity in the market. This included firms that were seeking growth through acquisition and other firms that were buying and selling -- operating as a portfolio of businesses. Recent research suggests, however, that firms able to avoid the market for corporate control were more innovative, investing more in R&D and introducing more new products to the market, than firms active in the market for corporate control (either as an acquirer or a target firm). This suggests that firms active in the market for corporate control may end up being more short-term oriented, making fewer long-term investments. As a result, these firms are likely to become less competitive over time.

As noted earlier, many of the acquisitions in the 1980s were financed largely through increased use of leverage. There are several reasons for this fact. First, changes in the tax laws increased the incentives to use debt, partially because such costs could be written off against taxes. Secondly, the use of debt as a means of disciplining and governing managers' potential opportunistic behavior became popular. (18) Third, the financing innovation referred to as junk bonds, also appeared on the scene. Junk bond financing made funds available to finance larger, more high-risk acquisitions.

While increased debt clearly disciplines managerial behavior, it also has a number of unintended consequences. (19) For example, it reduces managerial flexibility. One of the strongest concerns is that it lessens managerial investment in long-term projects. Particularly, extraordinary debt produces such high debt costs that firms have to use significant amounts of their cash flow to repay principal and interest costs, and they often have to reduce or eliminate investments in longer term projects. Over time, the lack of such investments has negative effects on the firm's ability to compete. Furthermore, extraordinary debt dramatically increases bankruptcy risk. In fact, a number of large and formerly successful firms have had to declare bankruptcy in recent years because of significant debt costs obtained in making acquisitions. Therefore, it is not uncommon for firms to restructure in order to reduce their debt costs.

One of the primary means of governing corporations is through the board of directors. However, as a whole, boards of directors have been ineffective in governing managerial actions. For example, beginning in the late 1970s, General Motors began to lose market share. In fact, in 1978, General Motors had over 50 percent of the U.S. automobile market. By 1993, 15 years later, General Motors had only approximately a third of this market. During this time, General Motors also experienced record losses, particularly in the early 1990s. There were no major actions taken by the board of directors, nor were there changes in top management, except for the normal retirement of top executives. Also, during this time, General Motors began an effort to diversify the firm. However, GM's poor performance led to the announcement of the closing of 21 plants and the laying off of approximately 74,000 employees. Finally, GM's board of directors took action and the CEO, Robert Stempel, resigned. Unfortunately, it took the board of directors almost 14 years before it took any major action.

There are several problems with boards of directors and their ability to control managerial actions. First, boards of directors are composed of inside and outside directors. The inside directors are officers in the company and report to the CEO. Thus, while they are knowledgeable about firm strategies and operations, they are unlikely to vote against major CEO initiatives. Furthermore, some outside board members owe allegiance to the CEO. For example, some outside board members may be family members, or employed by the firm, or they may have other connections to the CEO. In approximately two-thirds of major corporations in the U. S., the CEO holds the additional title of chairman of the board. As chairman, the CEO has input on appointments to the board, and in controlling the agenda of board meetings. In addition, independent outside board members often have little knowledge of the firm's operations and strategies, nor of the firm's markets or competitors. As a result, while outside board members may be more objective, they may have inadequate information on which to base decisions. Finally, it is not uncommon for outside board members to be CEOs of other major firms. This provides a bonding or fellowship with the CEO of the firm for which they serve as board member.

Boards of directors are becoming more active. There are at least two major reasons for their new assertiveness. First, institutional owners have become more active in asserting theirs and other stockholders' rights. As such, they have become more vocal in threatening to vote against directors' membership on the boards. In addition, stockholders' suits against company officers and board members have become more common in recent years. As a result, board members have become more active in overseeing the strategic management of corporations which they serve.

As noted earlier, as firms become more diversified, it is not uncommon for the top executives to emphasize financial controls over strategic controls. This is partly because they have inadequate knowledge and information on which to base strategic controls. An overemphasis on financial controls is often implemented through incentive compensation programs for top executives. Executive compensation influences managerial actions. If bonuses and other forms of incentive compensation are based more on short-term firm performance, managers are likely to emphasize strategic actions that maximize short-term performance. (20) Recent statistics emphasize some of the problems with executive compensation. For example, during the 1980s, average compensation for CEOs of U. S. firms increased by 212 percent. At the same time, increases for other employees of the firm averaged less than 100 percent. For the same time period, the average earnings per share of the Standard and Poor's top 500 companies increased by only 78 percent. While the average CEO's salary and bonus fell by seven percent in 1991 and by two percent in 1992, corporate profits fell by 18 percent and thousands of managers were laid off.

Financial controls are important, but there must be balance between financial and strategic controls. Furthermore, when financial controls are interrelated with incentive compensation, they should focus more strongly on long-term performance of the firm. It is important that managerial pay be linked to firm performance, but it should be balanced in terms of short- and long-term performance. Furthermore, divisional executives' pay should be linked, not only to divisional performance, but also to overall corporate performance to encourage them to cooperate and coordinate with other related divisions where synergy can be achieved. It is also important that control systems encourage appropriate risk taking -- not necessarily high-risk, but risk that ensures against a short-term orientation and risk aversion on the part of managers.

Overall, there are multiple reasons why U.S. firms' competitiveness declined during the 1980s. Furthermore, the decline in competitiveness has produced a significant amount of restructuring among U.S. firms in the late 1980s, and continuing up to the current time. Some of the restructuring will help U.S. firms become more strategically competitive. Following are some recommendations on what firms can do to become more strategically competitive in the global marketplace.

Solutions for Strategic Competitiveness

A number of U.S. firms have been restructuring in recent years because many have become less competitive and their performance has suffered. However, there are positive actions that can be taken to improve their competitive position and increase their performance. Among those actions are downscoping, appropriate use of debt, avoiding the market for corporate control, increasing international diversification, and exercising strategic leadership.

Perhaps, the most common form of restructuring in recent years has been that of downsizing. Downsizing refers to the reduction in the size of the firm by laying off employees. If firms are over diversified, downsizing will not solve the problem, and may harm a firm's ability to compete in global markets. Downscoping, or divesting businesses that are unrelated to the firm's core business, allows a strategic refocusing into areas where competitive advantage is sustainable in domestic and global markets.

Downscoping facilitates emphasis on innovation and entrepreneurial action. It can provide buffering and support for core competencies. It also allows the top executives to reinstitute strategic controls, and thereby maintain a better balance between the use of financial and strategic controls to manage. Refocusing on the core businesses reduces the information processing demands on the top corporate executives and focuses on areas for which they generally have a better working knowledge. As such, they are in a better position to exercise strategic leadership.

The re-emphasis on strategic controls should reduce managerial risk aversion among division managers and increase the emphasis placed on long-term investments. As such, managers at all levels will take a more long-range perspective and focus on creating a vision for the long-term health of the firm. Thus, emphasis on the short-term performance is lessened. Additionally, the emphasis on strategic controls, and the accompanying incentive compensation systems, facilitate coordination and cooperation among the highly-related businesses within the firm.

The use of debt can facilitate development and growth. In fact, many firms would not be able to develop and be competitive in global markets without appropriate use of leverage. Alternatively, in the 1980s, we experienced an explosion in the use of debt to finance strategic actions. This is particularly true in the financing of acquisitions. As such, a number of firms used extremely high leverage and obtained extraordinary debt. A number of these firms have, in turn, experienced performance difficulties.

High debt costs reduce managerial flexibility and long-term investments. Recent research has shown that some of the most effective acquisitions actually are able to use only a moderate amount of debt. Successful acquiring firms are able to finance acquisitions largely from other sources -- for example, by selling off lower-performing assets to quickly pay down the debt and maintain a moderate debt-to-equity ratio. Alternatively, research has shown that the use of extremely high debt may play a role in the lack of success of acquisitions. In fact, recent research found debt to play a role in the success or failure of acquisitions in approximately 88 percent of cases. (21)

The use of moderate debt allows the continued development of the firm without restrictions on the strategic flexibility. Therefore, a balanced use of debt allows managers to continue with other long-term investments, at the same time as continuing to develop the firm. Therefore, it is important that use of leverage be maintained at moderate levels to avoid extremely high debt costs, inappropriate bankruptcy risk, and to facilitate continued development of the firm.

As noted earlier, firms participating in the market for corporate acquisition tended to be less innovative than those avoiding the market. Additionally, research by Walsh and Kosnik found the market for corporate control to be less efficient than suggested by previous researchers. (22) They found that some of the top corporate evaluators focused their efforts on firms that were outperforming their industry rather than undervalued firms, as expected in the market for corporate control. Such targeting and takeover attempts may actually harm the overall strategic competitiveness of firms.

Given these results, it seems better to avoid the market for corporate control. Alternatively, firms can participate in the market for corporate control and remain effective. For example, research has found that small acquiring firms can maintain their innovativeness. In fact, such firms have been shown to be equally innovative to those that avoid the market for corporate control. This is because such firms are better able to resolve the agency problems than are large firms. (23) Additionally, research has shown that acquisition success may be largely dependent on the firm's ability to identify and acquire firms that have resources complementary to their own, and therefore are able to gain synergy from the merger of the two firms. (24) If firms don't entirely avoid the market for corporate control, they should make highly related acquisitions of firms with complementary resources, and manage the integration of the two firms to gain optimal synergy.

While product diversification -- if carried too far -- has potentially negative effects on firm performance, international diversification generally has positive effects. International diversification offers several advantages over product diversification. First, international diversification allows the firm to take advantage of new market opportunities. It also helps to stabilize returns by producing economies of scale and economies of scope. Furthermore, multinational firms that are able to integrate across country borders by standardizing products, while manufacturing and coordinating critical resource functions such as R&D, are able to achieve optimal economic scale and amortize investments in critical functions over a broader base. (25) International diversification also allows firms to exploit their core competencies and distinctive firm capabilities across units in different international markets. International diversification also provides a broader base of markets in order to obtain returns from innovation. Concomitantly, having more markets provides greater revenue to invest in R&D to develop and commercialize more innovative products. Therefore, movement into international markets may allow the firm to achieve a long-term strategic competitiveness.

Finally, strategic leadership must be exercised in firms if they are to achieve strategic competitiveness in the global marketplace. Strategic leadership involves the balancing of short-term needs with long-term growth and survival. It also ensures continued development of the firm's core competencies and investment in building human capital. Strategic leadership entails the use of strategic controls and the development of an entrepreneurial culture. Finally, strategic leadership involves the development of an effective organization structure to aid in the implementation of the strategy and the other elements noted herein.

Research has shown that the nurture and maintenance of core competencies can provide a basis for competitive advantage. (26) Core competencies represent the skills, capabilities, and knowledge on which organizational learning is focused and often relate to functional skills, such as marketing and R&D. A company's ability to develop and utilize a core competence across separate markets and geographic locations may be distinctive and difficult for competitors to imitate. The application of a firm's core competencies can facilitate the management of interrelationships among businesses and may be particularly important in firms that have multiple international operations. The use of core competencies as a means of sharing resources may help integrate businesses operating in different geographical markets across country borders. Furthermore, the sharing of intangible resources (knowledge or skills such as core competencies) represents a special opportunity in global firms because it can reduce the complexity of information processing by executives. Top executives would have fewer different resources and markets on which to concentrate for strategic decisions. As a result of the above arguments, executives must be careful to buffer core competencies against major disruptions and, in fact, ensure the maintenance and continued development of core competencies as firms restructure and continue to develop and grow.

Human capital development is especially critical for strategic competitiveness. For example, U.S. firms have sometimes invested millions of dollars in new technical equipment, only to learn there was a shortage of skilled labor to operate it. It is also important to note that one-third of the growth in the U.S. Gross National Product from 1948 to 1982 can be attributed to increases in the education level of the workforce, and 50 percent of the growth resulted from technological innovation and knowledge that depended heavily on education. Only 15 percent of the growth can be attributed to increased investment in capital equipment. (27) As a result, executives must ensure the firm has effective training and development programs for employees at all levels of the organization. Of course, these programs are especially critical for the development of professionals and managers. In addition to building skills, development programs also facilitate communication among employees and help to construct a common vision for the organization. They promote cohesion, act as a socialization agent, and help inculcate a common set of core values. They can also influence strategic flexibility by helping managers to develop the critical skills necessary for effective responses to competitive challenges. (28) Effective human capital is especially critical to newly restructured organizations in which management layers have been eliminated, thereby increasing the responsibility and authority of most employees at all levels in the organization. Because of the increasing technology in the workplace, employees, like businesses, must be continually reinvented.

The exercise of strategic leadership also entails the development of an entrepreneurial culture. In fact, much of the encouragement, or discouragement, to pursue entrepreneurial opportunities in large firms is based on the firm's culture. The pursuit of entrepreneurial opportunities must be rewarded and the penalty for failure minimized. New product champions should be identified, supported and rewarded.

Culture is a system of shared values among the organization members. It offers a means of controlling the premises of employees' behaviors and attitudes. The culture should promote diversity, individuality, and reward risk-taking rather than risk avoidance. Furthermore, rewards must be based on long-term, rather than short-term, performance. The U.S. is an entrepreneurial nation. The rate of the new business in corporations is expected to be 737,000 during 1994, the highest rate in U.S. history. However, if U.S. corporations are to survive, and maintain or regain strategic competitiveness in global markets, they must act more like small entrepreneurial firms. They must take more risks and build a culture that facilitates innovation. Thus, a part of the strategic vision developed by corporate executives must entail an effective entrepreneurial corporate culture.

Of course, the exercise of strategic leadership entails the use of strategic controls, as emphasized previously. Executives must ensure that they have a basic understanding of the businesses within the corporation's portfolio, and that they attempt to provide oversight of those businesses by evaluating the strategies proposed rather than overemphasizing the financial outcomes. As such, they can better prevent poor performance rather than attempt to react to performance outcomes after the fact. To implement strategic controls, along with maintenance of core competencies, development of human capital and building an entrepreneurial culture will require an effective organization structure.

In order to integrate related units, particularly those operating in different international markets, emphasis must be placed on the horizontal as opposed to the vertical structure in organizations. In addition, restructuring that reduces management layers also places more emphasis on the horizontal structure. Because U.S. firms have largely focused on the vertical, as opposed to a horizontal structure, executives often must develop a horizontal structure. This may include the appointment of individuals to integrator positions and the development of cross functional and multi-unit teams. The exercise of strategic leadership is a complex and difficult task. However, it is also an extremely important task, if U.S. firms are to maintain or regain strategic competitiveness in the global marketplace.


In the 1980s, U.S. firms lost some of their competitiveness in U.S. and international markets. For reasons noted herein, they were unable to successfully sustain their leadership in many industries. As a result, many foreign firms became the leaders in U.S. and global markets. Because of the multiple problems encountered by U.S. firms, there has been considerable restructuring over the last several years. Undoubtedly, if U.S. firms continue to lose their competitiveness in the global marketplace, more U.S. jobs will be lost and U.S. citizens will experience lower standards of living.

Alternatively, if U.S. firms respond to the challenge and institute the changes needed, they should be able to regain their competitive positions in global markets. In fact, a number of U.S. firms are beginning to do so. However, the new corporation, whether it be headquartered in the U.S. or in another country, will be technologically driven and have fewer total employees than in the past. Furthermore, these employees will be more knowledgeable and well educated on the average than those previously. If U.S. firms can maintain a strong emphasis on building human capital, if large firms can attain an effective entrepreneurial culture, and if U.S. executives can exhibit strategic leadership in firms that have downscoped to make appropriate use of debt and the market for corporate control, the U.S. will regain its strategic competitiveness in the global marketplace.


(1) This paper was originally printed in Advances in Competitiveness Research, 4, 1 (1996). This edited and adapted version is reprinted with the permission of the Editor of Advances in Competitiveness Research.

(2) M.A. Hitt, R.E. Hoskisson and J.S. Harrison, "Strategic Competitiveness in the 1990s: Challenges and Opportunities for U.S. Executives," Academy of Management Executives, 5, 2 (1991): 7-22.

(3) M.A. Hitt, H.F. Harback and R.D. Nixon, "Rightsizing: Building and Maintaining Strategic Leadership and Long-Term Competitiveness," Organizational Dynamics, 23, 2 (1994): 18

(4) Harvard Business Review, "Competitiveness Survey: HBR Readers Respond," 65, 5 (1987): 8-11; Harvard Business Review, "Competitiveness: 23 Leaders Speak Out," 65, 4 (1987): 106-123.

(5) M.J. Mandel, "Business Rolls the Dice," Business Week, (October 17, 1994): 88-90.

(6) R.A. Bettis and M.A. Hitt, "The New Competitive Landscape," Strategic Management Journal, 16 (1995): 7.

(7) Business Week, "The Rules of the Game and the New World of Work," (October 17, 1994): 94.

(8) R.E. Hoskisson and M.A. Hitt, Downscoping: How to Tame the Diversified Firm (New York: Oxford University Press, 1994).

(9) R.E. Hoskisson and M.A. Hitt, "Antecedents and Performance Outcomes of Diversification: A Review and Critique of Theoretical Perspectives," Journal of Management, 16 (1990): 461-509.

(10) M.C. Jensen, "Agency Costs of Free Cash Flow, Corporate Finance and Takeovers," American Economic Review, 76 (1986): 323-329; E.F. Fama and M.C. Jensen, "Separation of Ownership and Control," Journal of Law and Economics, 26 (1983): 301-325.

(11) D.H. Ciscel and T.M. Carroll, "The Determinants of Executive Salaries: An Econometric Survey," Review of Economics and Statistics, 62 (1980): 7-13; H. Tosi and L. Gomez-Mejia, "The Decoupling of CEO and Pay and Performance: An Agency Theory Perspective," Administrative Science Quarterly, 35 (1989): 169-189.

(12) O.E. Williamson, Markets and Hierarchies: Analysis and Antitrust Implications (New York: Free Press, 1975).

(13) R.E. Hoskisson, "Multidivisional Structure and Performance: The Contingency of Diversification Strategy," Academy of Management Journal, 30 (1987): 625-644; R.E. Hoskisson and M.A. Hitt, "Strategic Control Systems and Relative R&D Investment in Large Multiproduct Firms," Strategic Management Journal, 9 (1988): 605-621; B.W. Keats and M.A. Hitt, "A Causal Model of Linkages Among Environmental Dimensions, Macro Organizational Characteristics, and Performance," Academy of Management Journal, 31 (1988): 570-598.

(14) C.C. Markides, "Consequences of Corporate Refocusing: Ex-Ante Evidence," Academy of Management Journal, 35 (1992): 398-412.

(15) Hoskisson and Hitt, Downscoping, op. cit.

(16) J.F. Weston and K.S. Chung, "Takeovers and Corporate Restructuring: An Overview," Business Economics, 25, 2 (1990): 6-11.

(17) Hoskisson and Hitt, "Strategic Control Systems . . .," op. cit.; B. Baysinger and R.E. Hoskisson, "Diversification Strategy and R&D Intensity in Large Multiproduct Firms," Academy of Management Journal, 32 (1989): 310-332; M.A. Hitt, R.E. Hoskisson and R.D. Ireland, "Acquisition Growth and Commitment to Innovation in M-form Firms," Strategic Management Journal, 11 (1990): 29-47; B.H. Hall, "The Impact of Corporate Restructuring on Industrial Research and Development," Brookings Papers on Economic Activity, 3 (1990): 85-135.

(18) M.C. Jensen, "Eclipse of the Public Corporation," Harvard Business Review, 67 (September-October, 1989): 61-74.

(19) M.A. Hitt and D. Smart, "Debt: A Disciplining Force for Managers or a Debilitating Force for Organizations?," Journal of Management Inquiry, 3 (1994): 144-152.

(20) R.E. Hoskisson, M.A. Hitt and C.W.L. Hill, "Managerial Incentives and Investment in R&D in Large Multiproduct Firms," Organization Science, 4 (1993): 325-341.

(21) M.A. Hitt, J.S. Harrison, R.D. Ireland, and A. Best, "Lifting the Veil on the Success and Failure of Mergers and Acquisitions," Working Paper, Texas A&M University.

(22) J.P. Walsh and R.D. Kosnick, "Corporate Raiders and Their Disciplinary Role in the Market for Corporate Control," Academy of Management Journal, 36 (1993): 671-700.

(23) T.R. Zenger, "Explaining Organizational Diseconomies of Scale and R&D: Agency Problems and the Allocation of Engineering Talent, Ideas, and Effort by Firm Size," Management Science, 40 (1994): 708-729.

(24) J.B. Barney, "Returns to Bidding Firms in Mergers and Acquisitions: Reconsidering the Relatedness Hypothesis," Strategic Management Journal, 9 (1988): 71-78.

(25) R.E. Caves, Multinational Enterprise and Economic Analysis. (Cambridge, England: Cambridge University Press, 1982); S.J. Kobrin, "An Empirical Analysis of the Determinants of Global Integration," Strategic Management Journal, 12 (1991): 17-37.

(26) M.A. Hitt and R.E. Hoskisson, "Strategic Competitiveness," in L.W. Foster, ed., Advances in Applied Business Strategy, Vol. 2. (Greenwich, CT: JAI Press, 1991), pp. 1-36; C.K. Prahalad and G. Hamel, "The Core Competencies of Corporations," Harvard Business Review, 68 (May-June, 1990): 79-93.

(27) B. Nussbaum, "Needed: Human Capital," Business Week, (September 19, 1988): 100-102.

(28) R.E. Miles, "A New Industrial Relations System for the 21st Century," California Management Review, 31 (1989): 9-28; M.A. Hitt and B.W. Keats, "Strategic Leadership and Restructuring: A Reciprocal Interdependence," in R.L. Phillips and J.G. Hunt, eds., Strategic Leadership: A Multi-Organization Level Perspective. (New York: Quorum Books, 1992), pp. 45-61.