The impact of diversification on task performance: Evidence from kidney transplant centers

• Author: Marvin Lieberman,Sara Parker‐Lue
• Date: 01 July 2020
• DOI: http://doi.org/10.1002/smj.3141
• Published date: 01 July 2020

RESEARCH ARTICLE

The impact of diversification on task

performance: Evidence from kidney transplant

centers

Sara Parker-Lue

1

| Marvin Lieberman

2

1

Department of Management and Global Business, Rutgers Business School, Newark, New Jersey, USA

2

Department of Management, UCLA Anderson School of Management, Los Angeles, California, USA

Correspondence

Sara Parker-Lue, Rutgers Business

School, 1 Washington Park, Newark,

NJ 07102.

Email: sparker@business.rutgers.edu

Abstract

Research Summary: Even when diversification is ben-

eficial, entry into a new business can negatively affect

the performance of the firm's existing business(es). We

examine transplant centers that diversified from kidney

transplants into liver transplants, focusing on how

patient age can affect the costs associated with diversifi-

cation. We find that diversification into liver transplants

resulted in worsened quality performance in kidney

transplants for younger patients, whose cases were less

likely to be unexpectedly complex. For older patients,

whose cases were more likely to have complications,

the negative effect of diversification was offset. Our find-

ings suggest that in health care the costs of diversifica-

tion can be sensitive to patient characteristics, making

focused organizations desirable when task complexity is

low, while favoring diversified organizations for more

complex tasks.

Managerial Summary: When firms diversify into

new activities, the increased coordination may worsen

performance in their original, prediversification activi-

ties. We show how this change in performance depends

on the characteristics of the work itself. We examine

kidney transplant centers that diversified into liver

transplants. Young patients, who are typically less

Received: 1 May2018 Revise d: 16 December 2019 Accepted: 21 December 2019 Published on: 11 March 2020

DOI: 10.1002/smj.3141

Strat Mgmt J. 2020;41:1169–1190. wileyonlinelibrary.com/journal/smj © 2020 John Wiley & Sons, Ltd. 1169

complex to treat, had worse outc omes when centers

diversified. However, for th e oldest patients—generally

the most complex to treat, wi th the greatest chance

of complications—diversifi cation was associated with

slightly improved performance. This sugges ts that

while coordination is diff icult, organizations that diver-

sify may be able to acquire coor dination skills that can

be applied to more complex task s. Simpler tasks

are unlikely to benefit from th ese skills, and thus we

find worsened performanc e in these tasks after

diversification.

KEYWORDS

diversification, factory focus, health care, task complexity, task

uncertainty

1|INTRODUCTION

How does a firm's entry into a new business affect the performance of its existing businesses?

The research literature has demonstrated that firms that can put the advantages from their new

business to work in their original businesses can reap ample benefits. But the new increase in

scope is naturally accompanied by increases in coordination and bureaucratic costs. Thus, an

increase in scope can have negative repercussions for a firm's existing businesses, potentially

offsetting any gains from the new business and reducing overall firm performance.

Increasingly, scholars are turning their attention to organizational characteristics that can

determine whether the benefits of diversification outweigh the costs. The existing scope

(Clark & Huckman, 2011) or complexity (Zhou, 2011) of firm operations, as well as organiza-

tional rigidity (Rawley, 2010), have all been shown to affect whether a firm's performance in

their original business will be helped or harmed by diversification, or will deter a firm from

diversifying at all. We contribute to this literature by examining how characteristics of the work

itself—specifically, task complexity—can affect the costs associated with diversification. We

analyze the performance of organ-transplant centers that diversified from kidney transplants

into the related area of liver transplants. The surgery setting is a useful one in which to test the

effects of diversification at the task level. Data on patient outcomes (mortality rates) provide a

strong measure of quality performance. In addition, there exists a bevy of well-tested clinical

indicators to measure how complicated a surgery will be, which all transplant centers are

required to record.

We find that, on average, diversification into liver transplants worsened quality performance

in kidney transplants for younger patients, whose cases were likely to be comparatively routine.

This negative effect of diversification for younger patients is almost entirely offset for older

patients, who experienced no negative consequences from diversification on quality perfor-

mance. We argue that in our hospital setting, diversification detracted from organizational focus

but may have offered benefits in organizational responsiveness. Thus, we show that the calculus

of diversification can depend on the nature of the work within the organization itself.

1170 PARKER-LUE AND LIEBERMAN