Content area
Full Text
Downscoping: How to Tame the Diversified Firm. Robert E. Hoskisson and Michael A. Hitt. New York: Oxford University Press, 1994. 212 pp. $24.95.
Taking a cue from Sutton and Staw (1995), it may be useful to state what this book is not. Despite its rather dramatic subtitle, the book is not a polemic for one more fashionable change program designed to permit top managers to display their legitimacy and progressiveness in an uncertain environment. Hoskisson and Hitt largely resist the temptation to eulogize downscoping or to present it as a "magic bullet" that will cure everything that ails a corporation. This book is also not a how-to guide, because it seems to be targeted toward an academic audience, despite a disclaimer to the contrary in the Preface. While it is important to develop the implications of management research for management practice, I, for one, find it refreshing that this book clings to its scholarly roots. Finally, the book is not a textbook. Its value will be greatest for specialized researchers in the areas of diversification and deconglomeration, and it is clearly not intended as a general introduction for the beginning student of strategic management.
The basic thesis of this serious scholarly volume will be familiar to anyone who has delved into Hoskisson, Hitt, and coauthors' voluminous corpus of research published in scholarly management journals. Hoskisson and Hitt set out to deconstruct the strategy of diversification, popular in the 1960s and 1970s, arguing that diversification can have a positive influence on the performance of corporations, but only up to a point. After a certain (unspecified) level, diversification begins to create problems that exert downward pressure on corporate performance. The most critical of those problems is the information overload that diversification imposes on top managers, who find it difficult to exert strategic control over a diverse set of businesses in multiple product markets about which they know little. The information-processing complexities produced by diversification nudge corporate managers toward the use of financial controls for the administration of the businesses in the corporate portfolio. Financial controls, in turn, create incentives for division managers to focus on the short term and reduce expenditures for R&D and advertising. The result is lower risk taking by division managers and the sacrifice...