Common purpose advantage: Reviving a managerial theory of the firm?

Abstract Research Summary What is the most effective way to distribute organizational objectives across managers? While prior work suggests managers should each focus on a single objective, we draw on Barnard's original insights on corporate purpose to identify conditions when managers pursuing the full set of objectives is advantageous. Using a computational model, we find that moderate strategic diversity amongst managers enables practice sharing to generate sufficiently valuable distant search to offset the additional complexity incurred during local search, creating a “common purpose advantage.” The advantage is stronger with fewer objectives, moderate objective correlation, less diversification, and moderate turbulence. Under other conditions, it dissipates or reverses. This work unifies scattered findings on multi‐objective firms, contributes to diversification research, and revives interest in the Managerial Theory of the Firm. Managerial Summary How should a firm distribute its objectives across its managers? Should each manager focus on a single objective, or should all collectively pursue the full set? Our research identifies the conditions for a “common purpose advantage,” where all managers pursuing the full set of objectives is superior. Using a computational model, we demonstrate this advantage arises when moderate strategic diversity amongst managers enables the sharing of valuable practices, which generates performance gains that offset the complexity of handling multiple goals. This advantage is strongest with fewer objectives, moderate environmental turbulence, and in less diversified firms. Under other conditions—such as high turbulence, many objectives, or high diversification—this advantage dissipates or reverses, making each manager focusing on a single objective more effective.