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Drawing on the literature on corporate diversification, the purpose of this paper is to shed light onto the influence of geographic dispersion on the effectiveness of control mechanisms in related diversified corporations. This research contends that control mechanisms implemented by corporations and the extent of geographic diversification play a role in the synergies expected from related diversification being realized.

This study uses OLS regression to analyze data collected through surveys from managers of 193 Iranian corporations and their 2,704 subsidiaries to examine the relationship between relatedness, corporate performance, geographic dispersion, and emphasis of strategic controls.

The author finds that a triple interaction effect between corporate strategy (diversification approach), controls mechanisms, and the extent of geographic diversification influences the overall performance of corporations. Findings of this research suggest that the positive effects of strategic controls in related diversified corporations are most when there is less geographic dispersion and will attenuate as corporations become more geographically disperse.

The findings of this research, have contributed to the extant literature in several ways. First, the findings further establish the superiority of related diversification to unrelated diversification in achieving economic performance in corporations. The findings reveal that, ceteris paribus, the more relatedness between activities of subsidiaries in corporations exists, higher performance can be expected at the corporate level. Second, the findings show once more that to achieve the higher performance that results from synergies in related diversified corporations, emphasis of strategic controls play a crucial and important role. Third, the author find that although the emphasis of strategic controls in essential to realizing the potentials in related diversified corporations, greater geographic dispersion attenuates the positive effects expected from stricter enforcement of strategic control mechanisms.

An important consequence of findings of this research is that managers should be more aware of the implications of selecting the geographic location of the subsidiaries that they either acquire or establish. While the literature focusing on corporate diversification has mainly focused on the differences between related and unrelated diversification, this paper brings a new factor into light. Therefore, the findings of this research provide the author with a better understanding of the factors that define success or failure in achieving financial objectives of corporations.

There has been very little done to investigate the factors that influence effectiveness of strategic controls in related diversified corporation. Much of this shortcoming has resulted due to difficulties in measurement of strategic controls their operationalization in empirical studies. This study has taken a step to that direction and therefore, provides a more coherent and clear picture of the factors that influence the overall performance in corporations.

Corporate controls are mechanisms that corporations use to ensure that the processes and/or outcomes of their business units meet corporate expectations. Challenges in measurement of corporate controls have led many researchers to operationalize them as part of the more ambiguous corporate effects construct, instead of addressing them separately. The purpose of this paper is to examine the significance of “fit” between corporate control mechanisms and business unit strategy in performance of business units.

The authors use ordinary least squares regression analysis on data collected between 2010 and 2012 from surveys from managers of 142 Iranian corporations and 1,822 of their subsidiaries. The authors also use financial and market data collected by an IDRO division and accessed through partnership in a joint project.

The authors found that while the fit between business unit strategy and corporate controls has a significant effect on business unit financial performance, it does not have a similar effect on market performance. The findings demonstrate that when business unit managers perceive that they are subject to a balance of strategic and financial controls with a slightly greater emphasis on strategic controls, then business units have higher financial and market performance, although the difference in financial performance is not significant.

The authors find that the misfit between corporate controls and business strategies in such cases could negatively affect the performance of the business unit. However, this research also contributes to a better understanding of the importance of strategic controls to the successful performance of business units. The findings show that while the fit between controls and strategy is most critical for achieving financial performance in business units that pursue product leadership, strategic controls play a more prominent role than financial controls in achieving higher financial or market share performance for all business units.

The findings of the propositions in this research would discourage corporations with tight financial control from engaging in acquisition of businesses considered to be product leaders in their relative product markets.

Past research focusing on the fit between corporate-level factors and business-level factors and their role on business performance are largely limited to conceptual work. The limited empirical studies completed in the past generally reduce control mechanisms to lack or absence of autonomy. This shortcoming has been mainly due to difficulties in measurement of control mechanisms. The empirical study overcomes these barriers and in doing so, reveals surprising findings related to the effectiveness of different control mechanisms.

This paper aims to review the latest management developments across the globe and pinpoint practical implications from cutting-edge research and case studies.

This briefing is prepared by an independent writer who adds their own impartial comments and places the articles in context.

Corporations with multiple subsidiaries, or business units, have to balance individual controls with universal corporate controls. Managing each subsidiary to the collective benefit of the whole corporation requires careful management. 10; 10;

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