The Evolution of Intracorporate Domains: Divisional Charter Losses in High-Technology, Multidivisional Corporations

• Published in: Organization science (Providence, R.I.) R.I.), 1996-05, Vol.7 (3), p.255-282
• Main Authors: Galunic, D. Charles, Eisenhardt, Kathleen M
• Format: Article
• Language: English
• Subjects: Business executives; Business expansion; Business management; Business organization; Business strategies; Business structures; Charters; Competition; Corporate growth; Corporate strategies; Corporations; Economic competition; evolution; High tech industries; Management; multidivisional firm; Organization development; Organization theory; Organizational change; Organizational structure; organizational structure and change; Rotating generators; Start up firms; strategic process; Studies
• ISSN: 1047-7039; 1526-5455
• DOI: 10.1287/orsc.7.3.255

Modern corporations have become synonymous with the multidivisional form of organization. Variously interdependent divisions are "chartered" to look after one or more business areas, in effect defining the "turf" of the division and its purpose within the corporation, and collectively defining the corporate domain. However, once created, these divisional charters should not be regarded as rigid; they are susceptible to change. Particularly in fast-paced environments, such as in high-technology industries, divisional charters are liable to change as divisions add or subtract businesses to their charter responsibilities. These charter changes are seen as an adaptive device for large, multidivisional corporations in fast-paced environments. This paper presents a process model of how divisions change their domains in hypercompetitive contexts, focusing on the specific question of how divisions lose all or portions of their business charters. The paper is based on a larger inductive study of charter changes in ten divisions, both domestic and foreign, of a large, multinational, high-technology corporation. Data were collected over an 18-month period and included formal interviews, questionnaires, company documents, group interviews, media publications and direct observations of strategy formation sessions. Over 80 informants were interviewed across several managerial levels. Our data revealed three distinct patterns and logics of charter loss depending upon what phase of core business development a division found itself: (1) Divisions starting-up new core businesses lost these charters because of a combination of their failure in the new area and competition with other divisions in the company—the process revealed a competitive market for new charters; (2) Divisions rapidly growing new core businesses lost peripheral business areas in order to focus on the core business—the process emphasized a focus logic for charter change: finally (3) Divisions with mature charter areas were found to shed their core business areas because of an emerging misfit between their skills and culture and the nature of competition in the industry—the process emphasized the emerging nature of corporate mis-alignment and the abrupt charter changes that can follow. This paper contributes to organizational theory by exploring the evolution of large, diversified corporations, focusing on the organizational responses to fast-moving, competitive environments. It also contributes to strategy