OrganizationScience

Vol. 21, No. 2, March–April 2010, pp. 540–553
issn1047-7039 eissn1526-5455 10 2102 0540
informs
®
doi 10.1287/orsc.1090.0464
©2010 INFORMS
A General Framework for Estimating
Multidimensional Contingency Fit
Simon C. Parker
Richard Ivey School of Business, University of Western Ontario, London, Ontario N6A 3K7, Canada,
sparker@ivey.uwo.ca
Arjen van Witteloostuijn
Department of Management, University of Antwerpen, Prinsstraat 13, 2000 Antwerpen, Belgium,
arjen.vanwitteloostuijn@ua.ac.be
T
his paper develops a framework for estimating multidimensional fit. In the context of contingency thinking and the
resource-based view of the firm, there is a clear need for quantitative approaches that integrate fit-as-deviation, fit-as-
moderation, and fit-as-system perspectives, implying that the impact on organizational performance of series of bivariate
(mis)fits and bundles of multiple (mis)fits are estimated in an integrated fashion. Our approach offers opportunities to
do precisely this. Moreover, we suggest summary statistics that can be applied to test for the (non)significance of fit
linkages at both the disaggregated level of individual bivariate interactions, as well as the aggregated level of groups of
multivariate interactions. We systematically compare our approach with extant alternatives using simulations, including
the fit-as-mediation alternative. We find that our approach outperforms these established alternatives by including fit-as-
moderation and fit-as-deviation as special cases, by being better able to capture the nature of the underlying fit structure in
the data and by being relatively robust to mismeasurements, small sample sizes, and collinearity. We conclude by discussing
our method’s advantages and disadvantages.
Key words: contingency theory; multidimensional fit; organizational performance
History: Published online in Articles in Advance July 28, 2009.
Introduction
The notion of alignment, congruence, fit, or match (fit,
for short) has been very popular in management stud-
ies ever since the classic contingency-type studies of the
1960s. In the early contributions, the key logic was that
particular internal features of an organization, such as its
processes, structures, or technologies, are best suited to
particular types of environment or contingencies such as
complexity, dynamism, and uncertainty. The underlying
idea was that if the organization could indeed benefit
from such a “fit,” above-normal or superior organiza-
tional performance would be within reach. This argu-
ment has been extended in different directions in the
past three decades. For example, with the emergence
of the strategic choice perspective (Child 1972), char-
acteristics of strategies and strategy-makers were intro-
duced. Related to this, ideal “configurational” types were
developed, prominent examples being those of Miles and
Snow (1978) and Porter (1980). Additionally, this con-
tingency or fit logic has been applied to a wide array
of functional domains, varying from top management
team studies (Boone et al. 2004) to international business
(Luo and Park 2001). Contingency logic has penetrated
into other subdisciplines of management as well, such as
accounting (e.g., Hyatt and Prawitt 2001) and marketing
(e.g., Vorhies and Morgan 2003).
The underlying theoretical rationale is appealing
(Donaldson 2001). In their theoretical essay, Milgrom
and Roberts (1995) argue that complementarities across
organizational features are associated with above-normal
performance; they apply ideas from the economic theo-
ries of complementarity and supermodularity (for empir-
ical work in this tradition, see Athey and Stern 1998,
Mohnen and Röller 2005). In a similar vein, Rivkin
(2000) develops a model of complexity that reveals
how the number of organizational elements and their
interactions are positively linked to the emergence and
sustainability of competitive advantages. Additionally,
he analyzes the downside of fit: organizational inertia
(see Wright and Snell 1998). In a way, this implies
the argument that a static fit may turn into a dynamic
misfit if the environment changes such that organi-
zational adaptation—and hence flexibility—is required
(see Zajac et al. 2000). This type of theoretical work is
closely aligned with the resource-based view of the firm
because the complex and subtle interaction among sets
of organizational resources (Dierickx and Cool 1989,
and Donaldson 2000) is likely to produce a competi-
tive advantage—and hence above-normal performance—
that is difficult to imitate or compete away (Barney
1991). Thus, modern organization theories confirm the
early contingency logic that multivariate configurational
approaches are needed to explain performance differ-
ences, in and over time.
The current paper adds to the large contingency-
type of literature by proposing an econometric approach
540
Parker and van Witteloostuijn: General Framework for Estimating Multidimensional Contingency Fit
Organization Science 21(2), pp. 540–553, ©2010 INFORMS 541
for estimating a comprehensive, flexible, robust, and
multidimensional notion of fit. Although hundreds of
empirical studies have been carried out in the fit-related
tradition, the multidimensional conception of fit is so
complex that empirical estimation is still anything but
easy, a situation that leads Burton et al. (2002, p. 1480)
to the conclusion that “[The concept of fit] is less well-
developed in terms of operational statements and empir-
ical tests.” Our paper’s contribution is threefold. First,
we develop a general and flexible multivariate contin-
gency model of organizational performance that includes
different conceptions of fit as special cases. In doing
so, we integrate fit-as-deviation, fit-as-moderation, and
fit-as-system perspectives in a quantitative framework,
including interaction (explicitly) and distance (implic-
itly) measures of fit in a general model specification,
both individually and as bundles.
Second, we suggest summary statistics derived from
the model that retain in their construction informa-
tion about the sources of fit and that can distinguish
“genuine” fit from random noise. Our approach can be
applied to test for the (non)significance of fit linkages
at both the disaggregated level of individual bivariate
interactions as well as the aggregated level of groups of
multivariate interactions. In this way, the impact on orga-
nizational performance of series of bivariate (mis)fits
and bundles of multiple (mis)fits are estimated in an
integrated fashion.
Third, we systematically compare our method with
extant alternatives using Monte Carlo simulations. We
believe a comparative approach is especially valuable
given the plethora of different fit methods now available.
As part of this approach, we also test the fit-as-mediation
alternative. We find that our method outperforms these
established alternatives by including fit-as-moderation
and fit-as-deviation as special cases; by being better able
to capture the nature of the underlying fit structure in the
data; and by being relatively robust to mismeasurements,
small sample sizes, and multicollinearity. Of course, this
does not imply that our approach is always superior
or that our method does not come at any cost. Partic-
ularly, the number of covariates increases rapidly if the
number of contingencies is expanded. Then, theory is
critical for the selection of a workable number of con-
tingencies. The key is, we believe, a finding from our
simulation exercise, which shows that our approach is
the only one able to identify the underlying nature of
fit. More broadly, we will reflect on the advantages and
disadvantages of our method in the appraisal.
The structure of the paper is as follows. The next sec-
tion briefly reviews fit studies in order to position our
contribution in the context of the extant literature. The
one after develops our general model of organizational
performance, followed by the introduction of our mea-
sure of fit. The penultimate section presents the results
of comparative Monte Carlo simulations. In the final
section, we offer an appraisal and conclusion, briefly
reflecting upon how our general framework for measur-
ing fit relates to the broader literature, including alter-
native approaches and the different traditions, and the
implications for organizational scientists.
Background Literature
A classic conceptual contribution to the empirical fit
literature is Venkatraman (1989). He discusses three
criterion-specific perspectives of fit: fit as moderation,
fit as mediation, and fit as profile deviation. The medi-
ation fit approach differs from the moderation one in
that the former, contrary to the latter, is based upon a
system of (generally two) equations. For example, the
mediation approach first models strategy as a function of
structure and, subsequently, performance as a function
of strategy (see, e.g., Boone et al. 1996). In the mod-
eration approach, using the same example, performance
is modeled as a function of strategy and structure in a
single equation. The moderation fit concept relates to
interaction effects. The argument is that if variables x
and x jointly produce a positive fit, their product term
x - x will affect performance positively (and vice versa,
in the case of a misfit). Strictly speaking, there can be
any number of variables in the interaction term; but in
practice, by far the majority of fit studies are limited to
bivariate interactions, with an occasional exception of a
limited number of three-way interactions (see, e.g., Garg
et al. 2003). The profile deviation fit notion relates to
bundles of multiple variables. Here, the logic is that for
a configuration of variables (x
1
. . . . . x
n
. x
1
. . . . . x
n
) a set
of their levels is linked to organizational performance
(or any other criterion variable, for that matter) as a set
rather than as a series of separate bivariate relationships.
In this tradition, a popular method is to calculate devia-
tion measures that capture the distance of a firm from an
ideal-type configuration, the hypothesis being that this
distance is negatively associated with organizational per-
formance (see, e.g., Vorhies and Morgan 2003).
From this brief overview, we conclude that two
aspects are key to distinguishing one criterion-specific
fit approach from another. The first one contrasts fit as
moderation with fit as deviation (see Donaldson 2001).
Fit as moderation captures (mis)fit in the form of prod-
uct terms of the contingency variables—say, x - x; fit as
deviation measures misfit by calculating the distance of
the actual value of a contingency variable from its ideal
type—say, (x −x

)
2
, where x

is the ideal type’s value
of x (e.g., the value of x that is associated with maxi-
mum performance). Second, fit approaches may focus on
the individual contribution to performance of each and
every contingency variable, or on the joint contribution
of a bundle of contingency variables. In the terminol-
ogy of Drazin and Van de Ven (1985), the latter may be
referred to as the fit-as-system approach. In the current
Parker and van Witteloostuijn: General Framework for Estimating Multidimensional Contingency Fit
542 Organization Science 21(2), pp. 540–553, ©2010 INFORMS
paper, we develop the so-called general interaction (GI)
approach that integrates all three conceptions of fit—i.e.,
fit as moderation, fit as deviation, and fit as system.
To explore this, we compare the GI approach to four
typical examples from the literature, each representing
a relatively “pure” example of an empirical approach
to measure fit as moderation, deviation, mediation, and
system. First, many fit-as-moderation studies introduce
a series of (generally bivariate) interaction terms. Our
typical example is Skaggs and Ross Huffman (2003).
Second, deviation fit studies tend to calculate the dis-
tance of a focal firm vis-à-vis an ideal-type config-
uration by computing multivariate (squared) Euclidian
distances measures. We take Vorhies and Morgan (2003)
as a typical example. Third, in the advanced fit-as-
mediation tradition, (standardized) residuals from a
first-step regression are entered into a second-stage
performance equation. We focus on Zajac et al. (2000)
as a sophisticated case in point. Fourth, system fit studies
often introduce individual and sum dummy measures of
(mis)fit. Our benchmark is Burton et al. (2002, 2003).
1
A Model of Organizational Performance
Let I, E, and S denote three sets of variables, namely
internal (organizational), external (environmental), and
strategy variables, respectively.
2
Each set contains at least
one variable. There are n
I
variables in I, where each vari-
able in I is denoted by x
i
; i.e., I = ]x
1
. x
2
. . . . . x
n
I ] ≡
]x
i
]
n
I
1
. Each variable in E is denoted by x
]
, and each
in S by z
k
, with E = ]x
]
]
n
E
1
and S =]z
k
]
n
S
1
. Without
losing generality, all variables are measured in natu-
ral logarithms: This makes the scale of measurement of
the performance and explanatory variables irrelevant and
enables the use of the general translog function defined
below. It is also assumed that the researcher has already
chosen these variables for their potential usefulness for
explaining variations in a given measure of firm perfor-
mance, ¡ (also measured in logs). Hereafter we refer to
all variables apart from ¡ as “explanatory variables.”
At the outset, we define “fit” in terms of the extent
to which the explanatory variables as pairs or as bun-
dles affect ¡. A fit may be either beneficial or harmful
for firms. For example, phrased in the fit-as-interaction
tradition, a positive fit between two variables involves
them interacting in a way that enhances performance,
whereas a negative fit has the opposite impact. In the
literature, negative fit is often referred to as “misfit.”
An absence of fit is also possible, arising (in a heuristic
sense) if there is zero covariance between performance
and a given pair or bundle of explanatory variables. After
describing our model of performance, we will define fit
more precisely, also showing how distance-based mea-
sures of fit are nested in our approach.
Below we use an extension of the general translog
(TL) function to propose a GI model of (log) firm
performance, ¡. The TL function is well known for its
generality and flexibility. It approximates any functional
relationship between firm performance on the one hand
and a given set of explanatory variables on the other.
Formally, it provides a second-order Taylor approxi-
mation to any functional relationship, which means it
approximates any performance equation as a series of
terms involving increasing powers of the variables, up
to the second order.
3
The practical importance of this
point is that any measure of fit will only be appropriate
if it is based on a suitable underlying model. Because
the researcher rarely if ever knows the true relationship
between performance and its determinants, it is therefore
desirable to utilize a specification that is general enough
to encompass (at least to a second-order approximation)
any that may exist. This flexibility is a key advantage
of the GI approach. Hence our use of the TL function.
Moreover, as we will show below, the TL specification
offers a way to integrate the fit as moderation (FAM)
and the common symmetric approaches to fit as devia-
tion (FAD) into a single to-be-estimated equation.
The GI model can be written as
¡ = m+
n
I

i=1
(o
iI
x
i
+8
iI
x
2
i
) +
n
E

]=1
(o
]E
x
]
+8
]E
x
2
]
)
+
n
S

k=1
(o
kS
z
k
+8
kS
z
2
k
) +

i

=i
8
ii

I
x
i
x
i

+

]

=]
8
]]

E
x
]
x
]
+

k

=k
8
kk

S
z
k
z
k

+
n
I

i=1
n
E

]=1
~
i]IE
x
i
x
]
+
n
I

i=1
n
S

k=1
~
ikIS
x
i
z
k
+
n
E

]=1
n
S

k=1
~
]kES
x
]
z
k
+
n
I

i=1
n
E

]=1
n
S

k=1
o
i]k
x
i
x
]
z
k
. (1)
where the os, 8s, ~s, and os are coefficients that will
be interpreted in the remainder of this section. This will
include an explanation of how (1) is an extension of the
conventional TL function.
4
Apart from an intercept m—which takes care of scal-
ing issues—performance may be affected by three
broad categories of factors. One category comprises
the first three sums of (1). We will call the compo-
nents of these sums individual determinants of perfor-
mance. Note that these terms also happen to capture the
commonly applied symmetric FAD specification of fit
because the FAD specification ¡ = o
0
+o
1
(x −x

)
2
+
o
2
(x −x

)
2
+o
3
(z −z

)
2
can be rewritten as
5
¡ =m+o
I
x +8
I
x
2
+o
E
x +8
E
x
2
+o
S
z +8
S
z
2
. (2)
which is evidently a special case of (1). Viewed this way,
the GI model implies an integrated method for estimat-
ing both FAD and FAM types of fit. Below, the focus of
Parker and van Witteloostuijn: General Framework for Estimating Multidimensional Contingency Fit
Organization Science 21(2), pp. 540–553, ©2010 INFORMS 543
interest, as in the FAM approach, relates to the remain-
ing terms of (1), i.e., to the interactions among variables.
This is not to say that the individual (main and squared)
effects are not important—-they are. This is not only
because they implicitly capture symmetric FAD but also
because in order to understand the effect of a bundle of
variables one needs to understand the individual effects
as well (Cappelli and Neumark 2001). There are two cat-
egories of such interaction terms in model (1), which we
will refer to as within-group fit and (dual and multiple)
between-group fit determinants of performance. Next we
identify each of these two categories with the relevant
terms of (1) and explain their nomenclature and ratio-
nale. Table 1 provides a summary for clarity and ease of
reference.
The fourth, fifth, and sixth sums of (1) capture within-
group fit measures. Thus, the 8
ii

I
coefficients capture
all possible dual (bivariate) interactions among variables
within the set of internal firm variables, I. For exam-
ple, if an owner’s experience (x
1
, say) is more pro-
ductive in a firm with a centralized decision-making
structure (x
2
, say), then one might expect performance
to be positively related to x
1
x
2
: i.e., we would expect to
see 8
12I
>0.
6
This would be indicative of a positive fit.
A similar interpretation applies to the other two sums,
which relate to interactions among variables within the
external variable set and within the strategy variable set.
The ~ coefficients (in the seventh, eighth, and ninth
sums of (1)) capture all possible dual interactions
between variables in different variable groups. For exam-
ple, consider an incumbent firm that faces a more
dynamic, competitive environment as a result of a rival
entering the market with a novel differentiated prod-
uct. Suppose variable x
1
captures this aspect of the new
competitive environment. At the same time, the incum-
bent firm pursues a strategy z
1
of low-cost competition.
The variables x
1
and z
1
come from different variable
Table 1 Summary of Determinants of Performance
Name Terms of GI model Description
A. Relating to fit as deviation
Individual effects

n
|
i =1
|o
i |
x
i
+3
i |
x
2
i
j

n
E
¡=1
|o
¡E
y
¡
+3
¡E
y
2
¡
j

n
S
k=1
|o
kS
z
k
+3
kS
lnz
2
k
j
Individual effects on
performance
B. Relating to fit as moderation
Within-group fit

i

=i
3
i i

|
x
i
x
i

¡


3
¡¡

E
y
¡
y
¡

k

=k
3
kk

S
z
k
z
k

Dual interactions
between variables
within the groups
Between-group fit

n
|
i =1

n
E
¡=1
v
i¡|E
x
i
y
¡

n
|
i =1

n
S
k=1
v
ik|S
x
i
z
k

n
E
¡=1

n
S
k=1
v
¡kES
y
¡
z
k

n
|
i =1

n
E
¡=1

n
S
k=1
o
i¡k
x
i
y
¡
z
k
Dual interactions
between variables
across groups
Multi-interactions
across groups
groups (E and S, respectively), so between-group fit
is suggested. In this example, we might expect ~
11ES
(in the first sum on the last line of (1)) to be nega-
tive, reflecting a deterioration in the incumbent firm’s
performance. This would be indicative of a negative fit
or misfit between this strategy and this feature of the
external environment. On the other hand, let z
2
be the
strategy of “enter now” for a new entrant and let x
2
be a
variable capturing the environmental condition of “less
advertising by a rival.” Then we might expect these two
variables to have a positive fit impact on the performance
of a new entrant, implying ~
22ES
>0 for such firms.
In contrast, the coefficients o
i]k
[in the final sum
of (1)] capture the importance of any multiple interac-
tions between members of the three groups of variables.
These terms actually constitute an extension to the con-
ventional TL function commonly used in the economics
literature. In a mathematical sense, the terms capture
part of a third-order approximation to any general per-
formance function; but in the present context, its ratio-
nale is to represent multiple interactions across the three
groups of variables, as explained below. Something akin
to these three-way interactions recently appeared in an
important paper by Cassiman and Veugelers (2006).
An example might help at this point. Imagine, for
instance, that following a particular strategy (e.g., z
3
)
in the face of a particular environmental opportunity
(e.g., x
3
) only translates into better performance if the
firm has in place a particular aspect of internal orga-
nization (x
3
, for example). Then the dual fit between
x
3
and z
3
is ineffective as far as performance is con-
cerned, i.e., ~
33ES
=0, whereas in conjunction with x
2
,
performance is enhanced, so o
333
> 0. Thus, the mul-
tiple between-group fit terms capture any performance-
enhancing interactions that require elements of all three
of internal, external, and strategic elements to be present
simultaneously.
Measuring Fit
The foregoing has talked loosely of “fit” within and
between components of I, E, and S. We now propose a
more formal way of measuring fit. Specifically, we will
propose a statistic that captures fit through bundles of
interaction terms. In so doing, we integrate the fit-as-
system approach into the GI method. Our starting point
is the observation that, in practice, all models of perfor-
mance estimated from sample data are subject to sam-
pling error, so it is important to have measures of fit that
are robust to this problem. In addition, we seek to quan-
tify significance and importance irrespective of the sign
of its effects (because fit can have positive and misfit
negative effects on performance) and in a way that can
be assessed for statistical robustness.
A convenient measure of fit that satisfies these two
properties is the statistical concept of the incremental
Parker and van Witteloostuijn: General Framework for Estimating Multidimensional Contingency Fit
544 Organization Science 21(2), pp. 540–553, ©2010 INFORMS
contribution (IC) of the various sums in (1). As will be
explained more formally below, IC is the extent to which
a bundle of variables as a group contributes statisti-
cally to explaining cross-firm variations in performance.
In this way, the significance of any individual contribu-
tion of bivariate (mis)fits and the overall contribution of
bundles of (mis)fits can be estimated in an integrated
framework (see Burton et al. 2002, p. 1479). Not only
does this enable the researcher to distinguish genuine fit
from random noise such as measurement error, but also
it enables fit to be evaluated at different levels of aggre-
gation. The researcher might, for example, be interested
in checking not only whether the individual sums com-
posing “within-group fit” are important aspects of fit but
also whether their aggregate sum is, too. The latter indi-
cates whether within-group fit as a whole is a coherent
aggregate measure of fit. In a similar manner, we might
be interested in assessing whether aggregate “between-
group fit” is also a coherent entity, by combining all four
sums making up the between-group fit entry in Table 1.
Statistical Framework and Incremental
Contribution
In order to define IC formally, we require a statisti-
cal model of performance, ¡
t
, where t (t = 1. . . . . T )
indexes the particular firm t from the total of T firms
in the sample. For convenience, write the sample equiv-
alent of the right-hand side (RHS) of (1) in compact
matrix form as
¡
t
=W

t
l +u
t
. (3)
where ¡
t
is a column vector of log firm performance
for all T firms in the sample; W
t
is a (k ×T ) matrix
containing unity and all of the (k − 1) variables on
the RHS of (1) (i.e., 1. ]x
it
]
n
I
1
. ]x
]t
]
n
E
1
. ]z
kt
]
n
S
1
, and their
interactions); l is the vector of associated coefficients
(i.e., m and every o, 8, ~, and o coefficient); and u
t
is
a vector of errors, with mean zero and variance u
2
.
This is a standard regression model, which can be
estimated by ordinary least squares (OLS). Further-
more, it is easy to test linear restrictions. All mod-
ern software packages compute E statistics of r linear
restrictions, denoted by E (r. T −k). For example, sup-
pose that one wanted to test whether the dual interac-
tions of the I variables were jointly insignificant. This
implies r =n
I
(n
I
−1)¡2. Then the well-known E statis-
tic E (r. T −k) forms the basis of our measures of IC.
Consider the following statistics:
W=
T
T −k
rE (r. T −k). (4)
LR =T ln

1 +
1
T −k
rE (r. T −k)

. (5)
LM=
T · rE (r. T −k)
(T −k)

1 +
1
T −k
rE (r. T −k)
. (6)
These are three large-sample tests based on the E
statistic, called the Wald (W), likelihood ratio (LR), and
Lagrange multiplier (LM) tests, respectively. They all
follow a +
2
(r) distribution under the null hypothesis
that the dual interactions of the I variables are jointly
insignificant. Asymptotically, i.e., as T → , values
of W, LR, and LM converge. In small samples, we have
the ordering W≥LR ≥LM (see, e.g., Greene 2003, for
a proof).
Each of these three statistics is a valid measure of IC.
They can be used to measure fit for any of the sums in
Table 1. All that is needed is to impose the zero restric-
tions on the terms whose IC is being tested and then to
compute the above statistics with r defined accordingly.
Hence these statistics are easy to compute in practice.
Panel A of Table 2 summarizes the IC statistics this pro-
cedure gives rise to, where subscripts on the +
2
statistics
indicate the type of fit being measured. Higher values of
the IC statistics indicate a greater statistical impact on
performance from the specified interactions, irrespective
of whether its individual components affect performance
positively or negatively. Values that exceed the e-point
“critical value” from the +
2
(r) distribution suggest that
one can be 100×(1−e) percent confident that the aspect
of fit being tested is not just random noise.
Notice that the IC statistics defined above do not
depend on the signs of the coefficients, but instead upon
their statistical ability to affect performance; they are
symmetrical in this respect. Hence the IC statistics can
detect fit or misfit—i.e., whether interactions are most
or least beneficial for performance. In practice, the esti-
mated coefficients of (1) should also be cited along-
side the IC statistics because they measure the economic
Table 2 Summary of GI Fit Statistics
Measure Degrees of freedom Description
A. Separate fit statistics
+
2
|
n
|
(n
|
−1)¡2 Fit within | variables
+
2
E
n
E
(n
E
−1)¡2 Fit within E variables
+
2
S
n
S
(n
S
−1)¡2 Fit within S variables
+
2
|E
n
|
n
E
Dual fit between | and
E variables
+
2
|S
n
|
n
S
Dual fit between | and
S variables
+
2
ES
n
E
n
S
Dual fit between E and
S variables
+
2
|ES
n
|
n
E
n
S
Multiple fit between
the variables
B. Aggregate fit statistics
+
2
|
++
2
E
++
2
S
|n
|
(n
|
−1) +n
E
(n
E
−1) Total within-group fit
+n
S
(n
S
−1)j¡2
+
2
|E
++
2
|S
++
2
ES
n
|
(n
E
+n
S
) +n
E
n
S
(1+n
|
) Total between-group fit
++
2
|ES
+
2
|
++
2
E
++
2
S
|n
|
(n
|
−1) +n
E
(n
E
−1) Grand overall fit
++
2
|E
++
2
|S
+n
S
(n
S
−1)j¡2+n
|
·
++
2
ES
++
2
|ES
(n
E
+n
S
) +n
E
n
S
(1+n
|
)
Parker and van Witteloostuijn: General Framework for Estimating Multidimensional Contingency Fit
Organization Science 21(2), pp. 540–553, ©2010 INFORMS 545
(rather than the statistical) significance of interactions.
Both will be cited in our numerical illustration below.
Two questions arise at this point. Why use the three
statistics (4), (5), and (6) instead of E (r. T −k)? And
which of the three statistics should be used in prac-
tice? These questions are addressed in the two subsec-
tions that follow. As we will see next, the answer to the
first question is based on a convenient additive property
of the +
2
distribution, which permits easy aggregation
and disaggregation of IC fit measures across categories.
Then we show that the answer to the second question is
an empirical one, informed by Monte Carlo simulations
relating to size and power of the statistics.
Aggregation and Disaggregation
As well as computing the seven IC fit measures cor-
responding to the seven sums in Panel B of Table 1,
obtaining more aggregated measures of fit might also be
of interest. This is easily done by performing joint sig-
nificance tests on every sum we are interested in. By the
additive property of +
2
distributions, an asymptotically
equivalent (and much simpler) procedure is to add up the
individual +
2
IC statistics corresponding to these sums.
See Panel B of Table 2 for a summary of these aggregate
fit measures and their degrees of freedom.
For illustrative purposes, let us return to the case of
the first sum of Panel B in Table 1. Suppose one were
to find a mixture of positive and negative components in
the sum and wanted to measure separately fit attributable
to positive components and misfit attributable to nega-
tive components. Our approach can also accomplish this
by exploiting the additive property of +
2
distributions.
To see this, let v - n
I
(n
I
−1)¡2 be the number of pos-
itive interactions and n ≤ ]|n
I
(n
I
− 1)¡2] − v] be the
number of negative ones []n
I
(n
I
−1)¡2] −(v +n) ≥0
is the number of zero interactions]. Then calculate the
IC measure for just positive interactions, say. This is dis-
tributed as +
2
with v degrees of freedom. The IC mea-
sure for negative ones only is distributed as +
2
with n
degrees of freedom. Clearly, any of the sums in Table 1
can be disaggregated in this fashion.
Monte Carlo Simulations on the IC Statistics
Because W≥LR ≥LM, it follows that if LM indicates
statistically significant fit, or if W indicates insignificant
fit, there will be no conflict between the different IC
fit measures. So when assessing whether fit is signifi-
cant, LM can be regarded as the most “conservative”
in the sense that this statistic will indicate significant fit
less frequently than the other two. Inference becomes
less clear, however, if the three statistics give differ-
ing results. In our examples below, that problem does
not arise; to address this issue more generally, we per-
formed Monte Carlo simulations to evaluate the perfor-
mance of the statistics in order to improve our ability to
discriminate between them and make secure inferences
in cases when the three IC statistics disagree (results
available upon request). The simulation results were
based on 10,000 bootstrapped draws from the residuals
of the translog performance model, where 1 irrelevant
variables drawn from independent standard normal dis-
tributions were used to test for size. This does not “pre-
determine” our results to mirror those from our example,
as the bootstrapping does no more than to sample ran-
domly from some (nonparametric) distributed random
variable. Several simulations were performed for var-
ious combinations of 1 and the sample size, N. All
three +
2
statistics were reasonably well sized, even in
small samples, although LM has the best size properties
overall. Notably, the LM does especially well for the
case of larger numbers of restrictions on the irrelevant
variables, 1 . But before reaching any conclusions about
the choice of a preferred statistic in cases where they
disagree, we also need to evaluate the power properties
of the statistics.
With the simulation results, we checked the ability
of the three IC statistics to correctly reject a false null
hypothesis that 1 truly relevant explanatory variables
are actually irrelevant. Again, the Monte Carlo simu-
lations were performed based on bootstrapped residu-
als from the fit model. The results show that there is
little to choose between the three statistics in terms
of power. Reasonable power is obtained for all of the
restrictions considered given a sample size of 100 or
more. As 1 increases, power goes to 1.00 as we move
up the power curve; i.e., for any given o, the wrong
null hypothesis is increasingly untenable. In general, it is
well known that absolute power values are less interest-
ing than relative values based on comparisons between
the performance of the statistics. Overall, based on these
simulation results, we recommend that researchers either
cite all three IC statistics or, if only one is to be used,
select the LM statistic. The LM has the best size proper-
ties, and good power properties. Moreover, as the most
conservative statistic it is also the least likely to overstate
occurrences of genuine fit in practice.
Comparison of the Approaches
by Simulation
To provide an illustrative comparison between our GI
fit approach and others proposed in the literature, the
following variables were defined: two I variables x
1
and x
2
, one E variable x, and one S variable z. This
restriction to a set of four variables is done for the
sake of convenience, without affecting the validity of
the comparative analysis that follows. Define the vector
v := (x
1
. x
2
. x. z), where each variable is measured in
natural logarithms. For each variable, 100 observations
were randomly generated from a uniform distribution
with support |0. 10]. The results below are insensitive
to this (essentially arbitrary) choice of random number
generator.
Parker and van Witteloostuijn: General Framework for Estimating Multidimensional Contingency Fit
546 Organization Science 21(2), pp. 540–553, ©2010 INFORMS
In principle, the GI method belongs to the fit-as-
moderation approach, although our specification (1) also
implicitly captures FAD elements based on symmetric
distance measures, as explained above. The key dif-
ference between the GI approach and distance-based
FAD alternatives is that the latter explicitly calculate
deviations from ideal types, whereas such ideal type
deviations (when expressed symmetrically, at least) are
implicitly nested in our GI specification. As noted in
the literature review, this explicit FAD conceptualiza-
tion is the principal alternative approach to the FAM
notion. The explicit FAD approach measures misfit as
some function of the squared deviation of v from an
“ideal” profile, which is denoted by v

. Common FAD
functions include the identity function (used below for
simplicity) and the square root function (giving rise to
the Euclidean distance). The results below do not depend
on which function is chosen.
In what follows, we will consider various fit mea-
sures that are common versions of the FAM or the
FAD approach. To enable a fair comparison to be made
between different fit approaches, two data generation
processes (DGPs) are used, one corresponding to the
FAM and one to the FAD approach. A DGP is an equa-
tion that generates data on performance outcomes as a
mixture of deterministic and stochastic influences. The
use of two different DGPs enables one to assess the
sensitivity of different approaches to the underlying per-
formance data-generation process.
Log performance is denoted by ¡; its values were
computed using one or other of the following DGPs:
¡ =−
1
2
x
1
x
2
−x
2
xz +w. (7)
¡ =−
1
4
(v −v

)

(v −v

) +w. (8)
where w is a vector of 100 independent random draws
from the normal distribution with mean 0 and variance 3.
There are no special implications of using this particular
distribution of w, although we note that a higher vari-
ance would inject greater noise into the DGPs, which
makes it harder for any model to fit the data well.
Key is that Equation (7) reflects a FAM data-generation
process and Equation (8) a FAD one. By working
with both (7) and (8), we can explore the comparative
strengths and weaknesses of FAM- and FAD-based esti-
mation approaches, or any other, in dealing with both
types of underlying data.
More specifically, the key question explored in this
section is the robustness of fit approaches to four dif-
ferent problems that can arise in real-world applications.
One question is the robustness of the approaches to
a different DGP than the one typically assumed. For
instance, does the GI approach capture FAD sources
of fit, as generated by (8), and how does this compare
to explicit FAD distance-based estimation approaches
prominent in the literature? A second question relates to
the robustness of the approaches to mismeasurement of
the variables in v. For example, is the GI approach more
or less sensitive to variable mismeasurement than the
alternative approaches? A third question is how robust
the various approaches are to the use of small sample
sizes, in conjunction with the number of contingencies
included. After all, the GI approach does seem to be
demanding in this respect by including numerous inter-
action terms. Finally, a fourth question involves robust-
ness to multicollinearity. This is particularly pertinent
for the GI approach (and other FAM approaches, for that
matter) because it might include numerous highly cor-
related main and interaction terms in a single equation.
Robustness of inference to these four problems is taken
to be a desirable property of fit approaches in what fol-
lows. To the best of our knowledge, researchers have not
yet explored comparative robustness properties of differ-
ent fit approaches. Yet in practice, some or all of these
problems may be commonplace.
The next subsection considers the case where per-
formance is determined by the GI DGP (7). We first
illustrate the GI approach in practice and show that
it accurately represents the DGP when random noise
w is present. To address the first robustness issue, we
then go on to explore the performance of alternative fit
approaches using the same DGP. The question here is
whether alternative approaches can also track the data
well and detect the structure of fit or misfit when the
data are generated by a DGP (7). To provide a fair basis
for comparisons, the second subsection treats the case
where performance is determined by the FAD DGP (8).
We ask how robust the GI approach is to the differ-
ent DGP. The third subsection treats the three remaining
robustness issues for both FAM and FAD approaches,
namely, robustness of the different approaches to mis-
measurement of the variables in v, to the use of small
sample sizes, and to instances of collinearity. The final
subsection assesses the costs and benefits of the various
approaches.
We compare our GI approach to four typical examples
of alternative approaches, as explained in the literature
review section above. The first is Vorhies and Morgan
(2003). They use an explicit FAD approach, applying a
two-step procedure by, in the first step, estimating ideal
types on the basis of average values for the contingency
variables for the top 10% of performers and in the sec-
ond step including Euclidian distance measures in a per-
formance equation estimated for the remaining 90% of
the sample. The second alternative is from Skaggs and
Ross Huffman (2003). They apply the standard FAM
method, including a limited number of bivariate inter-
action terms in their performance model. Third, Burton
et al. (2002) suggest a fit-as-system method. They define
a series of dummy misfit variables that make up the
key explanatory variables in a performance regression.
Fourth, Zajac et al. (2000) develop a fit-as-mediation
Parker and van Witteloostuijn: General Framework for Estimating Multidimensional Contingency Fit
Organization Science 21(2), pp. 540–553, ©2010 INFORMS 547
methodology. They suggest a two-equation estimation
procedure, where the residuals of the first (mediation)
regression are the key explanatory variables in the sec-
ond (performance) model.
Comparisons Based on a GI DGP
The regression results from estimating the GI model
using DGP (7) are presented in column 1 of Table 3.
IC statistics measuring fit are reported in Panel A of
Table 4. Recall from (7) that all and only the within-x
term x
1
x
2
and the multiple-fit term x
2
xz should be sta-
tistically significant. Because the DGP follows the GI
structure, it is no surprise that the results show this to be
the case, with significant IC statistics for these interac-
tions but none for the others.
7
The coefficient estimates
are also close to their “true” values of −0.50 and −1.00.
We next ask what happens when alternative fit ap-
proaches are applied to these data. We start with
column 1 of Table 5, which presents the outcome of
implementing the Vorhies and Morgan (2003) FAD
approach to measuring fit. This involves, first, estimating
v

as average values of v sampled from the top 10% of
performers to obtain ˆ v

; second, computing a Euclidean
distance measure defined as D =(v
]
− ˆ v

)

(v
]
− ˆ v

) for
the remaining 90% of the sample; and third, regressing
performance ¡ on D using the specification
¡ =o
0
+o
1
D+e. (9)
where e is a disturbance term. According to Vorhies
and Morgan (2003), misfit is detected when o
1
is neg-
ative and significant.
8
This prediction is borne out by
the results presented in column 1 of Table 5, suggest-
ing that the Vorhies and Morgan (2003) approach does
indeed detect the existence of FAM-generated fit when
it is present. Furthermore, the approach is superior to
randomly choosing v

(corresponding perhaps to incor-
rect theoretical priors), as can be seen in simulations
(not reported here) where no significant effects from D
emerge. However, the Vorhies and Morgan method also
suffers from important drawbacks. It cannot identify the
nature of fit (i.e., FAM or FAD) and so cannot isolate the
true determinants of what makes fit work. The adjusted
R
2
in column 1 of Table 5 is also low compared with
that of column 1, Table 3, reflecting the large amount of
structure not being exploited by this method.
Consider next the bivariate interaction approach,
which has dominated the FAM approach in the liter-
ature to date. A typical example is Skaggs and Ross
Huffman (2003). Column 2 of Table 3 presents results
of including only bivariate interactions and excluding all
multiple interactions in (1). The corresponding IC statis-
tics appear in Panel B of Table 4. The restrictions of
only bivariate interactions are statistically inadmissible
(E =6.578: ¡ - 0.0001). Reflecting this, the IC statis-
tics in Panel B of Table 4 differ markedly from those in
Table 3 Estimates of the GI Performance Model
Variable (1) (2) (3) (4) (5) (6)
Constant 6.95 79.30

180.16

−14.53

−1.04 3.24
(1.33) (13.04) (3.50) (4.51) (0.22) (0.21)
x
1
−0.71 −12.42 −0.34

−0.70 −0.46
(0.70) (0.34) (2.04) (0.76) (0.12)
x
2
1
−0.08 −8.57 −0.04 0.01 −0.09
(1.34) (0.84) (0.50) (0.11) (0.42)
x
2
0.13 −0.92 0.72

0.43 −0.43
(0.16) (0.08) (3.33) (0.58) (0.14)
x
2
2
−0.02 −1.45 0.05 −0.05 −0.14
(0.36) (1.40) (1.19) (0.86) (0.40)
y −1.33 −14.14 0.87

0.59 0.39
(1.35) (1.32) (3.30) (0.68) (0.13)
y
2
0.02 −0.24 0.02 −0.86 −0.10
(0.45) (0.26) (0.54) (1.81) (0.48)
z −0.44 −24.74

−0.75

−0.51 −1.23
(0.37) (2.36) (2.61) (0.50) (0.46)
z
2
0.00 0.34 −0.11 0.00 0.09
(0.05) (0.38) (0.70) (0.09) (0.61)
x
1
x
2
−0.49

−0.84

35.98 −0.02 −3.06

−0.55

(8.40) (2.75) (1.87) (0.28) (58.43) (4.10)
x
1
y 0.18 0.14 −6.96 0.06 0.05 0.17
(1.51) (0.44) (0.29) (0.55) (0.47) (0.31)
x
2
y 0.05 −2.69

−30.63 −0.17 −0.01 −0.03
(0.51) (7.42) (1.40) (1.86) (0.09) (0.10)
x
1
z 0.17 0.42 43.11

0.03 −0.00 0.23
(1.26) (1.06) (2.10) (0.28) (0.02) (0.48)
x
2
z −0.11 −3.01

−54.96

−0.12 0.12 −0.14
(0.81) (9.82) (2.28) (1.20) (1.00) (0.39)
yz 0.03 −3.10

13.49 −0.11 0.07 0.02
(0.17) (9.01) (0.49) (1.30) (0.54) (0.07)
x
1
yz −0.02 13.06 0.00 0.01 −0.03
(0.88) (0.55) (0.18) (0.34) (0.37)
x
2
yz −0.99

−95.74

−0.01 −15.65

−0.97

(44.01) (3.49) (0.27) (877.06) (19.76)
Adj. P
2
(%) 99.96 94.26 83.54 81.24 99.99 99.93
Notes. Dependent variable is p
t
. All variables defined in the text. All
are continuous variables apart from the variables in the last 8 rows
of column (3), which are dummy variable replacements. Method
of estimation in all columns: OLS. Number of observations in all
columns is 100 apart from (6), where it is 22. The columns are
explained in the text. Absolute t-statistics are in parentheses.

Indicates significance at 5%.
Panel A. At one level, this is not too surprising: by omit-
ting important explanatory variables a regression cannot
be expected to give accurate results. What these results
therefore illustrate is the well-known consequences of
mis-specification in the context of FAM methods.
Burton et al. (2002) proposed a third, theory-driven,
approach to measuring FAM. They define a dummy
variable SIT MISF whose value equals one for an obser-
vation for which any of the contingency variables for
that observation are in a state of (theoretically deter-
mined) misfit. Otherwise its value equals zero for that
observation. Burton et al. also define additional dummy
variables capturing misfit, which is not attributable to
Parker and van Witteloostuijn: General Framework for Estimating Multidimensional Contingency Fit
548 Organization Science 21(2), pp. 540–553, ©2010 INFORMS
Table 4 IC Fit Statistics
IC statistic LM LR W 5% crit. val.
A. Column (1) of Table 3
Within-x fit 45.94

61.51

81.98

3.84
Between-xy fit 4.33 4.43 4.53 5.99
Between-xz 2.38 2.40 2.43 5.99
Between-yz fit 0.04 0.04 0.04 3.84
Multiple fit 96.66

340

2,897

5.99
B. Column (2) of Table 3
Within-x fit 8.37

8.74

9.13

3.84
Between-xy fit 44.67

59.19

80.75

5.99
Between-xz 59.08

89.36

144.35

5.99
Between-yz fit 49.46

68.24

97.87

3.84
Multiple fit — — — —
C. Column (3) of Table 3
Within-x fit 4.05

4.14

4.22

3.84
Between-xy fit 2.55 2.58 2.61 5.99
Between-xz fit 8.94

9.36

9.81

5.99
Between-yz fit 0.28 0.29 0.29 3.84
Multiple fit 12.78

13.67

14.65

5.99
D. Column (4) of Table 3
Within-x fit 0.10 0.10 0.10 3.84
Between-xy fit 4.31 4.41 4.51 5.99
Between-xz fit 2.67 2.71 2.75 5.99
Between-yz fit 1.99 2.01 2.03 3.84
Multiple fit 0.10 0.10 0.10 5.99
E. Column (5) of Table 3
Within-x fit 97.63

374.08

4.113.25

3.84
Between-xy fit 0.26 0.26 0.27 5.99
Between-xz 2.15 2.17 2.19 5.99
Between-yz fit 0.35 0.35 0.35 3.84
Multiple fit 99.99

932.91

1.1×10
6∗
5.99
F. Column (6) of Table 3
Within-x fit 16.95

32.37

73.82

3.84
Between-xy fit 0.54 0.54 0.55 5.99
Between-xz 1.12 1.15 1.18 5.99
Between-yz fit 0.02 0.02 0.02 3.84
Multiple fit 21.81

104.17

2.483.32

5.99
each contingency variable in turn. So in the present con-
text, a dummy variable NO X
1
takes a value of one for an
observation for which SIT MISF takes the value one but
there is no misfit in x
1
for that observation (else it takes
the value zero). Dummy variables NO X
2
, NO Y, and
NO Z can be defined analogously. Burton et al. predict
that in a regression of ¡ on the complete set of dummy
variables (SIT MISF, NO X
1
, NO X
2
, NO Y, and NO Z),
the variable SIT MISF should have a significant negative
effect, reflecting performance-damaging misfit, whereas
either the other dummy variables are zero or they are
positive if there are any benefits from the absence of
misfit in a single dimension.
We implemented the Burton et al. (2002) method to
be as generous to it as possible by assuming that the
researcher knows the true form of the DGP (7). Hence
any values of x
1
x
2
or x
2
xz that are greater than their
respective means have the greatest negative effects on
performance and so are associated with misfit. After
Table 5 Regression Results for Alternative Fit Approaches
Variable (1) (2) (3) (4) (5) (6)
Constant −4.44 −21.47

−131.76

−1.12 −7.25

−51.14

(0.19) (17.08) (5.60) (1.03) (2.59) (2.39)
D −2.63

−0.41

−0.33

0.19
(4.49) (19.67) (45.22) (0.56)
SIT MISF 5.09
(1.33)
NO X
1
6.50
(1.75)
NO X
2
−7.61
(1.84)
NO Y −10.41

(2.15)
NO Z 11.78

(2.88)
ˆ u −4.04
(1.01)
ˆ u −3.67
(0.96)
ˆ u ˆ c 0.02
(1.28)
Adj. P
2
(%) 31.58 18.93 0.00 81.26 95.83 −0.03
Note. Variables are defined in the text. See the notes to Table 3 for
entries.
calculating the sample means of x
1
x
2
and x
2
xz in our
simulation, we coded values of SIT MISF as one for
observations where either of these product variables
have above-average values—and zero if neither do. Also
following those authors, we coded NO X
1
as one for
observations where SIT MISF = 1 but where x
1
takes
values less than or equal to its sample mean (imply-
ing the variable is causing least misfit)—and as zero if
these conditions do not hold. The other dummy variables
proposed by Burton et al. were defined analogously
(e.g., we coded NO X
2
as equal to one for observations
where SIT MISF =1 but where x
2
takes values less than
or equal to its sample mean). This is generous to Bur-
ton et al. because it comes closest to mimicking the true
DGP, recognizing that theory alone might not always
correctly identify instances of fit.
The results of implementing this approach are pre-
sented in column 2 of Table 5. Contrary to predic-
tions, SIT MISF is positive and insignificant, whereas the
effects of the other dummy variables are mixed. Obvi-
ously, if the theory underlying the dummy variable cod-
ing is incorrectly specified, the Burton et al. approach
is liable to yield even more misleading results. After
all, even expert opinions about ideal types can differ
(Doty et al. 1993), implying that some “expert” opinions
are sometimes wrong.
An anonymous referee wondered whether the GI
model might outperform Burton et al. (2002) if dummy
variables were used in place of all interactions in (1).
This is a valuable exercise because it identifies the role
Parker and van Witteloostuijn: General Framework for Estimating Multidimensional Contingency Fit
Organization Science 21(2), pp. 540–553, ©2010 INFORMS 549
played by dummy variable codings per se as distinct from
the specific use of them by Burton et al. We explored
this possibility by replacing all interactions in (1) with
dummy variables. For example, a dummy variable for
x
1
x
2
took the value one for values of this variable that
exceeded its sample mean and zero for values below its
sample mean. Dummy variables were defined similarly
for all of the dual and multiple between-group fit deter-
minants of performance. These dummies replaced the last
eight continuous variables of (1). The parameter esti-
mates appear in column 3 of Table 3, and the IC statistics
appear in Panel C of Table 4. Compared with column 1
of Table 3 and Panel A of Table 4, these results show that
the dummy model performs adequately but not as well
as the pure TL model. The parameter estimate on x
1
x
2
in
column 3 of Table 3 takes the wrong sign and is not quite
significant at 5%, although the IC statistics in Panel C of
Table 4 correctly identify both types of fit as significant
in Panel C. Unfortunately, some spurious between-xz fit
also appears to be significant. Essentially, replacing con-
tinuous variables with dummy variables discards valuable
information, which is why the results based on dummy
interactions identify the DGP inaccurately. Nevertheless,
by correctly identifying at least some aspects of fit, the
results appear to be superior to those of the Burton et al.
approach discussed above.
Finally, we analyze one more alternative approach to
fit, suggested by Zajac et al. (2000). This is the “Fit as
Mediation” two-step approach, which has the following
structure:
c =1 (v) +u. (10)
¡ =o
0
+o
1
ˆ u +o
2
ˆ u +o
3
ˆ uˆ c +e. (11)
The first equation (10) specifies some auxiliary vari-
able c as some function 1 (·) of the vector of covari-
ates v; the u are random regression errors. Predicted
values of c are given by ˆ c =

1 (v) and residuals are given
by ˆ u =c − ˆ c. In (11) these predicted values and residuals
are taken to influence performance; misfit is detected by
a negative coefficient on o
1
.The rational of Zajac et al.
is that firms whose c values diverge from those of the
predicted conditional mean given by the first terms on
the RHS of (10) will likely be in misfit and end up with
lower performance.
To be as generous as possible to the Zajac et al.
method, it was implemented by (i) assuming that the true
structure of 1 (·) is known: c =8
0
+8
1
x
1
x
2
+8
2
x
2
xz+u,
and (ii) defining c as a genuine mediating variable:
c = 0.5 ∗ ¡ + w, where w was defined as a N(0. 3)
random noise as above. Column 3 of Table 5 presents
the results. As is readily seen, this approach does indeed
find a negative coefficient on ˆ u, but neither it nor any of
the other coefficients are statistically significant. Hence
the Zajac et al. method is silent about the existence and
structure of fit or misfit, even though we know from the
true DGP that fit is present. The Zajac et al. method
performs poorly because the residuals do not exploit the
underlying structure inherent in the fit relationship and
so cannot adequately represent the fit that is present in
the data.
In summary, the results in this section show that
although one alternative method (Vorhies and Morgan
2003) can actually detect FAM fit when it is present,
none of the alternative fit methods analyzed here uncover
either the identity or full structure of fit for the FAM
data-generation process given by (7). Hence the GI fit
approach would seem to be a valuable addition to the
set of fit approaches for at least some types of DGP.
Of course, it remains to be seen how successful the
GI approach is at mimicking alternative DGPs—i.e.,
whether the GI approach also satisfies the first robust-
ness property above. This question is examined next.
Comparisons Based on a FAD DGP
Suppose now that the performance data are generated
by (8). With this DGP, we might logically expect the
explicit FAD approach described in the previous subsec-
tion to perform well, whereas the GI approach does not.
To explore this possibility, we compare the GI approach
to the one used by Vorhies and Morgan (2003). For
illustrative purposes, four integers were randomly drawn
from the uniform distribution with support |0. 10]. This
gave v

=(4. 8. 9. 1). The FAD DGP involves substitut-
ing this v

into the RHS of (8) and adding randomly
generated normal numbers generated from N(0. 3) to
compute values of ¡. The Vorhies and Morgan (2003)
method described above was then applied. That is, we
calculated the average v for the 10 cases with the largest
values of ¡, denoted by ˆ v

, and then computed values of
D=(v − ˆ v

)

(v − ˆ v

) for the remaining 90 observations
before running the regression ¡ =o
0
+o
1
D. The Vorhies
and Morgan method stipulates the regression estimate
of o
1
to be negative and statistically significant. This is
indeed what is found in column 4 of Table 5.
We then applied the GI FAM approach to the same
DGP (8). As noted in the previous section, expand-
ing the quadratic form in (8) yields an equation, (2),
that is a special case of (1), namely where only the
“individual effects” are present, with zero coefficients
for all of the interaction effects. Column 4 of Table 3
and Panel D of Table 4 shows that the GI approach
is able to identify this case by correctly finding sig-
nificant individual effects and insignificant interaction
effects. Interestingly, these findings clearly identify the
nature of the fit, namely FAD (recall that, in contrast,
the Vorhies and Morgan method is unable to do this
when the DGP is FAM). Furthermore, the adjusted R
2
is almost identical to that of the Vorhies and Morgan
estimates in column 4 of Table 5 (the slight reduction
is attributable to the redundant interaction variables in
this case). This suggests a useful, important, and novel
Parker and van Witteloostuijn: General Framework for Estimating Multidimensional Contingency Fit
550 Organization Science 21(2), pp. 540–553, ©2010 INFORMS
possibility: In practice, when the true DGP is rarely if
ever known, the GI approach can nevertheless identify
the type of fit underlying the data (e.g., FAM in col-
umn 1 and FAD in column 3). In an empirical sense,
therefore, FAD is “nested” in the GI approach. This
implies a response to Fiss’s (2007, p. 1183) critique of
the FAD approach: “[A] deviation score approach allows
the researcher only limited peeks into the black box
of configurations. It often remains unclear which aspect
of the misfit actually affects the outcome in question.”
In this respect, the GI method appears to outperform
FAD-based alternatives.
Mismeasurement, Small Sample Sizes,
and Collinearity
A second desirable property of fit measures is robust-
ness to mismeasurement of variables. Below, we focus
on comparing the GI approach with the explicit FAD
approach used in Vorhies and Morgan (2003). To explore
this issue for both FAM and FAD fit approaches, the true
data continue to be associated with v, whereas the error-
prone actual values available to the researcher are taken
to be 2.5×v. If fit approaches are robust to mismeasure-
ment of variables, their indications of fit should be unaf-
fected. This prediction is tested using DGP (7) for the GI
approach and using DGP (8) for the Vorhies and Morgan
approach. The results appear in column 5 of Table 3,
Panel E of Table 4 for the GI approach, and column 5
of Table 5 for the Vorhies and Morgan approach. The
results in these tables show that each method still cor-
rectly identifies fit so both methods appear to be robust
to this type of mismeasurement.
The third desirable property of fit measures is robust-
ness to a small sample size. To explore this issue, the
number of observations of v and v

is reduced to 22.
This decreases the degrees of freedom in the GI regres-
sion to a mere five. Yet as column 6 of Table 3 and
Panel F of Table 4 reveals, the inference of the GI
approach is remarkably robust to the very small number
of degrees of freedom. In contrast, column 6 of Table 5
shows that the coefficient of the distance measure carries
the incorrect sign and is statistically insignificant, imply-
ing no sources of misfit. This is, of course, the opposite
of the true state of affairs.
So far, then, our findings suggest that the GI method
is probably the most robust and informative of the fit
approaches considered here. However, we have only
applied the GI method using a small number of contin-
gencies. At issue is the fact that the GI method prolif-
erates parameters when there are numerous explanatory
variables. Table 6 illustrates the problems that this can
cause. The first row of Table 6 corresponds to the empir-
ical analysis performed so far in this article, where
n
I
=2 and n
E
=n
S
=1. This model generates 17 regres-
sors in (1), which according to our simulation analysis
Table 6 Numbers of Contingencies and Covariates in
GI Models
n
|
n
E
n
S
No. of regressors Min. sample size
2 1 1 17 18
2 2 2 36 39
3 3 3 82 90
4 4 4 155 163
5 5 5 261 n.a.
6 6 6 406 n.a.
Notes. Number of regressors is
1+2(n
|
+n
E
+n
S
) +
1
2

¡=|. E. S
n
¡
(n
¡
−1) +n
|
n
E
+n
|
n
S
+n
E
n
S
+n
|
n
E
n
S
.
This is the number of terms in (1) in the text. Min. sample size is the
minimum number of observations needed to apply the GI method in
practice and obtain accurate IC statistics. n.a. = not available, i.e.,
design matrix H

t
H
t
is too large to invert to compute OLS formulae
ˆ
o =(H

t
H
t
)
−1
H

t
p
t
.
can be estimated using a minimum of 18 observa-
tions. Lower rows of Table 6 correspond to ever larger
models. With 163 observations, for instance, the GI
method can handle 12 contingency variables and the
associated 155 regressors.
9
Evidently, the number of
explanatory variables grows rapidly as the number of
contingency variables increases. In contrast to the alter-
native approaches considered here, the minimum sample
size needed to operationalize the GI approach rapidly
becomes quite large. This can in and of itself pose an
important practical limitation if data are scarce. Clearly,
although it is possible to create a large sample size in
simulation exercises, it is often difficult or impossible
when using real-world data.
Another problem with the GI method is that when
there are numerous contingencies, parameter estimation
can become difficult or impossible. For example, some
econometric programs place restrictions on the maxi-
mum number of covariates in the design matrix. Fur-
thermore, it can be difficult to interpret coefficients in
these cases, and collinearity can also become a prob-
lem. Although in general collinearity does not affect E
statistics (Gujarati 1995) on which the IC statistics are
based—implying a broad degree of robustness in this
sense—some software programs can break down when
collinearity is very pronounced. And even though step-
wise regression methods might be used to address these
problems when degrees of freedom are scarce, stepwise
regression is not without its limitations either. For exam-
ple, the type of stepwise algorithm used (e.g., forward
selection, backward elimination, or some combination),
the order of parameter entry (or deletion), and the num-
ber of candidate parameters can all affect the selected
model (e.g., Derksen and Keselman 1992). These prob-
lems can be particularly acute when the regressors are
correlated.
Parker and van Witteloostuijn: General Framework for Estimating Multidimensional Contingency Fit
Organization Science 21(2), pp. 540–553, ©2010 INFORMS 551
Costs and Benefits
The GI approach promises several important benefits
compared with existing methods. These include robust-
ness to data generated by different DGPs, to mis-
specification of ideal fit profiles (because it makes no
explicit assumptions or inferences about such profiles),
to mismeasurement of variables, and to small sample
sizes. The GI approach also identifies which dimen-
sions of firm performance (if any) are associated with
fit, which (if any) are associated with misfit, and even
which DGP likely underlies the observed data. The lat-
ter is a particularly valuable property because it helps
elucidate the underlying structure of fit, aiding inter-
pretation and potentially helping to inform appropriate
strategies. However, the GI approach is less well-suited
to handling very large numbers of contingencies. These
costs and benefits need to be carefully weighed in future
empirical analyses of fit. Our own view is that for the
reasons enumerated above, the GI approach should be
used whenever feasible, for instance when the number
of contingencies make conventional estimation possible
(even when degrees of freedom are limited). But in mod-
els where there are very large numbers of contingencies,
alternative methods such as Vorhies and Morgan (2003)
should be used—albeit at the cost of not being able to
determine the true nature of the DGP underlying the
observed fit.
More specifically, our Monte Carlo simulations re-
vealed that the GI method is able to deal with relatively
small sample sizes. Clearly, though, there is inevitably a
sample size threshold below which estimation ceases to
be feasible, depending upon the number of covariates.
Then either the number of covariates has to be reduced
or another method must be applied. In the first case, the
researcher may decide, on the basis of theory, to restrict
the number of control variables, main effects (linear
and/or nonlinear), and product terms to be included in
the GI specification. In the second case, if the sample
size is still too small relative to the number of the must-
be-included covariates, another method must be pre-
ferred, such as that of Vorhies and Morgan (2003), Fiss’s
set-theoretic approach, nonparametric tests, or case stud-
ies. If the degrees of freedom condition is satisfied, how-
ever, the GI method can be flexibly applied within both
the deductive and the inductive fit tradition. This we
believe is one of our method’s key benefits.
Here we would like to emphasize an aspect of our
approach that we think is essential to further progress in
contingency research. That is, we believe that to date too
little attention has been paid to limitations of fit mea-
sures that imply specific assumptions as to the nature
of the underlying fit-generating process. Contingency
researchers currently do not know the implications of
assuming a particular theoretical conception of fit when
in fact the data are generated by a totally different pro-
cess. Our paper sheds light on this issue and proposes
a method that avoids the problems of imposing an inap-
propriate theoretical structure on the data. We believe
the GI approach is especially useful when researchers
have little idea about the underlying nature of the fit-
generating process. In this case, it can help to reveal the
nature of the underlying process as well as the degree
of fit.
A further advantage of our approach rests in the way
that the GI method deals with ideal types. Explicit FAD-
based approaches in the contingency literature need ideal
types of configurations of variables to calculate dis-
tance terms or to identify (mis)fits. This implies either
that a theory must be in place to specify such ideal
types ex ante or that first-stage empirical analyses are
required ex post as input in second-stage estimations.
Both approaches imply very strong assumptions about
the researcher’s a priori theoretical knowledge or the
quality of the post hoc first-stage empirical analyses.
10
Our GI approach avoids such strong assumptions by
implicitly inducing ideal types in a one-shot estimation
procedure. Seen this way, the GI specification implies
an inductive approach to distil ideal types from the data.
This is not to say that the GI approach cannot be com-
bined with deduction––it can. After all, deduction guides
the selection of potential contingency variables and the
formulation of fit hypotheses, which can subsequently
be tested within the nested context of a comprehensive
GI performance model. In the empirical analysis, such
deductive reasoning does not impose any constraints on
the estimation procedure.
Appraisal
This paper developed a general approach to measuring fit
in the parametric performance-criterion tradition (Venka-
traman 1989). In the large contingency literature, con-
sensus on the way to measure and estimate fit is absent,
implying that results across the literature are difficult to
compare. Two widely used but different fit approaches
are referred to as fit as moderation (FAM) and fit as devi-
ation (FAD). The FAM approach is based on the assump-
tion that contingency effects are reflected in interaction
terms, whereas the FAD approach argues that this can
only be achieved by distance terms. Our general interac-
tion (GI) approach is agnostic in this respect because the
GI specification of fit integrates both the FAM and sym-
metric FAD notions as nested cases. Using simulations,
we show that the GI approach indeed correctly identifies
all FAM and FAD instances of fit, even if the underlying
data-generation process is of a FAD nature.
More generally, provided that the number of con-
tingencies is not too great, our GI specification can
be superior to a series of alternative ways to mea-
sure and estimate fit—i.e., fit as distance from an ideal
type (e.g., Vorhies and Morgan 2003), fit as a dummy
(e.g., Burton et al. 2002), and fit as mediation (e.g., Zajac
et al. 2000). That is, the GI approach does capture the
Parker and van Witteloostuijn: General Framework for Estimating Multidimensional Contingency Fit
552 Organization Science 21(2), pp. 540–553, ©2010 INFORMS
“true” instances of fit, which the other approaches fail
to do, whether produced by an underlying FAM or FAD
data-generation process. This is the first, and most impor-
tant, property of the GI approach. In addition, the GI
approach has four additional desirable properties: (1) it
moves far beyond the dominant bivariate approach by
including a series of bivariate and higher-order interac-
tion terms; (2) it is associated with test statistics (IC, or
incremental contribution statistics) that are broadly insen-
sitive to multicollinearity; (3) it is more robust to mis-
measurement of variables; and (4) it can deal with small
sample sizes. However, the GI approach comes at the
cost of proliferating parameters in models with numerous
contingencies. The issue of small sample sizes deserves
further work in future research.
Future research might also try to extend the compar-
ative analysis of different fit methods adopted here by
paying greater attention to the alternative approaches of
complementarity and supermodularity. Recently, using
the complementarity framework of Milgrom and Roberts
(1995), an interesting series of empirical studies has
emerged that tries to empirically estimate complemen-
tarities (see, e.g., Cassiman and Veugelers 2006). This
suggests that the application of the empirical supermod-
ularity approach in the broader contingency tradition
deserves further attention (Porter and Siggelkow 2008).
This also holds true for the temporal fit approach of
Perez-Nordtvedt et al. (2008). Basically, they argue that
we need to test for the effect of temporal (mis)fit on firm
performance. To do so, longitudinal research is needed.
In our paper, we do not refer to a time dimension at all.
Our method, in principle, can deal with longitudinal data
and “dynamic” fit measures. A dynamic measure would
be, e.g., that the change in strategy from t to t +1 fits
well (or not, of course) with the change in the environ-
ment from t to t +1. It remains to be seen whether there
exists an even more general fit approach that can encom-
pass these frameworks as well as those discussed in this
paper. We hope to explore this issue in future work.
We believe that the various measures proposed here,
together with the full set of estimated coefficients in the
underlying performance model, provide a rich source of
information from which a full and rounded picture of
fit and firm performance can be obtained. Our general
framework is flexible in the sense that multivariate inter-
actions can be easily introduced, as can series of bivari-
ate product terms—thus introducing a system-type of fit
notion. Moreover, we believe that the IC statistic is supe-
rior to the ones used in the extant literature, for the rea-
sons adduced above. Additionally, the multi-interactions
across groups jointly indicate configurations of complex
bundles of complementarities that reflect ideal types of
performance-maximizing sets of organizational features
and environmental contingencies. In doing so, we offer a
general framework of measuring fit that encompasses the
fit-as-moderation or interaction, fit-as-deviation or con-
gruence, and the fit-as-bundle or system perspectives.
We hope that the simplicity and power of the approach
we propose will be of considerable practical use to future
organizational scientists.
Acknowledgments
The authors thank the senior editor and three anonymous refer-
ees for helpful comments on earlier drafts; the usual disclaimer
applies.
Endnotes
1
In advance, it should be noted that some of the above exam-
ples already integrate different approaches to fit. Particularly,
Zajac et al. (2000) add interaction terms to their residual
approach, and Burton et al. (2002, 2003) estimate the impact
of both individual and aggregated (mis)fit dummies. However,
neither these nor any other approach in the literature is as
comprehensive as ours. Additionally, system-type of fit stud-
ies often employ correlation and variance analyses to reveal
patterns of associations (e.g., Doty et al. 1993). However, in
the current paper, we focus on parametric regression methods.
2
Our approach can easily be generalized to more than three
groups of variables. For instance, the I-group could be split
into two sets of variables, one relating to “hard” internal issues
of organization structure and another one capturing “soft”
internal aspects of organizational culture. For our purposes,
though, there is no need to complicate the calculus further.
Note that, moreover, our three sets of variables cover the main
thrust of the contingency-related literature.
3
See Christensen et al. (1973, 1975) for a proof of this prop-
erty of the TL specification in the context of production and
utility functions.
4
Equation (1) could also be derived using the “Expansion
Method” popularized by Emilio Casetti in the 1970s (for a dis-
cussion, see, e.g., Casetti 1992).
5
Where m = o
0
+ o
1
x
∗2
+ o
2
x
∗2
+ o
3
z
∗2
, o
I
= −2o
1
x

,
8
I
=o
1
, o
E
=−2o
2
x

, 8
E
=o
2
, o
S
=−2o
3
z

, and 8
S
=o
3
.
This specification remains valid and estimable also when x

,
x

, and z

are somehow “known” or estimated externally
because o
0
, o
1
, o
2
, and o
3
remain unknown parameters. Note
that the GI model does not nest all possible FAD specifica-
tions. For instance, it does not nest asymmetric specifications
that penalize deviations above an optimal level differently from
deviations below an optimal level. We leave this issue for future
research.
6
Positive coefficients on all interaction terms are consistent
with different notions of fit known as “complementarity” and
“supermodularity”: see, e.g., Athey and Stern (1998), Mohnen
and Röller (2005), Cassiman and Veugelers (2006), and Porter
and Siggelkow (2008).
7
In this case and all others considered below, all three IC statis-
tics yield identical conclusions. Also, all of the aggregate fit
statistics are highly significant, so issues relating to IC statistic
type and aggregation are not discussed any further below.
8
This approach might be criticized as rather limited, by assum-
ing that only a unique v

maximizes performance (“unifi-
nality”). See for example Fiss (2007), who proposes a more
sophisticated set-theoretic approach that can identify multiple
v

s that can all be associated with high performance (“equi-
finality”). Our approach can deal with equifinality, too. For
Parker and van Witteloostuijn: General Framework for Estimating Multidimensional Contingency Fit
Organization Science 21(2), pp. 540–553, ©2010 INFORMS 553
example, let (o. l. c. J) be four dummy variables. Suppose
firm 1 has o = l = 1 and c = J = 0, whereas firm 2 has the
opposite: o = l = 0 and c = J = 1. Then, letting ¡ denote
performance, the FAM regression model ¡ =ol +cJ exhibits
equifinality for the two firms. If cases of o =l =c =J =1 are
technically infeasible, then only equifinality is observed.
9
Of course, this example serves an illustrative purpose only:
we certainly do not suggest that researchers should increase the
number of regressors up to the maximum possible limit.
10
As a prominent researcher on fit recently put it, “[I]deal
types thus largely depend on just how the sample is composed,
rather than on substantive theory about what an ideal configura-
tion means and what makes it ideal. Furthermore, the obtained
results may be quite sensitive to even minor errors in estimat-
ing the ‘ideal’ configurations, and the reliability of deviation
scores will often be very low because it is the product of the
reliabilities of the original variables” (Fiss 2007, p. 1183).
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