A working paper in the INSEAD Working Paper Series is intended as a means whereby a faculty researcher's thoughts and fmdings may be communicated to interested readers. The paper should be considered preliminary in nature and may require revision.

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Modern corporations have become synonymous with the multidivisional form of organization. Variously interdependent divisions are “chartered” to look after one or more business areas, in effect defining the “turf” of the division and its purpose within the corporation, and collectively defining the corporate domain. However, once created, these divisional charters should not be regarded as rigid; they are susceptible to change. Particularly in fast-paced environments, such as in high-technology industries, divisional charters are liable to change as divisions add or subtract businesses to their charter responsibilities. These charter changes are seen as an adaptive device for large, multidivisional corporations in fast-paced environments. This paper presents a process model of how divisions change their domains in hypercompetitive contexts, focusing on the specific question of how divisions lose all or portions of their business charters. The paper is based on a larger inductive study of charter changes in ten divisions, both domestic and foreign, of a large, multinational, high-technology corporation. Data were collected over an 18-month period and included formal interviews, questionnaires, company documents, group interviews, media publications and direct observations of strategy formation sessions. Over 80 informants were interviewed across several managerial levels. Our data revealed three distinct patterns and logics of charter loss depending upon what phase of core business development a division found itself: (1) Divisions starting-up new core businesses lost these charters because of a combination of their failure in the new area and competition with other divisions in the company—the process revealed a competitive market for new charters; (2) Divisions rapidly growing new core businesses lost peripheral business areas in order to focus on the core business—the process emphasized a focus logic for charter change: finally (3) Divisions with mature charter areas were found to shed their core business areas because of an emerging misfit between their skills and culture and the nature of competition in the industry—the process emphasized the emerging nature of corporate mis-alignment and the abrupt charter changes that can follow. This paper contributes to organizational theory by exploring the evolution of large, diversified corporations, focusing on the organizational responses to fast-moving, competitive environments. It also contributes to strategy by revealing a “re-combinant” multidivisional organizational form, by which timely charter changes can be used by large corporations to keep pace in these turbulent contexts.

This paper considers the impacts of different investments in human capital (firm-specific versus generalized investments) on employee commitment to the firm. The resource-based literature has stressed that only firm-specific human capital is likely to generate organizational rents, since those assets are more likely to be inimitable, rare, and therefore a better basis for sustained competitive advantage. Generalized investments in human capital (i.e., investments in capabilities that people can transfer and deploy to other firms or settings) are to be avoided. However, observing lessons from the literature on psychological contracts and organizational commitment, we argue that generalized investments may have value for the firm through their effects on worker commitment to the firm. The gain in worker commitment is valuable to firms given the fragile state of the contemporary employment relation, in which the lack of job security is likely to breed diminished employee commitment. This is particularly a concern for employment relations consisting of externalized labor (i.e., contract work or selfemployed professionals operating as agents of the firm), in which agent commitment is vital but likely to be more scarce. In this paper we focus on the externalized workers (independent agents) of two insurance firms in addressing these issues. A sample of 237 agents shows support for the benefits of generalized investments on agent commitment, questioning conventional wisdom that such investments should be avoided. We also examine the impact of relation-specific investments and other key antecedents on agent commitment, concluding that a mixture of strategic investments in human capital should be considered, taking into account their impacts on the firm-worker psychological contract. We also examine the impact of agent commitment on agent performance in this context, finding committed agents do provide greater value to the insurer.

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