The association between industry-level discretion and strategic variety: long-term strategic positions and current behaviours

Abstract

Executive discretion, the latitude for executives strategic decisions, is a powerful moderator of strategic decision making. In spite of its potential contribution to strategic management studies, Hambrick and Finkelstein's (1987) socio-political model of executive discretion has received little empirical research effort. Some of the basic propositions of the model, which incorporates industry, firm and individual characteristics as determinants of discretion have not been empirically tested. The restricted research effort is partly attributable to the lack of quantitative measures for industry-level discretion.

This thesis initially uses the correlation between industry-level attentional homogeneity, the similarity in foci of attention of executives in an industry, and industry-level discretion to produce 116 new values for industry-level discretion for 23 U.S. 4-digit SIC coded industries for the years 1990 to1997. Predictive validity for the new values is demonstrated using long-term debt data and annual accounts adjustment data.

Theil's (1992b) industry variety measure based on information theory is modified to produce strategic variety measures that permit pan-industry comparisons. Strong support is demonstrated for a positive association between variety in long-term strategic positions and industry-level discretion. Some weak evidence suggesting large firms in low discretion industries may compete using behaviours that impact on current accounts is also identified.