What does a small corporate effect mean? A variance components simulation of corporate and business effects

Thomas H. Brush and Philip Bromiley

Strategic Management Journal, 1997, vol. 18, issue 10, 825-835

Abstract: In a widely cited paper, Rumelt (1991) presents estimates of the relative influence of corporate, business unit, and other influences on business unit profitability and finds the corporation explains almost none of the variability in business unit profitability. Using a Monte Carlo simulation, we examine the relation of variance component magnitudes to other indicators of the importance of a particular effect. Our results demonstrate that variance components can be an extremely nonlinear indicator of importance. We also question whether Rumelt's corporate effect represents the possible contributions of corporate strategy to business unit performance. This addresses a puzzle raised by Rumelt (1991) concerning the small effect of corporations in explaining performance, and suggests that Rumelt's findings should not be seen as demonstrating the insignificance of corporate strategy. © 1997 John Wiley & Sons, Ltd.

Date: 1997
References: Add references at CitEc
Citations: View citations in EconPapers (39)

Downloads: (external link)
https://doi.org/10.1002/(SICI)1097-0266(199711)18:103.0.CO;2-Y

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:stratm:v:18:y:1997:i:10:p:825-835

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0143-2095

Access Statistics for this article

More articles in Strategic Management Journal from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().