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SMS Journals Press Releases

The Strategic Management Society is proud to be involved in the publication of leading journals which have been vital tools for the benefit of researchers and practitioners in the field. The Global Strategy Journal (GSJ) is the leading journal on global strategic management research, and the Strategic Entrepreneurship Journal (SEJ) is targeted at publishing the most influential managerially-oriented entrepreneurship research in the world. The Strategic Management Journal (SMJ) has since its inception in 1980 been the official journal of the Strategic Management Society. This A-class journal 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. The journal publishes research that is designed to appeal to strategy scholars, with implications within and across papers that are relevant for practicing managers.

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2018 Press Releases

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.

2019 Press Releases

https://doi.org/10.1002/smj.3049 

Corporate leaders are key to having corporate boards that have more than token gender diversity  

In a recent survey of corporate directors in the United States, gender diversity topped the list of what brings new ways of thinking into the boardroom.  

In addition to innovative thinking, growing evidence suggests that board gender diversity is associated with a number of desirable organizational outcomes, such as avoidance of securities fraud, more vigilant monitoring of the top management team, more ethical firm behavior and higher accounting-based performance and stock market returns. 

However, in many cases the appointment of a female board member is mere tokenism.  

Strategic corporate leaders may play an important role in meaningfully diversifying corporate boards, but research generally has overlooked this factor.  But now a new study to be published June 24, 2019 in the Strategic Management Journal (SMJ) examined that issue and found that having female corporate executives and younger board members are among the factors that increase board gender diversity. 

The research was conducted by Orhun Guldiken and Stav Fainshmidt, College of Business, Florida International University; Mark R. MallonLove School of Business, Elon University and William Q. Judge, Strome College of Business, Old Dominion University. 

 

Because regulatory bodies and stakeholders often focus on decrying all-male boards, institutional pressures likely compel firms to add their first female director,” write the authors.  “However, once these institutional demands have been appeased, the likelihood of appointing a female director to a vacant board seat drops significantly when one female director is already on the board. 

Although many U.S. firms today have one female director, having only one woman on the board is problematic for at least two reasons:  

First, appointing the first female director to the board sometimes represents tokenism in response to strong institutional pressures instead of a sincere attempt to increase diversity of thought within the boardroom. 

Second, studies have shown that many of the benefits of a more gender-diverse board are realized only there is more than a single female representative. 

When it comes to adding more women to the board after the first one, the role of strategic corporate leaders charged with board appointments is likely to be very important.  Yet, little is known about how these leaders affect board gender diversity.  

In this study,” write the authors, we take an exploratory approach to address how strategic corporate leaders affect female board director appointments beyond the potentially tokenistic first one and to understand what differentiates boards that retain limited, potentially tokenistic, gender diversity and boards that more genuinely diversify their composition by appointing additional female directors.  

Using longitudinal data on U.S. firms, we find that having more female top managers and having the sole female director serve on the nominating committee increase the likelihood of additional female director appointments.  

“A greater number of female top managers can reflect the CEO's preference for gender diversity, meaning the CEO will also likely lobby for more female directors on the board beyond just one. When the sole female director serves on the nominating committee, it can disrupt past practices and help ensure more female candidates are considered for board vacancies. 

In addition, boards and nominating committees with younger members amplify these effects Younger board and committee members have more exposure to female strategic leaders than older members who spent most of their careers at times when female strategic leaders were much less prevalent. 

Beyond tokenism: How strategic leaders influence more meaningful gender diversity on boards of directors 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.3027 

Ringleaders” Play a Major Role in Spinouts, According to New Study; 

Focus Should Be on Individual Motivation, Not Innovative Projects 

Spinouts are likely to be formed by “ringleaders,” individuals who decide to leave their parent company, recruit an entrepreneurial team and create a new venture, according to a new study to be published in the Strategic Management Journal (SMJ). 

The entrepreneurial teams that create these spinoff ventures are motivated by “pull” motives—a desire to create in the presence of fertile opportunities – while their ringleaders are also motivated by “push” factors such as bureaucratic, interpersonal, and ethical frictions at their parent company. 

These findings contradict the common assumption that spinouts are typically formed by a group of employees working together at a parent company who are motivated based on “project-based” ideas.  

The research was performed by Prof. Sonali K. Shah, University of Illinois, Prof. Rajshree Agarwal, University of Maryland, and Prof. Raj Echambadi, Northeastern University.  The authors examined two questions: What motivates employee entrepreneurs?  What is the process by which spinout-founding teams are assembled? 

 

“Spinouts—ventures created by ex-employees of industry incumbents—are important drivers of industrial and regional evolution,” say the authors.  “Scholars have documented capability transfer from established firms to these new ventures, leading to their superior performance relative to other entrants to the field. 

“However, the interrelated questions of why and how these teams form have received little attention.” 

Theories of spinout generation have centered on projects rather than individuals.  An example of spinout creation, according to these theories, would be an employee seeing potential profit in a project management has ignored or abandoned and leaving the firm to launch his or her own enterprise to develop the project.   

But such theories overlook the individual’s motivation and do not always accord with empirical or anecdotal evidence, for example, how the Disney corporate empire got its start.   

Walt Disney did not leave prior employer Pesmen Rubin Art Studio to exploit an existing project,” explain the authors.  “Rather, he was laid off. Disney convinced his former colleague and friend Ub Iwerks to co-found their first entrepreneurial venture Iwerks-Disney.  Iwerks was the perfect partner, a master illustrator. Disney’s role was to pursue the business side of their venture.” 

The researchers collected first-hand data from entrepreneurs who founded spinouts in the disk drive industrybetween 1977 and 1997,choosing the disk drive industry because of its extensive use in prior spinout studies.  They had four key findings: 

First, there is a clear difference in the roles among founders: Ringleaders are the originators and champions of new spinout creation, and cofounders are founding team members recruited by ringleaders through a deliberate search. 

Second, while ringleaders and cofounders alike have similar “pull” motives – a desire to create and take advantage of opportunities  ringleaders are also motivated by “push” factors such as frustration with bureaucracy or interpersonal or ethical frictions.  Cofounders do not exhibit push motives, but instead they seem to be willing to return to corporate life if the new venture fails. 

Third, forming the entrepreneurial team relies heavily on the ringleaders’ ability to identify and recruit team members, generally professionals who have specialized skills complementary to their own.   However, some ringleaders recruited cofounders with similar strong problem-solving skills as well as similar work ethics and values. 

Fourth, founding teams characterized by both complementary skills and similarities in talent and values were more successful relative to teams with only complementary skills. 

Jewels in the Crown: Exploring Motivations and Team Building Processes of Employee Entrepreneurs will appear in The Strategic Management Journal (SMJ), the official journal of the Strategic Management Society (SMS), which 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. SMJ, which publishes 13 issues per year, 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. 

Hope Trumps Fear When New Ventures Are Failing; 

Friendship a Key Factor in the Decisions of Entrepreneurial Teams 

Machiavelli advocated fear over love as “a management tool” for autocrats, but a new study found that hope trumps fear in entrepreneurial contexts and that friendship strength impacts the decision whether to keep failing ventures going. 

A quarter of new entrepreneurial ventures in the United States survive no longer than one year after founding; 44 percent fail by the end of the third year, and 55 percent fail by the end of the fifth year.  

In this context, how do entrepreneurial teams react when their financial situations turn for the worse?  Do they terminate a venture that is losing money to cut their financial losses, or do they continue despite increasing financial risk? 

Those questions are the focus of a new study, Which Matters More? Group Fear Versus Hope in Entrepreneurial Escalation of Commitment to be published Monday, June 24, 2019 in the Strategic Management Journal (SMJ).   

The research was conducted by Tori Yu-wen Huang and Vangelis Souitaris, both of the Case Business School, City University of London, and Sigal G. Barsade, the Wharton School, University of Pennsylvania. 

Venture termination decisions typically occur as losses increase, and the founding entrepreneurs typically face the decision to escalate their commitment to a failing venture multiple times before finally deciding to terminate the venture. 

Emotions have been shown to be important in entrepreneurial decision-making, and those emotions are strongly felt when ventures face termination. 

 We focus on the influence of group fear and group hope because, compared to other emotions, fear and hope are more associated with uncertainty, which is inherent to the decision to escalate commitment to a venture,” write the researchers 

We compare a founding team’s fear that a currently failing venture will ultimately increase financial losses to their hope that the venture can be turned around, recover the losses, and ultimately make money.” 

Using a simulation based on data from 66 entrepreneurial teams across 569 decision-making rounds, they found that “hope trumps fear,” that is, the relationship between group hope and escalating commitment to a failing venture is stronger than the relationship between group fear and terminating that venture.  

Since entrepreneurs invest not only money but also time, effort, and attention in their ventures, the researchers examined the team’s engagement as a mediator between fear and hope and escalation of commitment versus termination and found it explained the results 

We employed an immersive laboratory methodology to realistically simulate and observe teams of three business students serving as co-founders of a computer startup,” write the researchers.  To examine the dynamic nature of these decisions, we longitudinally tracked each team’s joint level of fear, hope and behavioral engagement through multiple rounds of simulation. 

In addition, they found that the stronger the friendship strength, the more likely the teams were to escalate their commitment to failing ventures rather than terminate them. 

Our results indicate the importance of entrepreneurs understanding and managing their team emotions for best decision making,” write the researchers.  “It also helps explain the continued engagement of entrepreneurial teams who even when fearful, have hope. 

The Strategic Management Journal (SMJ) is the official journal of the Strategic Management Society (SMS), and it 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. SMJ, which publishes 13 issues per year, 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.3030 

Is All Publicity Good? Direct and Indirect Media Attention  

Can Have Profound Impact on a Firm 

Firms have many stakeholders with both formal and informal authority, and they need to respond to pressure from these stakeholdersIn addition, companies live in the public eye, and attention can be drawn to their behavior by many sources, including from many outside stakeholders who want the firms to change.  

The tactics of social movements, for example, include the selection of which firms to target, and when and how to target them, and they make use of the media to put pressure on firms, including creating rating or ranking systems that are newsworthy to the media. 

Pressure is felt strongly when it is expressed through mass media attention to the firm or its practices, and often persuades management to make changes. But what is less known – and perhaps less expected – is whether coverage of firm’s partners also has an effect.   

A new study, Is All Publicity Good Publicity? The Impact of Direct and Indirect Media Pressure on the Adoption of Governance Practicesto be published in the May 10 issue of the Strategic Management Journal, examines that issue and others. 

The researchers, Andrew V. Shipilov and Henrich R. Greve, both of the INSEAD graduate business school, and Timothy J. Rowley, University of Toronto, examined governance practices of Canadian firms.  They distinguished the effect of direct media coverage of the firm’s activities, from indirect coverage, defined as media coverage of the firm’s interlock partners. And they examined whether the coverage was positive or negative 

We find that both direct and indirect media coverage has a strong effect on a firm’s adoption of practices, either when the tone is positive or negative,” write the authors 

Media influences reach all the way to the board. In addition, we find that both critique and praise can lead a firm to make changes in its governance practices. The media attention does not even have to be directed at the firm itself: when the media target companies that share common directors with the focal firm, the firm’s board usually responds by adopting governance practices as if media targeted the firm itself. 

The tone of a firm’s media coverage is important because it influences a wide range of important outcomes. When the media label a firm’s behavior as misconduct or inappropriate, it can lead to loss of revenue. Prior research has shown that board members and executives can experience negative career outcomes after becoming associated with negative events that have potential for media coverage 

Financial markets can assess a firm as being a risky asset as a result of negative media coverage. Conversely, positive media coverage has benefits in financial markets 

The findings indicate that media coverage has broader and deeper effects on a firm’s actions than previously known.  And they suggest that executives should pay close attention to when and how their firm is covered in the media. 

The Strategic Management Journal (SMJ) is the official journal of theStrategic 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. SMJ, which publishes 13 issues per year, 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.3038 

Congressional Testimony Can Positively Influence a Firm’s Investors 
But There is Little or No Industry Spillover or Media Impact 

Political influence has been shown to net benefits for firms, and companies have responded by increasingly considering political activity as an important component of the firm’s strategies. 

But do investors respond favorably to indications of a firm’s political influence?  And how can that influence be measured since most political activity occurs behind closed doors? 

A new study to be published in the XXX edition of the Strategic Management Journal (SMJ) focused on testimony before Congressional committees as a key way for external groups to determine whether a firm has political influence.  

Congressional testimony is one of the most highly sought after, influential, and publicly viewed points of governmental access.  

Through this testimony, committees accumulate information about the possible impact of proposed legislation as well as actually draft legislation For instance, companies like Amazon and eBay have been invited to testify before Congress to discuss the potential impact an online sales tax would have on their business, industry and community.  

The committees, therefore, become “gatekeepers of policy.” 

Prior research has shown that through Congressional testimony firms have reaped benefits in the form of government contracts, favorable tax rates, and preferential access to financing.   

To assess the impact of Congressional testimony on investors, the researchers  Jason Ridge, University of Arkansas, Amy Ingram, Clemson University and Mirzokhidjon Abdurakhmonov and Dinesh Hasija, both of University of Arkansas’s Sam M. Walton College of Business  studied Fortune 500 firms that testified between 2004 and 2014 and accumulated nearly 750 observations. 

 

To determine if investors’ positive reactions to testimony before a Congressional committee are indeed due to its perceived political influence, the rssearchers also evaluated the “underlying mechanisms” of the testimony that may accentuate this positive investor reaction. These factors included the status of the witness, the length of the testimony and whether the testimony was before the committee that has direct jurisdiction over the firm’s industry. 

 

Our findings,” say the authors, “indicate that investors react positively to Congressional testimony and to such factors as the status of the firm’s representative, the length of the testimony, and the committee’s industry jurisdiction 

Further, we find that investors will respond even more positively when a firm is facing high regulatory risk and when the Congressional representative’s tone is negative. 

The researchers also studied “spillover effect,” that is, whether Congressional testimony by one firm helped other firms in its industry. They found there was limited spillover when matching firms by size but no spillover when checking for matched regulatory risks. 

Prior research has shown that greater media attention provides a context for investors to judge the importance of any of a firm’s indicators, amplifies the strength of the indicator, and makes more nuanced indicators more salient.  

However, the researchers did not find that media attention amplified the effects of Congressional testimony attributes such as witness status, lengthy of testimony and committee jurisdiction.  

This non-finding is important because it provides evidence counter to the argument that greater media attention amplifies positive investor reaction,” say the authors.  Our findings suggest that neither the amount of media coverage nor the amount of attention to the testimony matters as much as the testimony itself. 

Taken together, our results suggest that investors respond favorably to indications that firms have influence in the political arena and suggest that firms may gain market returns through obtaining public access to Congressional committees. 

The Strategic Management Journal (SMJ) is the official journal of theStrategic 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. SMJ, which publishes 13 issues per year, 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.3020 

New Study Focuses On Why Top Executives Leave 

Replacing top executives can be extremely costly for firms, entailing a time-intensive, costly search process that can cost between 90% and 200% of the departing person’s salary.  Indeed, some researchers even estimate that filling a C-suite position can cost firms up to 40 times the salary of the departing executive. 

Understanding why top executives leave their firms is important, but research on executive turnover has either focused on CEO dismissal or on group-level top management team (TMT) departure rates, mostly ignoring individual-level factors that would predict why non-CEO executives exit.  

A new study to be published in Strategic Management Journal (SMJ), Go Your Own Way: Exploring the Causes of Individual Top Executive Turnover, examines individual reactions to corporate “shock as a cause of top executive departures.  

The study was performed by Assistant Professor Joel Andrus of the Trulaske College of Business, University of Missouri; Associate Professor Michael C. Withers, Associate Professor Stephen H. Courtright and Professor Steven Boivie, all of the Mays Business School, Texas A&M University. They examined more than 4,000 executives from S&P 1500 firms over 11 years.  They found that relational shocks (e.g., other members of the TMT leaving), as well as reputational shocks (e.g., litigation or shareholder activism against the firm) increase the likelihood of top executive exit.  

“We suggest,” write the authors, that within the executive context, individuals and firms are often subjected to two different forms of shock that have important implications for both voluntary and involuntary turnover of executives—namely, relational and reputational shocks.  

Each of these shocks experienced by an executive affects the likelihood of their exiting the firm. However, since relational and reputational shocks occur at a different level—with relational occurring at the individual level, and reputational occurring at the firm level—these types of shocks will not operate uniformly across all executives.  

Specifically, we predict that executives receiving higher pay are less likely to exit for relational shock due to their elevated status among other executives.  

For reputational shocks, however, higher relative pay exacerbates the shock’s effect on executive exit. 

Executive turnover is a critical problem in organizations, but it has received a sparse amount of attention by scholars.  These findings contribute to research on executive labor markets by examining individual-level predictors of exit.  

The Strategic Management Journal (SMJ) is the official journal of theStrategic 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. SMJ, which publishes 13 issues per year, 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/sej.1323

Physical Attractiveness Is An Asset For Self-employed Males But Not for Females

While “internal” characteristics such as intelligence have been found to play an important role in a person’s business success, a substantial amount of evidence indicates that physical attractiveness is also a vital component in career success.

The influence of attractiveness on success within organizational
settings has been well documented, but relatively less attention has been given to the potential effects that attractiveness may have for the self-employed.

But a new study investigated the relationship between attractiveness and self-employment and found that self-employed males are more likely to be considered attractive than their female counterparts, and that attractive self-employed males have higher incomes than self- employed males who were not considered attractive. 

The research was conducted by Dr. Pankaj C. Patel of the Villanova University School of Business and Dr. Marcus T. Wolfe, Price College of Business, University of Oklahoma, and will be published Monday, June 24 in the Strategic Entrepreneurship Journal (SEJ).  

Their findings highlight the importance that attractiveness can play within the self-employment process, as well as the relevance of the role that social norms play regarding gender in determining who pursues and is successful in self-employment.

Physical attractiveness could play a role in a number of important parts of the self-employment process: 

  • Investors prefer new venture opportunities that are
presented by attractive individuals over those pitched by less attractive individuals.
  • Entrepreneurs are rated more favorably if the are
perceived as being physically attractive and their ideas are also rated more favorably. 
  • Appearance has also been shown to influence peer-to-peer lending such that there is a positive association between appearance and both the probability of receiving funding and lower rates of eventual default.

“Interestingly, our results do not indicate that attractiveness influences either the likelihood of self-employment, or performance within self-employment, for females,” say the authors.

This may be explained by how the role of gender and associated expectations might add to the complexity of the association between attractiveness and self- employment.

Self-employment has traditionally been considered a masculine activity that requires individuals to have high levels of masculine traits such as competitiveness to achieve success. This perspective has resulted in a biased preference for more masculine traits in self-employment that undervalues the importance of feminine qualities while simultaneously overestimating the importance of more masculine characteristics.

“However,” say the authors, “evidence indicates that there could be some advantages to displaying characteristics that might not align with prescribed gender roles.”

According to “expectancy violation theory,” when behavior goes against stereotypical norms and has positive connotations, such behavior can prove beneficial.

So, while attractiveness might benefit men, it is generally seen as an almost compulsory characteristic for women. Therefore, individuals are likely to use the characteristic of physical attractiveness more to distinguish men from other men than to distinguish women from other women. 

The Strategic Entrepreneurship Journal (SEJ), published by the Strategic Management Society (SMS) through Wiley, 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. 

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

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.