Mapping European Corporations

Strategy, Structure, Ownership and Performance

Andrea Colli, Abe De Jong, Martin Jes Iversen

• Publisher: Routledge
• Year: 2013
• Print ISBN: 9781138118348
• eBook ISBN: 9781135754518
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This book addresses the evolution of the strategies, structures, ownership patterns and performances of large European corporations since the early 1960s. The authors study large and small countries, in order to understand how the process of economic integration has affected the patterns of growth and the structural characteristics of the largest firms. Drawing both on extensive databases and on case studies, the contributions in this volume address the peculiar specificities of large firms in different national contexts, adopting a longitudinal, long term perspective.

This volume delivers the first results of an international, collective research effort undertaken by several national teams. The 'Mapping Corporate Europe' project aims to provide a detailed account of the structural traits of the European Corporation in a framework which includes (i) a chronological analysis over 50 years, starting with the Rome treaty in 1957; (ii) geographical extension beyond previous analyses for France, Germany and the UK, by including smaller countries; (iii) firms from other industries in addition to manufacturing companies; and (iv) attention to internationalisation of European firms. These analyses form the basis of a rich description of the developments of large European corporations over the past five decades, using both qualitative and quantitative approaches.

This book was originally published as a special issue of Business History.

Mapping strategy, structure, ownership and performance in European corporations

Andrea Colli^a, Martin Jes Iversen^b and Abe de Jong^{c, d}

^a Department of Institutional Analysis and Public Management, Bocconi University, Milan, Italy
^b Centre for Business History, Copenhagen Business School, Frederiksberg, Denmark
^c Department of Finance, Rotterdam School of Management, Erasmus University, Rotterdam, the Netherlands
^d Department of Accounting, University of Groningen, Groningen, the Netherlands

This paper is the introduction to the Business History special issue about European business models. The special issue presents results of the international project about mapping European corporations, within the strategy, structure, ownership and performance (SSOP) framework. The paper describes the historical developments of the SSOP framework and introduces the papers in the special issue.

Introduction

This special issue of Business History about European business models presents results of an ongoing international project on large European corporations. The purpose of this project is to map large firms in terms of strategy, structure, ownership and performance (SSOP).

With the publication of Whittington and Mayer’s (2000) book on the European corporation many new insights on the strategies, structures and ownership of large companies in the UK, Germany and France were added to a literature started in the 1970s in Harvard. As outlined in Wilson et al. (2007), however, many relevant research questions remain unanswered. The mapping corporate Europe project aims to expand the original work of Whittington and Mayer (2000) in several directions, including (i) a chronological analysis over 50 years, starting with the Rome treaty in 1957, (ii) geographical extension including smaller countries and both Western and Eastern European countries, (iii) in addition to manufacturing companies also firms from other industries, and (iv) attention for internationalisation of the European firms. These analyses will form the basis for a rich description of the developments of large European corporations over the past five decades, using both qualitative and quantitative approaches.

Following the publication of the 2007 position paper by Wilson et al., a session was organised during the 2009 EBHA/BHC meeting in Milan (Italy), in which early drafts of papers were presented using the proposed approaches. In October 2009 a workshop at Erasmus University Rotterdam (the Netherlands) was organised in which again a set of papers was presented and discussed. This special issue is the result of these two meetings.

In this paper, we start with a description of the historical developments of the SSOP framework. Subsequently, we critically assess the framework. Finally, we introduce the papers in the special issue.

The framework: big business in the EU from the 1950s to the end of the millennium

From the ‘glorious twenties’…

At the beginning of the 1970s, the Harvard Business School’s Research Division started some field research in order to investigate key features of the largest European corporations.¹ The analysis focused on four European countries (France, Italy, United Kingdom and West Germany), which during the two decades before had been involved in a process of intense economic growth and ‘social modernisation’. Big firms dominated the capital-intensive industries of the second industrial revolution in these countries, while Europe-based multinationals were more and more successful challengers in international markets (Franko, 1976).

The main research question for the HBS scholars was, thus, to understand to which extend this economic modernisation corresponds with an updating process of organisational structures in order to catch up the benchmark represented by the (at that time) globally dominant large corporations from the United States. The evidence underpinning the research was constituted by data collected on the top 100 companies in each country by turnover in the period 1950–70, examined according to the strategies adopted (single, dominant, related and not related activities), and organisational structure (‘U-form’, ‘M-form’ and – in order to take into account what was a distinctive European feature – ‘functional holding’ and ‘holding’, characterised by an higher degree of subsidiaries’ autonomy) (Rumelt, 1974). A shared belief – and one of the research’s main research questions – was the inevitable convergence between Europe and the United States, both in terms of strategy and organisation. This belief was largely – if not fully - confirmed by the evidence emerging from the country studies.

In 1950 only one-quarter of the top 100 corporations in the United Kingdom had diversified their activities, but by 1960 a deep change had taken place. Diversification and the multi-business organisational forms were spreading rapidly; by 1970, multi-business forms had been adopted by more than the 70% of the largest companies. Similar patterns were evident in West Germany and even in France and Italy – the most backward among the four countries analysed – in which in 1970 48 of the top 100 firms had adopted multidivisional structures. This process of convergence had many determinants, among which the process of Americanisation and transformation of the European big business following World War II (Schroeter, 2005). Important drivers of these dynamics were the European Recovery Programme (Marshall Plan), which was accompanied by strong pressures by the Americans in order to speed up the process of liberalisation of the European economies after the interwar autarchic closures. Due to this programme, the European countries came in close contact with the American organisation techniques. Thanks to the ‘US Technical Assistance and Productivity Mission’, for instance, American managers and businessmen travelled to Europe bringing information about organisation and modern management practices, while Europeans crossed the Atlantic in order to learn about the same topics. During the two decades following WWII, the ‘golden’ phase characterised by a progressive increase in the size and dynamism of domestic markets, the largest companies pursued consolidation strategies, particularly evident in capital and technology intensive industries. A telling signal of the transformation of the nature and structure of European large corporations was, for instance, the steady growth in business consulting activities (Kipping & Bjarnar, 1998; Kipping & Engwall, 2002). Consultants – typically US-based companies opening branches in post-war Europe – acted as powerful drivers in the diffusion of strategic and organisational models designed on the other side of the Atlantic and adapted these models to the needs of fast-growing European ‘national champions’.

The intense growth in demand and consumption rates was also incentivised by several trade agreements, which culminated in the creation of the European Common Market (ECM) in 1957. This treaty provided European firms with the necessary basis for mass production and distribution, for the first time in modern times. During the 1960s the large companies of the member states engaged in an increasingly intense activity in the European market, increasing both exports and international investments. At the same time, American FDI intensified jointly with a flow of new technologies, new products, and (at least for Europe) new organisational forms and marketing techniques. This process resulted in a major challenge to European large corporations, both private and state owned, which were increasingly called on to adapt their structural features to the new market situation (Servan-Schreiber, 1968).

As the ‘Harvardians’ soon discovered, however, the outcome was far from being a ‘perfect convergence’ towards the US model of the large, managerial corporation characterised by a high degree of diversification, by divisional structures and by dispersed ownership. On the contrary, in Europe concentrated ownership structures apparently persisted everywhere, together with organisational models emphasising centralised control more than delegation, as the U-form and, above all, the holding state and family ownership, together with a strong role played by financial institutions, led to a high degree of ownership concentration. The influence of large shareholders was further enforced through the widespread use of control-enhancing mechanisms, such as pyramid schemes, shareholder agreements, cross-shareholdings and dual-class shares, all enduring features of the (continental) European corporate governance model (Barca & Becht, 2003; Morck, 2007). Additionally, and the long process of growth notwithstanding, families and individuals could easily manage the enterprises they controlled, because firms were generally smaller than their American counterparts. For instance, at the beginning of the 1970s, turnover of the British largest firm was less than half of that of the largest in the United States (Channon, 1973); in West Germany and Italy this proportion was one-fifth, and in France only one-tenth (Pavan, 1973; Dyas & Thanheiser, 1976).

… to the nineties

Despite cultural and structural resistances, however, the multidivisional enterprise progressively diffused in Europe. The steadiness of the process has clearly been confirmed by a study by Richard Whittington and Michael Mayer concerning the 100 largest British, French and German corporations between 1985 and 1995 at the end of the millennium (Whittington & Mayer, 2000), which stresses the convergence process – at least in the three main economies of Europe – towards the adoption of multidivisional structures and strategies of (related) diversification (see Table 1.1). The general slowdown in the European process of economic growth during the 1970s and early 1980s notwithstanding, the process of convergence towards the American organisational model went on – even if this were in some ‘European’ way.

Another relevant finding of Wittington and Mayer’s contribution has been the persistence of concentrated ownership structures, which were only partially challenged by the intense privatisation process in the UK and France in the second half of the 1980s,

Table 1.1 Percentage of companies in their structure, strategy and ownership.

and elsewhere at the beginning of the 1990s. The state still maintained an important role in many industries, acting as either an owner or controller of corporate assets, often through control-enhancing mechanisms as ‘golden shares’ and other provisions (Bortolotti & Faccio, 2009), while families and banks strengthened their role as blockholders of privatised companies in many countries.

The existing research about strategy, structure, ownership and performance: a critical assessment

The pioneer …

As stressed in the previous section, the emergence of the large, vertically integrated enterprise managed by professionals and progressively diversifying their activities even in non-related fields has stimulated several scholars to deepen the analysis of the relation between strategies and organisational structures. Alfred Chandler (Chandler, 1962, 1977, 1990) explained the process of growth of the modern corporation identifying a direct relationship between corporate policies and organisation. In particular, according to the American business historian, organisational structures had to follow the stage of growth, as well as the strategies and behaviour adopted by the ‘entrepreneurs’ – that is, those managers, or even owners, in charge of allocating organisational resources at the top level. The process of growth and expansion – explained by Edith Penrose (Penrose, 1959) leveraging on concepts as resources, competences and learning – induced the introduction of functional structures, followed by multidivisional forms in order to cope with a steady process of expansion and diversification of production and markets.

Implicitly, Chandler introduced the concept of performance in his analysis. However, in his seminal research, quantitative measures of corporate performance are hardly mentioned. In Chandler’s studies, performance is basically measured at the firm’s level with two general indicators: market share (at home and abroad) and ‘survival’, something close to an evolutionary point of view. Top performers are, in this light, those firms that successfully mix their strategies with the ‘right’ organisational structures, rewarded with a steady success over time – the first movers. This outcome has, in Chandler’s framework, to be seen not only at the micro-level of the single firm; successful companies imply successful national systems and this explains, at the macro-economic level, the changing economic (and political) weight among nations between the first and the second industrial revolution.

Chandler only partially focused his analysis on ownership structures. He did so as he stressed that a radical change in the property of the firm was the necessary premise for the expansion of the modern enterprise. Individuals and families had to leave power and responsibilities to professional managers in order to allow companies to grow in the industries in which the second industrial revolution changed the ‘rules of the game’. A failure in this direction often coincided with a failure in the adoption of the ‘proper’ organisational structure, thus resulting in underperformance, both at the level of the firm and of at the level of an entire industrial system – as in the case of Britain, unable to cope with the American challenge due, to the stubborn persistence of ‘proprietary’ and ‘family’ capitalism among large companies and in capital-intensive industries.

… and his followers

Chandler’s seminal analysis was followed by the ambitious collective project of the Harvard Group, mentioned at the beginning of this introduction. As said earlier, the project was remarkable, first of all for the effort of coordination and internationalisation of the analysis – extended to the main industrialised countries; second, because it introduced a more articulated taxonomy of organisational structures, adding the ‘functional holding’ and the ‘holding’, so much relevant and diffused in Europe. As far as the relations between strategies and structures and the other variables – ownership ...

Table of contents

• Cover
• Title
• Copyright
• Contents
• Notes on contributors
• 1 Mapping strategy, structure, ownership and performance in European corporations
• 2 Changing big business in Italy and Spain, 1973–2003: Strategic responses to a new context
• 3 Strategic responses to global challenges: The case of European banking, 1973–2000
• 4 Strategic and structural responses to international dynamics in the open Dutch economy, 1963–2003
• 5 Explaining corporate success: The structure and performance of British firms, 1950–84
• 6 Strategic transformations in Danish and Swedish big business in an era of globalisation, 1973–2008
• 7 The evolution of German industrial legends: The case of Baden-Württemberg, 1940–2007
• 8 Economic orders and formative phases: A business historical journey through Danish capitalism, 1850–2000
• 9 More SSOP: Commentary
• Index