Showing papers in "Strategic Management Journal in 2019"
TL;DR: This paper investigated 52 articles published in Strategic Management Journal that reported interviewing elite informants (e.g., members of the top management team) and found that none of them were sufficiently transparent to allow for exact replication, empirical replication, or conceptual replication.
Abstract: Research Summary
We used interviews with elite informants as a case study to illustrate the need to expand the discussion of transparency and replicability to qualitative methodology. An analysis of 52 articles published in Strategic Management Journal revealed that none of them were sufficiently transparent to allow for exact replication, empirical replication, or conceptual replication. We offer 12 transparency criteria, and behaviorally‐anchored ratings scales to measure them, that can be used by authors as they plan and conduct qualitative research as well as by journal reviewers and editors when they evaluate the transparency of submitted manuscripts. We hope our article will serve as a catalyst for improving the degree of transparency and replicability of future qualitative research.
Managerial Summary
If organizations implement practices based on published research, will they produce results consistent with those reported in the articles? To answer this question, it is critical that published articles be transparent in terms of what has been done, why, and how. We investigated 52 articles published in Strategic Management Journal that reported interviewing elite informants (e.g., members of the top management team) and found that none of the articles were sufficiently transparent. These results lead to thorny questions about the trustworthiness of published research, but also important opportunities for future improvements about research transparency and replicability. We offer recommendations on 12 transparency criteria, and how to measure them, that can be used to evaluate past as well as future research using qualitative methods.
254 citations
TL;DR: In this paper, the integration of corporate social responsibility (CSR) criteria in executive compensation, a relatively recent practice in corporate governance, was examined, and the authors found that CSR contracting helps direct management's attention to stakeholders that are less salient but financially material to the firm in the long run, thereby enhancing corporate governance.
Abstract: Research Summary This study examines the integration of corporate social responsibility (CSR) criteria in executive compensation, a relatively recent practice in corporate governance. We construct a novel database of CSR contracting and document that CSR contracting has become more prevalent over time. We further find that the adoption of CSR contracting leads to (a) an increase in long‐term orientation; (b) an increase in firm value; (c) an increase in social and environmental initiatives; (d) a reduction in emissions; and (e) an increase in green innovations. These findings are consistent with our theoretical arguments predicting that CSR contracting helps direct management's attention to stakeholders that are less salient but financially material to the firm in the long run, thereby enhancing corporate governance. Managerial Summary This paper examines the effectiveness and implications of integrating environmental and social performance criteria in executive compensation (CSR contracting)—a recent practice in corporate governance that is becoming more and more prevalent. We show that CSR contracting mitigates corporate short‐termism and improves business performance. Firms that adopt CSR contracting experience a significant increase in firm value, which foreshadows an increase in long‐term operating profits. Furthermore, firms that adopt CSR contracting improve their environmental and social performance, especially with respect to the environment and local communities. Overall, our findings suggest that CSR contracting directs management's attention to stakeholders that are less salient but financially material to the firm in the long run, thereby improving a firm's governance and its impact on society and the natural environment.
177 citations
TL;DR: How app developers on the mobile platform Android adjust their rate and direction of innovation efforts and prices in response to Google’s entry threat and actual entry into to the app markets is examined.
Abstract: Research Summary This paper studies the impact of platform‐owner entry threat on complementors in platform‐based markets. We examine how app developers on the Android mobile platform adjust innovation efforts (rate and direction) and value‐capture strategies in response to the threat of Google's entry into their markets. We find that after Google's entry threat increases, affected developers reduce innovation and raise the prices for the affected apps. However, their incentives to innovate are not completely suppressed; rather, they shift innovation to unaffected and new apps. Given that many apps already offer similar features, Google's entry threat may thus reduce wasteful development efforts. We discuss the implications of these results for platform owners, complementors, and policy makers. Managerial Summary We examine one prevalent source of conflict: platform owners' entry into complementary product spaces. We show that app developers on Google's Android system are strategic and nimble actors. They respond to the threat of Google's entry by adjusting both value‐creation and value‐capture strategies. We also show that platform owners could use direct entry to shape innovation directions and encourage variety of complements. Overall, on the one hand, Google's entry may have pushed complementors into other areas (which might be less lucrative) and strengthened its position in the mobile market. On the other hand, the entry may have reduced wasteful production efforts in the development of redundant applications. The overall welfare implication is thus ambiguous.
139 citations
TL;DR: It is confirmed that the positive effects of TMT nationality diversity on corporate entrepreneurship and innovation are only unleashed in TMTs with low social stratification and in MNCs located in home countries that are low in national power distance.
Abstract: Research Summary We integrate insights from upper echelon theory and the literature on innovation and multinational corporations (MNCs) to develop a framework explaining when and why nationality diversity in top management teams (TMTs) affects corporate entrepreneurship-as evidenced by diversity in global knowledge sourcing-and through this innovation performance in MNCs. In a panel of 165 manufacturing MNCs based in 20 countries, we confirm that the positive effects of TMT nationality diversity on corporate entrepreneurship and innovation are only unleashed in TMTs with low social stratification and in MNCs located in home countries that are low in national power distance. Our study contributes to opening up the black box of the upper echelon's strategic role in spurring entrepreneurship and innovation in MNCs embedded in different cultures. Managerial Summary The internationalization of TMTs in MNCs has been increasing in response to the globalization of markets and sources of knowledge. In this study, we examine under what circumstances MNCs that have TMTs comprised of executives with diverse nationalities exhibit stronger innovation performance. Analysis of leading corporations from 20 countries over a period of 10 years reveals that MNCs with diverse TMTs engage more in corporate entrepreneurship and subsequently see increased innovation performance-but only when these TMTs are operating in environments characterized by equal distribution of power and low hierarchy. The findings underscore the important role of corporate headquarters and TMT composition in the strategic management of modern MNCs.
126 citations
TL;DR: In this article, the authors argue that inertial forces generally constrict how TMTs perceive innovations, but that frame flexibility can overcome these constraints, increasing the likelihood of adoption and broadening the organization's innovation practices.
Abstract: Research Summary Why do incumbent firms frequently reject nonincremental innovations? Beyond technical, structural, or economic factors, we propose an additional factor: the degree of the top management team's (TMT) frame flexibility, i.e., their capability to cognitively expand an innovation's categorical boundaries and to cast the innovation as emotionally resonant with the organization's identity, competencies, and competitive boundaries. We argue that inertial forces generally constrict how TMTs perceive innovations, but that frame flexibility can overcome these constraints, increasing the likelihood of adoption and broadening the organization's innovation practices. We advance a theoretical model that relaxes the assumption that cognitive frames are static, showing how they become flexible via categorical positioning, and introduce a role for emotional frames that appeal to organizational members' sentiments and aspirations in innovation adoption. Managerial Summary Confronting a technological change is one of the most difficult challenges facing any incumbent firm. Technological transitions create pressure for leaders to reframe their mental models while continuing to develop existing capabilities and product category variants. Yet at key junctures in a product class and during technological change, a concrete definition of the firm's innovation boundaries and identity hold a firm hostage to its past. We show how a flexible cognitive frame—coupled with emotional framing—helps leaders and organization members become emotionally engaged in transformation efforts and, in turn, learn about executing nonincremental innovation over time. At technological transitions, perhaps there is no more important role for leaders than to expand their cognitive frames and to infuse these expanded frames with emotion.
117 citations
TL;DR: An approach is provided that researchers can use to address the challenge of determining the outcome of a strategic decision, and an empirical examination of the performance implications of cross‐border market entry through greenfield or acquisition is illustrated.
Abstract: Research Summary Strategy research addresses endogeneity by incorporating econometric techniques, including Heckman's two‐step method. The economics literature theorizes regarding optimal usage of Heckman's method, emphasizing the valid exclusion condition necessary in the first stage. However, our meta‐analysis reveals that only 54 of 165 relevant papers published in the top strategy and organizational theory journals during 1995–2016 claim a valid exclusion restriction. Without this condition being met, our simulation shows that results using the Heckman method are often less reliable than OLS results. Even where Heckman is not possible, we recommend that other rigorous identification approaches be used. We illustrate our recommendation to use a triangulation of identification approaches by revisiting the classic global strategy question of the performance implications of cross‐border market entry through greenfield or acquisition. Managerial Summary Managers make strategic decisions by choosing the best option given the particular circumstances of their firm. However, researchers had previously not taken into consideration these circumstances when evaluating the outcome of that choice. The Heckman method importantly addresses this situation, but requires that the researcher have some variable that effects the best option for the firm, but not the outcome. We show that researchers frequently do not utilize such a variable, and demonstrate that the Heckman method can exacerbate estimation issues in this case. We then provide an approach that researchers can use to address the challenge of determining the outcome of a strategic decision, and illustrate it with an empirical examination of the performance implications of cross‐border market entry through greenfield or acquisition.
111 citations
TL;DR: The analysis is expanded and finds that sustainability events attract more attention from financial analysts and lead to an increase in the percentage of shares held by long‐term investors indicative of a trend that professional investors pay more attention to CSR‐visible firms over time.
Abstract: Research Summary In this study, we replicate and expand Hawn et al.’s study (Strategic Management Journal, 2018, 39, 949–976) that used Dow Jones Sustainability World Index (DJSI) events to measure variations in firms' Corporate Social Responsibility (CSR)‐activism and examined their effect on a firm's stock price. We use DJSI events to capture variations in firms' CSR visibility, holding CSR activism constant by restricting our analyses to CSR‐equivalent firms. First, we find similar results on stock price (i.e., no impact) and on trading volumes. Second, because professional market participants pay more attention to CSR‐oriented firms and use visible cues such as DJSI events, we study and find that additions to DJSI lead to more analysts following a firm, and that continuations on the DJSI lead to an increase in equity being held by long‐term investors. Managerial Summary We replicate and complement a recent study that showed that the events of a firm's addition, continuation, or deletion in a major sustainability index (DJSI) had little impact on stock market reactions (Hawn et al. Strategic Management Journal, 2018, 39, 949–976). We redefine the comparison set that was previously used and compare across observationally equivalent firms in terms of CSR orientation in order to isolate the visibility effect of DJSI events. We find that these events do not significantly impact stock price and trading volumes. However, we expand the analysis and find that sustainability events attract more attention from financial analysts and lead to an increase in the percentage of shares held by long‐term investors indicative of a trend that professional investors pay more attention to CSR‐visible firms over time.
89 citations
TL;DR: In this article, the authors argue that the concept of opaqueness can help us understand why SOEs tend to have a lower likelihood of deal completion in cross-border acquisitions.
Abstract: Research Summary State‐owned enterprises (SOEs) are often more opaque than other types of firms. This opaqueness tends to generate resistance when SOEs undertake cross‐border acquisitions. Opaqueness can also aggravate concerns about an SOE's semipolitical nature and its susceptibility to agency problems, making gaining legitimacy harder. Data on attempted foreign acquisitions by Chinese firms were analyzed to compare the likelihood of deal completion between SOEs and firms with other forms of ownership. The SOEs' completion rate was 14% lower than that of other firms. Their disadvantage was shown to be alleviated when they could provide credible signals by being publicly listed (though only on an exchange in a well‐developed economy or by hiring reputable auditors). We also find that the disadvantage of SOEs was partially mediated by their opaqueness. Managerial Summary Opaqueness, or lack of transparency, is critical in many business transactions. In this article, we argue that the concept of opaqueness can help us understand why SOEs tend to have a lower likelihood of deal completion in cross‐border acquisitions. Our evidence suggests that opaqueness influences the relationship between state ownership and deal completion, and firms can improve their chance of success in cross‐border acquisitions by providing credible information, such as by listing on an exchange in a developed market or hiring a reputable auditor. These help mitigate the hazard of opaqueness.
85 citations
TL;DR: It is found that environmental dynamism reduces the negative effect of most relationship‐related faultlines (except age where this effect is positive) on strategic change, while strengthening the positive effect of task‐ related faultline strengths on strategic changes.
Abstract: Research summary Drawing on the demographic faultline perspective and the concept of attribute‐specific faultlines, we investigate the effect of top management team (TMT) relationship‐related (gender, age, educational level) and task‐related (functional background, tenure) faultline strengths on strategic change. In a panel study (2003–2015), we find that TMT relationship‐related faultline strength (especially educational‐level) negatively influences strategic change whereas TMT task‐related faultline strength positively affects strategic change. Environmental dynamism reduces the negative effect of TMT gender and educational‐level faultline strengths on strategic change while in fact revealing a notable positive effect between TMT age‐faultline strength and strategic change. Additionally, environmental dynamism strengthens the positive effects of task‐related TMT faultline strength on strategic change. We offer theoretical and practical implications to both the demographic faultlines and upper echelons research domains. Managerial summary Top management teams (TMTs) in firms can fracture into subgroups based on demographic characteristics (e.g., age, gender, and education level) as well as based on task‐related characteristics (e.g., functional background, and tenure). We call the former relationship‐related faultlines and the latter task‐related faultlines. We predict and find that stronger relationship based faultlines hinders between subgroup cohesion, reducing TMTs' ability to initiate strategic change. We also predict and find that stronger task‐related faultlines facilitate inter‐subgroup knowledge‐sharing, improving TMTs' ability to initiate strategic change. We find that environmental dynamism reduces the negative effect of most relationship‐related faultlines (except age where this effect is positive) on strategic change, while strengthening the positive effect of task‐related faultline strengths on strategic change.
83 citations
TL;DR: The authors found that entrepreneurs who received advice from peers with a formal approach to managing people (instituting regular meetings, setting goals consistently, and providing frequent feedback to employees) were 28% larger and 10 percentage points less likely to fail than those who got advice from experts with an informal approach.
Abstract: Why do some entrepreneurs thrive while others fail? We explore whether the advice entrepreneurs receive about managing their employees influences their startup's performance. We conducted a randomized field experiment in India with 100 high‐growth technology firms whose founders received in‐person advice from other entrepreneurs who varied in their managerial style. We find that entrepreneurs who received advice from peers with a formal approach to managing people—instituting regular meetings, setting goals consistently, and providing frequent feedback to employees—grew 28% larger and were 10 percentage points less likely to fail than those who got advice from peers with an informal approach to managing people, 2 years after our intervention. Entrepreneurs with MBAs or accelerator experience did not respond to this intervention, suggesting that formal training can limit the spread of peer advice.
83 citations
TL;DR: It is highlighted that public value arises from private interests and that the dynamic of value creation and value appropriation in activities involving the public interest can be influenced by not only resource endowments and organizational capabilities but also by the way organizations address and manage stakeholder expectations.
Abstract: Research Summary In recent years, strategy scholarship expanded its scope beyond the realm of private firms. Despite notable advances, the field still lacks theoretical and empirical frameworks for fully understanding how public and nonprofit organizations interact with private firms to create and appropriate value. By recognizing the inherent complexity of interactions between organizations with different purposes and the existing challenges for designing effective governance arrangements, we assess how recent scholarship addresses some dilemmas related to both private and public value creation. Based on the extant literature and on some novel aspects raised by the articles in this issue, we also propose a framework to advance strategy research in the field. We emphasize the importance of stakeholder management capabilities among public, private, and nonprofit organizations in pursuit of enhanced public value and continuous support from appreciative stakeholders. Managerial Summary Despite abundant examples of governance arrangements involving public, private, and nonprofit organizations (e.g., public‐private partnerships and alliances involving NGOs, firms, multilateral organizations, public contracting, and so on), the strategic management field has only recently given attention to value creation and value appropriation beyond the scope of private organizations. Here we connect strategic management and public management to identify relevant dimensions that shape value‐creating strategies and underpinning outcomes in public‐private‐nonprofit interactions. We highlight that public value arises from private interests and that the dynamic of value creation and value appropriation in activities involving the public interest can be influenced by not only resource endowments and organizational capabilities but also by the way organizations address and manage stakeholder expectations.
TL;DR: In this paper, the authors develop an integrated framework linking the nature of the entrepreneurial choice process to the foundations of entrepreneurial strategy, emphasizing the role of choice rather than the centrality of the strategic environment.
Abstract: Research Summary This paper develops an integrated framework linking the nature of the entrepreneurial choice process to the foundations of entrepreneurial strategy. Because entrepreneurs face many alternatives that cannot be pursued at once, entrepreneurs must adopt (implicitly or explicitly) a process for choosing among entrepreneurial strategies. The interplay between uncertainty and learning has the consequence that commitment‐free analysis yields multiple, equally viable alternatives from which one must be chosen. This endogenous gap between optimization and choice is a central paradox confronting entrepreneurs. Resolving this allows for a reformulation of the foundations of entrepreneurial strategy, emphasizing the role of choice rather than the centrality of the strategic environment. Managerial Summary The central strategic challenge for an entrepreneur is how to choose: entrepreneurs often face multiple potential strategies for commercializing their idea but due to the constraint of limited resources, cannot pursue them all at once. At the same time, entrepreneurs are venturing into new domains and as such, must choose under conditions of high uncertainty with only noisy learning available. This paper explores the interplay between these unique conditions that shape the entrepreneurial choice process, finding that often, the process will not yield a single best strategy but instead several equally attractive strategic alternatives. A key implication is that entrepreneurs cannot simply choose what not to do, but instead must proactively decide which equally viable alternatives to leave behind when choosing an entrepreneurial strategy.
TL;DR: In this article, a topic model of 69,188 organizational websites with survey data from 2,279 participants in the Dutch creative industries showed a U-shaped effect in homogeneous categories, flattening and then disappearing in more heterogeneous categories.
Abstract: Is moderate distinctiveness optimal for performance? Answers to this question have been mixed, with both inverted U‐ and U‐shaped relationships being argued for and found in the literature. I show how nearly identical mechanisms driving the distinctiveness‐performance relationship can yield both U‐ and inverted U‐shaped effects due to differences in relative strength, rather than their countervailing nature. Incorporating distinctiveness heterogeneity, I theorize a U‐shaped effect in homogeneous categories that flattens into an inverted U in heterogeneous categories. Results combining a topic model of 69,188 organizational websites with survey data from 2,279 participants in the Dutch creative industries show a U‐shaped effect in homogeneous categories, flattening and then disappearing in more heterogeneous categories. How distinctiveness affects performance thus depends entirely on how distinct others are.
TL;DR: It is demonstrated how a novel synthesis of three methods — unsupervised topic modeling of text data to generate new measures of textual variance, sentiment analysis of textData, and supervised ML coding of facial images with a cutting-edge convolutional neural network algorithm — can shed light on questions related to CEO oral communication.
Abstract: We demonstrate how a novel synthesis of three methods — (1) unsupervised topic modeling of text data to generate new measures of textual variance, (2) sentiment analysis of text data, and (3) supervised ML coding of facial images with a cutting-edge convolutional neural network algorithm — can shed light on questions related to CEO oral communication. With videos and corresponding transcripts of interviews with emerging market CEOs, we employ this synthesis of methods to discover five distinct communication styles that incorporate both verbal and nonverbal aspects of communication. Our data are comprised of interviews that represent unedited expressions and content, making them especially suitable as data sources for the measurement of an individual’s communication style. We then perform a proof-of-concept analysis, correlating CEO communication styles to M&A outcomes, highlighting the value of combining text and videographic data to define styles. We also discuss the benefits of using our methods versus current research methods.
TL;DR: The results suggest that CEOs' personality traits have a meaningful impact on strategic change, but that the nature of these effects differs based on their firms' recent performance.
Abstract: Research Summary We introduce to the upper echelons literature a novel, linguistic measure of CEOs' Big Five personality traits that we specifically developed and validated using a sample of CEOs. We then provide a predictive test of the measure by applying it to a sample of more than 3,000 CEOs of S&P 1500 firms to explore the direct and interactive effects of CEOs' Big Five personality traits and firm performance on strategic change. Our validated, unobtrusive measure of CEOs' Big Five traits provides a strong foundation for future theory development on the firm‐level effects of CEOs' personality traits. Our specific findings also extend our understanding of how CEO personality influences firm‐level change and how both person and situation‐based factors interact to jointly influence firm strategy. Managerial Summary This paper introduces a language‐based tool we developed to measure the Big Five personality traits (i.e., openness, conscientiousness, extraversion, agreeableness, and neuroticism) of more than 3,000 CEOs of S&P 1500 firms. After describing our process to develop and validate the tool, we test it by examining how CEOs' Big Five traits influence strategic change, both in isolation and in combination with recent firm performance. Our results suggest that CEOs' personality traits have a meaningful impact on strategic change, but that the nature of these effects differs based on their firms' recent performance. Our tool also provides a strong basis for scholars seeking to measure the personality traits of large samples of public‐company executives.
TL;DR: The study shows how differences in managers' attention to ER influence the extent to which they can mobilize resources to pursue market opportunities, and shows how their ER of the self helps them mobilize human capital resources by creating psychic benefits, whereas theirER of others helps mobilize social capital by facilitating legitimacy judgments.
Abstract: Research Summary Our inductive field study identifies specific emotion regulation (ER) actions as affective underpinnings of dynamic managerial capabilities. ER refers to the management and modification of one's own and other people's emotions for a specific purpose. Our study shows how differences in managers' attention to ER influence the extent to which they can mobilize resources to pursue market opportunities. We show how their ER of the self helps them mobilize human capital resources by creating psychic benefits, whereas their ER of others helps mobilize social capital by facilitating legitimacy judgments. Our emerging theory explains how the capacity for ER constitutes an important foundation of dynamic managerial capabilities and how it is linked with other key conceptual underpinnings of the construct, namely managerial human and social capital. Managerial Summary Strategic change processes can be full of ups and downs and have been likened to an emotional roller coaster. In this context, senior managers do not only to have to cope with their own emotions to deal with challenging situations; they also have to pay attention to the emotions of other stakeholders such as employees and investors to maintain or gain these stakeholders' support. Our field study identifies and explains the systematic behaviors that senior managers can use in strategic change contexts to regulate their own emotions as well as those of other stakeholders in order to productively address and overcome difficult business conditions.
TL;DR: For example, this article found that CEOs that score high on extraversion or openness and low on conscientiousness are less likely to decrease their firm's strategic risk taking as the value of their stock options increases.
Abstract: __Research Summary:__ We draw upon applied psychology literature to explore interagent differences in perceived risk to their equity when making strategic risk decisions. Our theory suggests behavioral agency's predicted negative relationship between equity risk bearing and strategic risk taking is contingent upon four personality traits. Our empirical analyses, based on personality profiles of 158 Chief Executive Officers (CEOs) of S&P 1,500 firms in manufacturing industries, indicate the relationship between executive risk bearing and strategic risk taking crosses from negative to positive for high extraversion, greater openness, and low conscientiousness. These findings demonstrate that agency based predictions of CEO risk taking in response to compensation—and board attempts at creating incentive alignment using compensation—are enhanced by integrating insights from personality trait literature.
__Managerial Summary:__ We study the effect of CEO personality on their behavioral responses to stock option pay. Our findings reveal that CEOs that score high on extraversion or openness and low on conscientiousness are less likely to decrease their firm's strategic risk taking as the value of their stock options increases. That is, the tendency of CEOs to become more risk averse in their strategic choices as their option wealth increases (due to loss aversion) is weaker for highly extraverted and more open CEOs, but stronger for more conscientiousness CEOs. Overall, our findings suggest that board of directors need to consider personality traits of their CEOs when designing compensation packages with the intention to align incentives of CEOs with shareholder risk preferences.
TL;DR: This article found that elected politicians facing less political competition (i.e., not easily replaceable, serving multiple terms, longer tenure in office) were more likely to ban ridesharing companies and favor, potentially displaceable, local taxicab companies.
Abstract: Research Summary: With the recent growth of the sharing economy, regulators must frequently strike the right balance between private and public interests to maximize value creation. In this article, we argue that political competition is a critical ingredient that explains whether cities accommodate or ban ridesharing platforms and that this relationship is moderated in more populous cities and in cities with higher unemployment rates. We test our arguments using archival data covering ridesharing bans in various U.S. cities during the 2011–2015 period. We supplement these data with semistructured interviews. We find broad support for our arguments while mitigating potential endogeneity concerns. Our study has important implications for nonmarket strategy, entrepreneurship and innovation, and public‐private partnership literatures. In addition, our findings inform policy debates on the sharing economy. Managerial Summary: Entrepreneurs and businesses oftentimes face severe regulatory barriers when commercializing innovative products and services even if the innovations are generally beneficial for consumers and the broader society. This research focuses on the political determinants of regulation to provide a better understanding of why some markets are more receptive to innovative products while other markets are more hostile to them. Using the banning of ridesharing companies (e.g., Uber and Lyft) in various U.S. cities during the 2011–2015 period, we find that elected politicians facing less political competition (i.e., not easily replaceable, serving multiple terms, longer tenure in office) were more likely to ban ridesharing companies and favor, potentially displaceable, local taxicab companies. Our research has implications for navigating the political barriers to entry.
TL;DR: In this article, the authors suggest that new entrants can use two important schemas to strategically categorize themselves to gain a competitive advantage in platform markets: category exemplars and category prototypes, and they find that the optimally distinct entry point is at a high level of exemplar similarity and a low level of prototype similarity.
Abstract: Research Summary New entrants often face uncertainty regarding how to optimally position themselves within product markets. We suggest that new entrants can use two important schemas to strategically categorize themselves to gain a competitive advantage in platform markets: category exemplars and category prototypes. Using a unique dataset of more than 83,000 new Google Play developers and more than 139,000 apps, we find that the optimally distinct entry point is at a high level of exemplar similarity and a low level of prototype similarity. We find that greater alignment of an entrant with the prototype corresponds to a weaker benefit of exemplar similarity. These findings have important implications for understanding competitive dynamics within product markets, strategic positioning at entry, and the interdependence of strategic categorization decisions. Managerial Summary Entrepreneurial startups often find it difficult to know how to optimally position their products among a large number of rivals in highly competitive platform markets. Our study suggests that these startups can draw on two reference points to help determine the optimal positioning for their products: category exemplars and category prototypes. Exemplars include the most successful products in a market category while prototypes represent the most common products in a category. Drawing on a large dataset obtained from the Google Play app store, we find that developers can substantially increase the installs of their first app by crafting an app text description that is as similar as possible to the description of a category exemplar and as different as possible from the category's prototypical description.
TL;DR: The role of comparative adjustment costs in determining competitive advantage in dynamic environments is explored and a framework to guide leaders charged with making decisions on whether, where, and how to reposition their firms in response to industry shocks is developed.
Abstract: Research Summary Shocks, whether they derive from shifts in demand, supply, regulation, or innovation, can create the need for competitive repositioning by industry participants when they disrupt established sources of competitive advantage. Such situations can therefore create a canonical strategic problem: whether, where, and how to (re‐)position following an industry shock. In this paper, we explore the role of comparative adjustment costs in determining competitive advantage in dynamic environments. In so doing, we synthesize contributions from Penrose, Porter, and Williamson to conceptualize the relationship between adjustment costs and related concepts such as resources/capabilities, dynamic capabilities, transaction costs, and opportunity costs. Managerial Summary Whether, where, and how should leaders reposition their firms in response to industry shocks? This paper develops a framework to guide leaders charged with making these decisions. The framework emphasizes that firms facing an industry shock must: (a) assess their firm's cost and time to move to each new position, and compare that cost and time to rivals' costs and time to move to those same positions; (b) compare the cost of delaying repositioning (such as forfeiting first mover advantage) to the profits from remaining in its original position, and (c) consider that, in order to speed repositioning, the efficient choice may be to temporarily accept certain hazards from outsourcing, and later integrate to eliminate those hazards. We illustrate the framework using an example from the smartphone industry.
TL;DR: A game‐theoretic model shows that investment in social brands helps avoid irresponsible practices across the MNE network, thereby inducing subsidiaries to “walk the talk” and challenging the view of CSR as insurance against lapses of responsible conduct.
Abstract: Research Summary: Multinational enterprises (MNEs) invest significant resources in corporate social responsibility (CSR), but their attempts to build a global “social brand” may clash with the execution of operational strategies at a subsidiary level. Using a game‐theoretic model, this research addresses the complex interplay of different contingencies that shape the coordination and control challenges facing MNEs when they implement global CSR strategies, including brand spillovers, the risk of public scandals caused by irresponsible behavior, the size of the MNE network, as well as the roles played by nongovernmental organizations and altruistic managers. Challenging the view of CSR as insurance against lapses of responsible conduct, our model shows that investment in social brands helps avoid irresponsible practices across the MNE network, thereby inducing subsidiaries to “walk the talk.” Managerial Summary: Global social brands are increasingly valuable to multinational enterprises (MNEs), which makes the control and coordination of responsible behavior across their network of foreign subsidiaries a relevant managerial challenge. Indeed, lapses of responsible conduct at the subsidiary level often generate reputational damage at the multinational level. This research explores several mechanisms that help MNEs manage this coordination and control challenge. First, it shows under what conditions MNEs can leverage their investments in social brands to induce responsible practices across their global network. Second, it illustrates how MNEs can exploit collaborations with nongovernmental organizations to reduce the costs of coordinating and controlling their subsidiaries. Finally, it identifies conditions under which MNEs benefit from hiring altruistic managers to run their subsidiaries.
TL;DR: It is shown that there are nonlinear relationships between the duration of a firm's underperformance and its innovative activities and that underperforming firms first decrease and then increase R&D spending and the use of new knowledge as underperformance prolongs.
Abstract: Research Summary Behavioral theory examines how the intensity of underperformance influences firms' strategic decisions; yet, it largely fails to consider the effect of underperformance duration. Drawing on behavioral theory and organizational learning, we argue that the length of time that a firm has been underperforming contributes to shaping firms' innovative search patterns. We test our theory merging COMPUSTAT and NBER patent data for 1,610 high‐tech manufacturing companies between 1986 and 2006. Our results largely support our predicted curvilinear relationships. We find that innovative search magnitude and scope each first decreases and then increases with underperformance duration. In addition, we find marginal evidence that innovative search depth first increases and then decreases with underperformance duration. The statistical and practical significance of the results is also discussed. Managerial Summary Innovation is vital for a firm's survival and competitive advantage and requires a search for knowledge. Previous research suggests that the gap between current performance and desired performance is an important trigger for firms' innovative action. We suggest that how long the firm has been underperforming also plays an important role in firm innovation. Using financial and patent data on public high technology manufacturing firms, we show that there are nonlinear relationships between the duration of a firm's underperformance and its innovative activities. We find that underperforming firms first decrease and then increase R&D spending and the use of new knowledge as underperformance prolongs. Our results imply that underperforming firms face competing short‐ and long‐term pressures that influence the nature of its innovative activities.
TL;DR: In this article, the authors examine whether companies respond to the threat of knowledge leakage by strategically increasing their engagement in corporate social responsibility (CSR) and find that, following the rejection of the inevitable disclosure doctrine (IDD), companies significantly increase their CSR.
Abstract: Research Summary: We examine whether companies respond to the threat of knowledge leakage by strategically increasing their engagement in corporate social responsibility (CSR). To obtain exogenous variation in the threat of knowledge leakage, we exploit a natural experiment provided by the rejection of the inevitable disclosure doctrine (IDD) by several U.S. states. Using a difference-in-differences methodology we find that, following the rejection of the IDD, companies significantly increase their CSR. Our proposed rationale is that CSR helps mitigate knowledge leakage by i) reducing employees’ propensity to join a rival firm, and ii) reducing employees’ propensity to disclose the firm’s valuable knowledge even if they join a rival firm. Evidence from a laboratory experiment, an online experiment, and a survey of knowledge workers is supportive of these arguments.
Managerial Summary: We study the role of CSR in companies’ response to the threat of knowledge leakage—a major managerial challenge that has important implications for firms’ innovation and competitiveness. We use three different research designs (an analysis of companies’ CSR policies in response to an increased threat of knowledge leakage; a survey of knowledge workers; and an experiment conducted both online and in a laboratory setting). The results show that CSR is perceived to mitigate the threat of knowledge leakage. In particular, i) CSR reduces knowledge workers’ propensity to join rival firms (i.e., they are less likely to “walk”) and, even if they do, ii) CSR reduces their propensity to disclose the firm’s valuable knowledge to their new employer (i.e., they are less likely to “talk”).
TL;DR: In this article, the authors develop a theoretical framework to define the comparatively efficient organizational form for dealing with a social issue, based on the market frictions associated with it, and build on these arguments to develop a mapping between combinations of these market factors and comparatively efficient arrangements to govern them, including a variety of hybrid arrangements such as private public partnerships, social enterprises, corporate social responsibility, and so on.
Abstract: Research Summary We develop a theoretical framework to define the comparatively efficient organizational form for dealing with a social issue, based on the market frictions associated with it. Specifically, we argue that for‐profits have an advantage in undertaking innovation and coordinating production economies, nonprofits in playing a fiduciary role given ex post information asymmetry, self‐governing collectives in dealing with bounded externalities through private ordering, and state bureaucracies in governing general externalities. We build on these arguments to develop a mapping between combinations of these market frictions and the comparatively efficient arrangements to govern them, including a variety of hybrid arrangements such as private‐public partnerships, social enterprises, corporate social responsibility, and so on. Our framework thus contributes to research in strategy, organizations, and public policy. Managerial Summary What is the best way to deal with a social problem? While some believe such problems are best left to the state, others argue that business should take the lead in solving them, or favor nonprofit solutions. In this article, we move beyond such one‐size‐fits‐all approaches, highlighting the different strengths of different organizational forms. We argue that for‐profits' strong incentives make them more innovative; nonprofits are more trustworthy in representing the best interests of others; collectives enable actors to self‐organize around a common interest; and the state is best for issues that impact the entire population. We thus develop a mapping between the nature of the social problem and the organizational form—or combination of organizational forms—that may deal with it most efficiently.
TL;DR: It is argued and shown that skilled ethnic migrants bring to their employers, unique knowledge from the cultural context of their host country, and local inventors engage in “knowledge recombination” by combining their existing knowledge to knowledge transferred by migrants.
Abstract: Research Summary Ethnic migrant inventors may differ from locals in terms of the knowledge they bring to host firms. Using a unique dataset of Chinese and Indian herbal patents filed in the United States, we find that an increase in the supply of first‐generation ethnic migrant inventors increases the rate of codification of herbal knowledge at U.S. assignees by 4.5%. Our identification comes from an exogenous shock to the quota of H1B visas and from a list of entities exempted from the shock. We also find that ethnic migrant inventors are more likely to engage in reuse of knowledge previously locked within the cultural context of their home regions, whereas knowledge recombination is more likely to be pursued by teams comprising inventors from other ethnic backgrounds. Managerial Summary Managers and policy makers around the world face a vigorous debate on whether to hire skilled migrants or hire locals. We argue that if western firms stop hiring ethnic migrants, innovation at these firms would suffer in two ways: knowledge transfer and knowledge recombination would both be impeded. We argue and show that skilled ethnic migrants bring to their employers, unique knowledge from the cultural context of their host country. Also, local inventors engage in “knowledge recombination” by combining their existing knowledge to knowledge transferred by migrants. Our empirical results relate to the patenting of Chinese and Indian herbal formulations at western pharmaceutical firms before and after an immigration shock related to the admittance of skilled migrants from these two countries.
TL;DR: It is found that as a CEO ages, the firm experiences lower investment, lower sales growth, and lower profitability, but also higher probability of survival, suggesting a trade‐off between the managerial approaches of younger and older CEOs.
Abstract: Research summary: Using detailed ownership and financial information from a large sample of owner‐managed private firms in three Western European countries, this paper examines the relationship between CEO’s age and firm’s performance. Tracking firms over time, we find that as a CEO ages, the firm experiences lower investment, lower sales growth and lower profitability, but also higher probability of survival, suggesting a trade‐off between the managerial approaches of younger and older CEOs. These results are stronger in industries more reliant on human capital, such as service and creative industries. Our evidence also suggests that regional financial development moderates the relationship between a CEO’s age and a firm’s performance by facilitating the reallocation of assets from firms owned by older CEOs to firms owned by younger CEOs. Managerial summary: How do management styles change as CEOs grow older? Using a large firm‐level dataset, we examine the behavior and performance of firms with CEOs of different ages. We find that as a CEO grows older, firm investment, growth and profitability decline, but probability of survival increases. The results are stronger in industries where human capital and creativity are more important. Regional financial development moderates the age‐performance relationship by facilitating reallocation of assets from firms with old CEOs to firms with younger CEOs. Our findings suggest that management styles change with age, as older CEOs tend to emphasize survival at the expense of higher profits and faster growth.
TL;DR: It is found that, although external pressure makes firms more likely to increase female directors, firms tend to do it through the addition of board seats rather than through the replacement of incumbent male directors to the extent that the increase is a response to the external pressure.
Abstract: Research Summary This study explores how external pressure for board gender diversity influences the increase of female directors. We propose that while external pressure has a positive effect on the increase of female directors on boards, it heightens the salience of gender in new director selection, making incumbent male directors more likely to treat the new female directors as outgroup members and consequently more likely to add them through addition of board seats rather than substitution of male directors. We further predict that new female directors added through additional board seats are less likely to serve on major board committees than those added through substitution of male directors. Results from a large sample of S&P 1,500 firms during 2004 to 2015 provide support our theoretical predictions. Managerial Summary Our study intends to enhance the understanding of how external pressure influences a firm's decision to increase the number of female directors on the board. We find that, although external pressure makes firms more likely to increase female directors, firms tend to do it through the addition of board seats rather than through the replacement of incumbent male directors to the extent that the increase is a response to the external pressure. Moreover, we find that new female directors added through addition of board seats are less likely to serve on major board committees than those added through replacement of male directors. These findings suggest that external pressure has a positive but limited effect on countering the gender bias on corporate boards toward female directors.
TL;DR: In this article, the authors examined the motivations and team building processes of employee entrepreneurs in the disk drive industry and uncovered an endogenous team building process in which more successful founding teams engage in creating workplaces through deliberate selection of cofounders who have complementary functional knowledge, but are similar in that they possess superior problem-solving abilities, best-in-class talent, and common workplace values.
Abstract: Research Summary This study examines motivations and team building processes of employee entrepreneurs in the disk‐drive industry. Our inductive, grounded theory building approach uncovers that ringleaders—founders who spearhead spinout creation—are driven by a nonpecuniary desire to create in a fertile environment, when they encounter frictions within the parent firm. Cofounders share the desire to create, but ensure departure on good terms to retain the option of returning to paid employment as a safeguard against entrepreneurial risk. We uncover an endogenous team building process in which more successful founding teams engage in “workplace instrumentality”—creating workplaces through deliberate selection of cofounders who have complementary functional knowledge, but are similar in that they possess superior problem‐solving abilities, best‐in‐class talent, and common workplace values. Managerial Summary The paper examines the motivations and founding team building processes of individuals who leave existing firms to create new ventures. In contrast to conventional wisdom that suggests preformed teams working on innovation projects leave together, we find founding teams are created when a “ringleader” chooses to venture out and subsequently seeks out cofounders. Ringleaders and cofounders alike are motivated by a desire to create given fertile opportunities and care deeply about equity, but ringleaders additionally experience at least one organizational push factor. Almost all founding teams are created to ensure the presence of complementary, functional knowledge. However, more successful spinouts also select cofounders who are hands on problem‐solvers, best‐in‐class talent, and who share common workplace values.