The Ambivalent Effect of Complexity on Firm Performance: A Study of the Global Service Provider Industry

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

Prior literature is ambivalent about whether organizational complexity has positive or negative effects on firm performance. Using rich data on global service providers, we explore this ambivalence by disentangling performance consequences of different types of organizational complexity. We show that complexity arising from the coordination of different services and operations negatively influences profit margins through increased coordination costs, whereas complexity coming from the sophistication of particular services may positively influence margins through informational advantages. We also investigate the moderating effects of process commoditization and client-specific investments. Our findings point to critical performance dilemmas facing global service providers in a highly competitive industry, and they help better differentiate performance effects of complexity at different organizational levels.
Prior literature is ambivalent about whether organizational complexity has positive or negative effects on firm performance. Using rich data on global service providers, we explore this ambivalence by disentangling performance consequences of different types of organizational complexity. We show that complexity arising from the coordination of different services and operations negatively influences profit margins through increased coordination costs, whereas complexity coming from the sophistication of particular services may positively influence margins through informational advantages. We also investigate the moderating effects of process commoditization and client-specific investments. Our findings point to critical performance dilemmas facing global service providers in a highly competitive industry, and they help better differentiate performance effects of complexity at different organizational levels.
LanguageEnglish
JournalLong Range Planning
Volume52
Issue number2
Pages221-235
Number of pages15
ISSN0024-6301
DOIs
StatePublished - Apr 2019

Bibliographical note

Published online: 21 February 2018.

Keywords

  • Complexity
  • Service provider industry
  • Commoditization
  • Client-specific investments

Cite this

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title = "The Ambivalent Effect of Complexity on Firm Performance: A Study of the Global Service Provider Industry",
abstract = "Prior literature is ambivalent about whether organizational complexity has positive or negative effects on firm performance. Using rich data on global service providers, we explore this ambivalence by disentangling performance consequences of different types of organizational complexity. We show that complexity arising from the coordination of different services and operations negatively influences profit margins through increased coordination costs, whereas complexity coming from the sophistication of particular services may positively influence margins through informational advantages. We also investigate the moderating effects of process commoditization and client-specific investments. Our findings point to critical performance dilemmas facing global service providers in a highly competitive industry, and they help better differentiate performance effects of complexity at different organizational levels.",
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The Ambivalent Effect of Complexity on Firm Performance : A Study of the Global Service Provider Industry. / Larsen, Marcus M.; Manning, Stephan; Pedersen, Torben.

In: Long Range Planning, Vol. 52, No. 2, 04.2019, p. 221-235.

Research output: Contribution to journalJournal articleResearchpeer-review

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