Re-Allocation of Resources in the Multi-Business Firm: Dynamism vs. Persistence

The corporate-level allocation of resources among different strategic business units is a critical strategic activity for multi-business firms. In this empirical paper, we examine how multi-business firms optimize their resource re-allocation choices, and how the returns to these choices are moderated by contextual factors. We find an inverse U-shaped relationship between firm performance and the degree to which companies re-allocate resources among their SBUs. This finding brings clarity to the puzzle in the literature regarding whether the strategic approach of dynamism or persistence is superior when it comes to resource re-allocation. Our results reveal that a balanced approach that is neither too persistent nor too dynamic is likely to yield the highest benefits. Also, the availability of slack positively moderates the performance–re-allocation relationship. Higher profitability is achieved from resource re-allocation strategies when high levels of slack are present, indicating that slack eases the coordination challenges associated with resource allocation adjustments.