The Visible Hands of Hierarchy within the M‐Form: An Empirical Test of Corporate Parenting of Internal Product Exchanges*

Abstract

ABSTRACT In this paper, we dismiss the traditional contingency argument that corporate staff should have minimal involvement with the decisions that its divisions make, because predictability, which underlies this contingency logic, is erroneous for most large corporations at this time. We offer an alternative theory of corporate involvement for the M‐form: under unpredictable environments greater interdependence of corporate staff with divisional operating decisions may be necessary to create value for the corporation. Since corporate staff cannot be involved in all divisional affairs, we empirically explore when corporate involvement is most likely. Building on transaction cost economics and the strategy literature, we reason that corporate staff may selectively involve itself in business level strategy and operating decisions when product characteristics signal threats to effective inter‐divisional coordination as well as opportunities for value creation. To explore this topic, we surveyed corporate managers of Fortune 500 companies. The results suggest some initial support for our theoretical argument: corporate staff is more likely to involve itself in business‐level decisions for uncertain products. We further find that when corporate staff is responsible for the capital investments used for the divisional venture, it is more likely to guide and influence product strategy decisions and inter‐divisional conflicts. We do not find, however, consistent evidence that specialized assets or brand‐name reputation trigger corporate involvement. Implications and limitations are further discussed.

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