Firms and individuals budget or account for dollars, not standardized dollars, squared dollars, squared deviations from mean dollars, or percentage of squared deviations from mean dollars – my checking account reports my balance in dollars. In contrast, we have all seen a model dismissed because it “only explained 9% of the variance.” However, the Brogden–Cronbach–Gleser (BCG) model clearly shows that rxy (or ) is linearly related to a model's dollar utility to the firm, not or . In other words, when rxy (or ) doubles for a strategic management model designed to predict profit (Y$), then the predicted dollar value added to the firm doubles (e.g., when rxy=0.30 and , the addition of X2 to the model has increased expected dollar value added to the firm by a factor of 2). Hence, a model that explains only 9% of the variance in Y$ in fact explains 30% of the dollar utility available to be explained in Y$, even though tests of the null hypothesis H0: rxy=0 and will yield mathematically identical outcomes to tests of and . Not surprisingly, I rarely see the BCG model cited in the scholarly management literature, and never see it cited by strategic management scholars. So, I will first demonstrate how the BCG model was originally developed to estimate the value of personnel selection systems, though it also characterizes how the dollar impact of any organizational intervention can be estimated, be it strategic, entrepreneurial, HR-related, etc. I will then make some minor adjustments to show how the model can be applied to more macro, strategic research arenas as well as some of the more interesting implications that are seldom fully appreciated in the current management literature. I will conclude this section with an example of how the BCG model might be applied to a recent strategic management study published in a recent issue of the Academy of Management Journal.
Russell, C.J. (2009), "Establishing the usefulness of strategic management research: On inverted Lewinians and naked strategy scholars", Bergh, D.D. and Ketchen, D.J. (Ed.) Research Methodology in Strategy and Management (Research Methodology in Strategy and Management, Vol. 5), Emerald Group Publishing Limited, Bingley, pp. 55-71. https://doi.org/10.1108/S1479-8387(2009)0000005003Download as .RIS
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