Complementarities and Coordination: Implications for Governance Mode and Performance of Multiproduct Firms

Joon Mahn Lee () and Rahul Kapoor ()
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Joon Mahn Lee: Krannert School of Management, Purdue University, West Lafayette, Indiana 47907
Rahul Kapoor: The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104

Organization Science, 2017, vol. 28, issue 5, 931-946

Abstract: We explore the fit between a firm’s product portfolio strategy and its governance mode with respect to complementary activities that underlie its product offering. We view firm’s governance choice through the lens of orchestrating complementary activities that entail multiple interrelated and often simultaneously occurring transactions. Our key premise is that a broader product portfolio, while offering benefits through the bundle of complementary activities, raises the coordination costs for firms, making integration of complementary activities a preferred mode of governance. We find strong support for our arguments in the context of the U.S. healthcare industry. Hospitals with a narrow service portfolio are more likely to have contracts with physicians as external service providers, and hospitals with a broad service portfolio are more likely to employ their own physicians. Moreover, hospitals that deviate from this fit-based relationship suffer a significant penalty in terms of their financial performance as measured by return on assets (ROA) and return on sales (ROS). Our findings allow us to shed new light on the linkage between strategy and governance mode and enable us to illustrate that performance differences across multiproduct firms may be better understood by considering the fit between their strategy and their governance mode instead of simply focusing either on their strategy or on their governance mode per se.

Keywords: complementary activities; coordination; governance choices; multiproduct firms; healthcare industry (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (6)

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