Strategic Decoupling: Ambiguous Identity as a Strategy in Korean Business Groups

Prior studies on identity and classification in the recent organizational ecology literature generally suggested that ambiguous identities incur various disadvantages, since audiences prefer organizations with clear and sharp identities. In contrast, we argue that organizations often deliberately choose ambiguous identities by decoupling what they actually do and how they present themselves to external audiences for the purpose of dealing with institutional pressures and strategic conditions. This paper examines sources of such decoupling between stated business area (i.e. officially announced SIC code of the focal firm) and actual business activities in member companies of business groups. In examining strategic sources of SIC decoupling, we pay special attention to the idiosyncratic natures of business group focusing on its strategic inclination to diversify. Our empirical study analyzed the data spanning fourteen years from 1987 to 2000, examining 339 member companies belonging to the thirty largest Korean business groups often referred to as Chaebols. The results from our analysis suggest that the decoupling between stated and actual business areas of a member company belonging to a business group is affected positively by the number of regulations on the focal industry, negatively by societal pressure toward high accountability of business groups, positively by the strategic importance of the focal member company to the focal business group, and negatively by the focal member company's niche overlap with other member companies of the focal group. However, the negative effect of niche overlap was found to become weaker with the increase of regulations on the focal industry and also with the increase of the focal member company' performance. General implications on organization theory and management studies are discussed.