Strategy, structure and performance in New Zealand quoted companies

Abstract

This thesis investigated the extent of diversification in New Zealand companies and its effect on their administrative structure and performance. So far there has not been any study done on the diversification process of New Zealand companies although rapid changes are taking place in their strategic posture. In the second half of the twentieth century the corporate profile in advanced countries like the USA and UK had undergone significant changes as a result of diversification strategies by their business corporations. Diversification is now becoming a major corporate strategy and hence it would be useful for corporate managements, shareholders, financial institutions and other corporate investors, public policy makers and researchers to know the effectiveness of diversification in improving profitability and growth, and reducing risk. Though theoretical and empirical studies done abroad by financial, economic and business researchers suggest that only certain categories of diversification would result in higher performance, a systematic study of this subject is yet to be carried out in New Zealand. This study attempts to accomplish this. This study addresses the following issues: (1) Have the diversification strategies affected the administrative structure of the companies and which structure is the best performer? (2) Does the performance differ among the different types of diversification strategies, for example, between related and unrelated diversification? (3) Does the strategy-structure 'fit' affect the performance of companies? A multi-industry, multi-company approach involving a sample size of 103 New Zealand listed companies in the manufacturing and non-manufacturing sector is used for establishing generalizability of the findings. Adjustment for factors such as size, industry participation, leverage and risk are also incorporated in the design of the study. The performance measures used are in the dimensions of growth and profitability. Findings of this study suggest that in general diversification is useful for reducing the risk and improving the growth and profitability. However, where diversification shows significant improvement over single business strategy, it is in the areas of reduction of risk and improving overall performance. Related diversified companies performed better than the unrelated diversifiers. Regarding the structure, division ally organized companies are having better performance, followed by holding and functional structure. Companies in the strategy-structure 'match' group are having superior performance than the mis-matched category. Finally this study discusses the implications of the findings and suggests areas for future research