The rise in social entrepreneurship over the last 20 years denotes a major global economic and political movement. Social entrepreneurs generate substantial positive outcomes, but while they make up 2% or more of GDP in countries like Canada, Australia and the UK, many other societies have a shortage of them. A recent study from a special issue of the Strategic Entrepreneurship Journal (SEJ) suggests the reason why might depend on language.

“Individuals speaking languages with strong future time references see future rewards and challenges as more distant,” said Diana M. HechavarrÍa, and associate professor of management at Texas Tech University and one of the study’s authors. “That mindset fosters social entrepreneurship because it places a strong value on obtaining immediate results for social issues while discounting long-term costs.”

HechavarrÍa partnered with Steven A. Brieger (University of Sussex), Ludvig Levasseur (Indian Institute of Bangalore), Siri A. Terjesen (Florida Atlantic University), all experts in entrepreneurship and international business, to study the effects of language and institutional uncertainty on social entrepreneurship. Using a sample of 205,792 individuals in 70 countries with 39 languages, they controlled for 13 individual- and country-level characteristics related to social entrepreneurship including gender, age, education, income and start-up skills.

The researchers used multilevel logistic modelling to estimate each dependent variable within and between countries and found that the odds of engaging in early-stage innovative social entrepreneurship almost doubled in futured-language speaking societies (i.e. languages that modify verbs to indicate the future instead of relying on context). The probability that an individual is a social entrepreneur also increased when there was weak rule of law, weak property rights and strong corruption within a future-speaking country.

“Countries where a state arbitrarily applies laws and rules, suppresses individual rights or threatens certain social groups by confiscating their property tend to have greater social problems, and there are just more opportunities for individuals to enhance societal well-being,” said Brieger. 

The SEJ study notes that these factors have differing effects on commercial entrepreneurs, who favor more long-term oriented mindsets and more predictable business and social environments with strong institutions.

“Strong future time reference speakers see longstanding social problems as urgent dilemmas rather than long-term goals,” said Terjesen. “They perceive the future as uncertain and may feel more urgency when it comes to engaging in social entrepreneurship to address those dilemmas.”

Though the results seem logical, experts across the field have long debated what specifically drives a social entrepreneurial mindset. Before the onset of their research, the authors had hypothesized that societies with strong social institutions might place a higher value on social value creation, resulting in more social entrepreneurship. They also noted that the idea that language has an impact on shaping thought has faced unpresented vacillation in acceptance. 

“The study provides evidence that an individual’s subjective conception of time has an important impact on their social entrepreneurial action,” said Levasseur. “Moreover, a language’s grammatical representation of time affects their conception of it.” 

While the social entrepreneurship field certainly merits more research, this particular study suggests that perceptions of time — and specifically the idea of urgency — play a high motivating factor for social entrepreneurship. It also suggests that language has been overlooked as a means of understanding strategic entrepreneurial behaviors.

The Strategic Entrepreneurship Journal (SEJ), published by the Strategic Management Society, is targeted at publishing the most influential managerially oriented entrepreneurship research in the world. It is a research journal that publishes original work recommended by a developmental, double-blind review process conducted by peer scholars. Strategic entrepreneurship involves innovation and subsequent changes which add value to society, and which change societal life in ways that have significant, sustainable, and durable consequences.

SMJ authors address the complexity of competition and innovation in platform ecosystems

By J Katherine Bahr / Vanderbilt University

In January, the Justice Department sued Google, claiming the tech company abused a monopoly in online advertising by seizing control of tools built on top of its platform. Google—along with Amazon and Apple—have faced similar antitrust charges in Europe in the last 2 years, and both sides of the Atlantic have proposed sweeping changes to regulating tech giants (with success in Europe and stalls in the U.S.).

However, a new study in the Strategic Management Journal, authored by Sruthi Thatchenkery and Riitta Katila, suggests that while unblocking competition with antitrust interventions prompts innovation on the platforms, profitability might still elude small companies. The reasoning why has to do with the interdependence of platform markets; this paper sheds light on platform markets, informing regulators on how better to protect both tech consumers and entrepreneurs.

How Competition Functions Differently in Platform Markets

In the report, Thatchenkery and Katila address the complexity of competition and innovation in platform ecosystems. These marketplaces create unique interdependence among companies: major tech companies build a base product and other companies create apps and systems that leverage it. A platform can take many forms, and in recent years each category has come to be dominated by one or 2 key players.

Marketplace: Amazon or Alibaba for e-commerce

Online Advertising: Google and Meta

Operating Systems: Microsoft, Apple, and Google

Platform success requires gaining a critical mass of ‘complementor’ companies (that sell products, apps, or services on the platform) as well as consumers (who buy the products, apps, or services). Platforms often entice companies to join with assets like development tools, software integrations, or basic tech infrastructure that these complementors might struggle to build on their own.

However, the symbiosis goes awry when the platform company begins offering the same apps and services as its complementors. Platforms often give their own apps and services unfair advantages or even exploit their market power to block rivals. But the research finds that antitrust action against the platforms has consequences for complementors.

“Restraining a dominant platform may reduce its motivation or ability to share assets,” Thatchenkery said. “That makes the profit implications of antitrust actions less straightforward [than for innovation], particularly for resource-constrained complementors.”

Building Off a Landmark Technology Antitrust Case 

To test this theory, Thatchenkery and Katila studied the fallout from the Justice Department’s settlement with Microsoft in 2001, the first major antitrust intervention against a dominant software firm, where Microsoft was accused of blocking innovation in complementor markets.

They identified 78 public U.S. companies competing in the enterprise infrastructure software space between 1998 and 2004 (3 years before and after the settlement) and placed them in 5 categories: application integration, developers’ tools, database management, network and system management, and security. Using 3 separate sources they built a massive dataset on the companies, including R&D expenditures, number of patents filed, firm size, and return on sales (ROS), to measure how company innovation and profits changed over the 6 years.

Microsoft’s own infrastructure software leads the market in some of the enterprise infrastructure software categories and struggled to gain a foothold in others. The study used a difference-in-difference statistical design to take advantage of the variation in Microsoft’s market share across categories and examine the antitrust settlement’s effects.

Innovation Doesn’t Always Translate to Profits in a Platform Ecosystem

On average, all the companies produced roughly 5 to 6 patents per year and saw a 0.27 drop in ROS during the period. After the antitrust intervention, companies in categories where Microsoft’s products had dominated introduced an average of 4.2 more patents yearly than their counterparts, but their ROS saw an average drop of 9.1 more percentage points.

“Unblocking the competition created a ‘wild west’ where complementors raced to innovate,” Katila said. “But they failed to profit.”

Researchers said that this pattern was particularly pronounced for low-market share companies, suggesting that they may have over-relied on the platform for key assets and were left with the costly task of having to build those assets after the intervention. New entry into the market did not increase after the settlement either.

What it Means for Reining in Big Tech

The study has sweeping implications for antitrust actions against Big Tech and was nominated for the 2023 Antitrust Writing Awards. It suggests that while antitrust lawsuits can prompt innovation, it might be difficult to reverse damage caused by a dominant platform and enable complementors to reap financial rewards. New regulations to oversee a code of conduct in the industry and hopefully prevent harmful blocking behaviors from happening in the first place might better benefit technology entrepreneurs.

The authors also cautioned platform owners that their data indicates anti-competitive behavior can also harm them.

“To maintain a healthy ecosystem in the long run, platform owners may want to resist the temptation to keep complementors weak and instead help support their development to stand on their own,” the authors write.

Find a full explanation of how the Microsoft settlement impacted the enterprise infrastructure software market in the complete text.

Strategic Management Journal, published by the Strategic Management Society, is the world’s leading mass impact journal for the highest quality research on a diverse mix of topics relevant to strategic management.

Salary transparency can reduce the gender pay gap, but it's key that the cost of publicly monitoring salaries is reduced, according to new research published in Strategic Management Journal. The researchers found the more visible or highly ranked the institution, the more aggressive their response.

Elizabeth Lyons of the University of California, San Diego, and Laurina Zhang of Boston University began with the question of whether salary transparency reduced gender pay inequality and — if so — through what channels? They focused on these questions in the context of tenured and tenure-track faculty in Canadian universities, making use of Ontario’s Public Sector Salary Disclosure Act of 1996, which mandated salary disclosure of public employees earning at least $100,000. The policy includes an online searchable government database, significantly reducing the cost of accessing salary information for the general public.

“It's not just about the legal policy, it's also about whether that legal policy credibly reduces the cost of the public to observe what the gender wage gap is across these organizations,” Zhang says. She and Lyons compared this effect with a policy in another Canadian province that was not accompanied by a publicly available online database and they didn’t find it reduced the gender pay gap.

The findings suggest that low-cost access to salaries places pressure on high-profile organizations to reduce the gender gap in an effort to avoid public scrutiny of their pay practices. The researchers did not, however, find women used the salary information to successfully negotiate higher pay.

“Improvement in the gender pay gap is really driven at the organization level,” Zhang says. “It's really about organizations that anticipate public scrutiny and perhaps backlash in the future, they’re more likely to implement institution-wide changes.”

This particular policy also strays from those that require disclosure of salary at the aggregate level for firms of a certain size, which Zhang says can have a muted effect because they only disclose what average male versus female salaries are without much detail. It’s difficult to assess gender inequality with such coarse information that doesn’t specify the individual’s role, for example. A more detailed database like the one in Ontario makes for a clearer comparison.

But there is an obvious cost to embracing salary transparency and closing the gender gap — especially at organizations where that gap is particularly wide. These institutions will have to spend more to equalize pay across genders. “The study highlights why there are hurdles to salary transparency being implemented in a wide way,” Zhang says. “It puts a lot of pressure on organizations to enact change once they do so.”

There’s potential for salary transparency to increase a company’s competitiveness, but Zhang says this would likely exist largely in the private sector where movement across companies is more common. In an industry like academia, where this research was focused, there’s less likelihood for competition from salary transparency because movement between high education institutions is less common.

Strategic Management Journal, published by the Strategic Management Society, is the world’s leading mass impact journal for the highest quality research on a diverse mix of topics relevant to strategic management.

Voicing one’s political view is no longer a taboo. People’s political ideologies pervade almost every aspect of their lives. For example, researchers have identified that people choose to associate with individuals with similar political beliefs and avoid colleagues who share dissimilar or opposing political ideologies.

As important entities in society, business organizations are not immune to the influence of political ideologies either. Views and beliefs held by the top executives in a firm are known to influence organizational initiatives. Now, a new study published in the Strategic Management Journal in November 2022, reveals that the political ideology of the interim or “incoming” CEO influences whether serving directors of a company choose to continue or leave their positions.

As a frontline corporate governance mechanism, the board of directors’ mandate is typically more professional in nature. At the same time, directors often prioritize avoiding situations that compromise their personal reputations and provoke unfavorable publicity,” explains John Busenbark, the study’s corresponding author and an assistant professor of management and organization at the University of Notre Dame. “Given the inextricable relationship between individuals on the board and the CEO, we argue that directors may depart from the organization if they have conflicting political ideologies with the incoming chief executive, and they are apt to retain their roles if they share political views with that individual.”

Busenbark, along with Jonathan Bundy of Arizona State University and M K Chin of Indiana University, further argues that the directors’ past familiarity with the incoming CEO lessens this effect. The researchers tested these arguments by using data from 203 publicly traded firms with CEO succession events from 2008 to 2012.

Corroborating their arguments, they found that directors tend to leave their positions when a new CEO with an opposing political ideology joins the company. Conversely, they choose to continue in their positions when the incoming CEO shares similar political views.

“On further study, we found that the directors’ willingness to depart from their positions is stronger when a CEO with opposing political ideology joins the firm, as compared to their willingness to stay when a CEO with similar political ideology joins,” explains Dr. Bundy, an associate professor and dean’s council distinguished scholar. “We also found that when directors have shared more time and experience with the incoming CEO in the past, they are less likely to exit the firm despite opposing political ideologies.”

These findings shed light on how social and professional circles are formed among the top actors in the corporate world and can have practical implications for business practitioners. As Dr. Chin, an associate professor, points out, “Executives interested in maximizing the firm’s success should bear in mind that their political views might influence the retention of the best people in the right role.”

Moreover, the researchers opine that by gathering more information about the candidates applying for the CEO position, boards can prevent disagreement and even out the rough times for the organization. And lastly, from a larger societal perspective, investing in relationships with people holding opposing political views can lessen the tendency to avoid or distance oneself from such people, and help in embracing their views more openly.

Strategic Management Journal, published by the Strategic Management Society, is the world’s leading mass impact journal for the highest quality research on a diverse mix of topics relevant to strategic management.

The perception and negotiation abilities of more charismatic CEOs result in higher IPO prices and smaller offer price ranges for their firms, according to new research published in Strategic Entrepreneurship Journal. The study found that humility among CEOs, on the other hand — while celebrated in the media — actually goes against the implicit leadership theory, which suggests that people expect leaders to be strong, charismatic, and aggressive visionaries.

The researchers used a videometric technique for the study, with trained psychologists observing CEOs as they gave interviews and speeches during which they advocated for their firms to potential investors during IPO roadshows. The research team then compared the psychologists’ evaluation of the CEOs’ personalities with the firms’ IPO performance.

Because potential investors often lack information on the CEO, they base much of how they would value the firm on judgments of the executive’s personality during the IPO roadshows. The study showed CEOs perceived as more humble resulted in more underpricing by investors and to a bigger spread in prices, which captures investors’ uncertainty on the CEO’s abilities and the firm’s success. However, a charismatic CEO is perceived by stakeholders to be confident, knowledgeable, and skillful.

“Our main findings indicate that the CEOs basically need to keep their humility in check,” says study co-author Oleg Petrenko, an assistant professor at Walton College of Business at the University of Arkansas. “There are good things that come out of humility, but in this specific context when they're taking their firm through the IPO process, they need to be a little bit less humble. They need to take more credit and speak up more about their achievements and sing their own song a little bit louder than they would otherwise.”

Petrenko cautioned against hiring CEOs based on this particular personality trait, though, instead recommending that — should a CEO be perceived as more humble — another, more charismatic person on the leadership team step in to represent the firm during IPO roadshows and interviews. This underscores the importance of building a team that’s complementary to each other’s skills and personalities: Don’t use a single personality trait as a CEO selection tool, he explains, but build out the team around the individual’s personality.

“One of the main things that we hope that the study achieves is that it brings more focus and interest to the personality of the entrepreneurs and executives,” Petrenko says. “The common theme we're starting to see is that investors are not investing just in the idea, they're also investing in the person. We need to better understand the effects of these personality traits that entrepreneurs have, how it affects the way they make decisions, the way they run their firms, and — ultimately — the success of these new ventures.”

The Strategic Entrepreneurship Journal (SEJ), published by the Strategic Management Society, is targeted at publishing the most influential managerially oriented entrepreneurship research in the world. It is a research journal that publishes original work recommended by a developmental, double-blind review process conducted by peer scholars. Strategic entrepreneurship involves innovation and subsequent changes which add value to society, and which change societal life in ways that have significant, sustainable, and durable consequences.

An increasingly connected world and a strong digital economy have made it easier for multinational companies to have investments in multiple countries. This investment, where the company buys a controlling stake in a foreign company, is known as foreign direct investment. Making multiple foreign direct investments in countries with favorable tax policies, also known as tax havens, is a common strategy used by multinational companies to pay lower taxes and increase profits. But this strategy is commonly believed to have negative effects on the economic productivity of the home country (where the company is based) and the host country (the foreign country the company invests in).

Now, a new study published in the Global Strategy Journal suggests that foreign direct investments across multiple countries does not always have to be a bad thing; the effects are more nuanced than we think.

“The previous research on this strategic issue is a bit contradictory. It requires a more objective assessment to understand the effects of this strategy on the productivity of the host countries,” explains Soni Jha, one of the study’s authors and a doctoral candidate from the department of strategic management at Temple University at the time of publication. “We reasoned that these effects may depend on the position of the multinational company’s home country in the global foreign direct investment network. At the same time, countries that are connected to more tax havens in the network may benefit from more inflowing foreign direct investment.”

Jha, along with corresponding author Snehal Awate of the Indian Institute of Technology Bombay, evaluated these ideas by analyzing data from 212 countries for the years between 2002 and 2012. Then they constructed a global foreign direct investment network and evaluated the economic productivity of both home and host countries using a concept called “total factor productivity” (essentially, how much output can be produced from a fixed amount of input).

At the primary level, the analysis revealed that routing foreign direct investments through multiple tax havens has different effects on the productivity of the home and host country. Dispersing foreign direct investments across a wider number of tax havens reduced the productivity of the home country. But at the same time, host countries benefitted from a greater number of foreign direct investments coming through the global network and had increased productivity.

“Visualizing the global foreign direct investment as a network allowed us to understand how it affects different countries and stakeholders,” explains Awate. “For example, the analyses also revealed that investments flowing to and from prominent and central tax havens are beneficial for the productivity of both, the host and home countries.”

To gain further insights, the authors classified these results based on the income level and developmental status of the countries in the network. They found that the benefits of incoming foreign direct investments from prominent, well-connected tax havens were mainly felt by less developed and low-income countries.

These findings fill in critical gaps in the understanding of tax havens and foreign direct investment. They highlight that being connected to a global tax haven network has benefits for less developed countries, and that the use of tax havens by multinational companies is not necessarily negative. These are particularly important to policymakers and researchers who are having conversations about a global tax framework.

Global Strategy Journal, published by the Strategic Management Society, publishes the most influential, managerial-oriented research on global strategy. 

An increasingly connected world and a strong digital economy have made it easier for multinational companies to have investments in multiple countries. This investment, where the company buys a controlling stake in a foreign company, is known as foreign direct investment. Making multiple foreign direct investments in countries with favorable tax policies, also known as tax havens, is a common strategy used by multinational companies to pay lower taxes and increase profits. But this strategy is commonly believed to have negative effects on the economic productivity of the home country (where the company is based) and the host country (the foreign country the company invests in).

Now, a new study published in the Global Strategy Journal suggests that foreign direct investments across multiple countries does not always have to be a bad thing; the effects are more nuanced than we think.

“The previous research on this strategic issue is a bit contradictory. It requires a more objective assessment to understand the effects of this strategy on the productivity of the host countries,” explains Soni Jha, one of the study’s authors and a doctoral candidate from the department of strategic management at Temple University at the time of publication. “We reasoned that these effects may depend on the position of the multinational company’s home country in the global foreign direct investment network. At the same time, countries that are connected to more tax havens in the network may benefit from more inflowing foreign direct investment.”

Jha, along with corresponding author Snehal Awate of the Indian Institute of Technology Bombay, evaluated these ideas by analyzing data from 212 countries for the years between 2002 and 2012. Then they constructed a global foreign direct investment network and evaluated the economic productivity of both home and host countries using a concept called “total factor productivity” (essentially, how much output can be produced from a fixed amount of input).

At the primary level, the analysis revealed that routing foreign direct investments through multiple tax havens has different effects on the productivity of the home and host country. Dispersing foreign direct investments across a wider number of tax havens reduced the productivity of the home country. But at the same time, host countries benefitted from a greater number of foreign direct investments coming through the global network and had increased productivity.

“Visualizing the global foreign direct investment as a network allowed us to understand how it affects different countries and stakeholders,” explains Awate. “For example, the analyses also revealed that investments flowing to and from prominent and central tax havens are beneficial for the productivity of both, the host and home countries.”

To gain further insights, the authors classified these results based on the income level and developmental status of the countries in the network. They found that the benefits of incoming foreign direct investments from prominent, well-connected tax havens were mainly felt by less developed and low-income countries.

These findings fill in critical gaps in the understanding of tax havens and foreign direct investment. They highlight that being connected to a global tax haven network has benefits for less developed countries, and that the use of tax havens by multinational companies is not necessarily negative. These are particularly important to policymakers and researchers who are having conversations about a global tax framework.

Global Strategy Journal, published by the Strategic Management Society, publishes the most influential, managerial-oriented research on global strategy. 

New research in the Strategic Management Journal finds abnormal returns are higher if the senator has direct jurisdiction over the firm. 

Stock purchases by U.S. Senate members generate abnormal returns, according to a study of purchases made by the politicians between 2012 and 2020. The findings, published in the Strategic Management Journal, also suggest that abnormal returns are higher if the senator has direct jurisdiction over the firm by way of committee assignments, along with an increase in abnormal returns if the firm is tied to the senator via lobbying-sponsored legislation and political action committee contributions. However, they found little evidence that stocks traded by Congress members outperform the market. 

“Contrary to investors’ perception, we find that stocks sold and purchased by senators experienced negative abnormal returns over the six- to 12-month period following the transaction date,” says study co-author Mirzokhidjon Abdurakhmonov, an assistant professor of management at the University of Nebraska-Lincoln. “Also, while the market seems to react to stock purchases by members of Congress, there was little reaction when these politicians sell their stocks.” 

Previous studies about Congress members’ stock trades focused on the overall performance of politician-traded stocks, with little attention paid to how investors perceive such trades, prompting Abdurakhmonov and his co-authors to research the topic. What they found was little evidence that stocks traded by Congress members outperform the market — and that the opposite is potentially true. Yes, the market reacts positively to the purchase of stock by a senator, but the researchers’ post-hoc analyses were unable to find a similar effect for the disclosure of stock sales by the senator. This suggests that information about senators’ stock purchases is more valuable to investors than stock sales. 

The researchers suggest that to mitigate potential sways in the market caused by politician stock trades, lawmakers' stock holdings should be limited to blind trusts or exchange-traded funds that follow broad stock market indexes and asset classes. And by tying lawmakers' wealth with broad economic indicators of the country, their personal interests would align with national interests. This would increase public trust by reducing the appearance of potential impropriety — as would a ban on trades of stocks that are directly regulated by members of bureaucracy or legislature. 

Although firms may not have direct control over if or when a senator invests in a firm, the results suggest that the connection of the firm to the legislator — by way of lobbying the senator's legislative proposals or campaign contributions — does matter. Abdurakhmonov says this makes the case for firms to aim for an expanded breadth of government, because they not only mitigate risks produced by the government, but it helps to generate positive market returns if and when legislators do invest in such firms. 

The researchers also found that — while senators were slow to comply with the Stock Trading Act of 2012 — there has been an increase in on-time disclosures: Within the sample time frame studied, most senators disclosed their stock trades within a 36-day window, and more than 90% were reported within the 45-day reporting period.

The Strategic Management Journal, published by the Strategic Management Society, is the world’s leading mass impact journal for research in strategic management.  

Corporate governance decisions, like CEO dismissal, can disrupt organizations. As a result, the board of directors treads with caution while making such decisions. Previous research suggests that boards rely on factors like financial performance and security analyst recommendations to decide on CEO dismissal. A new study published in the Strategic Management Journal in October suggests that employees’ opinions of a CEO are also likely to influence the board’s decision on CEO dismissal.

“Using financial performance and security analyst recommendations as assessment criteria for a CEO’s leadership has limitations,” says Danni Wang, one of the study’s authors who serves as an assistant professor of management and global business at Rutgers University. “Firm performance does not fully reflect a CEO’s leadership as it can be influenced by factors beyond the CEO’s control, and security analyst recommendations may be biased or based on an external perspective.”

Wang, along with co-authors Qi Zhu of Hong Kong Polytechnic University, Bruce J. Avolio of University of Washington, David Waldman of Arizona State University, and corresponding author Wei Shen of Arizona State University, argued that as important internal stakeholders of an organization, employees’ approval of the CEO is likely to influence the board’s decision to retain or dismiss the CEO.

“Employees possess crucial inside information about the CEO based on their experiences, and as implementers of the CEO’s strategies in the firm, their opinion of the CEO’s leadership has important consequences,” says Zhu, an assistant professor of management. “Moreover, because their job security is directly associated with the firm’s success or failure, they have an incentive to monitor the CEO’s leadership and strategies.”

The researchers also contended that employees’ opinions are more likely to influence the board’s decision when the firm’s financial performance is relatively strong, analyst recommendations are more positive, and the CEO is less powerful vis-à-vis the board.

To assess these arguments, the authors collected data on 338 firms and 1,252 firm-year observations from Glassdoor.com (an online platform) from 2010 to 2018. Application of regression analysis models to these data yielded results consistent with their hypotheses.

“We observed that employee approvals negatively influence CEO dismissal, that is, higher employee approval lowers the chances of CEO dismissal by the board,” explains Avolio, a renowned professor of management and Mark Pigott Chair in business strategic leadership.

“Moreover, we found that the negative relationship of employee approval on CEO dismissal is stronger when firm performance is more positive and analyst recommendation is less negative, and vice versa,” adds Shen, a noted researcher and professor of strategic management. “A powerful CEO, on the other hand, will weaken the effect of employee approval on dismissal decision.”

By demonstrating the effect of employee approval on CEO dismissal, these findings offer a key contribution to stakeholder theory, as well as strategic leadership and corporate governance literature. This study also reveals the boundary conditions whereby employee opinions become especially relevant for CEO dismissal.

“Employees are gaining importance as internal stakeholders, and their views on CEO approval cannot be ignored,” concludes Waldman, a professor and Dean’s Council Distinguished Scholar of management and leadership. “CEOs could do well by building a good reputation among employees. Employees should also realize their meaningful role as internal stakeholders and voice their opinion when asked to do so.”

The Strategic Management Journal, published by the Strategic Management Society, is the world’s leading mass impact journal for research in strategic management.

No unified vision of the post-digital business landscape and global business strategy has emerged amid the sweeping transformations digitalization incited in the last 20 years. Digital assets seem to be expanding global reach and communications while also standardizing tasks and centralizing control. A new study from the Global Strategy Journal helps contextualize these discrepancies and give managers better global business strategies for a digitalized world.

“With digitalization, the internationalization process transforms,” says Ram Mudambi, a professor of strategy in Temple University’s Fox School of Business, and a co-author of the paper. “Businesses shift from a strategy requiring successive market entries and coordination of country-specific operations to a unified business model and implementation.”

Mudambi and co-authors Erkko Autio, of Imperial College London, and Youngjin Yoo, of Case Western’s Weatherhead School of Management, theorize that two distinct types of digitalization impact global strategy: communications tools and in situ technologies. Communications tools enable globally dispersed networks and online payments while in situ technologies typically automate and reorganize production and operations management.

“Most business literature tends to treat digital communication technologies as synonymous with digitalization,” says Autio. “But it is a statement of reality that in situ technologies have changed the face of production systems as well as value creation and delivery.”

Communications tools allow businesses to connect disparate, specialized knowledge across the globe. They make location less relevant to innovation and effectively decentralize control. In situ technologies automate, standardize and continuously improve low skill, repetitive tasks, allowing them to be located in less risky locations that almost always would incur higher labor costs if the tasks weren’t automated.

The balance of whether digitalization will consolidate or decentralize control and locations within a business depends on the tangibility of the product in combination with the nature of activities being digitalized. For example, highly specialized professionals working for a software company become decentralized with digital communications tools while automobile manufacturing gets automated with in situ technology in centralized locations. The authors created a table capturing this interaction.

“It is important to bear in mind any product almost always involves both specialized and routine activities and often incorporates both tangible and intangible elements,” says Yoo. “All firms are likely to have some activities in all four cells of the table, even if the majority fall in one cell.”  

Digitalization’s net effect causes multinational organizations to geographically disperse some value chain activities while concentrating others. Global disruptions like the Covid-19 pandemic accelerated the pace of digital asset adoption and help make multinational organizations more resilient. How digitalization will continue to affect businesses largely depends on whether computing power and algorithm sophistication continue to improve. Algorithm development has been decreasing over the past few years, despite globalization, which is a worrying trend that might threaten further transformation.

A new paper published in the Global Strategy Journal argues that business leaders should make a greater effort to understand locational strategy, a framework used for understanding how an organization’s geographical decisions fit into the broader corporate strategy. According to the study authors, this knowledge could give businesses an edge over their competition, as locational decisions can affect everything from branding to human resources to research and development.

“This is a big subject, like understanding your markets, understanding your competition, understanding your talent or human capital base and how to manage your employees, how to choose and manage and grow locations,” says study author Richard Florida, a professor at the University of Toronto. “The location decision is one of the most important decisions a company can make — and it's hard to undo.”

Florida and co-author Patrick Adler, an assistant professor at the University of Hong Kong, define locational strategy by drawing on key concepts from management theory, corporate strategy, and economic geography. They refined their approach to the topic by way of their course on The City and Business in the MBA program at the University of Toronto’s Rotman School, after finding that management training typically fails to include geographic considerations. They argue that the strategy is particularly relevant in the study of sprawling modern organizations, the movement of talent, and the high levels of competition in regional economic policy.

To underscore the importance of the topic, the paper is broken into sections that include recent contributions from economic geography and corporate strategy broadly, foundational definitions of modern locational strategy, and a set of reflections that may guide future research on corporate location. The paper also touches on the reality of work in a post-pandemic world.

“This concept is even more important now with remote work,” Florida says. “You have all these tech companies saying they're going to give up their leases, but how do you organize your people? How do you create a corporate culture? How do you bring them together and off site? Be more thoughtful about it: What does it mean to pull up roots and abandon a place?”

The goal of the paper, according to Florida, was to merge corporate strategy with the traditional approach of economic geography in location decisions. The authors found that locational strategy was often an afterthought at many organizations. They point to a few key factors for its relevance, including the growing shift toward a knowledge-based economy; increasing competition in dynamic efficiency; the rise of corporate locational tournaments, such as Amazon’s HQ2 and Tesla’s Giga-factory; and the increased use of large tax-payer incentives to underwrite corporate location decisions. They suggest that locational strategy be included in both MBA training and management training more broadly.

“For something so important — where you're going to locate — it needs to be given much more forethought,” Florida says.

The decades-long decline in U.S. college enrollment experienced its largest two-year decrease in more than 50 years this spring. Universities increasingly face stiffer competition with less money from state budgets, which does not bode well for their financial security. A new study from the Strategic Management Journal (SMJ) finds that the universities thriving in this environment are doing more with less simply by adopting more flexible budgeting. The problem is, many universities face internal and external pressures that inhibit financial flexibility.

“Universities that reallocate resources more regularly are more likely to run larger budget surpluses,” says Sohvi Heaton, a visiting assistant professor at Santa Clara University. “However, this is far more likely to be true at universities where external governance arrangements allow greater executive discretion.”

Heaton teamed with David Teece, a noted economist and professor at UC Berkley, and Eugene Agronin, a data scientist and economist, to study more than two decades of longitudinal data on the financial performance of U.S. public universities. The study digs into the concept of dynamic capabilities and uses ‘deviation of expense ratio’ (DER), or the change in expense ratio across all budget segments from one year to the next, to measure how easily universities can reallocate funds. They compare DER to the university’s annual surpluses or deficits to determine its effect on financial performance.

“In absolute terms over the period we studied, a typical annual change in DER could have added $10.02 million to the average university's income,” says Agronin. “The effect is not insignificant given that a public university typically spends about $5 million for scholarships.”

The authors then segmented universities into low, medium, or high, levels of regulation based on their state governing board structures, finding 239, 328, and 1,136 respectively. Using a complicated linear regression model of university financial performance in light of DER and governance — while controlling for variables like funding structure, endowments, and university size —they found that low governance more than doubles resource allocation flexibility’s affect, while high governance weakens it. 

“In many of these cases, a budget deficit would become a surplus if a university increased DER by just one standard deviation,” says Teece. “In that context, governance arrangements that are too prescriptive have a large effect on financial performance of universities by making it difficult to allow necessary financial flexibility and associated resource reallocations.”

Multiple corporate studies have established that resources allocation flexibility can improve performance under good leadership, but this study is the first to apply those dynamics to higher education. Academic budgets often sublimate financial performance and market considerations to internal politics—or external politics if subject to heavy government oversight. The authors warn that their results clearly indicate a change to the traditional university budget model is necessary to survive in the current higher education climate.

“A university must be able to not only conduct research and teaching, but also learn how to manage itself well,” says Heaton. “In the age of international competition for resources and talent, ‘organized anarchies’ are no longer an acceptable model for college and university management.”

Surprisingly, this association is weakest under ambivalent home-host relations.

Policy risk negatively affects acquisition completion, but the strength of the effect is dependent on home-host country relations, according to new research published in the Global Strategy Journal. The relationship between policy risk and cross-border acquisition completion is negative and strong under conflictive relations, weaker under cooperative relations, and weakest under ambivalent relations, the study authors found.

“In the recent decade, we are observing major shifts in the geopolitical environment and ever more dynamic intercountry relations that will likely continue to influence cross-border investments, which makes our research timely and relevant,” says lead researcher Tsvetomira V. Bilgili, an assistant professor at Kansas State University.

The team used longitudinal event data on intercountry interactions to infer cooperative, conflictive, and ambivalent relations. Each event in the sample was assigned a score between -10 and +10 to indicate how positive or negative the event is. For example, the signing of a formal agreement was scored 8, while the imposition of an embargo, boycott, or sanctions received a ranking of -8.

To test the effect of home-host country relations on the relationship between policy risk and cross-border acquisition completion, the research team used logistic regression on a sample of 26,124 cross-border acquisitions by 14,568 unique acquirers.

The researchers found that for each unit increase in policy risk, the likelihood of completing a deal decreases by 2.2%, but that home-host country relations can change the effect. When the relationship between countries is conflictive, policy risk poses even greater challenges to deal completion because host governments may be more motivated to intervene in the deal.

Cooperative intercountry relations may offer a buffer, but the effect of policy risk isn’t fully mitigated; however, ambivalent intercountry relations reduce the effect of policy risk to the greatest extent — possibly, the team hypothesized, because host governments may want to maintain relations with the home country by avoiding arbitrary and adverse actions toward acquirers.

“For instance, China and India have long had disputes over border security but have also collaborated in the economic realm,” Bilgili says. “We argue that the state of intercountry relations can be indicative of the host country government’s intentions and motivations to engage in arbitrary or opportunistic policy changes that can prevent the completion of cross-border acquisitions.”

For executives, this underscores the importance of keeping an eye on intercountry relations to better assess the likelihood of policy changes that could have a negative effect on foreign acquisitions. Depending on the state of intercountry relations, some organizations will be better positioned to successfully pursue investment opportunities in high policy risk countries.

“Our findings suggest that in an increasingly complex global environment, understanding intercountry relations is critical to firms’ ability to complete cross-border acquisitions in countries where policy risk is high,” Bilgili says.

A new study in the Strategic Entrepreneurship Journal explains why, in contrast to traditional financing contexts, women can benefit from making innovation claims

Gender bias against women in entrepreneurial finance is turned on its head in the context of reward-based crowdfunding, according to new research published in the Strategic Entrepreneurship Journal. Specifically, female crowdfunding entrepreneurs can actually profit from using more innovation language when launching campaigns in male-typed categories, which implies that women may have more freedom to resist traditional gender stereotypes in the case of reward-based crowdfunding.

The research team of Benedikt David Christian Seigner and Hana Milanov of Technical University of Munich, Germany, along with Aaron F. McKenny of Indiana University, contributes to a stream of research that investigates reward-based crowdfunding — in which backers receive rewards such as future products or services for their investment — as a favorable context for female entrepreneurs. The research helps to nuance the findings of a 2017 PricewaterhouseCoopers report that showed female entrepreneurs on nine leading crowdfunding platforms succeeded at a 32% higher rate in acquiring funding than men. This success rate is at a stark contrast to other traditional fundraising contexts, such as venture capital, in which women are at a severe disadvantage to their male counterparts.

The researchers used Expectancy Violations Theory (EVT) as a framework for the study, which helps explain when going against stereotypic expectations will be rewarded or punished. “In our case, we study two expectancy violations for women: first, when women portray their crowdfunding campaigns as innovative (because innovation behavior is stereotypically portrayed as a masculine attribute), and second, when women launch their campaigns in a male-stereotyped category like technology” Seigner explains.

To test the effects of female entrepreneurs using innovation language for crowdfunding performance, the team used a field study on Kickstarter. To further understand the backers’ interpretation of campaign claims, they also conducted an experimental study using Amazon MTurk to show that backers trusted more in a woman's ability when she launched her crowdfunding campaign in a male-typed category, compared to a female-typed category.

Whether the counterstereotypical behavior studied was rewarded or punished relied on two key factors: the interpretation of the behavior as positive or negative, plus the attitude toward the individual engaging in said behavior. Innovation claims were interpreted as ambiguous in this case: crowdfunding backers like novelty, yet delivering more innovative rewards could be perceived as more complex and difficult. That meant the interpretation of this counterstereotypical behavior was determined by the attitudes towards individuals engaging in this behavior — not by the interpretation of the behavior itself.

“In crowdfunding, the overall tendency to fund women preferentially as compared to men suggests that even ambiguous counterstereotypical behavior will be evaluated positively for women,” Seigner says. The effect is further amplified when the campaigns occur in a male-typed category.

The implication is that female crowdfunding entrepreneurs — especially when using rewards-based platforms — can profit from using more innovation language when launching their campaigns in male-typed categories. The study adds to existing research that underscores how categories, people, behavior, and products might evoke gender stereotypes, and the team hopes to study other entrepreneurial contexts using a gendered perspective to better understand how gender biases impact entrepreneurs and their ventures.

A new study published in the Strategic Management Journal finds high complexity or dynamism can reduce the negative effects of narcissism among unit heads, but high inter-unit competition can worsen the situation.

Narcissistic executives cause the units or subsidiaries they manage to be less receptive to knowledge coming from other units. The new research, published in the Strategic Management Journal, explores the relationship between executive narcissism and inter-unit knowledge transfer. The authors find that the effects of narcissism are reduced when there’s a high environmental complexity or dynamism at play, as such extra-organization challenging situations give narcissists a reason to undertake external learning. However, such effects are strengthened when there is a high inter-unit competition, as such an intra-organization challenging situation enhances narcissists’ distinctiveness-seeking tendencies.

“How to promote inter-unit knowledge transfer among different business units or subsidiaries inside a multi-unit firm is a key issue that often puzzles top executives of the parent firm,” says lead author Xin Liu, an associate professor at Renmin Business School in Renmin University of China. On the one hand, Dr. Liu says, “the parent firm hopes to rapidly develop and expand business; but on the other hand, the parent firm isn't always able to provide detailed guidance to each business unit. If units share knowledge with one another related to operation management, it improves firm performance — but both practice and research show that inter-unit knowledge transfer is never easy.”

The paper, “Upper Echelons and Intra-Organizational Learning: How Executive Narcissism Affects Knowledge Transfer among Business Units,” builds on existing literature on inter-organizational knowledge transfer and upper echelons theory. The research team focused on unit head narcissism because it has been identified as a prominent and fundamental personality trait of top executives that affects both their strategic decisions and organizational strategies.

The researchers used two field survey studies with two-wave, multi-source survey design to test the hypotheses. The exploratory study collected data from all 52 business units of a Chinese corporation that designs charging systems and devices and provides charging services for electric cars, while the main study gathered data from 118 business units of a headhunting company in China.

The studies proved their hypotheses, finding narcissistic executives to be more receptive to knowledge transfer when a higher level of environmental complexity or dynamism was present. Dr. Liu offered two theories as to why narcissism stands in the way of knowledge-transfer: One, narcissistic unit heads may strongly believe that they have a superior knowledge stock, compared to executives in other units, and understand their unit’s problems better — leading them to believe others’ knowledge is less valuable. The second theory is that these executives may believe that knowledge transfer may diminish their sense of superiority and uniqueness, leading them to decline to receive external knowledge in an attempt to preserve their image.

“However … if they can offer social accounts and justifications that preserve their sense of superiority and avoid broadcasting an impression of weakness and vulnerability, narcissists are less likely to resist learning behaviors and new information,” Dr. Liu says. “An environment characterized by complexity or dynamism is particularly suitable for providing such face-saving justifications or ‘cover’ for narcissists’ fragile self-esteem.”

The study makes the case for firms to be aware of the crucial impact of unit head narcissism when promoting or implementing knowledge transfer. But Dr. Liu cautions that corporations with multiple units should be careful when using relative performance evaluations or other similar practices that strengthen the competitive intensity among units, as the research shows that the negative effect of narcissism is amplified when there is high inter-unit competition. She suggests instead emphasizing the environmental complexity or dynamism to narcissistic unit heads, as the research suggests that the negative effects of unit head narcissism is lowered when there is high environmental complexity or dynamism.

In many modern markets, a single business can no longer compete solely via product offerings. From technology to manufacturing, success increasingly depends on integrating products and services across firms and industries in an ecosystem. The product-based strategies that dominated for decades often undermine these collaborative marketplaces, making it particularly difficult for established organizations to adapt. A new study published in the Strategic Management Journal in February offers key insights for transitioning, however, with a model for building an ecosystem while preserving product revenue.     

“Many firms are used to competing, maximizing their own performance, and improving the efficiency of their product incrementally along well-defined criteria,” said Joachim Stonig, a lecturer and researcher at the University of St. Gallen in Switzerland and one of the study’s authors. “When building an ecosystem, firms have to collaborate, help partners to succeed, and establish cross-functional innovation across firm boundaries. This implies a change in organizational structure and processes that is quite difficult to realize.”  

The research examines a machine manufacturer’s strategic data from 2001 to 2021, as it rose to dominate its market by building an integrated solution across the market. Along with co-authors Torsten Schmid and Günter Müller-Stewens, both also of the University of St. Gallen, Stonig was given unrestricted access beginning in 2016 to interview internal management as well as clients and technology partners, observe workshops, and examine presentations and reports to chart the company’s activities during the strategic transition. The company’s transformation began after service interactions revealed their customers’ main concern was improved efficiency across their entire manufacturing system rather than standalone machine performance.

“That is when management shifted its strategy in 2016 from a focus on products to one where they lead the drive to create a collaborative network of partners to improve the manufacturing system as a whole, but still relied on their core product,” Stonig said. “Adapting their core product to support the new ecosystem was a key to the partnership’s success, however the biggest hurdle was how they had to change their organization.”

The organization created an integrative platform that coordinated the entire manufacturing system, so that machines along a sequential manufacturing flow could communicate and automate tasks. It separated its R&D into two tracks — one for product optimization and one for ecosystem orchestration — shifting key elements like its software platform to the latter. Ensuring internal adoption and external alignment required the company to adopt an open strategy process that engaged managers, partners and clients; created a partner management role; and increased cross-departmental coordination.   

“The focus by top management on better cross-functional collaboration reduced intra-organizational conflicts between the departments,” Stonig said. “The new partnership functions helped win over industry partners, and discussing previously confidential strategy details with clients helped build trust and engender open dialogues.”

The case-study company established itself as almost the uncontested leader of integrated, cross-company solutions in its sector between 2001 and 2020. By the end of the study, although most of their business value still came from machine sales, half of revenue was connected to integrated solutions. The results suggest that businesses can orchestrate ecosystems to transform their marketplace and competitive position while preserving product revenue, as long as they can adapt their products to the ecosystem. The model also shows that a successful shift to an integrated solution model requires changes across strategy, product and system activities as well as organizational design.     

A study published in the Strategic Entrepreneurship Journal suggests self-employment assistance could bolster entrepreneurship.

Higher unemployment insurance benefits not only lowers the likelihood that an unemployed person will become self-employed, but it also extends the length of time before they transition to self-employment, according to new research published in the Strategic Entrepreneurship Journal.

Author Wenjian Xu, an assistant professor in finance at Shanghai Jiao Tong University, used information from the U.S. Department of Labor on each state’s maximum weekly UI benefits, and surveyed states' labor departments to understand policy details about how starting a new business would affect UI eligibility.

The research also showed that the negative effects of UI benefits — especially generous benefits — are concentrated on the formation of unincorporated businesses. “This result is a little surprising at first glance, as we would have thought that higher unemployment benefits might offer support to those people who try to start their own business, leading to more new businesses,” Xu says. However, most states require business profits to be deducted from unemployment benefits, which disincentives the creation of new businesses. Plus, he says, higher benefits usually discourage people from transitioning out of unemployment.

Yet the study found that unincorporated businesses that are created by unemployed people in higher-benefit state-periods tend to be more successful, as measured by profit and survival rate. It suggests that higher benefits act as a screening device that deters the creation of lower-quality businesses.

The negative effects that Xu identified in his study were particularly high during recession periods, as this is when entrepreneurs are pessimistic about future profits. “Since the disincentive effect resulting from the profit deduction requirement mainly concentrates on businesses with smaller profits, the effect will be larger when there are more businesses that expect to make smaller profits,” he says. In fact, Xu’s empirical results found that the negative effect of UI benefits on the transition from unemployment to entrepreneurship during recessions is three times as large as during non-recession periods.

From a policy perspective, the research shows that removing the profit deduction requirement from the UI system would mitigate the negative effects and encourage more unemployed entrepreneurs to experiment and explore business creation, which Xu says could foster a vibrant local economic environment. Self-employment assistance (SEA) programs aim to achieve this incentive, as they allow unemployed people to start businesses without any profit deduction and they waive the job search requirement.

As of 2016, only eight states had this program, Xu found, and the ratio of unemployed people joining this program in these states was small because of restrictive conditions. To foster more entrepreneurship and create jobs, Xu’s study suggests that policymakers should adopt the SEA program and relax the conditions to cover more unemployed people — especially during recessions, when the disincentive effect of UI benefits is larger on would-be entrepreneurs, and when it is more difficult to find a new job.

“During the COVID-19 pandemic, the share of new entrepreneurs who were initially unemployed reached the highest level (30%) recorded in 25 years,” Xu says. “Hence, it becomes urgent and important for policymakers to remove obstacles and smooth such a transition.”

In both mature and burgeoning markets, underwriters who boast a high reputation will prevail, as they get to choose their clients. The question becomes: Who might they choose?

According to the new study “Who do you take to tango? Examining pairing mechanisms between underwriters and initial public offering firms in a nascent stock market”—authored by Yan Anthea Zhang, Rice University; Haiyang Li, Rice University; Jin Chen, University of Nottingham Ningbo China; and Jing Jin, University of International Business and Economics, Beijing, China—high-reputation underwriters’ client-picking behaviors differ in a nascent stock market than in a mature one. Previous research established that in mature markets, high-reputation underwriters are primarily paired with high-quality IPO firms. In a nascent capital market, however, high-reputation underwriters work with IPO firms of varying qualities—good and bad ones, including those who “cooked” their accounting books in order to meet public listing standards.

Why would high-reputation underwriters ever choose to work with low-quality IPO firms if their reputation is at stake? The authors find that money plays an important role in the pairing between underwriters and IPO firms in a nascent market. That is, high-reputation underwriters charge higher fees than their low-reputation counterparts do, whereas low-quality IPO firms pay higher fees than those high-quality ones. The authors argue that because a nascent stock market typically starts with weak regulations, the financial and reputational penalties for underwriters taking on low-quality clients are not well defined, giving underwriters incentives to put short-term financial gains (high fees) ahead of long-term reputation concerns.

“We contribute to the IPO literature by going beyond the well-accepted assumption that high-reputation underwriters are paired with high-quality IPO firms and by proposing an alternative pairing mechanism in a nascent stock market: the pricing mechanism,” the authors write. “By focusing on a nascent stock market, our study provides a glimpse into how underwriters and IPO firms are paired before an efficient contract, which best serves IPOs, has emerged in a capital market.”

After regulations get more stringent, the pricing mechanism falls apart. The study finds that after stronger regulations are introduced into a nascent market—and a few cases demonstrate that underwriters do get panelized for endorsing low-quality firms—the overall quality of IPO firms improves. More important, underwriters’ client-picking behaviors adapt, as well. High-reputation underwriters become more likely to work with IPO firms with high quality instead of those who are willing to pay hefty fees.

This study offers important insights on behaviors at all levels of market maturity, be they quite germane or well-established, and holds implications for any financial institution looking to play the market.

Freemium strategies dominate software product markets, but data suggests this oft-used tactic has its limits for generating revenue

Freemium strategies dominate software product markets, with many if not most applications enticing new users with a free version, then requiring payment for more advanced features. The strategy thrives at attracting users, but there’s very little empirical evidence showing how it impacts a company’s bottom line. New research published in the Strategic Management Journal in November changes that, with data that suggests this oft-used tactic has its limits for generating revenue, especially for companies trailing in their market category.

“Freemium strategies often seem like a natural way of exploiting a network effect,” says Kevin J. Boudreau, an associate professor of entrepreneurship and innovation at Northeastern University, and one of the study’s authors. “By offering a free version, companies may be able to increase the size of their user base. But in order for a company to use the freemium model to increase revenue, they have to gain enough of a network advantage to tip the market.”

Boudreau, along with co-author Lars Bo Jeppesen of Copenhagen Business School and corresponding author Milan Miric of the University of Southern California, created an empirical study using Apple’s launch of the Game Center in 2010 and its effect on 485 gaming app market categories. Like almost all app categories, the gaming apps already existed in centralized markets, with leaders capturing 40% of all revenue in their app category, and second-ranked followers only 17%.

The new Game Center introduced strong network effects to the market with multiplayer and interactive features. To better compete amidst the network effects, many apps shifted to a freemium model with their next product update, 70 days later. Researchers used this window, combined with 70 days before Game Center hit the market, to investigate how the freemium strategies performed. Their analysis included public data on more than 1.4 million mobile apps and proprietary data from a marketing analytics company to categorize the apps and identify market leaders and followers.

“Although a sample of 140 days may not seem a long time in conventional industries, app markets are particularly dynamic,” says Jeppesen, a professor of innovation management. “On average, a market category would undergo dozens of leadership changes within this short time window.”

The authors used Apple’s daily list of top 500 apps in sales and downloads to approximate revenue, using an established method that incorporates revenue ranking, prices and download ranking. They found using freemium strategies in markets with strong network effects widened the already large revenue gap between leaders and followers by 55%. Leaders gained ground and second-ranked followers lost it.

“Our results show that freemium strategies can lead to drastically different outcomes for market leaders and followers in markets with strong network effects,” says Miric, an assistant professor of data sciences and operations. “Network effects had no impact on products that were paid-only, but greatly amplified leaders’ advantages where freemium strategies are used.”

The study’s data suggests that freemium models and network effects are not always mutually beneficial, as many software companies believe. Companies that do not lead their market ultimately suffer when both are at play, and the market itself also suffers since competition and innovation ultimately decrease.

The Strategic Management Journal is published by the Strategic Management Society, comprised of 3,000 academics, business practitioners, and consultants from 80 countries, focuses on the development and dissemination of insights on the strategic management process, as well as on fostering contacts and interchanges around the world.

This pivotal work uncovers an empirical relationship between governance style and location choice—previously treated as independent.

A new study refines predictions from previous work on outsourcing and offshoring decisions and suggests ways to improve these choices.

The research provides large-scale empirical evidence that decisions to “make or buy” a product and decisions to locate production in certain parts of the world are inextricably linked in a manner that was previously misunderstood. Whereas prior work has shown how these decisions affect several performance metrics, this work, recently published in the Global Strategy Journal, highlights the need to further assess interdependencies between governance (e.g., outsourcing) and location choices.

The paper, “Are Governance Mode and Foreign Location Choices Independent?”—by Michael J. Leiblein, Ohio State University; Marcus M. Larsen, Copenhagen Business School; and Torben Pedersen, Bocconi University—paints a vivid portrait of how its conclusions can have a direct impact on managerial practice. By jointly considering governance and location, the study indicates how companies can not only develop more accurate predictions but, ultimately, encourage a stronger return on investment.

The relationship between governance and location can be observed on a granular level. Upon controlling for characteristics such as the complexity of a business problem, the number and experience of qualified suppliers in a country and the distance between a firm and its international suppliers, the study’s authors found that important links exist between decisions to outsource and where to locate production of a product. The work illustrates causal linkages between choices how to manage an activity and where to locate the completion of that activity.

“Overall, our paper suggests new opportunities to bridge the governance and location literature streams by more fully recognizing the correlations and potential feedback loops between governance and location choices,” write the authors, “and by highlighting the importance of interdependent choices.”

There is more work to be done, and the authors will next focus on testing hypotheses whether choosing governance first, location first or both simultaneously demonstrates additional performance variability. They also plan to identify what sorts of laws and politics have the most impact on the outsourcing decision.

Managers looking to create social conditions that lead to open, diversified and large networks — which are known to spur innovation — should avoid implementing pay-for-performance incentives that rest on short-term and quantitative performance metrics. According to new research published in Strategic Management Journal, such pay incentives result in more closed and smaller networks in organizations, suggesting that managers can use incentive plans to design innovation networks in their organizations.

The study, titled “Pay and networks in organizations: Incentive redesign as a driver of network change,” was published Aug. 26 and written by Hitoshi Mitsuhashi, of the School of Commerce at Waseda University in Tokyo, and Azusa Nakamura, of the Department of Management and Technology at Bocconi University in Milan.

“[F]rom a practitioners' standpoint, our findings highlight the role of managerial policies in shaping networks in organizations,” the authors write.

Mitsuhashi and Nakamura looked to answer two questions in particular, based on gaps in existing research: What can managers do to create social conditions that promote certain networks that are preferable for their goal attainment? And what management policies are available if they want to exert some influence on networks in their organization?

What was known from existing research about networks — and what Mitsuhashi and Nakamura built their study on — are the types of networks that increase work performance and how such preferable networks emerge.

For their work, the study authors focused on the change of incentive plans from those that weakly link short-term individualized contributions with remuneration to those that tightly link them. For example, switching from seniority-based pay to a performance-based incentive plan.

They also looked at the effects of such an incentive redesign on corporate innovators, arguing that the shift would cause two particular habits in the employees: They would deliver more measurable short-term outcomes and they would seek a fair share of the credit on the outcomes that they jointly achieve with others in their networks. These habits, the authors hypothesized, would prompt corporate innovators to build easily manageable networks to quickly execute projects and get rewarded.

To test the theory, Mitsuhashi and Nakamura used Japanese electronics firms' patent application filing data, focused on co-innovator networks and adopted a quasi-experimental research design. They chose Fujitsu Limited and NEC Corporations as the treatment group, and the companies’ performance-based incentive plans as the treatment effects. The researchers conducted difference-in-differences (DID) analyses and estimated the incentive plans’ effects by comparing individual employees before and after the plans took effect with individuals in control groups.

Based on interviews with corporate innovators who experienced the incentive redesign in these firms and HR experts who observed their responses, they found three areas of change took place when incentive plans were redesigned based on performance. First, they found that corporate innovators became more goal-oriented and focused more on achievement. Second, the short cycle of performance evaluation created a short-term orientation among employees and increased their risk aversion. Third, the incentive redesign made innovators more individualistic and they became more sensitive about who made what contributions, even deterring others from claiming specific achievements in team settings.

The results supported the authors’ theory that the incentive redesign leads to more closed and smaller networks in organizations. They also found some evidence — although inconsistent — that it caused innovators to build networks with others who have similar expertise.

“A critical message from these observations is that before engaging in incentive redesign, companies need to understand that, No. 1, (it) influences goals that employees pursue, No. 2, employees might adapt their networks to the renewed goals and, No. 3., the updated networks might not be ones that managers prefer,” Mitsuhashi says.

While the findings help to further the understanding of pay and networks in organizations — and highlights their intersection — it offers practical advice for managers: Moving to a pay-for-performance incentive model that relies on short-term and quantitative performance metrics could come at the risk of innovation within the organization.

The Strategic Management Journal (SMJ), founded in 1980, is the world’s leading mass impact journal for research in strategic management. The SMJ seeks to publish papers that ask and help to answer important and interesting questions in strategic management, develop and/or test theory, replicate prior studies, explore interesting phenomena, review and synthesize existing research, and evaluate the many methodologies used in the strategic management field.

SMJ is published by the Strategic Management Society (SMS), an association comprised of 3,000 academics, business practitioners, and consultants from 80 countries that focuses on the development and dissemination of insights on the strategic management process, as well as on fostering contacts and interchanges around the world. To find out more about SMS’s scientific and educational programs in strategic management, please visit www.strategicmanagement.net.

Institutional environments influence the effectiveness of entrepreneurial strategies.  But environments change, and entrepreneurs may have to adopt different strategies at different stages of institutional change.

This issue was studied by You (Willow) Wu and Charles E. Eesley, Stanford University and Delin Yang, Tsinghua University, Beijing, China, who examined China’s transition from a planned economy to a market economy. Their research was published in the Strategic Entrepreneurship Journal (SEJ).

“Institutions provide stability for social activities, but they also undergo changes,” write the authors. “While organizational researchers have examined the relationship between institutional changes and entrepreneurial actions for decades three important elements are poorly understood:

(1) entrepreneurs’ strategic responses to institutional changes;

(2) the changing effects of entrepreneurial strategies during institutional changes; and

(3) the intermediary stage of institutional changes.”

Prior research has found that social movements create entrepreneurial opportunities by delegitimizing established markets or by creating consumer needs, collective identities, and cognitive legitimacy for a new market. Similarly, favorable regulatory policies also create entrepreneurial opportunities by reducing institutional barriers to entry and growth and exit.

“While these studies examine how institutional changes create entrepreneurial opportunities, how entrepreneurs strategically respond to these opportunities remains relatively unexplored;” write the authors. “Prior studies have also found that government relationships and innovation work in different types of stable environments at specific times; however, they have failed to examine how the effects of these two strategies may change when institutional environments change.”

Finally, prior studies have tended to examine government-dominant institutions and market-based institutions as two ends of a spectrum, but the intermediary stage remains largely unexplored.

“To fill these gaps, we investigated the strategies that entrepreneurs should take at different phases of institutional changes,” they write. “Using data from a Tsinghua University alumni survey in China, we find that relationship-based strategies promote firm growth in the early stage, innovation-based strategies appear more effective in the late stage and locating in science parks benefit firm growth in intermediate stages.

“Overall, our study implies that entrepreneurs should adopt different strategies to fit different types of institutional environments. We find that government relationships are the most important factor driving venture size in the early stage of an institutional transition, but the effect decreases when the institutional environment becomes more marketized.”

They found that innovation is most conducive to venture size in the later stage of an institutional transition, and the effect increases under higher levels of marketization. In comparison, in the intermediary stage, locating in science parks most significantly promotes venture size, but the effect also decreases as the broader institutional environment becomes more marketized.

“Our study provides implications to policymakers that cocoon institutions, such as science parks, may be temporarily effective during the intermediate stage of an institutional change,” write the authors.

The SEJ is published by the Strategic Management Society (SMS), which is comprised of 3,000 academics, business practitioners, and consultants from 80 countries and focuses on the development and dissemination of insights on the strategic management process, as well as on fostering contacts and interchanges around the world.

Multi-business firms have flexibility advantages over single-business rivals because they have the option to redeploy resources across businesses. This flexibility, it has been assumed without empirical evidence, is purported to inspire quicker exits from markets.

A 2017 survey revealed that 70 percent of corporate executives expected to make at least one divestment in the subsequent two years, with the primary motive being strategic realignment of portfolios as non-core assets are shed.  A large number of academic studies have established that parent firms tend to use the external market to sell businesses that are unrelated to their core business.  However, this seemingly ignores the fact that there is an important alternative to divestment—the internal reallocation of business resources elsewhere within the corporation.

A new study published in the Strategic Management Journal (SMJ) examines how the relatedness of businesses and market efficiency might inspire exit through resource redeployment versus divestment. The researchers, Timo Sohl, Univ. Pompeu Fabra (UPF) Barcelona, Spain and Timothy B. Folta, University of Connecticut, examined 3,082 retail chains across 106 countries.

“The influence of business relatedness on exit decisions has been of great interest to strategy research,” write the authors. “However, little is known about how business relatedness might influence exit through internal redeployment versus divestment.

“On the one hand, business relatedness makes resource redeployment less costly and hence, it should increase the probability of exit.  On the other hand, business relatedness might also decrease the likelihood of exit through divestment because it increases the chances that the same resources enable intra-temporal economies of scope, commonly referred to as synergy.”

The research objective was to provide more clarity around this puzzle and also to provide a template to help distinguish between the two exit modes when they are not directly observable.

“To examine how the potential for resource redeployment affects exit, we focused on potential redeployments of highly location-bound resources (i.e., physical stores) to sibling businesses within country divisions,” write the authors. “This allowed us to produce a set of patterns that, as a whole, provide the first large-scale empirical evidence supportive of the view that market exit is taking place through internal redeployment.”

“In particular, we find that greater potential for resource redeployment—which is when there is a larger number of more-related sibling businesses—has a significant and sizable effect on market exit, especially when there are higher external transaction costs and businesses perform poorly relative to their business siblings.”

The focus of this research on fixed assets complements an earlier study on the redeployment of human capital.  Future research could combine the role of fixed asset redeployment with labor redeployment, and Sohl’s and Folta’s research framework could be used to focus on other types of fixed assets, such as manufacturing plants, power plants, or heavy tools and machinery.

“We also encourage future research to examine additional boundary conditions such as sales price (i.e., inducements in the external market), ownership structure, and/or organizational structure,” the researchers write. “Moreover, to the extent that some corporate chains are at least partially owned by franchisees, this may hinder the ability to redeploy. We attempted to rule out this explanation in our analysis of retail subsegments that might be more or less inclined to have franchise-owned stores, but future analysis could more thoroughly explore this issue with data on the number of franchise-owned stores across chain-country-years.”

“We assume that corporate decisions are made with the intent of maximizing the efficiency of resources in a country, but we acknowledge there may be alternative objectives, some of which may be driven by incentives or brand hierarchy.”

The SMJ is published by the Strategic Management Society (SMS), comprised of 3,000 academics, business practitioners, and consultants from 80 countries, focuses on the development and dissemination of insights on the strategic management process, as well as on fostering contacts and interchanges around the world.

Despite the increasing frequency and severity of floods, storms, wildfires and other natural hazards, some firms in disaster-prone areas prepare while others do not.

That issue was examined in a new study by Jennifer Oetzel, professor, American University and Chang Hoon Oh, William & Judy Docking Professor of Strategy, University of Kansas published in the Strategic Management Journal (SMJ).

“Due to the increased frequency and severity of floods, storms, epidemics, wildfires and other natural hazards anticipated over the coming decades (according to the National Oceanic and Atmospheric Administration), there is growing pressure on managers and their firms to develop strategies for managing natural disaster risk,” write the researchers.

“Preparing for future events that may never occur is challenging. Day-to-day events tend to crowd out long-term planning, but business continuity depends on managers anticipating and planning for large scale disasters.  For these reasons, our goal in this study was to understand the antecedents associated with disaster preparation so that managers can better prepare for natural disasters.”

They defined disaster preparedness as the acquisition of the skills and capabilities needed to reduce damage to a firm, to minimize disruption to the supply chain, and business activity more generally, and to save lives and protect employees. 

Disaster preparedness can entail a wide variety of initiatives including conducting an assessment of firm vulnerability to natural disasters, establishing a natural disaster response plan, training employees about natural disaster preparedness, purchasing insurance, developing a business continuity plan, and arranging to move business operations temporarily to another location, among others.

Emergency preparedness pays off.  A review conducted by the Wharton Risk Center that focused on floods suggested that for every dollar spent on flood risk reduction, on average, five dollars is saved through avoided and reduced losses.  But despite the documented value of preparing, most firms fail to do so.

“Since not all firms located in disaster prone areas prepare for disasters, what are the antecedents to disaster preparation?  To answer this question,” write the authors, “we looked at several factors that are likely to affect whether or not businesses will prepare. The first factor is organizational experience with disaster, which can be a transformational and powerful motivator for change when managers see the value of disaster preparation and planning.”

The mechanisms driving the relationship between experience and preparedness are multifaceted. Managers may fail to learn from past experiences if they do not consider a recently experienced disaster as representative of future events. Even when managers learn from experience and see preparation as valuable, they may lack the organizational influence and find that they are unable to leverage learning to inform decision-making.

Aside from experience, strategic decisions around disaster preparation are likely to be affected by managers’ subjective judgments and/or knowledge about disaster risks.  Depending upon the nature of their experience, managers may either over- or under-estimate disaster risk and thus over or under prepare.

Research has also shown that willingness to learn from other organizations about how to manage natural disaster risk is also important.  External sources of information provide different perspectives and may help organizations to avoid internal biases in decision making.

“Another set of factors that are presumed to affect preparation are the characteristics of disasters, including their type, frequency, and impact,” write the researchers.  “Historical records and scientific data indicate whether or not a given location is subject to natural disasters and, if so, of what type.

“Natural scientists examining climate change trends are raising concerns, however, that past experiences may not be predictive of the future. In certain geographic areas (e.g., Houston, Texas), the frequency of major disasters may be increasing substantially, deviating significantly from the past.”

In conducting two studies -- an international survey in 18 disaster-prone countries and a U.S. survey in New York City and Miami – Oetzel and Oh found that managers are more likely to prepare when their companies experienced prior disasters.  The likelihood of preparedness is even higher when companies work with and learn from other organizations and stakeholders.

“Managers operating in locations characterized by high impact, low frequency disasters are more willing to learn from others,” they wrote. “In contrast, managers in areas characterized by low impact, high frequency disasters, are more likely to prepare alone. Since effective disaster preparation typically entails working with, and learning from others, those companies that choose a go-it-alone strategy may misjudge disaster risk.”

The SMJ is published by the Strategic Management Society (SMS), comprised of 3,000 academics, business practitioners, and consultants from 80 countries, focuses on the development and dissemination of insights on the strategic management process, as well as on fostering contacts and interchanges around the world.

th century, has leveled off, remaining short of parity with men. The Census 2012 Survey of Business Owners reported that women owned 9.9 million U.S. firms that year, or 35.7% of all firms. Another 2.5 million firms, or 8.9%, were equally owned by women and men. 

Data from 73 countries indicated that increasing proportional representation of women among business owners, and survival duration of their businesses, to a state of parity with men could add between $2.5 and $5 trillion to the world’s economy, with $400-$800 billion of that in North America.  That according to a 2018 Boston Consulting Group study.

Because the proportional representation and survival duration of female-owned businesses appear to be closely linked to global economic welfare, Arturs Kalnins and Michele Williams of The University of Iowa  analyzed the relative survival duration of one million female- and male-owned retail and service proprietorships over a 13-year period in the State of Texas.

Their study was reported in the Strategic Management Journal, published by the Strategic Management Society.

“Business ownership has been proposed to be a ‘great equalizer’ for women frustrated by the glass ceilings of corporate employment,” write the authors. “We argued that a higher proportional representation of female business owners among all owners in a geographical area would combat negative stereotypes about women’s business competence and increase their firms’ survival duration relative to that of male owners.”

An important factor, they believe, was how the resources provided by external stakeholders, such as banks, are influenced by gender stereotypes about the perceived competence of female business owners and by the impact of proportional representation within a geographical region.  So, they examined specific stakeholder effects related to the presence of banks, customers, and network opportunities.

“We theorize that geographic proximity is central in facilitating human interaction among stakeholders, which in turn leads to shared social norms of the populace. Moreover, social category beliefs and their impact on social norms typically vary across geographic contexts,” they write.

“We found that female-owned businesses survived relatively longer than their male-owned counterparts in areas with substantial proportional representation of female owners and that the relative benefits for women were magnified in the presence of local banks (which provide capital) as well as in customer-rich and network-rich areas.

“We find this is only true in areas with a high proportional representation of women among business owners…We also find support for the hypothesis that the presence of local stakeholders such as banks, customers, as well as network opportunities, in combination with proportional representation, further enhances the relative survival duration of women-owned firms.”

The SMJ is published by the Strategic Management Society (SMS), comprised of 3,000 academics, business practitioners, and consultants from 80 countries, focuses on the development and dissemination of insights on the strategic management process, as well as on fostering contacts and interchanges around the world.

New research has found that whether a new technology is adopted can depend on the decision-maker’s cognitive distance from the new technology as well as whether the decision-maker’s cognitive approach is abstract or concrete.

The research, published in the Strategic Management Journal (SMJ), was performed by Matthew P. Mount, Deakin University, Melbourne, Australia; Markus Baer,  Washington University, St. Louis; and Matthew J. Lupoli, Monash University, Melbourne, Australia.

“Innovation and the pursuit of radical technological ideas is the driving force behind sustained competitive advantage,” write the authors. “Yet, decision‐makers routinely fall prey to inertia and reject highly novel ideas as they depart from existing cognitive frames tied to known technological understandings.  Cognitive frames are knowledge structures that form the basis of decision‐makers' sensemaking, guiding their perceptions, inferences, and actions.

“Research has shown that the deliberate cognitive projection of existing cognitive frames to the novel, albeit related, technological categories is an important mechanism for overcoming inertia. However, this does not account for how decision‐makers cognitively navigate highly novel ideas that share no commonality with an existing frame.  Indeed. being caught in existing frames is a central source of failure in such circumstances, as highly novel ideas require cognitive flexibility to accommodate and process.”

The researchers performed two studies. This first was based on a natural field setting using a unique dataset of R&D and innovation investment decision‐makers exploring the early‐stage development of quantum key distribution (QKD)—a cybersecurity technology. The second was an online experiment which conceptually replicated the first study.

Across our two studies, we show that decision‐makers' who are distant from a highly novel technological idea in terms of domain expertise are less likely to invest in it,” the researchers wrote. “This finding is in line with prior research suggesting that decision‐makers' domain expertise is an important factor shaping technological exploration.

However, extending these insights, our results show that the effect of expertise distance is moderated by the level of construal—how individuals perceive, comprehend and interpret the world around them— through which decision‐makers make sense of highly novel ideas.”

According to construal level theory, ideas can be interpreted in different ways depending on whether an individual engages a high‐level or low‐level construal.

High‐level construals are abstract and decontextualized, and work to expand people's mental horizons, helping them connect to their broader, more distant goals and desirable end‐states.  

Low‐level construals, in contrast, are concrete and contextualized, and tend to contract people's mental horizons, focusing their attention on the unique and idiosyncratic demands of present circumstances.

“We find that interpreting ideas through a high-level construal accentuates the negative effects of decision‐makers' expertise distance on the propensity to invest,” write the researchers. “In contrast, interpreting ideas through a low‐level construal can reverse or at least attenuate the negative effect of expertise distance.

“Additionally, our results suggest that the differential investment propensity owing to expertise distance and construal levels are mediated by perceptions of novelty and usefulness. Specifically, we find that emphasizing a low‐level construal reduces the negative effect of expertise distance by decreasing perceptions of novelty and increasing perceptions of usefulness.”

The SMJ is published by the Strategic Management Society (SMS), comprised of 3,000 academics, business practitioners, and consultants from 80 countries, focuses on the development and dissemination of insights on the strategic management process, as well as on fostering contacts and interchanges around the world.

Do firms respond to tougher competition by searching for completely new technological solutions (exploration), or do they work to defend their position by improving current technologies (exploitation)?

Competition from increased import penetration generally results in tight profit margins, low prices, and strong efficiency pressures, immediately affecting firms’ bottom lines in the form of reduced profits and increased bankruptcy risk.

A firm’s R&D strategy is one of the fundamental determinants of success or failure when responding to competitive threats. To ensure both short-term performance and long-term survival, firms have two basic R&D options: explore new knowledge or exploit existing knowledge bases. 

A new study published in the Strategic Management Journal (SMJ) examines how firms change the knowledge sources used in their R&D efforts in response to substantial increases in import penetration in their domestic market. The study was conducted by Raffale Morandi Stagni, Universidad Carlos III de Madrid, Spain, Andrea Fosfuri, Bocconi University, Milan, Italy and Juan Santaló,  IE University, Madrid, Spain.  They studied a sample of U.S. manufacturing firms over the years 1989–2006.

"Our focus on technology reflects both its increasing importance for firm survival and competitive advantage,” write the authors.  “Specifically, we study competition created by import penetration, which has increased steadily in recent years to become a central concern for companies, for example, dealing with imports from China.

“We find that in the years that immediately follow an increase in import penetration, firms tend to rely more on familiar knowledge in the development of innovations and less on knowledge sources that were not previously used. This switch in R&D strategy also appears to be temporary (reversed in later years), and it is positively associated with an increased likelihood of survival.”

The researchers argue that while exploration is riskier and costlier than exploitation, it also requires a longer time horizon to produce results due to its slower learning pattern.  

They also tested the effects of import penetration according to the type of competition and the type of industry affected.  They separated imports from low-technology countries from imports from high-technology countries.

“If technological competition has a different effect on search strategies than price-based competition, we might expect the results to differ,” write the researchers. “Instead, the effects of the two types of import penetration are qualitatively similar.

“We also performed a sample split of industries in which the primary customers are other businesses (B2B) or those in which the primary customers are final consumers (B2C). Consistent with the intuition that import penetration issues a greater threat t firm survival in B2B industries, we find that the effect of import penetration on technological exploration and exploitation is stronger for that group than for B2C industries.”

The final variable they researched was whether technology search strategies are moderated by factors that might alleviate or increase concerns about firm survival.

&ldqu;The findings show that the negative relationship between competition and exploration is magnified for firms that are relatively more vulnerable, because they have greater degrees of operating leverage and lower degrees of product diversification,” the researchers write.

The SMJ is published by the Strategic Management Society (SMS), comprised of 3,000 academics, business practitioners, and consultants from 80 countries, focuses on the development and dissemination of insights on the strategic management process, as well as on fostering contacts and interchanges around the world.

March 3, 2021

Recent efforts to support businesses reeling from revenues lost during the pandemic, such as grants and loan programs, have been criticized for favoring larger companies. New research finds that federal agencies get more bang for their buck when they channel grant dollars into smaller startups.

Researchers at Indiana University, Washington State University and the University of Central Florida say their work could provide valuable insights as federal and state governments look for ways to revive the U.S. economy after the pandemic, like the recent Paycheck Protection Program loans.

The study tracked results from about 130 ventures at eight business incubators in the southeastern United States over a four-year period. Small companies receiving their first grant experienced strong revenue growth -- an average of 1,000 percent over two years.

By comparison, mid-sized and larger firms in the business incubators reported flat or declining growth trajectories after receiving a grant.

The findings appear in the Strategic Entrepreneurship Journal article "Do Policy Makers Take Grants for Granted? The Efficacy of Public Sponsorship for Innovative Entrepreneurship."

"From a public policy perspective, awarding grants to smaller ventures appears to generate better returns for economic development," said Alex Kier, assistant professor of entrepreneurship in the WSU Carson College of Business. "We've heard the stories on the news about large, multimillion-dollar organizations that got pretty substantial Paycheck Protection Program loans. Our research indicates that money may have been better spent by spreading out the PPP loans to smaller firms."

Each year, the federal government awards billions of dollars in grants to private companies through entities such as the National Institutes of Health, the National Science Foundation and the Department of Defense. Often, the goal is to stimulate the economy by spurring businesses to create jobs through the development of new products and services.

When small firms obtain a modest grant, it can increase the company's long-term viability, said Regan Stevenson, assistant professor of management and entrepreneurship and the John and Donna Shoemaker Faculty Fellow in Entrepreneurship at the IU Kelley School of Business. Spreading out available funds in smaller amounts to more early-stage companies may be more effective than providing large grants to more established firms.

"Our data indicates that even micro-grants can produce an inflection point for smaller businesses, rapidly propelling their revenue growth trajectories," Stevenson said. "In addition, we found that when small firms receive their first grant, this also signals to investors that the venture may represent a 'good bet.' As a result, smaller firms immediately become more attractive to investors and secure more external funding."

For larger firms in their incubator sample, the researchers found that "stretching firms" that use resources at hand performed better in the long term than "chasing firms" that seek to acquire and expand resources.

"Stretching firms adopt an innovative and entrepreneurial approach to ensure survival, while chasing firms may seek to develop grant-writing competency, deterring them from focusing on their core business," said Stevenson, the paper's lead author.

By concentrating grants in a few companies, the federal government might inadvertently squeeze out many worthy competitors, Kier said.

"There's no guarantee the government will pick a winner," he said. "If you think of venture capitalists or angel investors, they are in the business of investing, and even they sometimes choose unproductive firms. Can you imagine how hard this process is for government agencies?"

The third author of the paper is Shannon Taylor, associate professor of management at the University of Central Florida College of Business.

February 22, 2021

Few topics in organization studies have received as much attention from scholars as CEO compensation. Two key questions are why some CEOs are paid more than others and to what extent is CEO pay sensitive to realized firm performance.

A new study published in the Strategic Management Journal (SMJ) examines whether CEO compensation and its responsiveness to realized firm performance in Indian family firms is influenced by whether the CEO is a professional or drawn from the controlling family. The research was conducted by Guoli Chen and Balagopal Vissa, INSEAD, Singapore, and Raveendra Chittoor, University of Victoria Peter B. Gustavson School of Business.

Their study using data from a sample of 277 publicly listed Indian family firms during 2004-2013 suggests family CEOs get paid more than professional CEOs. This pattern is stronger in superior-performing firms that are named after the controlling family (eponymous firms).  Furthermore, family CEOs’ high compensation is unaffected by poor firm performance and is disproportionately boosted by superior firm performance.

These results suggest that poor corporate governance allows some family-controlled Indian firms to use CEO compensation as a mechanism to tunnel corporate resources in ways that hurt minority shareholders.

Prior research on CEO compensation, set mainly in the United States, has examined a variety of explanatory factors including organizational characteristics such as firm size and performance, CEO characteristics such as political ideology, and human capital situational characteristics such as information processing demand and corporate turnaround contexts, and social comparison processes.

In addition, scholars have extensively examined the effect of corporate governance on CEO compensation, given that publicly listed firms are rife with agency problems between shareholders and managers since ownership is separated from control.  In large publicly listed firms in the United States, widely dispersed ownership coupled with managerial entrenchment create agency problems that result in higher CEO compensation and lower pay sensitivity to realized firm performance.

Prior research -- Gomez-Mejia, Larraza-Kintana and Makri (2003) -- proposed that the effect of such agency problems on CEO compensation would be reversed in the case of family-controlled firms because of greater alignment of interests between the shareholders and family CEOs. They provide empirical support for their arguments using US data, where family CEOs of family-controlled firms received lower total compensation compared to professional CEOs.

“Despite the advancement of research on this topic we do not know to what extent these conceptual models on CEO compensation design generalize to family firms in emerging economies, which have different formal and informal institutions,” write the authors.  “Indeed, prior scholarship suggests that in emerging economies, wealthy families are typically the largest shareholders and exercise management control over many large, publicly listed firms.

“Scholars have found that principal-principal (P-P) conflicts between controlling and non-controlling shareholders are endemic in these settings because wealthy families may take advantage of their controlling shareholder position to exploit minority shareholders by channeling corporate resources in ways that advantage the controlling family – which scholars refer to as tunneling behavior.  However, we know less about how P-P conflicts might influence CEO compensation in emerging economy firms controlled by families.”

Using a principal-principal agency theory lens, the researchers built a framework on how CEO compensation as well as CEO pay-performance sensitivity in family-controlled firms in emerging economy contexts is regulated by whether the CEO is drawn from the controlling family.  Patterns in CEO compensation data from 277 large Indian family-controlled firms and 395 CEOs comprising 402 unique CEO-firm positions during 2004 to 2013 largely supports their theory that the controlling family’s dominance over the focal firm’s board of directors is reflected in CEO compensation design.

“Family CEOs receive higher compensation than professional CEOs,” write the authors.  “This pay-gap in favor of family CEOs is unaffected by poor firm performance and is disproportionately boosted by superior firm performance. This pattern in the data is consistent with a double standards approach, whereby boards of directors hold family CEOs to a more lenient performance standard compared to their professional counterparts.

“Supplementary analyses on CEO compensation patterns across superior-performing eponymous firms (firms named after the controlling family) versus superior-performing non-eponymous firms lend additional support to our hypothesized mechanism.  Overall, our findings suggest that in some family firms’ CEO compensation practices appear to be pathways for tunneling corporate resources.”

The SMJ is published by the Strategic Management Society (SMS), which is comprised of 3,000 academics, business practitioners, and consultants from 80 countries and focuses on the development and dissemination of insights on the strategic management process, as well as on fostering contacts and interchanges around the world.

February 9, 2021

Work-from-anywhere (WFA) is an emerging form of remote work, where workers have the flexibility to choose where to live.

Many organizations such as Amazon, Apple, and American Express offered remote work programs prior to COVID-19, but the question of how remote work affects productivity has been at the center of a managerial debate.

The impact of WFA on productivity was examined in a recent study published in Strategic Management Journal (SMJ) by Prithwiraj (Raj) Choudhury and Cirrus Foroughi, both of Harvard Business School, and Barbara Larson. McKim School of Business, Northeastern University.

“In our paper,” write the authors, “we shed light on an emerging, important, and as yet understudied form of remote work -- work-from-anywhere.  Here, workers are no longer required to live in the same geographic location as the firm and have greater flexibility to choose where to live.”

Work from anywhere eliminates the traditional link between the geography of home and company location, resulting in geographic flexibility, in which a worker can remain employed at a firm without needing to live in or near the city or town where the firm is located.

Organizations with work from anywhere policies include GitLab, Akamai, GitHub, Zapier, NASA, and DataStax.

Previous research about remote work has identified how conventional work from home programs benefit individual productivity from reduced commute times and fewer sick days, which can be attributed to increased temporal flexibility. Working from home also allows workers to control ambient workspace elements such as clothing, layout, music, ventilation, etc.

“However, to the best of our knowledge, there is no research on the productivity effects of WFA policies,” write the authors.  “We studied the productivity effects of workers moving from a work-from-home to a work-from-anywhere (WFA) regime at the United States Patent and Trademark Office (USPTO).

“This unique benefit of WFA compared to prior remote work programs, along with the general increase in both worker demand for, and employer provision of, WFA policies, lead us to our main research question: How does the geographic flexibility provided by WFA affect individual worker productivity?”

The study exploited a natural experiment and examined whether there are causal productivity effects of moving from a WFH regime to a WFA regime for workers who self-select to do so. The natural experiment related to exogenous timing of transition from WFH to WFA.

“We find that the transition from WFH to WFA resulted in a 4.4 percent increase in employee output,” write the authors.  “We also report an increase in employee effort after the transition to WFA and document qualitative evidence on how geographic flexibility benefits individual workers and the USPTO (e.g. real estate savings).

“We argue that WFA should be viewed as a nonpecuniary benefit that should be preferred by workers who would derive greater utility by moving from their current geographic location to their preferred location.

“We theorize that workers self-selecting into WFA and moving from their current location to a more preferred location will experience greater residential satisfaction, greater utility, and will exert greater productivity-enhancing effort. This effect might be especially salient if WFA is perceived by workers as a ‘firm-specific incentive’ an incentive in short supply at other possible employers.”

The SMJ is published by the Strategic Management Society (SMS), which is comprised of 3,000 academics, business practitioners, and consultants from 80 countries and focuses on the development and dissemination of insights on the strategic management process, as well as on fostering contacts and interchanges around the world.

December 22, 2020

How a firm responds to a corporate crisis can affect both its reputation and financial performance.  If the firm’s crisis response falls short of expectations, it should have a negative impact.  But if the response meets or exceeds expectations of external stakeholders, it should have a neutral or even positive impact.

In new paper published in the Strategic Management Journal (SMJ), Sascha Raithel, Freie Universität Berlinand Stefan Hock, University of Connecticut do the first empirical research to test the suppositions of a theorical framework of crisis response strategies and their impact – that the nature of the crisis response should match the nature of the crisis.

Potential crisis-response strategies fall into three general groups:

• underconforming (the corporate response falls short of expectations),
• conforming (the response meets expectations), and
• overconforming (the response exceeds expectations). 

Customers and stockholders evaluate a firm crisis response on two primary indicators:

1. Situational attributions -- This refers to the perceived degree of an organization’s responsibility concerning the characteristics of the crisis i.e. its intentionality, controllability, and severity.

2. The firm’s response strategy – Is it defensive or more accommodative? This refers to the firm’s communication and actions used to influence perceptions of the crisis. 

Based on these two factors, Bundy & Pfarrer (B&P) in their theoretical framework for reducing corporate social approval loss argue that when a crisis involves more corporate responsibility, the corporate response should accept more responsibility.  Conversely, in a crisis with lower corporate responsibility, the firm’s response strategy should accept less responsibility.

The B&P study did not focus on the financial implications of the crisis response, and financial performance is directly related to a firm’s reputation.  Responses that meet expectation could financially outperform responses that fall below expectation. So, in addition to examining the impact of B&P’s main proposition on a firm’s reputation, Raithel and Hock also analyzed stock returns to gain insights into the financial consequences of the different response strategies.

Raithel and Hock used product recalls as context to test B&P’s conceptual framework.  Product recalls are one of the most frequent type of firm crisis and can even threaten a firm’s existence (e.g., Japanese airbag manufacturer Takata went bankrupt after a major recall).

More importantly for the study, for many industries, product recalls are regulated by the Consumer Product Safety Commission (CPSC) and, therefore, offer standardized data.

CPSC’s basic product procedure is to locate and remove defective products as quickly as possible and communicate to the public in a timely fashion accurate and understandable information about the product defect, hazard and corrective action.

Raithel and Hock did two separate studies.

The first study was on customer response and involved a survey of 569 US-based adults who were shown news reports of a smart phone recall.  Raithel and Hock found support for B&P’s main proposition that corporate reputation was higher for conforming strategies than for over- or underconforming.

The second study was of stockholder response.  They analyzed CPSC recall data from January 1996 to December 2014 and used daily stock returns of 112 publicly traded firms from the Center for Research into Security Prices.

“We find empirical support that under- and overconforming firms would have had higher Cumulative Abnormal Stocks Return (CAR) if they had adopted a conforming strategy,” write the authors. “Hence, this finding does not only replicate Study 1 and thus, provides evidence for B&P’s main proposition, but it also extends B&P’s prediction of the financial effects of the crisis-response match.”

In general, Raithel and Hock found empirical support for the proposition that the situational attributes of the crisis and corporate response strategy must “match -- conforming strategies outperform non-conforming strategies.

“We also find support for B&P’s most surprising and counterintuitive prediction: overconforming strategies yield both lower firm reputation and stock returns relative to conforming strategies,” they wrote. 

“Different response strategies involve different financial costs for the firm, and investors might evaluate the financial net effect of the crisis-response match differently.  Although exceeding stakeholders’ expectations is essential for building a superior reputation, exceeding evaluators’ (consumers’ or investors’) expectations during a crisis can have unintended negative consequences.”

The SMJ is published by the Strategic Management Society (SMS), which is comprised of 3,000 academics, business practitioners, and consultants from 80 countries and focuses on the development and dissemination of insights on the strategic management process, as well as on fostering contacts and interchanges around the world.

November 30, 2020

Shakespeare may not have considered names important, at least not when it comes to flowers.  But a new study published in the Strategic Management Journal (SMJ) examined whether corporate CEOs with unusual names pursue unusual corporate strategies.

The research was performed by Yungu Kang and David H. Zhu, W. P. Carey School of Business, Arizona State University, and Yan Anthea Zhang, Jesse H. Jones Graduate School of Business, Rice University.

“Our theory explains why CEOs with uncommon names tend to develop a conception of being different from peers and accordingly pursue strategies that deviate from industry norms,” write the authors. “We further suggest that the positive relationship between CEO name uncommonness and strategic distinctiveness is strengthened by the CEO’s confidence, power, and environmental munificence.

Research has demonstrated that top executives have substantial influence on organizational performance. And many studies have examined how major organizational outcomes are associated with specific characteristics of top executives, including their personalities, values, experiences, and demographic characteristics.

But none of these studies has examined perhaps one of the most fundamental attributes of chief executive officers: their names.

“A long tradition of research in psychology suggests that an individual’s name is a key anchor point of identity and an important determinant of personality development,” write the authors.  “In particular, a considerable body of works shows that the uncommonness of an individual’s name substantially influences others’ views of the individual and the individual’s self-perception and behavior.”

Despite rich evidence that name uncommonness affects people’s self-conception, cognition and behavior organization scholars had not examined how it may explain CEOs’ strategic choices.

“We investigated how CEOs with more uncommon names may exhibit a self-perception of being different from peers and accordingly pursue greater strategic distinctiveness— the degree to which a firm’s strategy differs from the strategies of other firms in the same industry,” write the authors.

The research used common name data from the U.S. Social Security Administration and financial data of 1,172 public firms over a 19-year period, and the researchers found empirical support for their theoretical predictions.

Psychologists have long been interested in people’s names. Because a name identifies a person and distinguishes the person from others, an individual’s name is the most important anchor point of identity.

In the short term, having an uncommon name can elicit negative perceptions by others and reduce a person’s self-esteem because people are unfamiliar with these names and find them difficult to pronounce and spell.

In the long term, however, having an uncommon name has no negative effects on behaviors or psychological states. 

Studies on the long-term consequences of having an uncommon name also highlight that uncommon names were associated with more desirable outcomes such as creativity and popularity, especially among relatively successful individuals.

Because CEOs have achieved considerable career successes and have relatively high levels of self-esteem and self-confidence, they have generally succeeded in overcoming the short-term challenges associated with having an uncommon name.

People with uncommon names are also likely to see themselves as being different from peers because they tend to have an unconventional family, educational, or cultural background.

“Because people with uncommon names tend to develop a self-conception of being different from peers, CEOs with uncommon names are likely to see themselves as being different from other CEOs in their industry,” write the authors.  “CEOs with uncommon names also tend to have the confidence of exhibiting their difference from peers.”

“To the extent that CEOs with uncommon names may have developed a confident self-conception of being different from peers, they tend to believe that they can achieve favorable business outcomes by being different from peers.” write the authors. “Past experiences of dealing with the challenges associated with being different have allowed them to develop strong abilities to overcome the adversaries of being different.”

CEOs with uncommon names are motivated to differentiate themselves from other CEOs in important dimensions, and research on CEOs suggests that one fundamental dimension that differentiates a CEO from peers is the distinctiveness of the CEO’s strategy.

“Because CEOs with more uncommon names tend to hold a self-conception of being different from peers and feel confident about being different, they are more likely to adopt strategies that would differentiate them from other CEOs in the industry,” write the authors. “They also tend to have a stronger belief than others that pursuing distinct strategies and being different are fundamental aspects of their leadership.”

November 19, 2020

The departure of a company’s CEO, forced or not, is usually a disruptive event for a company, as the successor must adapt to the new environment before undertaking any major strategic changes. Rivals can seize on opportunities during the successor’s transition period because they remain fully operational. 

A new study published in the Strategic Management Journal analyzes whether and how the disruption of top management turnovers can affect not only turnover firms but also their intra-industry rivals.

The international research team consisted of Cord H. Burchard, Doctor, and Utz Schäffer, Professor, both of the Otto Beisheim School of Management, Institute for Management Accounting and Control (IMC), Germany; and Juliane Proelss, Associate Professor of Finance, and Denis Schweizer, Professor of Finance, both of Concordia University, Canada.  They used a large sample observational study of 857 CEO turnovers, and conducted interviews with top executives, along with performing a qualitative analysis of news accounts to reinforce the interview data.

“When CEO turnovers occur, they tend to be overly disruptive for companies,” write the researchers.  “Successors face significant challenges during the transition period, having to adapt to new processes, learn position- or firm-specific skills, and potentially adjust to having greater levels of responsibility.

“New CEOs may also need to establish credibility with the management team, as well as with the supervisory board and other stakeholders.”

This process is usually time-consuming, and the new top manager may be prevented from focusing on future strategic goals and actions during that time. The result is a period of relative stagnation, which can be a competitive disadvantage. Studies have shown that, no matter how well new top managers perform at the beginning of their tenure, they are unlikely to deliver substantial strategic enhancements.

Because rivals remain fully operational during the transition period, they can take advantage of the turnover company’s relative inability to react. 

As an example of an intra-industry reaction, the researchers examined the departure of Vaughn Bryson as CEO of Eli Lilly and Company in 1993.

“Bryson was replaced by Randall L. Tobias, CEO of AT&T International and a member of Eli Lilly’s Board,” write the researchers. “Tobias was considered an ideal choice because of his experience in a major company that had undergone complex changes. He eventually proved to be the most successful CEO in the company’s history, increasing its market value from $14 billion to $70 billion during his tenure.”

However, despite Tobias’ insight and knowledge from serving on the board, Lilly’s stock price reacted negatively to the announcement.  It went on to strongly lag the pharmaceutical market.  In fact, during the three months after his appointment, it decreased by 2.4%, while the pharmaceutical market as a whole gained 3.3% on average, resulting in a 5.7% underperformance.

The stock price eventually rebounded and caught up during the following six months.

The pattern behind this stock price reaction can largely be explained by competitive moves in the pharmaceutical market.  Shortly after the CEO turnover, Lilly’s rivals began announcing strategic alliances, merger activities, and development agreements. 

Meanwhile, Tobias was still “settling-in” and was facing massive unsolved challenges stemming from the 1993 Clinton healthcare initiative.  This created a period of stagnation.  Four months after his succession, Tobias addressed the challenges with major cost-cutting initiatives. Two months after that, he initiated major strategic changes by separating Lilly’s core businesses and beginning merger and acquisition activities.

The example illustrates that, even after a turnover where the incoming CEO is familiar with the company and is perceived as an ideal successor, the succession period can still be disruptive. It seems likely that transition-period effects may be even stronger if the process is less smooth, such as under a forced turnover without a clear successor.

“Based on our large sample observational study of 857 turnover events, we show that, post-announcement, intra-industry rivals outperform turnover firms in terms of stock price performance (as measured by BHARs based on the four-factor model) and accounting performance (as measured by return on assets),” write the researchers.

“In contrast, we find that turnover firms underperform rival firms during the stagnation period by an average of 5%. This is in line with the notion that the transition period is one of relative stagnation for the turnover company. During this time, as we document, intra-industry rivals can gain a competitive advantage by exploiting the disruption in the turnover company to achieve significantly positive BHARs for themselves.

“This is further supported by our interviews, as well as the news search pattern, which shows an increasing number of announcements related to strategic initiatives by rivals compared to turnover firms.

“At the end of the stagnation period, we observe that incoming CEOs begin to launch disproportionately more strategic initiatives. One-year post-announcement, turnover firms’ stock price developments have caught up, and generally match those of rival firms.”

Overall, the researchers conclude that top management turnovers are at first bad news for turnover firms, and good news for intra-industry rivals.  They, therefore, interpret their findings as a signal of an overall positive information effect for rivals. This results from an increase in their competitive situation, which can be actively exploited. That development, however, is countered by the extent to which the incoming CEO becomes fully operational and starts launching strategic initiatives.

October 1, 2020

Corporate Social Performance (CSP) varies across firms and institutional settings, but there is a “knowledge gap” with respect to the motives and pressures behind CSP, which may explain this variability.

A new paper published in the Global Strategy Journal (GSJ), The Pressure Behind Corporate Social Performance: Ownership and Institutional Configurations, focuses on the salience of owners relative to other stakeholders across institutional settings and explores the motives of different types of owners towards CSP.

The research was conducted by Kurt Desender, Universidad Carlos III, and Mircea Epure, Universitat Pompeu Fabra and Barcelona GSE.

“Anecdotal evidence,” write the authors, “suggests that owners are an important driver of CSP. For example, in January 2018, Laurence Fink, Chairman and CEO of the investment firm BlackRock, informed business leaders that their companies need to go beyond profit maximization and contribute to society if they are to receive the support of BlackRock: ‘Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.’”

But does this statement echo in practice and across institutional settings? The difficulty to indisputably establish the business case for CSP has led critics to suggest that, instead of contributing to better corporate governance, CSP may actually reflect managerial decisions that favor stakeholders over the interests of owners.

The researchers developed an actor-centered framework that explains firm-level CSP by emphasizing the importance of considering owners’ and other stakeholders’ motives towards CSP—which can be instrumental, relational or moral—and their salience in the national institutional setting.

“Our theoretical framework builds on the motives of organizational actors to explain how different owners have distinct motives, and how their salience relative to other stakeholders is shaped by the institutional setting, thereby resulting in different pressures towards CSP,” write the authors. Thus, one cannot understand the drivers of CSP and the politics of organizations without understanding the nature of the institutional settings in which they operate.

The study takes a comparative capitalism approach in the spirit of Jackson and Deeg (2008) to understand that firm-level outcomes are influenced by the interaction among institutional dimensions, rather than by single institutional characteristics. One useful operationalization for this purpose is the varieties of capitalism (VOC) framework proposed by Hall and Soskice (2001), which clusters countries into Liberal Market Economies (LMEs) and Coordinated Market Economies (CMEs). LMEs feature more market-oriented financial systems, dynamic labor markets, and a focus on impersonal market transactions rather than closed networks of firms. Conversely, CMEs rely more on bank or state financing, rigid labor regulations that protect employees, and personal transactions often occurring in established firm networks which give prominence to broader stakeholder groups.

“Exploiting these institutional differences,” write the authors, “we propose that owners are the key stakeholders in LMEs, and that most of them (except government owners, and especially investment companies) will be largely supportive of instrumental CSP initiatives that enhance (short term) firm value. This contrasts with the position of stakeholders such as employees and customers, who have stronger relational and moral motives, but generally have little salience. In contrast, in CMEs the salience of stakeholders such as debtholders, employees and customers is much stronger, and the interest of owners becomes one of many to consider.”

They tested their theoretical predictions using CSP data from ASSET4 for a large international panel of listed firms. Their work shows that that the presence of powerful owners (i.e. those who hold at least 5% of shares) can be negatively (for investment companies) or positively (for governments) related to CSP. Interestingly, these results are substantially stronger in LMEs, where shareholders are the main stakeholder. In contrast, in CMEs owners seem to have a much weaker influence on CSP, which is not due to their scarcer presence, but instead due to the counterbalance of multiple stakeholders’ interests.

The research serves to update beliefs on seminal contributions, such as Milton Friedman’s New York Times piece, and more recent approaches to stakeholder management. Their framework pushes the boundaries of extant approaches and offers a testable discussion on governance in context. When owner motives and institutional configurations are congruent, there can be complementarities in micro- and macro-economic outcomes. For instance, investment companies are congruent with the predominant market logic in LMEs. Conversely, an opposing logic intensifies the positive relationship between government ownership and CSP in LMEs, while it dampens the negative relationship between investment company ownership and CSP in CMEs. This gives rise to a partial substitution effect between investment company and government ownership in relation to CSP.

Taking a normative view to institutional design, the authors propose that “policy makers who wish to push for higher CSP through owner responsibility should first consider whether stakeholder interests are not already salient.” For example, LMEs confer salience to market-oriented owners and policymakers increasingly respond through CSP guidelines such as the UK Stewardship Code, instructing owners to coordinate with stakeholders. This type of policy may hold less relevance in CMEs, which give prominence to the interests of a large set of stakeholders. For instance, the Spanish governance code for listed companies calls for social practices, such as developing channels for stakeholder communication. But such a CME already ensures a high pressure on CSP, through a business environment constructed around the motives of a broad set of stakeholders.

The Global Strategy Journal (GSJ) is the leading journal on global strategic management research. This domain encompasses the strategic management, organization, and success of multinational organizations; the bidirectional interaction of the global business environment and organizational strategies; comparative strategies in different national settings; and the comparative effect of regional and national contexts on the strategies of domestic and multinational organizations. It publishes papers that offer innovative theoretical perspectives or provide tests of empirical relationships based on quantitative or qualitative analyses.

September 22, 2020

What type of firms are more likely to survive or even thrive in disaster events such as earthquakes, wildfires, and the COVID-19 pandemic?

That was the question researched by Carlo Salvato, Mario Daniele Amore and Alessandro Minichilli, of Bocconi University, Milan, Italy, and Massimo Sargiacomo, G. D’Annunzio University of Chieti-Pescara, Pescara, Italy.

Their study, Natural Disasters as a Source of Entrepreneurial Opportunity, was published in the Strategic Entrepreneurship Journal.

“We found that family firms performed better than their non-family peers after the earthquake that hit central Italy, and especially the area around L’Aquila, in 2009.  And firms performed better still when multiple family members were involved as owners,” write the authors.

In addition, family firms that operated in industries closer to the public sector leveraged the family proximity to politics, further enhancing the processes of recovery and opportunity identification.

The researchers wanted to understand whether the explanation of family firms’ superior longevity was their resilience to mass emergencies and their ability to transform post-crisis threats into entrepreneurial opportunities.

They looked at the impact of the disastrous earthquake that devastated the Abruzzo region in central Italy on April 6, 2009.  The earthquake killed more than 300 people, injured about another 1,600, left 65,000 homeless, and created economic damages estimated at 10.2 billion euros.

Many firms struggled to preserve their supply chains and to maintain business relationships with other firms. Economic and personal disruption also caused widespread psychological and emotional distress.  However, long-lasting family firms seem to be capable of turning adversities into opportunities. 

“We analyzed the performance of Italian family and nonfamily firms around the disastrous 2009 earthquake,” write the authors.  “During disaster events, family ownership resources—focused on the long term and the desire to transfer the business to future generations—provide the firm with the social and emotional capital needed to address the hardship.

“Our findings provide evidence on the superior resilience of family firms by illustrating the characteristics that allow firms hit by disaster events to seize posttraumatic entrepreneurial opportunities for recovery and growth.”

To explain the resilience of family firms, some researchers have focused on the importance of family social capital, and on the enduring interpersonal relationships among family members sharing coherent goals that shape decisions.  Others have focused on the close collaboration of family members to keep transgenerational control, which contributes to preserving the common family-centered socioemotional wealth endowment. Finally, other researchers have focused on how the connections among family, firm, local community, and government systems support family firm responses to adversity.

“Taken as a whole, this work—whether focused on family social capital, socioemotional wealth preservation, or family connections—has generated important insights into why firms that successfully survive and thrive across centuries are often family owned and controlled,” write the authors. “These insights revolve around the unique role of the relationships among members of the controlling family, and between the family and external stakeholders, in facing hardship.”

However, these explanations have not been unambiguously conceptualized and empirically tested. Strong family ties provide essential affective and economic resources, but they may also be redundant, thus limiting the quantity and variety of resources to face adversity, and the family firm’s ability to capture post-crisis entrepreneurial opportunities.

The desire to preserve socioemotional wealth prompts family members to endure exceptional sacrifice when facing adversity, but it may also induce conservative entrepreneurial decisions.

“Thus, while informative about the determinants of longevity, much of this prior work does not provide final explanations as to whether family firms are more likely to suffer or thrive when facing adversity, and why,” write the authors.

“Our empirical test compares the pre- and post-event performance of all family and non-family firms located in the area affected by the earthquake, and of a control sample,” they continue. “The findings of this natural experiment suggest that after the earthquake family firms performed significantly better.  This result is attributable to a mix of support from family social capital (close bonds among members of the owner family), industry positioning, and family business proximity to the public sector.

“We help resolve the paradox of the positive and negative effects of family social capital and socioemotional wealth—which provide unique resources, yet risk being redundant and inducing conservative decisions—by showing that these dynamics both support resilience in adversity.  Our study suggests that through a combination of internal and external bonds, and industry positioning, family firms can turn adversities into entrepreneurial opportunities.  We describe this capability as an overlooked dimension of family firms’ resilience.”

The Strategic Entrepreneurship Journal (SEJ), founded in 2007, is targeted at publishing the most influential managerially oriented entrepreneurship research in the world. It is a research journal that publishes original work recommended by a developmental, double-blind review process conducted by peer scholars. Strategic entrepreneurship involves innovation and subsequent changes which add value to society, and which change societal life in ways that have significant, sustainable, and durable consequences.

August 19, 2020

Large numbers of citizens in emerging markets face unmet needs in core areas such as financial services, health, education, and energy, and pressure exists to meet growing demand in the face of serious resource constraints.

However, the ambiguous nature of institutional structures and the existence of weak rules and regulations in those areas hinder the solution-development process and lead to a large portion of the population being excluded from the market.

Under these conditions, social entrepreneurship, a process of creating social value, has emerged as an alternative to address the needs of the large population at the bottom of the pyramid and to drive inclusive growth.

To manage these dilemmas, social entrepreneurs engage in special institutional arrangements, trade-offs, and novel resource mobilization practices. However, academic study of these dilemmas and of the corresponding management practices is sparse. Specifically, there has been limited theoretical and empirical exploration of how social entrepreneurs manage these dilemmas and mobilize resources in an emerging market context.

However, a new study published in the Strategic Entrepreneurship Journal (SEJ) examines those issues in the context of an approach used in India. The research was performed by Nivedita Agarwal, Friedrich-Alexander-Universität Erlangen-Nürnberg, Ronika Chakrabarti, Lancaster University Management School, Jaideep Prabhu, Cambridge Judge Business School, University of Cambridge and Alexander Brem, Institute of Entrepreneurship & Innovation, University of Stuttgart.

In the Indian context, dilemmas around tensions and institutional constraints are often linked to jugaad, the “Indian way” of solving problems, a frugal, flexible, and inclusive approach to innovation and entrepreneurship.

The study identified the dilemmas that social entrepreneurs encounter in emerging markets and explored how jugaad is used to manage these dilemmas over time. It does so in the context of three social enterprises in India’s healthcare sector: Aravind Eye Care System (AECS), LifeSpring Hospitals (LSH), and Ziqitza Health Care Limited (ZHL).

The findings show that social entrepreneurs manage dilemmas through four key practices: asset multiplication, leveraging human capital, building social embeddedness, and affordable quality:

Using asset multiplication social entrepreneurs build new tangible and intangible assets and use these assets for one or more purposes to drive down costs. Assets can be built through internal or external investments, and partnerships, and they can then be multiplied through flexible sharing or repurposing to maximize resource utilization and reach customers. Assets are not just physical but also include knowledge, skills, and emotions.

By leveraging human capital social entrepreneurs hire inexperienced local workforces and train them on multiple functions to minimize costs and produce new employment opportunities.

In building social embeddedness social entrepreneurs engage in a range of activities in order to work with local communities to build relationships and create new social norms.

Affordable quality is a practice in which social entrepreneurs create or maintain high quality standards and make them financially accessible to different customer segments.

The study’s generalizability, write the authors, must be interpreted with caution, as the empirical results relate specifically to social ventures in Indian healthcare. More work is needed to refine and extend the jugaad approach from a theoretical and empirical standpoint, and future studies should explore jugaad practices’ applicability in other sectors, organization types, and national contexts.

Future research should also investigate whether social entrepreneurs use other jugaad practices to manage different dilemmas, such as crisis management around pandemics. Also, further research would be beneficial on jugaad in the context of other types of organizations, such as for-profits, not-for-profits, charities, and voluntary organizations in both resource-poor and resource-rich settings.

The Strategic Entrepreneurship Journal (SEJ), founded in 2007, is targeted at publishing the most influential managerially oriented entrepreneurship research in the world. It is a research journal that publishes original work recommended by a developmental, double-blind review process conducted by peer scholars. Strategic entrepreneurship involves innovation and subsequent changes which add value to society and which change societal life in ways that have significant, sustainable, and durable consequences.

August 7, 2020

Business owners have different levels of competence, and new research published in the Strategic Management Journal examines three distinct types of necessary management competences and their impact on a firm’s success. The journal article underscores the point that an owner may have one or more competence but not necessarily all three.

The research was performed by an international research team: Nicolai J. Foss, Copenhagen Business School, Peter G. Klein, Baylor University, Lasse B. Lien, Norwegian School of Economics, Thomas Zellweger, University of St. Gallen, and Todd Zenger, University of Utah. They examine what and when to own, and how to govern the organization.

“Ownership implies irrevocable control over resources—rights to decide resource use in conditions not specified by prior agreement,” write the authors. “This control afforded by ownership allows owners to deploy resources in novel ways: acquiring and selling resources, investing in them, or recombining them according to the owners’ unique, idiosyncratic, and ultimately inalienable beliefs about paths to value creation.

“Building on the notion that ownership affords control in resource deployment, we develop the argument that ownership can be exercised with greater or lesser competence. We argue that ownership competence consists of competence about what to own (matching competence), competence about how to own (governance competence), and competence about when to own (timing competence).”

What to own: Matching competence

Matching competence refers to an individual’s capacity to foresee, judge, or theorize about valuable resource combinations that achieve some specific and intended purpose or solve a unique problem. For instance, an individual may envision the need for a taxi service that caters to mobility-impaired patrons and imagines a set of assets to address this need.

Since owners hold use rights over resources, their development and understanding of that purpose is central to integrating required resources and assembling capabilities. Owners who score high in matching competence are thus particularly good at composing theories or mental representations that guide their search for and orchestration of valuable resource combinations towards achieving a valued purpose.

How to own: Governance competence

An owner must decide whether to delegate the management task, which may generate additional costs.  But hiring someone with superior managerial skills may more than outweigh these costs if the owner-manager does not possess the required skillset to re-configure resources, especially when considering the dynamic evolution of required skills over the lifecycle of a resource.

“Owners with governance competence will assemble incentives, controls, and delegation arrangements into value generating patterns,” write the authors. “They will appropriately deploy behavioral and outcome-based incentive systems, and will also craft incentives in patterns consistent with their own risk profile.  Owners with governance competence also have the capacity to allay concerns among stakeholders.”

When to own: Timing competence

Timing competence refers to the skill of owners to time their investment in projects in ways that maximize value creation. It encompasses temporal decisions about when to enter and when to exit.  While matching skills help identify what resources to combine and governance skills help govern that recombination, timing skills help identify when to secure these resources since the value of resources is highly time dependent. Timing competent owners are, therefore, skillful in managing the timing of resource acquisition and disposal.

“Timing skills include the skill to optimize market timing,” write the authors. “Owners compose value in an uncertain environment through arbitrage, correctly forecasting and exploiting resource price fluctuations. Via access to idiosyncratic information, timing competence grants owners the opportunity to ‘beat the market,’ avoiding the purchase of assets in boom years, while buying during bust years.

Timing skill also takes into account that a resource’s actual value may be initially hidden, and only progressively revealed, as the resource is put to its intended use. Timing skill thus includes a capacity to spread or stage asset investments with uncertain value across time. Such staging lowers the risks of imperfect market timing, and reduces investment risk since the deferral of the investment goes hand in hand with a progressive revelation of its true value.

Owners with timing competence also have capacity to schedule their investments to optimize strategic flexibility. Staged investments not only limit risk, but provide strategic flexibility, enabling firms to balance the virtues of both commitment and flexibility in the allocation of resources.

Matching, governance, and timing competences are distinct and separable, and individual owners may possess varying levels of each. They may, therefore, choose to externally access owner competences they lack. Examples abound of owners who fail to recognize the limits of their owner competence, such as founder-owners who use brilliant matching and initial governance competence to envision and compose a valuable business, but then stay at the helm too long.

“However, ownership competences also appear to be learnable, as owners gain experience within industries, through governing, and from repeated asset transfers,” write the authors. “Experience may deliver heightened understanding of available resources and their valuable recombination, as well as an understanding of how to improve their governance and transfer. Empirical evidence suggests that even those individuals who are systematically good at starting and owning resources, and by extension firms, get better the more firms they have started and owned.”

The SMJ is published by the Strategic Management Society (SMS), which is comprised of 3,000 academics, business practitioners, and consultants from 80 countries and focuses on the development and dissemination of insights on the strategic management process, as well as on fostering contacts and interchanges around the world.

July 30, 2020

Conventional wisdom holds that in large firms, inventors often confine themselves to idea generation, leaving idea commercialization to other people. But a new study published in the Strategic Management Journal (SMJ) shows that inventors in large firms can play a more active role in attracting resources towards commercializing their inventions.

Using historical case studies of three breakthrough inventions from Xerox -- office workstations, personal computers, and laser printers -- the article illustrates how inventors navigated multiple evaluation criteria across different organizational units to attract resources for their inventions.

The research was conducted by Natalya Vinokurova and Rahul Kapoor of the Wharton School, University of Pennsylvania.

“The notion that inventors in large firms focus solely on idea generation fails to consider the possibility that inventors are motivated to see their ideas commercialized and at times take an active role in commercializing their ideas,” write the authors. “This issue is especially relevant in the case of breakthrough inventions which tend to fall outside the firm’s existing markets, and, absent inventors’ involvement in the commercialization process, might not attract organizational resources necessary for commercialization.”

Attracting such resources requires navigating the evaluation criteria applied to inventions that comprise the large firms’ innovation process. To understand the antecedents of Xerox’s innovation process, the researchers went back to Xerox’s first successful breakthrough invention, the 914 copier. They then analyzed the lessons Xerox managers learned from the 914 and how these lessons shaped both the overarching set of criteria managers across Xerox applied in evaluating innovations and how these criteria translated into the specific objectives of the individual organizational units.

The researchers analyzed how well the three breakthrough innovations fared vis-à-vis the overarching evaluation criteria applied by managers across Xerox. “We observed that the resource allocation process was subject to criteria that included achieving high volume with high profit margins, requiring heavy R&D investment, and helping Xerox compete with IBM. The criteria stemmed from the company’s first successful breakthrough invention, the 914 copier. Office workstations fit with all of these criteria and managers at Xerox readily allocated significant resources towards the invention’s commercialization. In contrast, laser printers and personal computers did not fit with all of the criteria and encountered resistance with respect to resource allocation within the organization.”

Inventors responded to this resistance and deployed two different approaches for attracting resources. First, they searched for organizational units with evaluation criteria that were more favorable towards their inventions. Second, they shaped the specific evaluation criteria to favor their inventions. Through these efforts, inventors were successful in attracting resources and achieving the commercialization of laser printers, but fell short of achieving commercialization of personal computers.

The paper shows that heterogeneity in the evaluation criteria applied to breakthrough inventions across the organization played an important role in enabling the success of inventors’ search for resources. Both the personal computer and laser printer inventors relied on this heterogeneity in attracting resources from their informal networks in neighboring labs to help them complete the prototype. Absent such heterogeneity in the evaluation criteria applied by the different organizational units, inventors’ search for resources may not have yielded the desired outcomes.

“Inventors in large firms can help decision-makers recognize the presence of evaluative uncertainty and in so doing, shape the evaluation criteria to favor their inventions. Decision-makers in large firms who do not recognize this uncertainty may proceed applying traditional evaluation criteria, such as financial metrics as was the case with the word processing taskforce that evaluated personal computers. However, laser printer inventors’ demonstration of their technology helped the printing taskforce members recognize the possibility of important functional characteristics of the technology not being captured by financial metrics. The taskforce members’ recognition of this evaluative uncertainty thus created an opportunity for the inventors to shape the taskforce’s evaluation criteria.”

Studying how inventors at Xerox navigated the set of evaluation criteria to commercialize their inventions sheds new light on an important yet overlooked aspect of the innovation process. In so doing, it broadens the view of Xerox’s innovation process from one in which inventors’ role in the innovation process was confined to either internal idea generation or external commercialization via spinoffs to also navigating the set of internal evaluation criteria and attracting resources toward the commercialization of their inventions.

It was the latter process that helped explain Xerox’s eventual commercialization of laser printers and the significant efforts expended toward the commercialization of personal computers.

This study has important implications for large firms seeking to translate their invention prowess into innovation. Consistently with the authors’ message, in recent years, firms ranging from Bayer and Alcatel Lucent to Nokia and Haier have sought to restructure their innovation processes in a way that empowers the inventors to commercialize their ideas. The findings and mechanisms that the authors identify offer guidance to both managers and inventors in large firms in terms of what they could do to sustain their success through new breakthrough innovations.

The SMJ is published by the Strategic Management Society (SMS), which is comprised of 3,000 academics, business practitioners, and consultants from 80 countries and focuses on the development and dissemination of insights on the strategic management process, as well as on fostering contacts and interchanges around the world.

July 8, 2020

Common wisdom in entrepreneurial practice holds that different types of competencies are required in teams founding new ventures. But should these competencies be shared among team members or should people specialize?

New research published in the Strategic Entrepreneurship Journal (SEJ) studied 1,863 founding teams of US-based new ventures, differentiating among entrepreneurial, managerial, and technical competencies. The results indicate that strong shared entrepreneurial competencies positively impact new ventures’ performance, while shared managerial skill negatively impacts performance.

The research was performed by a team of researchers at two German universities: Dr. Daniel Reese, TU Dortmund University, and Dr. Verena Rieger and Dr. Andreas Engelen, both of the Heinrich-Heine-Universität

The research indicates that it is not only important that the entrepreneurial team have different competencies, but it also matters how these competencies are represented.

“First, all members should have some entrepreneurial competencies, as mastering the challenges related to opportunity recognition is the major task a new venture has to address, and synergies are central to success in this regard,” write the researchers. “Second, deep expertise in managerial competencies in one or a few individuals with specialized knowledge, such as project management and managing customer relationships, is beneficial to new ventures’ funding success.

“These findings provide important implications for founding team composition.”

Human capital helps founders address the many difficult tasks a new venture has to accomplish, such as creating new knowledge, identifying and exploiting opportunities, and acquiring financial means. In practice, venture capitalists use founders’ human capital as a major evaluation criterion in determining whether to invest in a new venture.

While many investigations of new ventures focus on one founder, entrepreneurial initiatives are often the efforts of a founding team. So, some researchers claim that today’s entrepreneur is likely to be plural, which is consistent with the birth of many prominent ventures, including Google, Apple, and PayPal.

“Assuming a three-person-founding team and three major types of competencies -- entrepreneurial, managerial, and technical -- a given level of these three competencies can be distributed differently across the team members,” write the authors. “At the extremes, each competency can be embodied in only one team member or each competency can be found in all team members.”

In the first case, when each competency is embodied in only one team member, team members are experts with deep knowledge on their type of competency. However, there are no overlaps among the team members, which could limit synergies and lead to incompatible mental models.

In the second case, where all three skills are broadly shared, team members can interact better, act more quickly, and create synergies, possibly lifting the value of their joint level of a competency to a higher level than if the same level of the competency were concentrated in a single team member.

However, this prevents specialization on a competency type and reduces knowledge depth in individual members.

“We show the aggregated level of specific competencies is important to a venture’s success, but it also matters whether a competency is shared among the team or concentrated in one or few team members. We find that managerial competencies should be focused in one or few team members, while entrepreneurial competencies should be broadly shared among team members,” write the researchers.

Entrepreneurial competencies provide the skills and knowledge that are necessary to identify the opportunities that enable new ventures to differentiate themselves from their competition and develop novel, compelling offerings. These competencies are also used to determine how to bring these opportunities to fruition in a setting in which there are no established structures or knowledge.

“Prior research,” write the researchers, “indicates creative competencies for solving unclear, unstructured, future-oriented issues rely on interactions among informed individuals and they are likely to increase with the frequency and quality of such interactions. Such combinations could occur in teams with one entrepreneurial expert and several entrepreneurial novices.”

Managerial competencies relate to the coordination of tasks and people, and involve resource generation, allocation decisions, and the supervision of processes to keep the venture running smoothly.

Managerial competencies could be more valuable when one founder has deeper specialized knowledge and skills than when the competency is shared among team members. For example, skills related to acquiring external resources, which is often a major issue in the early development of new venture, are rooted in specific knowledge and facts, such as how to format a pitch document or build a business case that includes the assumptions and sensitivity analyses that investors often demand.

In such cases, the concentration of competencies in one team member with strong knowledge and skills, including advanced shortcuts and tricks, is more valuable than a division of such competencies among team members.

Technical competencies relate to the skills in and knowledge of the tools and procedures of a specialized technical field. Such technical competencies facilitate new ventures’ performance since they address a variety of the issues a new venture faces during its early life cycle stages, such as developing products and prototypes and solving related technical challenges.

“We would expect that such specialization optimizes the efficacy of technical competencies in a new venture when a given level of such competency is united in one or few team members,” write the authors. “For example, one team member with high programming skills is likely to be more valuable to the new venture than when the competency is split among team members who have rudimentary, overlapping basic knowledge.”

Given new ventures’ typically scarce resources and that the founding team’s human capital usually constitutes the new venture’s only resource, even nuances in competence distribution can affect performance. It follows that research in this area should move beyond the level of founding teams’ human capital to focus on the team dynamics that relate to whether a given competency level is most effective when synergies that are due to sharedness or when specialization that is due to deep expert knowledge is realized.

Strategic Entrepreneurship Journal, founded in 2007, is targeted at publishing the most influential managerially oriented entrepreneurship research in the world. It is a research journal that publishes original work recommended by a developmental, double-blind review process conducted by peer scholars. Strategic entrepreneurship involves innovation and subsequent changes which add value to society, and which change societal life in ways that have significant, sustainable, and durable consequences.

May 22, 2020

https://onlinelibrary.wiley.com/doi/abs/10.1002/smj.3192

Many organizations successfully competing in the global marketplace exhibit an increasing pace and level of innovation sophistication.

And a large body of empirical evidence supports the contention that ambidextrous firms, or organizations that have the capability to pursue both existing innovation efforts and “radical innovation, enjoy sustainable competitive advantages and thrive in more dynamic and uncertain technologically intensive settings.

According to a new study published in the Strategic Management Journal (SMJ), organizational ambidexterity, although useful, presents unique managerial challenges particularly when the two different types of innovation are pursued simultaneously. The study was authored by Andreea Kiss, Lehigh University; Dirk Libaers, University of South Florida; Pamela Barr, Georgia State University; Tang Wang, University of Central Florida; and Miles Zachary, Auburn University.

“This study represents an empirical inquiry into the relationship between the cognitive characteristics of top managers, in particular the CEO, and the successful pursuit of organizational ambidexterity,” write the authors.

“We test and validate our assumptions by using multiple data sources. Our main data source is a sample of 202 CEOs of firms competing in technology-intensive industries in India. This data source is coupled with a survey conducted on a sample of 123 US MBA students, and an experiment that uses 58 US executives.”

The researchers assumed that a CEO’s level of cognitive flexibility, or tendency to adapt her or his thinking, emotions, and behaviors to changing conditions, may be an important factor in the successful pursuit of organizational ambidexterity.

“We highlight CEO cognitive flexibility as particularly relevant for the achievement of organizational ambidexterity, which often implies an ability to simultaneously pursue and shift between incremental innovation and radical, new directions,” write the authors.

“Cognitively flexible individuals are more likely to possess the ability to switch between different modes of thinking, find workable solutions to seemingly conflicting problems, and combine and recombine knowledge gleaned from different sources in new ways.”

The primary study results show that cognitively flexible CEOs engage in more effortful and persistent information search activities and rely to a greater extent on outside information.

“In summary, our results suggest that CEO cognitive flexibility may influence organizational ambidexterity indirectly through its effect on CEO information search activities, in particular where and how intensely CEOs search for information,” write the authors. “Our study reinforces the importance of human factors in the executive office for the development of firm dynamic capabilities, and the implementation of an innovation-based strategy.”

The SMJ is published by the Strategic Management Society (SMS), which is comprised of 3,000 academics, business practitioners, and consultants from 80 countries and focuses on the development and dissemination of insights on the strategic management process, as well as on fostering contacts and interchanges around the world.

April 29, 2020

https://onlinelibrary.wiley.com/doi/abs/10.1002/sej.1352?af=R

As countries increasingly restrict international migration amid the COVID-19 pandemic, a new study suggests that doing so would stifle flows of migrant entrepreneurs, who could be vital to economic recovery. The study, published in the Strategic Entrepreneurship Journal, emphasizes that many high-skilled return migrants support the economies of their home countries as entrepreneurs, but their success depends on maintaining global social connections. Returnees with stronger social ties abroad are not only more likely to start new ventures back in their home countries, but also more likely to start ventures that do business globally, according to the study.

“Some prior research shows that returnee entrepreneurs bring advantages to the ventures they establish through their access to resources and ideas from overseas,” said Dr. Dan Wang, Associate Professor at Columbia Business School, who authored the study. “But other evidence demonstrates that returnees sometimes struggle to mobilize their ventures. Entrepreneurship scholars don’t know why returnees experience such different outcomes.”  

When it comes to founding a business, all prospective entrepreneurs face uncertainty. Social networks help them overcome such uncertainty, serving as channels to learn about different ideas, resources, and markets. For return migrants, Wang’s study suggests that cross-border social networks – connections of individuals outside their home countries – are especially vital.
 
“Returnees are ideally positioned to adapt the knowledge they picked up abroad to starting new ventures after they go back to their home countries, but only some are successful in doing so,” said Wang. 

According to Wang, returnees who stay in frequent contact with their connections abroad have an advantage in starting businesses in their home countries. This is because such “cross-border ties” are ideal for transferring the type of knowledge most useful for aspiring returnee founders – knowledge that is novel, complex, and relevant.

Importantly, Wang also finds that returnees with stronger cross-border ties are also more likely to found ventures that eventually do business abroad. “Returnee entrepreneurs who are more globally connected tend to set their sights on scaling their ventures beyond their home countries, which can create global economic spillovers that multiply growth,” Wang added. 

He collected data from an original survey of 3,840 skilled professionals who worked abroad in the U.S. before returning to 98 different home countries. Compared to returnees who have no contact with connections abroad, returnees who stay in weekly contact with their connections abroad are over 50% more likely to start businesses in their home country. “To my knowledge, this is the largest study of venture formation among returnees ever conducted,” Wang said.  

The implications of the results are timely. Wang suggests that by restricting immigration, countries lose out on an importance source of global talent. But, more importantly, they also could be slowing future recovery by reducing the global supply of entrepreneurs.

The Strategic Entrepreneurship Journal (SEJ), published by the Strategic Management Society (SMS), is targeted at publishing the most influential managerially oriented entrepreneurship research in the world.  It is a research journal that publishes original work recommended by a developmental, double-blind review process conducted by peer scholars.  Strategic entrepreneurship involves innovation and subsequent changes which add value to society, and which change societal life in ways that have significant, sustainable, and durable consequences.

April 28, 2020

https://onlinelibrary.wiley.com/doi/10.1002/smj.3179

China’s unexpected blockade of Google and its affiliated services in 2014 altered the searching behavior of inventors in China and negatively impacted Chinese innovation, according to a new study published by the Strategic Management Journal (SMJ).  The economic value of Chinese inventions decreased by around 8 percent after the blockade compared to inventions from nearby unaffected regions.

The negative impact was less severe for inventors with larger collaboration networks but became more pronounced in technological fields proximate to science.  Another factor determining impact was the availability of offline knowledge channels.

Shadow of the Great Firewall: The Impact of Blocking Google on innovation in China was authored by Yanfeng Zheng and Qinyu (Ryan) Wang, Faculty of Business and Economics, University of Hong Kong.

“Inventors nowadays depend heavily on Internet search to access information and knowledge,” write the authors. “They, therefore, become vulnerable to barriers imposed on their online search. Our findings reveal a neglected but consequential aspect of Internet censorship beyond the commonly found media effect and offer important implications to practitioners and policymakers.”

On June 1, 2014 when millions of Internet users in China were suddenly unable to access Google, it was thought the blockade was temporary, but it has lasted almost six years and continues today.

Some thought the blockade might only impact public opinion in China because there remains direct access to scientific and technological information through specific websites or databases.  But others speculated that the blockade could be consequential for innovation because Google was widely used by scientists and researchers in China to seek business information and scientific knowledge.

“From a conceptual perspective,” write the authors, “prior studies largely view the Internet and related technologies as tools that reduce the cost of information access or interpersonal coordination.  But that cannot adequately explain why the loss of Google mattered so much since the knowledge contents were still available online and all coordination tools such as video calls remained intact or even improved.”

Then, why and how did the unexpected blockade of Google in China affect the knowledge seeking behavior of inventors in China and their innovative outcomes?

“We contend that Google and its affiliated services both extend human memory and enhance the ability of inventors to access, digest and assimilate unfamiliar knowledge,” write the authors. “It, therefore, helps inventors overcome the local search tendency, extending their search distance in both technological and cognitive spaces.”

The researchers tested their predictions by studying patents as innovation outcomes comparing inventors in China with those from a control group of inventors in Japan, South Korea, Taiwan, Hong Kong, and Singapore.

“Our analyses reveal that inventors in China experienced significant decreases in both technological and cognitive search distances after the blockade,” write the authors.  “Overall, we show that Google and its affiliated services subtly assist inventors in knowledge seeking beyond a mere cost-reduction effect.

Innovation is critically dependent on search. . .However, the effect of advanced online tools such as Google on innovation is not well understood, partly because researchers tend to take for granted the proliferation of Google search.  Our study contributes to the search-based view of innovation and highlights the importance of Internet technologies in developing high-quality innovation.  But the subtle effects and long-term implications of the blockade warrant further research.”

The SMJ is published by the Strategic Management Society (SMS), which is comprised of 3,000 academics, business practitioners, and consultants from 80 countries and focuses on the development and dissemination of insights on the strategic management process, as well as on fostering contacts and interchanges around the world.

April 24, 2020

https://onlinelibrary.wiley.com/doi/abs/10.1002/smj.3190

Dismissal of a CEO can change the strategic decision-making of CEOs at competing firms. Seeing a CEO get fired causes other CEOs in the industry to experience job insecurity and motivates them to dial back on strategic risk taking. That according to a new study published in the Strategic Management Journal (SMJ).

The researchers – Brian Connelly of Auburn University, Qiang Li of Hong Kong University of Science and Technology, Wei Shi of the University of Miami, and Kang Lee also of Auburn -- studied CEO dismissals among large, publicly traded companies over more than a decade.

“The position of CEO is more volatile today than ever,” write the researchers.  “When it comes to pulling the trigger on CEO dismissal, companies have increasingly twitchy fingers.  Therefore, it seems important to ask: when a company fires their CEO, what happens at all the other companies in the industry?”

“Our main argument,” Connelly observes, “is that when a CEO gets fired, all the other CEOs in the industry begin to think – Oh No! This could happen to me! This is important because CEOs have a good gig, and they do not want to lose it. So, they turn to what they can control: the company’s risk-taking.”

CEOs are especially concerned about job security. Unlike most of us, though, CEOs don’t compare themselves to other people within the company because they are at the apex of the firm. Instead, they compare themselves to other CEOs.

“CEOs of large companies tend to identify socially with each other as fellow corporate leaders. As they lead their companies, making strategic decisions and serving as figureheads, they categorize one another as being among a common group of corporate elites.  CEOs of competitive firms pay special attention to each other because competitor CEOs are often used as reference points for social comparison.  These reference points are important benchmarks for setting compensation, interpreting success metrics, and evaluating the CEO.”

Most people, including analysts, shareholders, and directors, will generally attribute a company’s performance outcomes to the CEO. But even a modest level of performance should be adequate for CEOs to preserve their highly valued job.

Because CEOs are acutely aware of their competitors, when a company dismisses their CEO it generates consequences that ripple throughout the entire industry.

“We suggest the CEOs at those rival companies will start worrying about their job,” write the authors. “This fear affects their strategic decision-making.  

“The CEO has reached the pinnacle of the organization, and job preservation is of paramount concern … Motivated to preserve their job, we argue that when a CEO is fired, competitor CEOs will refrain from risk taking to focus on ensuring their job safety rather than seek possible long-term performance gains via risky endeavors.”  

The authors also find there are some scenarios that exacerbate this reaction of competitor CEOs. One of these is constitutional constraints on shareholder power, which are governance provisions like supermajority voting requirements and staggered elections for directors.

“When these are present,” Connelly notes, “they isolate the CEO from shareholder influence and protect the CEO’s job. This is not great for shareholders, but CEOs like it because they are less worried about getting fired, and thus are less affected when a competitor gets fired.”

Similarity between a company and its competitor is another dampening influence. Connelly comments that he and his team “look at product similarity. When there is a high degree of overlap between the two companies, then a CEO sees their counterpart at the highly similar company being dismissed and they transfer that to themselves.” When product similarity is low, though, then dismissal of a competitor CEO is less worrisome.

The SMJ is published by the Strategic Management Society (SMS), which is comprised of 3,000 academics, business practitioners, and consultants from 80 countries and focuses on the development and dissemination of insights on the strategic management process, as well as on fostering contacts and interchanges around the world.

April 22, 2020

https://onlinelibrary.wiley.com/doi/10.1002/sej.1353

Emerging markets are characterized by rapid changes and high environmental uncertainty coupled with severe resource scarcity and weak institutional frameworks, contributing to the creation of additional constraints for entrepreneurs.

A new study published in the Strategic Entrepreneurship Journal(SEJ) focuses on a major concept of entrepreneurial action stemming from the need to manage resource scarcity and environmental uncertainty: “effectuation theory,” which suggests two behavioral logics for entrepreneurial actions:

1. Causation is a structured approach to decision-making that relies on well-prepared plans, pre-defined goals, and required resources. Firms using causal behavioral logic engage in rigorous forward-looking analysis and planning to select the best means of achieving pre-determined strategic goals.

2. Effectuation, on the other hand, is engaging in the entrepreneurial decision-making process with the aim of achieving the best possible strategic results from leveraging the available resources and controlling the environmental uncertainty through creating new markets, products, and opportunities.

The research was performed by Oleksiy Osiyevskyy and Hossein MahdaviMazdeh, Haskayne School of Business, University of Calgary, Canada, and Galina Shirokova and Anastasiia Laskovaia, St. Petersburg University, Graduate School of Management, Russia. The researchers studied the Russian emerging market, which was characterized by constant turbulence, especially during the period of the study, 2015-2016. The research was conducted with financial support from the Russian Science Foundation (project number: 19-18-00081).

From a broader perspective, the causation versus effectuation choice may be considered as an exemplar of the “planning versus learning debate;” learning in this case involves understanding the market environment and selecting the best business approaches.

“Both of these approaches have been efficient in different contexts,” write the authors.  “However, the problem is not knowing exactly what those contexts entail. This understanding is particularly poor for the context of emerging markets and the small and medium enterprises operating in them. Consequently, it becomes important to determine the emerging markets’ significant contingencies that impact effectuation, causation, and firm performance.”

During stable economic conditions, firms that apply planning strategies focused on accurate predictions and analysis of situations tend to outperform those that do not. Causation helps firms efficiently manage the scarce resources that are particularly important for firms operating in emerging markets. As such, causation is most effective when the future is relatively predictable by bringing its benefits for firms through leveraging the analytical forecasts based on available data and information.

“Yet, in emerging markets during adverse economic conditions, which are, by nature, extremely turbulent, and uncertain environments, formal planning activities fail to produce the desired results,” write the authors. “The future stops being predictable enough for forward-looking analyses, and the conventional strategic and marketing analytical tools fail to provide a robust basis for an effective decision-making process.” 

“Prior plans become largely obsolete and ineffective. Following them leaves small and moderate-size firms unable to adapt and be flexible in the fast-changing environment.”

In extreme cases, the firms might be better off abandoning any pre-planned actions altogether.

For a firm operating in an emerging market during a major crisis, effectuation becomes particularly important for two main reasons:

First, it allows effective dealing with a challenging environment in emerging markets by removing the need for detailed planning and allows controlling the future through making contracts for alliances and partnerships.

Second, an effectuation implies the search for new successful strategies and building new capabilities, which are essential to “unfreeze” the organization and move away from the old strategy that is unlikely to work in the future. An effectual logic allows for fast adjustment to the environment and chasing the emerging opportunities, even amidst a major crisis.

“Decision-makers who rely on effectual behavioral logic take into account the amount of resources they can afford to lose,” write the authors.  “Focusing on affordable loss rather than expected returns, effectuators manage the risk of losing too much financial, social, and intellectual resources that are especially important for environments with underdeveloped institutions.”

“By combining available resources at hand, managers are trying to reduce the risks of possible failures and contribute to firm success. The ability to be flexible in unstable and contingent environments is one of the most important advantages for small firms. 

“Effectuators are good at implementing changes and using all unexpected surprises as sources of new opportunities through their inclination to flexibility under high uncertainty. To create and foster these opportunities, they form partnerships and make commitments to expand the available set of means and share risk.”

Periods of economic crises in emerging markets are usually perceived as highly uncertain and resource-constraining settings that force firms to adapt and change very rapidly. In these conditions, managers are looking for effective managerial tools that are able to reduce environmental uncertainty, leverage the available resources, and decrease the probability of failure. Effectuation and causation serve as such tools.

“The results suggest that causation or planning leads to performance improvements, yet these become marginal and highly unreliable if a firm finds itself in adverse conditions,” write the authors. “Effectuation, on the other hand, is a costly and unreliable strategy in stable times, yet leads to reliable performance improvements in volatile contexts.”

For firms, it means they will manage to control for getting more reliable outcomes by relying on effectual and causal behavioral logics depending on the level of uncertainty and munificence of the external environment.

Strategic Entrepreneurship Journal, published by the Strategic Management Society (SMS), is targeted at publishing the most influential managerially oriented entrepreneurship research in the world.  It is a research journal that publishes original work recommended by a developmental, double-blind review process conducted by peer scholars.  Strategic entrepreneurship involves innovation and subsequent changes which add value to society, and which change societal life in ways that have significant, sustainable, and durable consequences.

April 6, 2020

https://onlinelibrary.wiley.com/doi/toc/10.1002/(ISSN)1097-0266.strategic-responses-to-crisis

Retrenchment May Not Be the Best Business Response to the Pandemic,

Persevering, Innovating and Exiting May Be Better Strategies

Retrenchment is a main, if not the most common strategy, that businesses use to respond to crises, but reductions in costs, assets, products, product lines, and overhead may not be the best responses and certainly they are not the only options.

Research has raised doubts about the effectiveness of retrenchment, especially when crises last longer.  And while retrenchment may be a first step, it may be not the last step on the road toward a firm’s recovery.

To raise awareness of the potential crisis response strategies that managers have available to respond to the COVID-19 crisis, the Strategic Management Society (SMS) has published a Virtual Special Issue of all three of its journals: Strategic Management Journal (SMJ), Strategic Entrepreneurship Journal(SEJ), and Global Strategy Journal (GSJ).

In this report three researchers, Matthias Wenzel and Sarah Stanske of the Institute of Management and Organization, Leuphana University of Luneburg, Germany, and Marvin B. Lieberman of the Anderson School of Management, UCLA, reviewed prior SMS-published research focused on a variety of prior crises including the dot.com bubble collapse and the 9/11 economic downturn.

In addition to retrenchment other management strategies used were persevering, innovating and exiting.

A study of the closure of several hedge funds during the 2007 global financial crisis, write the authors, demonstrated that the performance of related sister funds was negatively affected by the retrenchment decision. This loss of synergy obstructs economies of scale and scope in the longer run, given that management cannot spread resources and costs across businesses anymore.

Although retrenchment might be a necessary or even an unavoidable ad-hoc response to crisis in the short run, the long-term viability of this response is far from uncontested. Especially when a crisis lasts for a longer period of time, continued retrenchment may lead to an erosion of a firm's valuable resources, capabilities, and culture.

Evidence on the long-term viability of retrenchment measures is mixed at best: While some studies position retrenchment as a necessary precursor to strategic renewal and firm recovery, other studies warn of the irrecoverable damages such as the loss of synergies that retrenchment measures entail.

"Persevering relates to the preservation of the status quo of a firm's business activities in times of crisis, e.g., through debt financing and the consumption of available uncommitted resources," write the authors. "Prior studies suggest that persevering can be a viable strategic response to crises in the medium run.

"Specifically, the value of conducting strategic renewal ‘too early’ in times of crisis may be eroded by constant and unforeseeable changes in the business landscape, thus leaving firms that persevere better off. However, when crises last for longer periods of time, the sources of internal and external uncommitted resources may dry up at some point. Then, it might be ‘too late’ to conduct strategic renewal in order to tap into alternative sources of revenue, as this process often requires uncommitted resources as well.  Thus, in the longer run, persevering may threaten firm survival."

Innovating refers to conducting strategic renewal in response to crisis. Crises open up opportunities for strategic renewal—even for firms that rigidly stick to their strategy under business-as-usual conditions.  Especially long-lasting crises alter the business landscape preventing a return to the previous order and making innovating an important, if not unavoidable, strategic response for the firm’s long-term survival.

Exiting.  While a firm’s exit from an industry is conventionally viewed as a forced outcome of conducting an unprofitable business, it can also be a strategic response to a crisis.  Specifically, exits free up committed resources that can be reused for pursuing crisis-induced business opportunities.  Therefore, a business exit may be a valuable strategic response to a crisis at any time, rather than a manifestation of business failure.

"Persevering and innovating are potentially effective strategic responses to crises in the medium and longer run, respectively," write the authors.  “Both types of responses, however, essentially build on the availability of uncommitted resources, whether internal or external, which may become scarce rather quickly in times of crisis.

"In the wake of the coronavirus crisis, governments seem to have understood this, as they increasingly implement measures such as interim financing, reduced hours compensation, and fiscal stimulus packages to support firms.  For managers, this implies making use of the public support structures in place in order to accumulate the resources needed to persevere or innovate.”

Exiting can also be a strategic response to a crisis.  Rather than being “the end of the road,” an exit may be the starting point of a new venture, one that is able to do justice to the changed business conditions that the crisis has created.  Therefore, managers and business owners are encouraged to view exiting as a potentially viable response to a crisis that opens up opportunities to move forward.

The Strategic Management Society (SMS), comprised of 3,000 academics, business practitioners, and consultants from 80 countries, focuses on the development and dissemination of insights on the strategic management process, as well as on fostering contacts and interchanges around the world. SMS, which publishes three journals, brings together the worlds of reflective practice and thoughtful scholarship.

https://doi.org/10.1002/gsj.1359

Globalization Backlash Causes Minority-Owned US Firms to Expand Internationally; Their Success in Enhancing Exports Challenges the Claims Made by Proponents of ‘America First’

A new study argues that the anti-immigrant backlash sparked by globalization’s skeptics isolates U.S. minority entrepreneurs as outsiders, which constrains their domestic business opportunities. 

In response, these entrepreneurs leverage their shared ethnic identities as insiders within diaspora networks to pursue international expansion opportunities focused on their countries or regions of origin. 
The study, Countering Globalization’s Skeptics, will be published in the Global Strategy Journal, and was conducted by Todd M. Inouye, University of Hawaii at Hilo, Amoi M. Joshi, Oregon State University, Iman Hemmatian, Cal Poly Pomona, and Jeffrey A. Robinson, Rutgers University.

Globalization is an increase in interdependence and integration across economies and countries and is largely driven by technological advances and institutional changes that have reduced the transaction costs associated with international trade. 

Governments worldwide are facing growing skepticism about globalization from their constituents, who tend to view any potential individual gains from globalization as being unevenly and unfairly distributed within and across national borders. This is sparking a widening backlash against globalization, fueling the rapid rise of populist parties and political leaders who espouse an anti-immigrant, xenophobic, nationalistic, and anti-globalization message.

“We hypothesize that diasporas imprint minority entrepreneurs with risk preferences that reduce their skepticism about globalization,” write the researchers. 

In multi-ethnic countries, such as the U.S., U.K., Canada, and Australia, with high immigration rates and sizable foreign-born populations, minority entrepreneurs are inherently members of diasporas, which is defined as the dispersals of a people from their original homelands. 

Despite their “outsider “ status, minority entrepreneurs have important competitive advantages in that their diaspora networks provide access to resources, knowledge, and relationships.

“Analyzing over 20,000 U.S. small businesses, we find evidence that minority entrepreneurs’ firms prefer to leapfrog into markets, mitigate risks via contractual and bounded commitments, and target countries that are more ethnically and linguistically fractionalized.

“Overall, U.S. minority entrepreneurs’ firms derive 14.4% of their revenues from exports, compared to 5.4% for other firms. The apparent success of minority entrepreneurs in enhancing U.S. exports challenges the claims made by proponents of ‘America First’ policies regarding the costs and benefits of immigration.” 

Studies have shown that as export engines, firms founded or owned by minority entrepreneurs, including recent immigrants, generate revenue, create jobs, and contribute to growth in vital sectors of the U.S. economy. 

A study by the U.S. Minority Business Development Agency indicates that minority entrepreneurs have the cultural insight, linguistic skills, and market intelligence to not only excel as U.S. exporters, but to also be strong strategic partners for firms entering global markets for the first time. 

“We recommend’” write the authors, “that managers utilize diasporas’ access to resources, knowledge, and relationships to reduce their firms’ risks of internationalizing and that policymakers tailor government trade promotion programs to leverage diasporas to reduce transaction costs and increase exports.”

The Global Strategy Journal (GSJ), published by the Strategic Management Society (SMS), is the leading journal on global strategic management research. The SMS is comprised of 3,000 academics, business practitioners, and consultants from 80 countries and focuses on the development and dissemination of insights on the strategic management process.

https://doi.org/10.1002/smj.3071

A CEO’s Humility Can Improve a Firm’s Market Performance

A new study investigated the effect of CEO humility on firm’s market performance and found that firms with more humble CEOs will have better market performance.
 
But the cause is not that these firms actually perform better but rather because they benefit from an “expectation discount” in the market. 

The research, published in the Strategic Management Journal (SMJ), was performed by Oleg V. Petrenko, Texas Tech University, Federico Aime, Oklahoma State University, Tessa Recendes, Pennsylvania State University, and Jeffrey A. Chandler, Western Kentucky University. They studied 187 CEOs of Standard & Poor 500 firms and evaluated CEO characteristics through Videometrics, a video survey methodology.

“A paradigm shift is unfolding before us,” write the researchers. “Humble chief executive officers are trending in both media and academic research as a preferable alternative to the arrogant, overconfident, hubristic, and narcissist types that made up the core population of dominant figureheads in US organizations leading up to the last economic crisis.”

Perception is important because market analysts don’t have the time or ability to access relevant information about an individual's leadership capacity and find it difficult to provide unambiguous interpretations of past performance. Therefore, analysts may resort to measuring a CEO against a leader prototype.

In contrast to that prototype, humble CEOs have low self-focus and a tendency to recognize others’ strengths and contributions, are willing to accept others’ feedback and ideas, and own up to personal weaknesses or mistakes.

This leads to an external perception of them as weak and lacking self-confidence and passion, detracting from the bold, direct, strong, and masculine images that produce positive evaluations of CEO effectiveness and higher performance expectations for firms.

“We argue,” write the authors, “that financial analysts will forecast lower performance for firms with more humble CEOs because prevailing accounts imply that leadership effectiveness is driven by perceived strength or boldness, masculinity and tyranny, charisma and, in general, perceptions of McClelland's leadership motivation pattern (i.e., a high need for power, a low need for affiliation with others, and a high degree of self-control) all of which are associated with arrogant and overconfident rather than humble CEOs. 

“Specifically, we show that, all else being equal, financial analysts announce lower earnings per share expectations for firms with more humble CEOs, increasing the probability that they will outperform those expectations. These firms do not have better market performance because they perform better but rather because they face lower expectations.” 

Overall, the study demonstrates the importance of CEO characteristics for external evaluations and perceptions about the firm with significant impact on investment performance,

One condition that could disrupt the impact of CEO perception on market performance outlined in the study is the possibility that analysts learn about expectation discounting and adjust their earnings expectations accordingly. The positive impact of CEO humility on market performance, therefore, would wane or rapidly disappear over time. 

"The case for humble expectations: CEO humility and market performance" was published in the Strategic Management Journal (SMJ), the official journal of the Strategic Management Society (SMS). The SMS is comprised of 3,000 academics, business practitioners, and consultants from 80 countries and focuses on the development and dissemination of insights on the strategic management process. SMJ, which is published 13 issues per year by Wiley, is consistently rated one of the top publications in the management area and publishes papers that are selected through a rigorous double-blind review process.

https://doi.org/10.1002/smj.3090

When Your Problem Becomes My Problem: The Impact of Airline IT Disruptions on Competing Airlines

When firms are confronted with unexpected disruptions in their operations, they are likely to experience degradations in performance from which they must work to recover. 

However, scholarly research on these disruptions generally assumes that firms are independent entities, each with a full complement of resources, and any firm’s disruption is limited only to the firm itself.  

Such assumptions are inconsistent with emerging research on ecosystems and industry architecture as well as research on the platform-based economy, which suggests that firms are becoming increasingly interdependent.  

A new study, When Your Problem Becomes My Problem to be published in the Strategic Management Journal (SMJ), examines the ramifications of disruption for firms that compete with the disrupted firm. The study was performed by C. Jennifer Tae and Min-Seok Pang of Temple University and Brad N. Greenwood of George Mason University.

“Firms often do not fully control the corpus of capacities, resources, or inputs they need to bring their products to market,” write the authors. “Instead, they share them in the form of networked resources (e.g. among alliance partners) and common suppliers or infrastructures (viz. those concomitantly utilized by competitors).

“This suggests that a disruption to a resource-sharing firm’s operation may have an impact on other firms that share the same resource.”

The researchers asked several interrelated questions: 

• Whether and how the disruption of one firm impacts another, non-disrupted firm relying on the same resource? 
• Does the type of firm that is disrupted moderate the effect?
• And, finally, does the type of competitor that is reacting to the disruption moderate the effect? 
• The U.S. airline industry offered several advantages for such a study:
• Airline performance data, including on-time status, cancellation, and elapsed flight time, are widely available. 
• The airline industry has a critical resource necessary for operations (airports) that no airline owns or fully controls, but rather has to share with other airlines.
• Researchers could distinguish between full-service carriers (e.g. Delta, American) and low-cost carriers (e.g. Southwest, JetBlue) to determine if operating models affect the impact of a disruption on resource-sharing competitors. 
• Finally, and perhaps most importantly, airlines have been subject to an increasing number of disruptions in recent years.

The researchers examined four major incidents: Alaska Airlines in March 2011, American Airlines in April 2013, Southwest Airlines in July 2016 and Delta Airlines in August 2016 as well as 36 minor incidents.  

“We show that an airline's IT outages affect on-time performance of competitors’ flights to and from its hub airports,” write the researchers.  “However, the effects depend on both who is disrupted, and who is reacting to that disruption. 

“The disruptions of full-service carriers delay competitors' flights. Further, low cost carriers are significantly more nimble reacting to disruptions compared to full service carriers.”

In addition, they found that a disruption of a low cost carrier improves the on-time performance of both non-disrupted full service carriers and non-disrupted low cost carriers, with the latter enjoying greater improvement.

The causes of the observed patterns were not studied and are left for future research.

The Strategic Management Journal (SMJ), the official journal of the Strategic Management Society (SMS). The SMS is comprised of 3,000 academics, business practitioners, and consultants from 80 countries and focuses on the development and dissemination of insights on the strategic management process. SMJ, which is published 13 issues per year by Wiley, is consistently rated one of the top publications in the management area and publishes papers that are selected through a rigorous double-blind review process.

https://doi.org/10.1002/smj.3083

No Corporate Ranking Can be Better Than A Marginal One

Corporate lists that rank and recognize firms for superior performance have proliferated in recent years, and an increasing number of corporate leaders are prioritizing efforts to be included on such lists. 

This is apparent from a casual checking of the annual reports of large public corporations, which reveal an intense competition among companies for inclusion on prominent rankings such as the 100 Best Places to Work, the Dow Jones Sustainability Index and 100 Best Corporate Citizens.

Although managers consider such rankings a valuable strategic asset and are willing to devote significant resources and attention toward gaining inclusion on these prestigious lists, the value of being marginally ranked has not been empirically studied.

Until now.

"The Risk of Being Ranked: Investor Response to Marginal Inclusion on the 100 Best Corporate List," a study performed by Ben W. Lewis and W. Chad Carlos, both of Brigham Young University, will be published in the Strategic Management Journal (SMJ). 

Academic management literature on rankings has generally assumed that ranking has a binary impact: that ranked firms benefit relative to the unranked and that this effect is most important for firms marginally ranked.  Consequently, companies often seek the recognition of being ranked without clearly knowing whether they will derive benefits from it or whether recognition has potential downsides.

To address this issue, the researchers examined the effect of inclusion on shareholder value for marginal firms that barely made or barely missed the 100 Best Corporate Citizens (100 BBC) list, a prominent ranking that evaluates the corporate social responsibility (CSR) performance of public corporations. 

“Our primary result departs from prevailing theoretical expectations and suggests that inclusion on the 100 BCC list can in some cases decrease shareholder value for firms just above the threshold,” write the researchers.  “On the day of the list announcement, we find that firms that barely make the list experience a 1.3% decrease in firm value relative to firms that barely miss the cut.”

“Theoretically, we believe that ranking systems may distill and simplify complex information into a new category that groups together similar corporations and allows for easier comparison of companies within that category,” say the researchers. “This comparison, we suspect, magnifies the relative weaknesses of bottom-ranked firms compared to top ranked firms more salient.”

However, there is a possible mitigating factor -- whether a firm had a reputation for corporate social responsibility prior to the 100 BCC ranking. 

 “Our results suggest that making consistent, focused investments that are relevant to external stakeholders may buffer organizations from the potential negative effects of marginal inclusion on a ranking,” say the researchers. “These insights may also inspire managers to reconsider their firms’ commitments to being ranked.”

The researchers believe this “surprising negative effect” of marginal inclusion on a ranking an important practical implication for managers: 

“If you are going to spend time, money, and resources to get on a list, you should do your best to get to the top of the list as those near the bottom of the list may be (perhaps unfairly) discounted.”

The Strategic Management Journal (SMJ), the official journal of the Strategic Management Society (SMS). The SMS is comprised of 3,000 academics, business practitioners, and consultants from 80 countries and focuses on the development and dissemination of insights on the strategic management process. SMJ, which is published 13 issues per year by Wiley, is consistently rated one of the top publications in the management area and publishes papers that are selected through a rigorous double-blind review process.
 

https://doi.org/10.1002/smj.3088

Conservative Boards More Likely than Liberal to Dismiss a CEO after Financial Misconduct

Why do some boards refuse to take serious action against CEOs who have committed financial misconduct?

A new study examines how the beliefs and values held by board members can influence their actions following financial misconduct. Focusing on political ideology, the researchers argue that politically conservative boards are more likely to respond by dismissing the CEO than are liberal boards as the result of ideology and tendencies in managing threats.

The study, Political Ideology of the Board and CEO Dismissal Following Financial Misconduct, was published today (October 9, 2019) by the Strategic Management Journal (SMJ). The research was conducted by U. David Park, Syracuse University, Warren Boeker, University of Washington and David Gomulya, Singapore Management University.

Despite criticism from stakeholders, the public, media, and policy makers, many firms do not take serious action against CEOs who have committed financial misconduct. Past studies have suggested this is due to the role of board independence, the relationship between CEOs and their directors, or situations surrounding misconduct such as the severity of misconduct. 

“We propose that political ideology, a set of beliefs and values held by board members, influences whether firms dismiss their CEOs following financial misconduct,” write the authors. 

“Examining S&P 1500 firms that were involved in financial misconduct, we find that politically conservative boards tend to dismiss their CEOs more often than do liberal boards, offering practical implications for how the ideology of board members can influence critical actions that they take.”

Organizational misconduct can pose a significant material threat to organizations, destroying billions of dollars of market value and resulting in lasting damage to the firm’s reputation and credibility.

Firm stakeholders and other observers generally expect an organization to deliver a strong response to the disclosure of misconduct. However, the puzzle is that in many cases boards have taken limited or no action toward the CEO, even when the misconduct is quite substantial, resulting in criticism from the public, media, and policy makers that boards are deficient in their oversight role.

Differences in political ideology have been shown to have an important influence on thinking and actions, not only in people’s daily lives but also in the decisions of organizational leaders. 

Although some differences in political ideology are historically and culturally specific, the researchers focused on the conventional spectrum of liberal-conservative, which has been identified as especially important for understanding individuals’ beliefs and values. 

“The core dimensions of liberal and conservative ideologies have been shown to be universal, relatively stable, and enduring throughout an individual’s lifetime, providing structure to their thinking and actions,” write the researchers. 

“To understand the form and function of political ideologies, political and social psychologists have examined their fundamental features, demonstrating that conservatism is associated with characteristics like a desire for order and stability, a preference for gradual rather than revolutionary change, and a greater deference to the current system and existing order. In contrast, liberalism has been associated with a greater tolerance for different points of view and an openness to change and new experiences.”

Extending this perspective to the arena of corporate financial misconduct, the researchers propose that political ideologies may have an important influence on board members’ key decisions and actions through two primary effects: 

1) The ideo-attribution effect argues that conservatives tend to explain a wide range of social issues and behaviors as related to the individual’s character and emphasizing personal responsibility and effort. In contrast, liberals tend to attribute the same problems to external and situational causes.
2) Threat management. Political psychology scholars have shown that political ideology can also influence how individuals perceive and deal with threat. Conservatives generally see the world as more threatening, are more sensitive to social, economic and political threats, and tend to be more concerned about threat and loss than liberals.

These perceptions and tendencies lead to a greater need to maintain safety, minimize danger and manage threats. 

The Strategic Management Journal (SMJ), the official journal of the Strategic Management Society (SMS). The SMS is comprised of 3,000 academics, business practitioners, and consultants from 80 countries and focuses on the development and dissemination of insights on the strategic management process. SMJ, which is published 13 issues per year by Wiley, is consistently rated one of the top publications in the management area and publishes papers that are selected through a rigorous double-blind review process.

https://doi.org/10.1002/smj.3074

Reshaping Demand Landscapes: Changing Customer Preferences 
 
Managers often assume that customer tastes are fixed and that the only way to improve a product's appeal to customers is to change the products' attributes to better accommodate the customers' preferences. 

In a new paper Reshaping Demand Landscapes, published in the Strategic Management Journal, Dr. Natalya Vinokurova of the University of Pennsylvania’s Wharton School argues that there are two approaches to changing customer preferences to better accommodate them to a company’s product.

1. Explicitly convincing the customers to change their preferences, for example, convincing customers that Apple iPhone offered a superior experience compared to the phones that they had been using; or 
2. Manipulating the customer's perceptions of similarity between different products, for example, convincing them that mortgage-backed securities were similar enough to bonds to make a good substitute, or, alternatively, convincing the customers that a competitor's product is not a good substitute for the firm's offerings. 

In her paper, Dr. Vinokurova argues that firms can use three operations to change the customer preferences. These operations include 1) adding product attributes to the customer’s consideration set, 2) transforming the weight customers assign to a given product attribute, and 3) removing product attributes from the customer’s consideration set.

In a classic example of adding dimensions to the landscape, Ford’s competitors, including General Motors, in the 1920s successfully competed with Ford by adding the dimension of color to the demand landscape. This addition was possible by Ford scaling down its Model-T color offerings to only black in order to reduce manufacturing costs during the period of 1914–1925.

An example of transforming the weight customers assign to a given product attribute are the public health campaigns to alert the public to the danger of smoking. The increases in the size and the vividness of the health warning labels drew consumers’ attention to the dangers of smoking, thus, reducing the incidence of smoking.

An example of removing dimensions from the customer’s consideration set was Apple’s launch of the iPhone, which removed cell phone pocket-ability from the customers’ consideration set. 

Such changes to customer preferences affect the profitability of the firms competing in a given market.

Dr. Vinokurova’s research suggests that a combination of these operations can be a powerful way of reshaping the customer preferences. Dr. Vinokurova illustrates the conceptual model developed in the paper with a detailed historical case study of the evolution of the market for mortgage-backed securities (MBS) in the U.S. between 1968 and 1987. She argues that the MBS issuers used a combination of all three operations to convince bond investors to invest in MBS, despite the MBS product attributes continuing to differ substantially from conventional bonds.

The Strategic Management Journal (SMJ), the official journal of the Strategic Management Society (SMS). The SMS is comprised of 3,000 academics, business practitioners, and consultants from 80 countries and focuses on the development and dissemination of insights on the strategic management process. SMJ, which is published 13 issues per year by Wiley, is consistently rated one of the top publications in the management area and publishes papers that are selected through a rigorous double-blind review process

https://doi.org/10.1002/smj.3077

The Entrepreneurial Process: New Survey Has Unexpected Results About Decisions To Launch Businesses And Market-Entry Preparation 

New firms disproportionately create jobs, often commercialize novel innovations and can exert competitive pressure on incumbent companies.

The market entry of new firms has been typically framed by management researchers as a one-shot game, a binary decision determined by a static cost-benefit analysis related to the intensity of competition, barriers to entry, the firm’s own cost function, and projected demand.  

But entrepreneurial research has rarely considered how pre-entry activities impact entry decisions and firm performance.

Now two researchers, Victor M. Bennett and Aaron K. Chatterji of the Fuqua School of Business, Duke University, have completed a nationally representative survey of the entrepreneurial activities of Americans, including those who considered launching an entrepreneurial effort but did not.   

Their findings, detailed in The Entrepreneurial Process: Evidence from a Nationally Representative Survey to be published in the Strategic Management Journal (SMJ), include:

• In the pre-entry period, entrepreneurs, rather than make a one-shot decision, have beliefs about their likelihood of success and they update these beliefs through learning activities over time.
• The variation of the length of time in the pre-entry period implies that prospective entrants are accumulating different amounts of information, which may have implications for how the firms perform once they are launched.
• One-third of Americans reported having a business idea in the last five years, motivated in the vast majority of cases by lifestyle concerns rather than significant business opportunities.
• Fewer than half of those who considered starting a business took even the easiest and lowest cost research steps such as speaking to a friend or searching the Internet for potential competitors.  One explanation for this phenomenon is a “psychological cost,” i.e. getting feedback that the idea is not so good.  Or the prospective entrepreneur may be so confident he or she does not believe new information would be important.
• It was more common for would-be entrepreneurs to abandon the process once they learned about the difficulty in obtaining financing or about challenges to profitability rather than from concerns about their own skills or information about competitors.
• Those who failed to launch a business often made decisions based on indirect information, e.g., deciding they would be unable to get a bank loan without actually contacting a bank.
• Others were thwarted by not knowing the next step in the entrepreneurial process to take. 

“Our findings,” write the authors, “reveal an entrepreneurial process which involves a significant pre-entry period where prospective entrepreneurs seek to acquire information about the quality of their idea, perform administrative tasks to prepare for launch and encounter frictions that impede their progress.”

They may engage in market research, receive feedback and collect competitive intelligence.

“We find the level of pre-entry activity prospective entrants engage in (and how much information they acquire) varies by the opportunity cost involved, prior experience they have in the field, and their level of confidence,” write the researchers. 

Specifically: 

• Underemployed people advance less through pre-entry learning activities than primary wage earners, whose downside risk from an unsuccessful venture is greater.   
• Prospective market entrants with prior experience in the field might be expected to need fewer pre-entry steps because of the information they already have. But surprisingly those with industry experience undertake more activities to vet their business idea.
• Another surprising result was that overconfident individuals engage in more pre-entry activities just as those with industry experience do, both results suggesting additional research is needed. 

The Strategic Management Journal (SMJ), the official journal of the Strategic Management Society (SMS). The SMS is comprised of 3,000 academics, business practitioners, and consultants from 80 countries and focuses on the development and dissemination of insights on the strategic management process. SMJ, which is published 13 issues per year by Wiley, is consistently rated one of the top publications in the management area and publishes papers that are selected through a rigorous double-blind review process.

August 6, 2018

https://doi.org/10.1002/gsj.1326

When emerging economies transition to open-market systems or their governments change from military regimes to democracies, one would expect an open-market system to develop. However, the large diversified conglomerates that dominate emerging economies actually strengthen during these positive transitions.

The result is that multinational corporations seeking to succeed in these economies also function as conglomerates -- clusters of coordinated activities by interlinked but legally independent enterprises. 

Those are the conclusions of a paper published online today (August 6, 2018) in the  Strategic Management Society’s Global Strategy Journal authored by Marcelo Bucheli, University of Illinois at Urbana-Champaign, Erica Salvaj, Universidad del Desarrollo, Chile and Minyoung Kim, University of Kansas.

Some scholars postulate that conglomerates or business groups, as they are also called, owe their existence to the market imperfections created by protectionist and economically interventionist governments, imperfections such as insufficient labor markets and financial institutions, closed economies, and weak or corrupt governments and judicial systems.

Citing earlier studies, the authors say, the second global economy (when the home countries of these business groups were opening their doors to foreign investment) that started in the 1970s and the third wave of democratization that started in the 1980s should have substantially lowered or even eliminated market imperfections.

However, the transitions that took place were more complex than originally expected. Instead of having the whole world converging towards a Western-style liberal democracy and market economy, the world that emerged was a multi-polar world comprised of a multiplicity of political and economic systems.

Multi-national corporations investing in these emerging economies have the great disadvantage of being “outsiders.” Consequently, their business strategies had to take into consideration the persistence and strength of conglomerates, making them both victims and perpetuators of these market problems.

The paper entitled Better Together: How Multinationals Come Together with Business Groups in Times of Economic and Political Transition, studied two interrelated questions:

First, why do conglomerates in emerging markets thrive and prevail after pro-market reforms are implemented in their countries?

And, second, what type of adaptation strategies can multinational corporations develop in order to be competitive in economies dominated by conglomerates?

The authors studied business groups in Chile during the period that country underwent dramatic political and economic changes, from a democratic regime to a military dictatorship and later back to democracy, and from a highly protectionist economy to a globally oriented open market economy.

“We maintain,” wrote the authors, “that business groups were created in periods of protectionism as a way to navigate economies with strong state participation or inefficient markets, as a way to economize on transaction costs created by the limited political and economic system.

“The evidence also shows how the business groups were created to benefit from close relations to policy-makers, and the process of creation of business groups led to a strong concentration of economic power around those groups.”

As the economy transitioned towards more open markets, elites in emerging economies were unwilling to abandon the advantages of having links among their businesses. Therefore, the transitions did not necessarily create more competitive environments, leaving Chile, for example, an oligopolistic economy.

“With this type of economic consolidation,” wrote the authors, “we conducted a network analysis to show how the business groups increased the concentration of their power by building links with each other through interlocked directors. . .this process was carried out not only by the Chilean business groups, but also by the foreign multinational corporations entering Chile, which adopted a business group structure and built links with other business groups (both Chilean and foreign).”

 “In sum,” write the authors, “strategies devised as means to reduce market imperfections created new imperfections that incentivized the business groups to retain their structure and forced multinationals to become business groups.”

The Global Strategy Journal (GSJ) is an official journal of the Strategic Management Society (SMS) and is published by Wiley. The SMS is comprised of 3,000 academics, business practitioners, and consultants from 80 countries and focuses on the development and dissemination of insights on the strategic management process, as well as on fostering contacts and interchanges around the world.

November 4, 2018

https://onlinelibrary.wiley.com/doi/10.1002/smj.2986

History is replete with examples of military commanders and sporting combatants using their perceptions of rival decision-makers in deciding how to engage those rivals – such as Russian commanders employing Napoleon’s hubris against him and Muhammad Ali devising the ‘rope-a-dope’ strategy knowing his opponent would be ultra-aggressive.

According to a new study published in November’s Strategic Management Journal, modern business executives appear to be applying the same principles.

Prior research suggests that decision-makers actively gather information about their rivals’ likely actions and to a very high degree, base competitive maneuvers upon that information.

“Despite this practical reality, however, neither the theories that explain the role of executives in a firm’s actions nor competitive dynamics research advance theoretical explanations of how this rival-based phenomenon unfolds,” write the authors, Aaron Hill, University of Florida, Tessa Recendes, Oklahoma State University and Jason Ridge, University of Arkansas.

The researchers saw a need to better understand how attackers’ perceptions of a rival CEO affect attacks on the CEO’s firm, and they articulate how CEOs possessing certain psychological, behavioral, and social characteristics may unknowingly precipitate competitive attacks on their firms.

Their study integrates into management theories insights from victimology that explain how individuals are subject to more attacks if they possess characteristics others perceive as either more submissive or more provocative.

“If rivals perceive a focal firm’s CEO as more submissive and hence, less willing or able to respond to attacks, those rivals will have less fear the CEO will attempt to counter in ways that might damage the attacking firm,” the authors say.“

For example, more submissive CEOs may be seen as unlikely to respond to a price cut directed at their firms. . . Attacks on firms led by such individuals, then, pose little threat to the attacking firm and provide greater prospects for strategic advancements without the fear of reprisal.”

Similarly, there are two reasons why a firm led by a CEO who is perceived as provocative would be subject to more attacks.

“First, more provocative individuals are attacked by rivals who seek to restore their view of what ‘ought to be’ or what they consider normal,” say the authors. “The attackers are motivated to ‘get even’ for perceived provocations.

“Second, more provocative individuals may threaten others’ relative standing or security, provoking attacks out of self-preservation (i.e., to ‘save face’ and/or to reduce or remove peril).

”For hypotheses testing, the researchers used a sample of Fortune 500 CEOs from 2000 to 2016 and employed videometric measurement of CEOs where third-party raters used validated instruments to assess personal characteristics. They then combined the videometric measures of CEOs with data drawn from RavenPack News Analytics. RavenPack uses a patented algorithm to classify and aggregate press releases, which are commonly used to capture a firm’s competitive actions.

The results: As CEO submissiveness increases from the mean value to one standard deviation above the mean, attacks on the CEO’s firm rise as follows: Pricing and Product Attacks nearly double while Marketing and Expansion Attacks increase about 64 and 48 percent, respectively.

Victimology research suggests that “victims” are seen as easier targets than those considered being “provocative” -- even if being provocative is still a strong predictor.

Indeed, the study also found that as CEO provocativeness increases one standard deviation from the mean, the rise in attacks are smaller but also meaningful: Pricing, Product, Marketing, and Expansion Attacks increase about 50, 27, 35, and 58 percent, respectively.

The study is important because a single competitive attack or series of attacks can often have negative ramifications for firms directly while also triggering firms to respond by dedicating valuable resources, which could otherwise be directed elsewhere, toward counter-attacking. Increasing attacks anywhere from about 25 percent to 100 percent likely has substantial implications for firms.

It is possible that providing knowledge about how CEO characteristics precipitate competitive actions toward their firms may aid in prevention and intervention strategies.

However, in assessing if attacks on the CEO’s firm are mediated by the attacked firm’s competitive actions, the research results suggest that the attacks are not mediated by the attacked firm’s competitive actions. And that holds true for both firms led by “submissive” CEOs and “provocative” CEOs.

The study, Second-order effects of CEO characteristics: How rivals’ perceptions of CEOs as submissive and provocative precipitate competitive attacks, is published by the Strategic Management Journal (SMJ), the official journal of the Strategic Management Society, which is comprised of 3,000 academics, business practitioners, and consultants from 80 countries.

October 25, 2018

https://doi.org/10.1002/smj.2966

While firms face regulatory barriers to the use of board interlocking ties as a strategy for reducing competition, a new study suggests that firms can circumvent these barriers by appointing the friends of competitors’ CEOs to their boards.

The research, Under the Radar: Firms Manage Competitive Uncertainty by Appointing Friends of “Rival” CEOs to Their Boards by James D. Westphal, University of Michigan and David H. Zhu, Arizona State University, will be published in the Strategic Management Society’s Strategic Management Journal.

“Board ties in the form of interlocking directorates provide a potential mechanism by which top executives can coordinate firm decisions and reduce competition,” write the authors. “However, concern about board ties among academics and policy-makers has declined in recent years because the Clayton Act has prohibited interlocking directorates among firms that compete in the same industry, if combining these firms would violate antitrust laws.

“In addition, it has become increasingly impractical to form and maintain board interlocking ties in which the CEO of one firm serves on another firm’s board.”

However, Westphal and Zhu dispute the widespread perception that directorship ties no longer play a significant role in inter-firm collusion.

“In particular, we contend that relatively high competitive uncertainty in an industry will encourage firms to appoint the friends of rivals’ CEOs to their boards to facilitate inter-firm coordination, creating board-friendship ties to rivals,” write the authors.

An outside director who is a friend of a rival’s CEO is in a position to help assure the rival firm’s cooperation as research suggests that outside directors are increasingly involved with firms’ major strategic decisions and hence are well exposed to the firm’s strategic plans.

The friendship between the director and the rival’s CEO further renders both CEOs more willing to trust information from the director about the plans for inter-firm cooperation.

Companies also appear to use headhunters to find these “friendly” board members and to restore ties that have been broken.

The study examined large- and medium-sized public companies in the U.S. with more than $100 million in annual revenues with the final sample consisting of 509 firms.

“Our first set of results show that the level of competitive uncertainty faced by a firm is significantly and positively related to the formation of friendship ties between a firm’s outside directors and rivals’ CEOs,” write the authors. “Additional results suggest that firms were more likely to reconstitute broken board friendship ties if they face relatively high levels of competitive uncertainty.

“These findings are consistent with our theoretical expectation that firms seek to manage competitive uncertainty by creating and maintaining board-friendship ties to rivals.“

The research also found considerable evidence that executive search firms mediated the formation, maintenance and reconstitution of these ties.

“Additional results provided evidence that board-friendship ties to rivals are associated with higher subsequent firm performance,” write the authors. “In particular, an additional board-friendship tie to competitors improved a firm’s net income by approximately $134 million on average.

“Supplemental evidence provided further support for our theoretical argument regarding the mechanisms by which board-friendship ties to rivals increase firm performance. In particular, analysis of our survey data corroborated our theoretical argument that board-friendship ties facilitate inter-firm coordination that enables firms to reduce competition on price and other contract terms.”

October 8, 2018

https://doi.org/10.1002/smj.2945

Firms founded by immigrants have a lower survival rate than those founded by natives. But a new study has found that work experience in the host country and a supporting compatriot community decreases the disadvantages faced by immigrants.

The study, The survival of firms founded by immigrants: Institutional distance between home and host country, and experience in the host country, published Monday (October 8, 2018) in the Strategic Management Society’s Strategic Management Journal, was authored by Jose Mata, HEC Lausanne, University of Lausanne, and Claudia Alves, Nova School of Business and Economics.  

“The issue is more than foreignness,” say the authors. “It is the lack of integration in the local economic fabric that creates obstacles to doing business, which suggests that differently integrated foreign firms may suffer from liabilities to a different extent.”

An important finding of the study is that the “Liabilities of Foreignness” apply not just to multinational companies that are managed from abroad, but to all companies with foreigners in senior positions.

 “When foreigners have managerial positions in firms, these liabilities extend to the firm,” write the authors. “Foreigners are less able to handle local situations because when they arrive in a cultural context that is different from their own, they go through a ‘culture shock’ that prevents them from functioning effectively.

“Such a shock is related to the cultural distance between the societies of origin and settlement. and adaptation takes time.”

Conversely, the experience of managers in the local environment may be decisive.  For example, a prior study found that while foreign firms operating in the U.S. faced more labor suits in American courts than their local counterparts, the presence of Americans among the foreign firm’s top officers reduced the number of these labor suits.

According to the study, immigrant-started businesses cannot be treated monolithically. The type of business and immigrant’s nation of origin are also factors.

“Large corporations have routines and processes that partially insulate them from the influence of individual decision makers,” write the authors. “Entrepreneurial firms, in contrast, are typically small firms in which founders exert particularly strong influence. For this reason the link between the characteristics between founders and firm outcomes should be more direct and pronounced.”

Immigrant adaptation is related to the country of origin. Cultural distance increases adaptation difficulties. Immigrants or expatriates have a difficult time in adapting to the new society, but foreign norms are also subject to misinterpretation from locals. This leads to negative attitudes towards foreigners.

In addition, governments and societies of host countries hold different attitudes toward each nationality, and these attitudes exert a great influence on the degree of adaptation. Different national communities also pursue dissimilar strategies of adaptation, seen by cultural psychologists as a consequence of the interplay between the value of maintaining one’s identity and that of maintaining relationships with the larger society.

“We argue that the ‘Liabilities of Foreignness’ are reduced with work experience in the host country and that firms created by immigrants that have been in the country for longer are subject to lower exit rates than those created by recently arrived immigrants,” write the authors. “Immigrant entrepreneurs can also benefit from being part of large national communities, as these communities provide resources which immigrants typically have difficulty accessing.

“We argue that the benefit of work experience and of national communities is particularly valuable for immigrants from countries that are less similar to the host country. We, therefore, propose a new lens for analyzing the effect of institutional differences between countries, one that sees institutional differences as moderators of the relationship between survival and the factors that affect it.

“Our results suggest that those considering entrepreneurship in a foreign country should carefully evaluate if they possess adequate resources for running a business in that country.”

September 15, 2018

https://doi.org/10.1002/smj.2934

Junior stock exchanges can cause investors to ignore potentially better investments. And intermediaries such as incubators, accelerators, and science parks can be invaluable in launching new firms, but they also introduce “conflict” that can limit the growth of these firms. 

Those are the conclusions of new research by Assistant Professor Robert N. Eberhart, Santa Clara University, and Associate Professor Charles E. Eesley, Stanford University, published this week (September 15, 2018) in the Strategic Management Society’s Strategic Management Journal (SMJ).

Junior stock markets play an important role because they can ease the path to an IPO. But because the new exchanges usually restrict investment to technology firms, they may motivate early stage investors to favor newly founded technology firms over more optimal investments in non-technology firms.  

The prior norms of investing in the best opportunity come into conflict with the newly introduced norm of risky technology investment.  Overall growth is lowered owing to the possibility that without the skills to execute due diligence in this new arena, less worthy firms are funded.

“For investors,” write the authors, ”the enthusiasm for technology firms engendered by a new exchange can motivate investment in marginal firms to maintain an adequate deal flow…

“For entrepreneurs, our results indicate that it is more challenging to manage technology firm growth when intermediaries make IPOs easier to obtain.

“Finally, for policy-makers and supporters of the new exchanges, our results imply that . . .unless listing standards remain high, the virtuous cycle of investment upon which a health entrepreneurial climate rests may be disrupted to mute the intended effects of the new exchange.”

Intermediaries, including junior stock markets, entrepreneurship training, and government funding agencies are expanding at an increasing rate.

“They assist entrepreneurs by linking parties to bring about activities that would not readily happen in their absence,” write the authors. “Recent studies show how economic development efforts, private service firms, and science parks in emerging nations support the creation of new firms through certification of a new firm’s abilities, facilitating access to resources, and fostering the creation of functioning markets.”

For example, a recent study found that science parks not only provided direct funding to socially connected funders, they also offered a way for less connected entrepreneurs to become certified and thus facilitated access to government funding.

And the certification of new privately owned power plants plans by government inspectors can legitimize the emerging industrial sector for investors and other stakeholders facilitating investment in new firms.

The question is whether such intermediaries always foster new firm growth.

A new intermediary, say the authors, introduces conflict between the new practices of the intermediary and the practices of the existing institutional environment. One major conflict is that intermediaries may be far less risk-averse than the companies they are serving. They may also value business practices over other considerations important to the institution.

In addition to causing conflicts and the problems of investing in marginal firms and limited future liquidity, another issue of intermediaries is a “means-ends decoupling of actions from intentions.”

“Means-ends decoupling focuses on actors that either cannot anticipate or cannot understand the outcomes that their actions will bring,” write the authors. While they may intend to comply with the relevant norms and practices, managers and staff may not know how to comply or for them the link between actions and outcomes is too complex.  Consequently intentions and actions are decoupled. 

In the case of non-profits, because they are staffed by individuals skilled in the social purpose of the organization, they may fail to implement audits or other business procedures because they lack the skills or knowledge to implement the required policies.

The institutional conflict created by the introduction of business practices can alter the activities that charities pursue because they now serve business interests that conflict with the incumbent practice of action for the benefit of social causes.

“In another example,” write the authors, “non-profits face conflict when the new practices of business discipline on spending are introduced to encourage sustainability but conflict with incumbent values of charitable operations.”

September 15, 2018

https://doi.org/10.1002/smj.2935

A new study on the negative impact of philanthropy found that the more philanthropic a petroleum company is the more likely it is to have oil spills.

The research published this week (September 15, 2018) in the Strategic Management Journal(SMJ) was conducted by Jiao Luo, Aseem Kaul, and Haram Seo, all of the Carlson School of Management, University of Minnesota. Borrowing a line from Macbeth, the study is called Winning us with trifles: Adverse selection in the use of philanthropy as insurance.

Firms that donate to social causes develop a reputation for being socially responsible. But, ask the authors, are philanthropic firms truly more responsible?

Prior research has shown that philanthropy serves as a form of reputation insurance: firms that undertake philanthropy accrue a moral reputation, which helps protect them when adverse events occur or negative information about the firm comes to light, because stakeholders are more apt to give the benefit of the doubt to firms they judge to be responsible or trustworthy.

“While prior work clearly establishes the potential for philanthropy to provide insurance-like benefits, the central assumption driving this effect—that philanthropic firms are more responsible, and therefore worthy of society’s trust—remains largely unexamined. This is a serious omission." write the authors.  “We argue that firms that donate more may be more likely to do harm—those that expect to do harm later are likely to give more now, and those that know their reputation protects them may become less careful." 

The researchers developed and tested a formal model of reputation insurance, focusing on the U.S. petroleum industry and oil spills from 2004 to 2011.

“Several factors make this a good context for our purpose,” write the authors.  “First, oil spills are a frequent occurrence in the United States—our sample period saw an average of 883 spills a year, involving a total of 1.10 million barrels of oil spilled every year. . . Relatedly, U.S. oil companies are also among the most actively engaged in corporate philanthropy, with the firms in our sample donating a total of $105 million annually during our study period.”

Their findings confirmed the value of reputation insurance in that philanthropy diminishes the stock market’s negative relation to oil spills.

“However, we also find a positive association between a firm’s philanthropic donations and the subsequent amount and number of its oil spills, i.e., firms that give more, spill more,” write the authors. “Further analysis shows that the increase in spills is limited to those under the firm's control, such as those due to operator errors or equipment failures. It also shows that this effect is stronger where firms face less scrutiny, such as in states that are more politically polarized, or those that voted Republican in 2008.”  

August 29, 2018

https://doi.org/10.1002/smj.2932

Many complementors with successful products and third-party sellers have been pushed out of their markets not by competition from counterparts but rather by competition from the sales platform owners they use.

In 2013, Amazon had more than 2 million third-party sellers, which accounted for approximately 40% of Amazon’s sales. A new research paper by Feng Zhu of Harvard University and Qihong Liu of the University of Oklahoma and published today (August 29, 2018) in the Strategic Management Journal (SMJ) found that of the 163,853 products that were offered exclusively by third-party sellers in June 2013, Amazon began directly selling 4,852 or 3% within 10 months.

“While Amazon’s entry discourages affected third-party sellers from subsequently pursuing growth on the platform, it increases product demand and reduces shipping costs for consumers,” wrote the authors.

Other examples of platform-based markets include video game consoles, smartphones, online auction markets, search engines, and social networking sites. Thousands of entrepreneurs have built businesses and sell products and services on such platforms.

For example, by the end of 2014 more than 1.7 million and 1.4 million applications had been developed for two popular smartphone platforms, Google’s Android and Apple’s iOS, respectively, generating billions of dollars of revenue for each platform owner.

“Platform owners can exert considerable influence over complementors’ welfare and appropriate the value from their innovations,” write the authors. “Netscape and Real Networks, complementors of Microsoft’s Windows platform, were extinguished by the rival Microsoft applications Internet Explorer and Windows Media Player. Apple makes some previously essential third-party apps obsolete with every new operating system it releases.”

“Our results,” write the authors, “although they may paint a gloomy picture for complementors in various platform-based markets, nevertheless suggest a number of strategies complementors can employ to mitigate the risk of value misappropriation. Whereas platform owners tend to target popular products, complementors that build their businesses around aggregating non-blockbuster products or services are less likely to face direct competition from platform owners.

“Complementors that choose to focus on popular products need to develop capabilities in new product discovery that enable them to continually bring innovative products to the platform. Our results also show that complementors’ platform-specific investments reduce the likelihood of entry by the platform owner.”

Complementors can initiate impediments to learning and procurement by platform owners, for example, by strategically increasing prices to make products appear less popular, concealing supplier information, seeking exclusive contracts with manufacturers as sole suppliers, or manufacturing or customizing proprietary complementary products.