Showing papers by "Copenhagen Business School published in 2003"

MNC knowledge transfer, subsidiary absorptive capacity, and HRM

Abstract: Based on a sample of 169 subsidiaries of multinational corporations (MNCs) operating in the USA, Russia, and Finland, this paper investigates the relationship between MNC subsidiary HRM practices, absorptive capacity and knowledge transfer. First, we examine the relationship between the application of specific HRM practices and the level of the absorptive capacity. Second, we suggest that absorptive capacity should be conceptualized as being comprised of both employees’ ability and motivation. Further, results indicate that both ability and motivation (absorptive capacity) are needed to facilitate the transfer of knowledge from other parts of the MNC.

New human resource management practices, complementarities and the impact on innovation performance

Abstract: In this paper, we take our theoretical point of departure in recent work in organisational economics on systems of human resource management (HRM) practices We develop the argument that just as complementarities between new HRM practices influence financial performance positively, there are theoretical reasons for expecting them also to influence innovation performance positively We examine this overall hypothesis by estimating an empirical model of innovation performance, using data from a Danish survey of 1,900 business firms Using principal component analysis, we identify two HRM systems which are conducive to innovation In the first one, seven of our nine HRM variables matter (almost) equally for the ability to innovate The second system is dominated by firm-internal and firm-external training Of the total of nine sectors that we consider, we find that the four manufacturing sectors correlate with the first system Firms belonging to wholesale trade and to the ICT intensive service sectors tend to be associated with the second system

Bringing the corporation into corporate branding

Abstract: This paper describes corporate branding as an organisational tool whose successful application depends on attending to the strategic, organisational and communicational context in which it is used A model to help managers analyse context in terms of the alignment between strategic vision, organisational culture and corporate image is presented The model is based on a gap analysis, which enables managers to assess the coherence of their corporate brand Use of the model is illustrated by examining the stages of development that British Airways passed through in the creation of its corporate brand The paper concludes that corporate brand management is a dynamic process that involves keeping up with continuous adjustments of vision, culture and image The model suggests an approach to corporate branding that is organisationally integrated and cross‐functional, hence the thesis that it is important to bring the (whole) corporation into corporate branding

Consumers as Co-developers: Learning and Innovation Outside the Firm

Abstract: This study describes a process in which a firm relies on an external consumer community for innovation. While it has been recognized that users may sometimes innovate, little is known about what commercial firms can do to motivate and capture such innovations and their related benifits. We contribute to strategy literature by suggesting that learning and innovation efforts from which a firm may benifit need not necessarily be located within the organization, but may well reside in the consumer environment. We also contribute to the existing theory on ‘user-driven innovation’ by showing what firms purposively can do to generate consumer innovation efforts. An explorative case study shows that consumer innovation can be structured, motivated, and partly organized by a commercial firm that organizes the infrastructure for consumers’ interactive learning in a public online domain.

Selective Intervention and Internal Hybrids: Interpreting and Learning from the Rise and Decline of the Oticon Spaghetti Organization

Abstract: Infusing hierarchies with elements of market control has become a much-used way of simultaneously increasing entrepreneurialism and motivation in firms. However, this paper argues that such "internal hybrids," particularly in their radical forms, are inherently hard to successfully design and implement because of a fundamental incentive problem of establishing credible managerial commitments to not intervene in delegated decision making. This theme is developed and illustrated, using the case of the world-leading hearing aids producer, Oticon. In the beginning of the 1990s, Oticon became famous for its radical internal hybrid, the "spaghetti organization." Recent work has interpreted the spaghetti organization as a radical attempt to foster dynamic capabilities by organizational means, neglecting, however, that about a decade later the spaghetti organization has given way to a more traditional matrix organization. In contrast, an organizational economics interpretation of Oticon organizational changes is developed. This lens suggests that a strong liability of the spaghetti organization was the above incentive problem: Frequent managerial meddling with delegated rights led to a severe loss of motivation, and arguably caused the change to a more structured organization. Refutable implications are developed, and the discussion is broadened to more general issues of economic organization.

Backtesting Value-at-Risk: A Duration-Based Approach

Abstract: Financial risk model evaluation or backtesting is a key part of the internal model's approach to market risk management as laid out by the Basle Commitee on Banking Supervision (1996). However, existing backtesting methods such as those developed in Christoffersen (1998), have relatively small power in realistic small sample settings. Methods suggested in Berkowitz (2001) fare better, but rely on information such as the shape of the left tail of the portfolio return distribution, which is often not available. By far the most common risk measure is Value-at-Risk (VaR), which is defined as a conditional quantile of the return distribution, and it says nothing about the shape of the tail to the left of the quantile. Our contribution is the exploration of a new tool for backtesting based on the duration of days between the violations of the VaR. The chief insight is that if the VaR model is correctly specified for coverage rate, p, then the conditional expected duration between violations should be a constant 1/p days. We suggest various ways of testing this null hypothesis and we conduct a Monte Carlo analysis which compares the new tests to those currently available. Our results show that in realistic situations, the duration based tests have better power properties than the previously suggested tests. The size of the tests is easily controlled using the Monte Carlo technique of Dufour (2000).

Organizational transformation in transition economies: resource-based and organizational learning perspectives

Abstract: The capitalist and socialist societies of the twentieth century assigned firms different roles within their economic systems. Enterprises transforming from socialist to market economies thus face fundamental organizational restructuring. Many former state-owned firms in the transition economies of Central and Eastern Europe have failed at this task. These firms have pursued primarily defensive downsizing, rather than strategic restructuring, as a result of both internal and external constraints on restructuring strategies. Building on the organizational learning and resource-based theories, we analyse strategies available to management in privatized, former state-owned enterprises in transition economies to restructure their organization. Both internal forces promoting or inhibiting the restructuring process, and external constraints arising in the transition context are examined. A model and testable propositions are developed that explain post-privatization performance. Implications of our research point to the ways in which firms should manage and develop their resource base to transform to competitive enterprises.

Supply chain collaboration: Theoretical perspectives and empirical evidence

Abstract: Presents a theoretical framework for analysing interorganizational collaboration Argues that Collaborative Planning, Forecasting and Replenishment (CPFR) should be viewed as a general approach to coordination of processes between participants in a supply chain, rather than following a slavish step‐by‐step model, as suggested by the organization Voluntary Inter‐Industry Commerce Standards (VICS) This approach demands a deeper analysis of both integration depth and scope of various collaboration forms This is done primarily from a theoretical perspective, but supported by an empirical study of Danish companies’ attitudes towards interorganizational collaboration

The Resource-Based Tangle: Towards a Sustainable Explanation of Competitive Advantage

Abstract: To advance the RBV we propose separation of necessary and additional conditions for the expression of SCA. We argue that there are only two necessary conditions, namely uncertainty and immobility and that all other conditions are additional. Copyright © 2003 John Wiley & Sons, Ltd.

Managing modularity of product architectures: toward an integrated theory

Abstract: The management of innovation through modular product architecture strategies is gaining increasing importance for firms, both in practice and theory. Modularity refers to a new product development strategy in which interfaces shared among components in a given product architecture are specified and standardized to allow for greater substitutability of components across product families. It is argued that the degree of modularity inherent in product architectures depends on the constituent components and interfaces. This paper introduces a mathematical model, termed the modularization function, for analyzing the degree of modularity in a given product architecture. It takes into account the following variables: components; degree of coupling; and substitutability of new-to-the-firm components. The application of the modularization function is illustrated with two elevator systems from Schindler-traction and hydraulic. The comparative analysis of the elevators captures the sensitivity and dynamics of product architecture modularity created by three types of components (standard, neutral, and unique) and two types of interfaces (fundamental and optional).

Line management responsibility for HRM: what is happening in Europe?

Abstract: The notion of line management accepting greater responsibility for human resource management (HRM) within employing organisations is now received wisdom This paper presents data on the variation in practice across Europe, noting the evidence that the HR role is increasingly assigned to line managers, and that the extent of such assignment varies from country to country This first presentation of data from 1999/2000 updates previous work the authors have presented on this topic: the evidence shows that in terms of that assignment, countries tend to remain in the same relationship to each other

Modularity, component outsourcing, and inter‐firm learning

Abstract: Modularization of product architectures is a strategy for managing complex design activities and production systems, and associated supply chain issues. It has wide-reaching implications, from design engineering to business strategy. With standardized interface specifications, component outsourcing is possible, both with respect to the division of tasks in functional specification and detailed engineering of a product architecture. However, failure at the system level could still take place if interface compatibility issues of the outsourced component with the rest of the system are not understood. Outsourcing creates a certain degree of supplier-buyer interdependence and possibilities for inter-firm learning. A study of Chrysler Jeeps WIPERs suggested that learning-by-failure from one product architecture cultivated closer cooperation between the supplier and Chrysler to solve technical problems as well as to be innovative in searching for the best technological solutions for future product architecture designs.

Option Valuation with Conditional Skewness

Abstract: There is extensive empirical evidence that index option prices systematically differ from Black-Scholes prices. Out-of-the-money put prices (and in-the-money call prices) are relatively high compared to the Black-Scholes price. Motivated by these empirical facts, we develop a new discrete-time dynamic model of stock returns with Inverse Gaussian innovations. The model allows for conditional skewness as well as conditional heteroskedasticity and a leverage effect. We present an analytic option pricing formula consistent with this stock return dynamic. An extensive empirical test of the model using S&P500 index options shows that the new Inverse Gaussian GARCH model's performance is superior to a standard existing nested model for out-of-the money puts, thus demonstrating the importance of conditional skewness. The discrete-time Inverse Gaussian GARCH process has two interesting continuous-time limits. One limit is the standard stochastic volatility model of Heston (1993). The other is a pure jump process with stochastic intensity. Using these limit results, an equivalent motivation for our model is that it generalizes standard stochastic volatility models by allowing for "jumps" and other fat-tailed negative movements in stock returns. The empirical results therefore also demonstrate the importance of jumps for the pricing of out-of-the-money puts.

The language of opportunity

Abstract: The validity of entrepreneurship scholars' tendency to regard opportunities as concrete realities waiting to be discovered by entrepreneurs is questioned. Based on economics literature, the "opportunity discovery" perspective, embraced by so many scholars, emphasizes the importance of observation and information asymmetries. However, it may ignore important characteristics of opportunity as a phenomenon.In this study, written responses from the Panel Study of Entrepreneurial Dynamics (PSED), a national longitudinal survey of nascent entrepreneurs, were analyzed to determine how the original idea for starting their businesses was developed. The responses suggest that many entrepreneurs entertain an "opportunity enactment" perspective. In other words, opportunities only become apparent through the ways that entrepreneurs make sense of their experiences. Although they may talk about "discovering" opportunities because academic scholars describe opportunities as discoverable, entrepreneurs actually imagine opportunities through their actions and their interactions with others. Rather than preexisting, then, opportunities emerge from the individual entrepreneur's imagination. The favorable circumstances that entrepreneurs are likely to recognize are the product of their own initiative.(SAA)

Environmental influences on MNE subsidiary roles: Economic integration and the Nordic countries

Abstract: We seek to examine the importance of environmental factors in determining MNE subsidiary roles. In particular, we examine the environmental factors associated with ‘deep’ integration schemes such as the EU. Such schemes require a convergence of economic structure, due to the establishment of common regional institutions, regulations and policies. Specifically, we distinguish between the scope of activities performed by subsidiaries, and the level of competence of those subsidiaries. The empirical analysis is based on a large-scale survey of foreign-owned units in Denmark, Finland and Norway. These Nordic countries differ with regard to their EU-membership status – Norway being the ‘outsider’, while the others are members – but are very similar to each other in most other respects. Our data show that subsidiaries in Norway report significantly lower scores for both scope of activities and levels of competence. The effects remain strong even when we are controlling for other potentially influential factors. The findings indicate that being on the ‘outside’ of the EU may indeed carry the price of becoming less attractive to MNE activity.

Ownership Structure and Value of the Largest European Firms: The Importance of Owner Identity

Abstract: The paper examines the relationship betweenownership structure and value of the largestEuropean firms Using simultaneous estimationand controlling for nation and industry effectswe find that ownership concentration (measuredby the fraction of ``closely held'' shares) hasa positive effect on firm value (market-to-bookvalue of equity), when the largest owner is afinancial institution or another corporation If the largest owner is a family or a singleindividual, ownership concentration has noeffect on firm value, and the effect isnegative if the largest owner is a governmentorganisation Firm value is found to have apositive feedback effect on ownershipconcentration except for governments, whichhold higher stakes in low-value firms Inother words, owner-identity matters,particularly in a Continental Europeaninstitutional setting where ownershipconcentration is high and minority investorprotection is low

Choosing the Best Volatility Models: The Model Confidence Set Approach

Abstract: This paper applies the model confidence sets (MCS) procedure to a set of volatility models. A MSC is analogous to a confidence interval of parameter in the sense that the former contains the best forecasting model with a certain probability. The key to the MCS is that it acknowledges the limitations of the information in the data. The empirical exercise is based on fifty-five volatility models, and the MCS includes about a third of these when evaluated by mean square error, whereas the MCS contains only a VGARCH model when mean absolute deviation criterion is used. We conduct a simulation study that shows the MCS captures the superior models across a range of significance levels. When we benchmark the MCS relative to a Bonferroni bound, this bound delivers inferior performance.

Knowledge Gaps: The Case of Knowledge about Foreign Entry

Abstract: The study explores what factors influence the reduction of managers’ perceived knowledge gaps in the context of the environments of foreign markets. Potential determinants are derived from traditional internationalization theory as well as organizational learning theory, including the concept of absorptive capacity. Building on these literature streams a conceptual model is developed and tested on a set of primary data of Danish firms and their foreign market operations. The empirical study suggests that the factors that pertain to the absorptive capacity concept – capabilities of recognizing, assimilating, and utilizing knowledge are crucial determinants of knowledge gap elimination. In contrast, the two factors deemed essential in traditional internationalization process theory – elapsed time of operations and experiential learning – are found to have no or limited effect.