Defining and Exploring Boundary Conditions

07ORM13_Covers.inddWhile it is easy to agree that boundary conditions are an important part of theory development and research, it is not as easy for researchers to agree on what boundary conditions are, and how they should be approached. With the recent Organizational Research Methods article entitled, “Boundary Conditions: What They Are, How to Explore Them, Why We Need Them, and What to Consider Them,” authors Christian Busse, Andrew Kach, and Stephan Wagner set out to not only better define boundary conditions, but also understand how exploring boundary conditions can lead to improved research and further theory development.

The abstract for the paper:

Boundary conditions (BC) have long been discussed as an important element in theory development, referring to the “who, where, when” aspects of a theory. However, it still remains somewhat vague as to what exactly BC are, how they can or even should be explored, and why their understanding matters. This research tackles these important questions by means of an in-depth theoretical-methodological analysis. The study contributes fourfold to organizational research methods: First, it develops a more accurate and explicit conceptualization of BC. Second, it widens the understanding of how BC can be explored by suggesting and juxtaposing new tools and approaches. It also illustrates BC-exploring processes, drawing on two empirical case examples. Third, it analyzes the reasons for exploring BC, concluding that BC exploration fosters theory development, strengthens research validity, and mitigates the research-practice gap. Fourth, it synthesizes the analyses into 12 tentative suggestions for how scholars should subsequently approach the issues surrounding BC. The authors hope that the study contributes to consensus shifting with respect to BC and draws more attention to BC.

You can read “Boundary Conditions: What They Are, How to Explore Them, Why We Need Them, and What to Consider Them” from Organizational Research Methods free for the next two weeks by clicking here. Want to know all about the latest research from Organizational Research Methods? Click here to sign up for e-alerts!

 

Throwback Thursday: What is Organizational Performance?

[Happy #ThrowbackThursday! We’re excited to revisit one of our most read posts on Organizational Research Methods‘s article “Exploring the Dimensions of Organizational Performance: A Construct Validity Study.”]

kenteegardin (cc)

kenteegardin (cc)

Editor’s note: We are pleased to welcome P. Maik Hamann, Frank Schiemann, Lucia Bellora, and Thomas W. Guenther, all of Technische Universitat Dresden, whose paper Exploring the Dimensions of Organizational Performance: A Construct Validity Study was published in Volume 16, Number 1 (January 2013) of Organizational Research Methods. The raison d’être of management research is to prove that management instruments and management methods, such as strategic planning, zero based budgeting, or the balanced scorecard, are able to enhance organizational perfUntitledormance. In addition, major theories in management research, for instance all contingency theories, include organizational performance as an important dependent variable in their conceptual arguments. But what is organizational performance? How can it be defined and measured in a reliable and valid manner? The Organizational Research Methods article Exploring the Dimensions of Organizational Performance: A Construct Validity Study provides answers to these questions.

home_coverEvery time we review existing literature on the effect of management methods on organizational performance, we find it hard to compare results across studies. The contradictions between studies are mostly caused by different concepts and measurement approaches of organizational performance. If, due to completely different concepts and measurement systems, we are not able to combine study results, how can we as researchers even pretend to contribute to management research by the newest study applying a new construct measurement approach on organizational performance? Consequently, the interest into measurement approaches, construct validation and conceptual nature of organizational performance was triggered in our research team. After reviewing previous literature on this subject we recognized that no construct validation study addressing jointly the conceptual level of organizational performance and the construct validity of a comprehensive set of indicators at the operational level had been published before. This was the gap we wanted to close with our study.

Following Combs, Crook, and Shook (2005)1 we distinguish between operational and organizational performance. In this framework operational performance combines all non-financial outcomes of organizations. Furthermore, the conceptual domain of organizational performance is limited to economic outcomes. On this basis, we identify four organizational performance dimensions: profitability, liquidity, growth, and stock market performance. For each of these dimensions, we propose and test a set of construct valid indicators on a large panel data set with 37,262 firm-years for 4,868 listed US-organizations.

Interestingly, the growth dimension is troublesome under conditions of high environmental instability (e.g., in 2002 after the dotcom bubble or at the beginning of the financial crises in 2008). We perceive two possible explanations for this finding. First, growth is examined based on three aspects of size: sales, employees, and assets. These aspects differ in their reactivity with regard to increasing environmental instability (e.g., although sales might decrease immediately, investments already under way will be finished, thus increasing an organization’s assets base). Second, Higgins (1977)2 introduced the concept of a sustainable growth rate that must be in alignment with overall organizational performance, the financial policy, and the dividend payout ratio. If an organization grows at a rate above its sustainable growth rate, the other aspects (e.g., other dimensions of organizational performance) will eventually decrease. Fully developing these two arguments was beyond the scope of our article. However, they pose interesting research questions for future research on the growth dimension of organizational performance.

In summary, we propose a validated set of measurement indicators for the organizational performance construct for future management research. Furthermore, we highlight situations, in which construct validity is hampered.

1 Combs, J. G., Crook, T. R., & Shook, C. L. (2005). The dimensionality of organizational performance and its implications for strategic management research. In D. J. Ketchen (Ed.), Research methodology in strategy and management (Vol. 2, pp. 259-286). Amsterdam: Elsevier.

2 Higgins, R. C. (1977). How Much Growth Can A Firm Afford? Financial Management, 6(3), 7-16.

Read the paper, “Exploring the Dimensions of Organizational Performance: A Construct Validity Study,” online in Organizational Research Methods.

Management INK in 2013: Revisiting Research on Organizational Performance

orm In the spirit of reflection on 2013, we are pleased to highlight one of the most read articles of the year, “Exploring the Dimensions of Organizational Performance: A Construct Validity Study” published in  Volume 16, Number 1 (January 2013) of Organizational Research Methods. This article discusses findings which reveal that performance dimensions are not what were previously proposed by researchers and offers up new essential intelligence for the continuing assessment of organizational performance investigation.

This article is free to read for the next week! The paper by P. Maik Hamann, Frank Schiemann, Lucia Bellora, and Thomas W. Guenther can be read online in Organizational Research Methods.

In Strategic Management Studies, ‘It’s the Measurement, Stupid!’

Editor’s note: We are pleased to welcome Dan R. Dalton and Herman Aguinis, both of Indiana University, whose article “Measurement Malaise in Strategic Management Studies: The Case of Corporate Governance Research” was published in the January 2013 issue of Organizational Research Methods.

Our article describes a surprising commonality in empirical results relying on agency theory in general and in the particular domain of  corporate governance research: Mean estimates of relationships between measures of boards of directors’ independence, CEO duality, equity holdings, and corporate financial performance are disappointingly low. Typically, measures of board independence explorm_200ain only about 1% of variance in relevant outcomes. We use meta-analytic evidence to document that this disappointing result is highly consistent across very diverse bodies of research. Our article was motivated by our desire to understand the reason(s) for such small effect sizes, because this knowledge would allow us to design and execute better studies in the future which will hopefully lead to an improved understanding (i.e., larger effect sizes) of critical outcomes such as firm performance.

Our conclusion can be summarized in a simple phrase: “It’s the measurement, stupid!” Threats to construct validity such as less ideal operationalization of constructs and confounding constructs and levels of constructs seem to be the culprits, at least in part, for why observed effect sizes are so small. How did we arrive at this conclusion? We implemented a five-step protocol through which we (1) established the base rate for the phenomenon in question, (2) evaluated the extent to which the dependent variables are germane, (3) evaluated the extent to which the independent variables are germane, (4) determined whether explanatory power is improved as a consequence of improved measurement, and (5) concluded whether previously established estimates should be revised. Due to the implementation of our proposed five-step protocol, we were able to improve variance explained in outcome variables many times over—in some cases, a tenfold increase.

So, what are the main take-aways? First, remember the motto “It’s the measurement, stupid!” In most empirical research in macro studies, small effect sizes can be expected even before data are collected due to construct validity problems. Second, implementing our proposed protocol in other research domains is likely to lead to more accurate, and larger, effect estimates of relationships among constructs.

Click here to read “Measurement Malaise in Strategic Management Studies: The Case of Corporate Governance Research” in Organizational Research Methods.


Dan R. Dalton is the founding director of the Institute for Corporate Governance, Dean Emeritus, and the Harold A. Poling Chair of Strategic Management in the Kelley School of Business, Indiana University. A Fellow of the Academy of Management, his research focuses on corporate governance and research methods and analysis. He is the recipient of the 2011 Academy of Management Research Methods Division Distinguished Career Award and a former editor-in-chief of the Journal of Management.

Herman Aguinis is the Dean’s Research Professor, a professor of organizational behavior and human resources, and the founding director of the Institute for Global Organizational Effectiveness in the Kelley School of Business, Indiana University. His research interests span several human resource management, organizational behavior, and research methods and analysis topics. He has published five books and more than 100 articles in refereed journals. He is the recipient of the 2012 Academy of Management Research Methods Division Distinguished Career Award and a former editor-in-chief of Organizational Research Methods.

What is Organizational Performance?

Editor’s note: We are pleased to welcome P. Maik Hamann, Frank Schiemann, Lucia Bellora, and Thomas W. Guenther, all of Technische Universitat Dresden, whose paperExploring the Dimensions of Organizational Performance: A Construct Validity Studywas published in Volume 16, Number 1 (January 2013) of Organizational Research Methods.

The raison d’être of management research is to prove that management instruments and management methods, such as strategic planning, zero based budgeting, or the balanced scorecard, are able to enhance organizational perfUntitledormance. In addition, major theories in management research, for instance all contingency theories, include organizational performance as an important dependent variable in their conceptual arguments. But what is organizational performance? How can it be defined and measured in a reliable and valid manner? The Organizational Research Methods article “Exploring the Dimensions of Organizational Performance: A Construct Validity Study” provides answers to these questions.

home_coverEvery time we review existing literature on the effect of management methods on organizational performance, we find it hard to compare results across studies. The contradictions between studies are mostly caused by different concepts and measurement approaches of organizational performance. If, due to completely different concepts and measurement systems, we are not able to combine study results, how can we as researchers even pretend to contribute to management research by the newest study applying a new construct measurement approach on organizational performance? Consequently, the interest into measurement approaches, construct validation and conceptual nature of organizational performance was triggered in our research team. After reviewing previous literature on this subject we recognized that no construct validation study addressing jointly the conceptual level of organizational performance and the construct validity of a comprehensive set of indicators at the operational level had been published before. This was the gap we wanted to close with our study.

Following Combs, Crook, and Shook (2005)1 we distinguish between operational and organizational performance. In this framework operational performance combines all non-financial outcomes of organizations. Furthermore, the conceptual domain of organizational performance is limited to economic outcomes. On this basis, we identify four organizational performance dimensions: profitability, liquidity, growth, and stock market performance. For each of these dimensions, we propose and test a set of construct valid indicators on a large panel data set with 37,262 firm-years for 4,868 listed US-organizations.

Interestingly, the growth dimension is troublesome under conditions of high environmental instability (e.g., in 2002 after the dotcom bubble or at the beginning of the financial crises in 2008). We perceive two possible explanations for this finding. First, growth is examined based on three aspects of size: sales, employees, and assets. These aspects differ in their reactivity with regard to increasing environmental instability (e.g., although sales might decrease immediately, investments already under way will be finished, thus increasing an organization’s assets base). Second, Higgins (1977)2 introduced the concept of a sustainable growth rate that must be in alignment with overall organizational performance, the financial policy, and the dividend payout ratio. If an organization grows at a rate above its sustainable growth rate, the other aspects (e.g., other dimensions of organizational performance) will eventually decrease. Fully developing these two arguments was beyond the scope of our article. However, they pose interesting research questions for future research on the growth dimension of organizational performance.

In summary, we propose a validated set of measurement indicators for the organizational performance construct for future management research. Furthermore, we highlight situations, in which construct validity is hampered.

1 Combs, J. G., Crook, T. R., & Shook, C. L. (2005). The dimensionality of organizational performance and its implications for strategic management research. In D. J. Ketchen (Ed.), Research methodology in strategy and management (Vol. 2, pp. 259-286). Amsterdam: Elsevier.

2 Higgins, R. C. (1977). How Much Growth Can A Firm Afford? Financial Management, 6(3), 7-16.

Read the paper, “Exploring the Dimensions of Organizational Performance: A Construct Validity Study,” online in Organizational Research Methods.