Dissertation

Structure and strategy: Explaining consolidation patterns in the United States cable television industry

Eisenmann, Thomas R

1998

Overview

This thesis examines the relationship between a firm's organizational structure and its propensity to take strategic risks in a turbulent environment. Two aspects of organizational structure are studied: a firm's level of diversification, and the extent of its CEO's equity ownership. Horizontal expansion through acquisition serves as a measure of risk taking; divestiture equates to risk avoidance. These relationships are examined in the U.S. cable television industry, which experienced a dramatic increase in environmental turbulence during the 1990s. Econometric analysis of 1986-1995 data for 201 cable companies indicates that after controlling for factors such as scale, diversification and CEO equity ownership are significant predictors of expansion and exit decisions. Compared with agent-led companies, at all levels of turbulence, owner-managed firms exhibited a greater propensity to expand through horizontal acquisition, and a lower propensity to exit the cable industry. At high levels of turbulence, diversified firms exhibited a greater propensity to exit and expand, compared with firms focused exclusively on cable. To understand the processes that linked organizational structure and risk taking behavior, interviews were conducted in eighteen companies. Two conclusions emerge regarding CEO equity ownership. First, secure in their positions, owner-managers' decisions often were influenced by personal priorities, e.g., emotional commitment to the business; a desire to build a family dynasty. Second, to a greater extent than owner-managers, agent CEOs felt obliged to justify strategic decisions to investors, board members, and subordinates. This need to justify decisions, and the challenge of doing so in a turbulent environment, increased the likelihood that agent-led firms would exit the cable business. The interviews also suggest that differences in the quantity and quality of information available to the CEOs of diversified and focused firms influenced their decisions. In contrast to their counterparts in focused firms, who had deep, first-hand knowledge of industry trends, CEOs in diversified firms were more reliant on information sources that provided a \"filtered\" perspective. With superior information, focused firms' CEOs had greater confidence that their companies could withstand competitive challenges, and were less inclined to sponsor decisions to exit.

• Publisher: ProQuest Dissertations & Theses
• Subject: Management / Mass communications / Mass media
• ISBN: 9780591723236, 0591723239