A review of Dickler, T. A., & Folta, T. B. (2020). Identifying internal markets for resource
redeployment. Strategic Management Journal, 41(13), 2341-2371.
I. Research question and its importance
Drawing on the work of Sakhartov and Folta (2014) this article aims to confirm multi‐business firms’ resource redeployability. Namely, the authors ask if the economies of scope in multi-business firm has allowed it to leverage an internal market where resources can be deployed and redeployed more aggressively (as measured by revenue expansion and retrenchment), comparing to single-business counterparts. There are three reasons the topic is important. First, the conceptualization of internal market for multi-business firm lacks empirical evidence, according to the authors. Second, it’s also unknown to the academia whether firm with internal market adapts to fluctuations better. Namely, if the resource (re)deployability in this type of firm is more effective than others. Lastly, it’s also the interest of practitioner to know under which condition multi‐business firms are heterogeneous in their ability and incentives to exploit demand opportunities, relative to their counterparts.
II. Method, finding, and limitation
The authors track the revenue growth of existing segments in the COMPUSTAT for 17 years. Ordinary least squares (OLS) panel model and firm‐specific fixed effects were employed to analyse the data. They also include the control of time‐invariant unobserved firm heterogeneity, as well as dummies for each industry‐year to account for omitted factors tied to industries, or years, or time‐varying heterogeneity across industries (such as industry shocks that vary over time). To construct a control group, they also adopt propensity score matching, a common practice in management research. Their findings can be summarized in three parts. First, multi‐business firm segments have a considerably higher magnitude of revenue expansion and revenue retrenchment than single‐business firms. In other words, multi-business firm is more aggressive owing to its internal market that allows it to allocate resource more effectively. Second, lower resource adjustment costs across business portfolios, higher external transaction costs, and greater opportunity differences across a portfolio accentuate their incentives and abilities to expand or retrench more aggressively than focused firms. Based on the previous finding, the boundary condition for internal market is laid out. Finally, the authors find evidence for the link between the theoretical benefits of resource redeployability and firm value creation, as measured by revenue growth. To sum up, their findings support the view of Sakhartov and Folta (2014).
III. Future research
A growing body of strategy literature focuses on firm’s competitive advantage, yet as integration and alliance become more popular, it’s now a scholarly challenge to precisely locate a firm’s boundary. Furthermore, many firms today are multi-business in nature, such as Google and Samsung. Consequently, defining “business” itself becomes trickier. Common practice (e.g., NAICS industry code by the authors, or SIC in other papers) might get less applicable. Future research might devise more sense-making measure to identify focal firms.