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Improving Financial Performance: Summary and Research Agenda

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Abstract

The key question addressed in this book is: what drives superior financial performance? Important component questions include: why do some firms consistently perform better than others? why do poorly performing firms improve profitability? why do once successful firms suffer profit declines, and what can be done about it? what keeps consistently under performing firms from improving profitability, and what can be done about it? Answers to these questions should lead directly to advice for managers on how corporations might improve financial performance.

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Notes

  1. Of course, organizations use experimentation in a limited way in product development, test marketing and so forth.

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  2. Because of acquisition and divestiture activity, it is quite possible that in any two separate years, an individual business unit might enter the PIMS database as a unit of two different firms.

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  3. In order to place an external value on a business unit, corporate may decide to sell a portion of the equity, thus forming an interface between the business unit and the capital markets.

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  4. For example, a firm may establish a minimum size for a business to be “worthwhile” the entrepreneurial or acquiring effort; conversely, a firm may decide to place a maximum size on individual business units in order to reap entrepreneurial benefits and avoid potential bureaucratic costs.

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  5. See also, Berg (1965, 1969, 1973) and Pitts (1976, 1980).

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  6. See also Burgelman (1983) who argues that corporate strategy induces strategic behavior, which in turn affects the structural context (strategy → structure), but that this context leads to autonomous strategic initiatives at lower levels in the firm that develop into firm strategy (structure →strategy).

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  7. For simplicity, we have omitted discussion of such matters as composition of the board of directors (e.g., Boyd 1990; Pfeffer 1972), principal/agent issues concerning the interests of owners/boards of directors versus managers (e.g., Baysinger, Kosnik and Turk 1991; Hoskisson and Turk 1990; Judge and Zeithaml 1992; Walsh and Seward 1990) and relationships between ownership structure and corporate strategy (e.g., Allen 1993; Bethel and Liebeskind 1993; Porter 1992).

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  8. These “tools,” in order of user satisfaction were: mission statements, customer surveys, total quality management, pay for performance, reengineering, strategic alliances, self-directed teams, cycle time reduction, core competencies, competitor profiling, benchmarking, horizontal organizations, groupware, shareholder value, service guarantees, scenario planning, portfolio analysis, micromarketing, activity-based costing, dynamic simulations, retention management, five forces analysis, value chain analysis, mass customization and technology S-curves.

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  9. In 1980, the five-hundredth Fortune500 firm had sales revenues of $448 million dollars (1990: $546 million); and all 500 firms represented $1.6 trillion (1990: $2.6 trillion) of U.S. manufacturing output.

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  10. Since 1995, the Fortune500 has expanded beyond manufacturing to include service firms.

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Capon, N., Farley, J.U., Hoenig, S. (1996). Improving Financial Performance: Summary and Research Agenda. In: Toward an Integrative Explanation of Corporate Financial Performance. Springer, Dordrecht. https://doi.org/10.1007/978-94-011-5380-5_4

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