Adaptation and inertia in dynamic environments

Research summary : We address conflicting claims and mixed empirical findings about adaptation as a response to increased environmental dynamism. We disentangle distinct dimensions of environmental dynamism—the direction, magnitude, and frequency of change—and identify how selection shapes adaptive responses to these dimensions. Our results show how frequent directional changes undermine the value of exploration and decisively shift performance advantages to inert organizations that restrict exploration. In contrast, increased environmental variance rewards exploration. Our results also show that, in dynamic environments, the best‐performing organizations are generally more inert than less successful organizations. Managerial summary : Our research helps managers to understand under what business conditions investments into exploration and strategic flexibility are more likely to pay off. Dynamic business environments characterized by persistent trends and by large, infrequently occurring structural shocks reward strategic pursuit of temporary advantage. Thus, exploration and strategic flexibility are preferred strategies. In contrast, the challenge in frequently changing environments with fleeting opportunities is to identify and to focus on strategic actions whose payoffs on average are high, independent of environmental volatility. Low levels of exploration and long‐term strategic focus are preferred strategies in these circumstances. Copyright © 2015 John Wiley & Sons, Ltd.     

Employee mobility,spin‐outs,and knowledge spill‐in: How incumbent firms can learn from new ventures

Research summary: We consider conditions in which incumbent firms are particularly poised to benefit from knowledge spilling in from new ventures that employ individuals previously employed by the focal incumbent firm. We distinguish between inventors who leave their incumbent employers to found spin‐outs and those who become non‐founding employees of existing new ventures. Using a sample of new ventures and incumbent firms in the U.S. information technology (IT) sector, we find that incumbents are more likely to benefit from patented knowledge that spills in from their spin‐outs than from new ventures that employ non‐founding inventors formerly employed by the respective incumbent. Any advantage that parent firms have in reaping such knowledge quickly dissipates, however, when these parents have a history of misappropriating the intellectual property of others. Managerial summary: It has long been acknowledged that new ventures can acquire valuable knowledge from their larger and more established counterparts by hiring away their talented employees. We consider the possibility of a reverse flow of knowledge where established firms learn from those new ventures that have poached employees from them. We find that established information technology (IT) firms are more likely to learn and build on the technology of their spin‐outs (i.e., new ventures founded by their former inventors) than from new ventures that simply employ non‐founding inventors formerly employed by the respective IT firm. Any advantage that these IT firms had in reaping technical know‐how from their spin‐outs quickly dissipated, however, when they had a history of misappropriating the intellectual property of others. Copyright © 2016 John Wiley & Sons, Ltd.     

Organizational adaptation to interdependence shifts: The role of integrator structures

R esearch summary: We investigate how organizational adaptation to interdependence shifts is influenced by “integrators.” These are formally mandated managerial roles meant to promote coordination across specialized but interdependent organizational subunits, yet they do so without relying on formal authority. While much has been learned about how integrators promote steady‐state coordination within a known pattern of interdependence, less is known about their impact on organizational adaptation when the pattern of interdependence itself is unknown. We discuss mechanisms by which integrators may nonetheless aid organizational adaptation and learning processes in such situations, and test our hypotheses in the context of a regulatory change that affected the in vitro fertilization (IVF) clinics sector in the United Kingdom using a differences‐in‐differences design. M anagerial summary: Organizational structure can influence how an organization adapts to change. We investigate how a regulatory change in the provision of fertility treatments in the United Kingdom forced clinics to change their workflows, and whether the presence of integrator roles enabled clinics to adapt to these changes. It is well known that integrator roles in general are valuable in coordinating across specialized organizational units, but this research points to the surprising implication that their value may persist even when the workflow being coordinated changes suddenly, in ways that nobody necessarily comprehends. Our research highlights the fact that even in an intensively science‐based work context, the “technology of organizing” can have a significant role in shaping organizational performance. Copyright © 2016 John Wiley & Sons, Ltd.     

The impact of technical consultants on the quality of their clients' products: Evidence from the Bordeaux wine industry

Research summary : Recent research rooted in the resource‐based view of the firm suggests that resources are more likely to create value if they are effectively managed. An underlying assumption of the literature is that firms manage their resources on their own. However, many firms hire consultants to help them do so. In this study, I develop and test hypotheses regarding the impact of technical consultants on the quality of their clients' products. Using data from the Bordeaux wine industry, I find evidence that the use of technical consultants has a positive impact on relative product quality and a negative impact on the extremeness of relative product quality. Moreover, the positive impact of technical consultants on relative product quality is stronger at lower levels of relative resource quality. Managerial summary : Findings from a study in the Bordeaux wine industry indicate that the decision to hire consultants should depend on a firm's strategy. If a firm wants to improve its performance, it should hire consultants. Indeed, the “best practices” of technical consultants are generally more valuable than internally generated knowledge. If a firm wants to achieve outstanding performance, hiring consultants may not be the right decision. Because the “best practices” of technical consultants have more certain performance implications than internally generated knowledge, they decrease the likelihood of extremely low performance. However, their lack of uniqueness also decreases the likelihood of extremely high performance. Finally, the decision to hire consultants should depend on the quality of a firm's resources. Firms with low‐quality resources tend to benefit more from the “best practices” of technical consultants. Copyright © 2016 John Wiley & Sons, Ltd.     

An empirical examination of vacillation theory

Research summary : Since Nickerson and Zenger (2002) proposed how vacillation may lead to organizational ambidexterity, large‐sample empirical tests of their theory have been missing. In this paper, we empirically examine the performance implications of vacillation. Building upon vacillation theory, we predict that the frequency and scale of vacillation will have inverted U‐shaped relationships with firm performance. We test our hypotheses using patent‐based measures of exploration and exploitation in the context of technological innovation and knowledge search. Managerial summary : Firms often shift their focus on technological innovation and knowledge search from seeking new and novel knowledge (i.e., exploration) to extending and refining existing knowledge (i.e., exploitation) or vice versa. We examine how the frequency and scale of firms vacillating between exploration and exploitation may affect their performance. We find that both too infrequent or too frequent changes and a too small or too large scale of changes are not desirable. Copyright © 2016 John Wiley & Sons, Ltd.     

Learning to let go: Social influence,learning, and the abandonment of corporate venture capital practices

Research summary: This study examines the abandonment of organizational practices. We argue that firm choices in implementing practices affect how firms experience a practice and their subsequent likelihood of abandonment. We focus on utilization of the practice and staffing (i.e. career backgrounds of managers), as two important implementation choices that firms make. The findings demonstrate that practice utilization and staffing choices not only affect abandonment likelihood directly but also condition firms' susceptibility to pressures to abandon when social referents do. Our study contributes to diffusion research by examining practice abandonment—a relatively unexplored area in diffusion research—and by incorporating specific aspects of firms' post‐adoption choices into diffusion theory. Managerial summary: When do firms shut down practices? Prior research has shown that firms learn from the actions of other firms, both adopting and abandoning practices when their peers do. But unlike adoption decisions, abandonment decisions need to account for firms' own experiences with the practice. We study the abandonment of corporate venture capital (CVC) practices in the U.S. IT industry, which has experienced waves of adoption and abandonment. We find that firms that make more CVC investments are less likely to abandon the practice, and are less likely to learn vicariously from other firms' abandonment decisions, such that they are less likely to exit CVC when other firms do. Staffing choices also matter: hiring former venture capitalists makes firms less likely to abandon CVC practices, while hiring internally makes abandonment more likely. Plus, staffing choices affect how firms learn from the environment, as CVC managers pay attention to and learn more from the actions of firms that match their work backgrounds; i.e., firms that staff CVC units with former venture capitalists are more likely to follow exit decisions of VC firms, while those that staff with internal hires are more likely to follow their industry peers. Our results suggest that firms wanting to retain CVC practices should think carefully about the implementation choices they make, as they may be inadvertently sowing seeds of abandonment. Copyright © 2015 John Wiley & Sons, Ltd.     

Free‐riding in multi‐party alliances: The role of perceived alliance effectiveness and peers' collaboration in a research consortium

Research summary : Multi‐party alliances rely on partners' willingness to commit and pool their efforts in joint endeavors. However, partners face the dilemma of how much to commit to the alliance. We shed light on this issue by analyzing the relationship between partners' free‐riding—defined as their effort‐withholding—and their perceptions of alliance effectiveness and peers' collaboration. Specifically, we posit a U‐shaped relationship between partners' subjective evaluations of alliance effectiveness and their free‐riding. We also hypothesize a negative relation between partners' perceptions of the collaboration of peer organizations and their free‐riding. Results from a mixed‐method study—combining regression analysis of primary data on a major inter‐organizational research consortium and evidence from two experimental designs—support our hypotheses, bearing implications for the multi‐party alliances literature. Managerial summary : Free‐riding is a major concern in multi‐party alliances such as large research consortia, since the performance of these governance forms hinges on the joint contribution of multiple partners that often operate according to different logics (e.g., universities, firms, and government agencies). We show that, in such alliances, partners' perceptions have relevant implications for their willingness to contribute to the consortium's shared goals. Specifically, we find that partners free‐ride more—that is, contribute less—when they perceive the effectiveness of the overall alliance to be either very low or very high. Partners also gauge their commitment to the alliance on the perception of the effort of their peers—that is, other organizations similar to them. These findings provide managers of multi‐party alliances with additional levers to motivate partners to contribute fairly to such joint endeavor. Copyright © 2015 John Wiley & Sons, Ltd.     

Learning and product entry: How diversification patterns differ over firm age and knowledge domains in U.S. generic drug industry

This study uses learning theory to show how knowledge domains affect product extension decisions and how these product decisions change as firms age. Faced with the choice of new product‐markets, a firm might decide to introduce a similar product, by leveraging existing firm knowledge, or to experiment with a less familiar product, which requires new knowledge. Using data on new drug introductions in the US generic pharmaceutical industry, the analyses showed clear support for heterogeneous product‐market entry patterns across knowledge domains as the firm ages. Across time, the form of learning shifts from exploration to exploitation. Copyright © 2013 John Wiley & Sons, Ltd.     

R&D team diversity and performance in hypercompetitive environments

Research summary : This article examines the effects of an R&D team's composition on its performance outcomes in hypercompetition. The fundamental feature of firms in hypercompetitive settings is that they are constantly challenged to improve their competitiveness in a relentless race to outperform one another. Analyzing a unique data set from the Formula 1 motorsport racing industry, we find an inverse U‐shaped relationship between team diversity in task‐related experience and performance an important result that diverges from well‐established theories developed in more stable environments. Fundamentally, we show that the role of R&D team experience diversity varies depending on the size of the organizations in which R&D teams operate. While we find a moderating effect for firm age, this effect is not as robust as that of firm size. Managerial summary : This article examines the relationship between R&D team composition and performance in fast‐moving environments. Firms in these environments are constantly challenged to improve their competitiveness by outperforming one another. Analyzing a unique data set from the Formula 1 motorsport racing industry, we find that a team's diversity in job‐related experience increases its performance up to a certain extent. Once R&D teams become too diverse, performance decreases because communication and coordination become more difficult. We also show that the role of R&D team diversity varies depending on the size of the organizations in which R&D teams operate. Overall, our findings provide several novel implications for the strategy, innovation, and team literatures. Copyright © 2016 John Wiley & Sons, Ltd.     

Organizational knowledge networks and local search: The role of intra‐organizational inventor networks

Research summary : While firms tend to build on their own knowledge, we distinguish between depth and breadth of local search to investigate the drivers of these behaviors. Given that inventors in a firm carry out the knowledge creation activities, we strive to identify inventors responsible for these behaviors by employing the notion of an intra‐firm inventor network. A longitudinal examination of 14,575 inventors from four large semiconductor firms using patent data supports our hypotheses that the reach of inventors in the intra‐firm network and their span of structural holes have independent and interactive effects on these two types of local search behaviors. These findings have implications for research on exploitation and exploration, organizational knowledge, knowledge networks, and micro‐foundations. Managerial summary : Large amounts of knowledge may reside within firm boundaries, and managers are interested in understanding who may leverage this knowledge to generate novel ideas. We focus on collaborations among knowledge workers to address this question. Using the collaborations among all knowledge workers in a firm, we show that those who have higher reach to all others and those who form bridges to connect unconnected groups of workers tend to leverage not only more organizational knowledge, but also knowledge that is more dispersed in the organization. Managers could use these insights to shape the use of organizational knowledge by firm inventors, and also to make decisions about granting or withholding access to internal knowledge platforms for knowledge workers. Copyright © 2016 John Wiley & Sons, Ltd.     

Experience matters: The role of academic scientist mobility for industrial innovation

Research Summary: A learning‐by‐hiring approach is used to scrutinize scientists' mobility in relation to the recruiting firms' subsequent innovation output. Our starting point is that among firm hires, individuals with university research experience—hired from universities or firms—can be particularly valuable. However, conflicting institutional logics between academia and industry makes working with academic scientists challenging at times for firms. We suggest two solutions to this difficulty: hiring “ambidextrous” individuals with a mix of experience of university research and working for a technologically advanced firm, and a strong organizational research culture in the recruiting firm reflected by the presence of a scientist on the top management team. We track the mobility of R&D workers empirically using patent and linked employer‐employee data. Managerial Summary: An important way to make organizations more innovative is hiring individual researchers with the right types of skills and experience. We show that individuals with university research experience beyond their final degree are particularly likely to help boost firm‐level innovation output after hiring compared to R&D workers with other types of skills and experience. However, to obtain good returns to innovation from hiring such individuals, firms need a university research–friendly organizational culture when hiring individuals with university research experience, from either firms or academia.     

Appropriability and the retrieval of knowledge after spillovers

Research summary: Firms create and capture value through innovation. In technology‐driven firms, there has been an explicit emphasis on appropriability through imitation deterrence and cumulative inventions that build on prior firm innovation. We introduce systematic empirical evidence for a third mechanism of appropriability namely, knowledge retrieval, which is defined as the re‐absorption of previously spilled knowledge. We extend previous studies which consider technological complexity and organizational coupling as predictors of appropriability by examining their impact on knowledge retrieval. We find that technological complexity has a curvilinear relationship with retrieval while organizational coupling has a negative relationship. We discuss the implications of these findings for theories of absorptive capacity, organizational design and appropriability of innovation. Managerial summary: It is a widely held assumption that knowledge should be protected and held tightly within the firm to ensure value creation and value capture. The implicit recognition is that knowledge spillovers, or knowledge leakage, is detrimental to performance. By examining the patterns of citations among patents of 142 semiconductor firms, we study how organizational structure and technological complexity play a role. We find that moderate technological complexity improves appropriability. If imitation deterrence is paramount, then the optimal structure would be a tightly‐coupled organization. In other instances, loosely‐coupled organizations may be superior because they foster internal cumulative innovations and, if spillovers were to occur, they also maximize knowledge retrieval. Our findings suggest that all is not lost when spillovers occur and that firms can continue to benefit in downstream innovations. Copyright © 2015 John Wiley & Sons, Ltd.     

Entrepreneurial beacons: The Yale endowment,run‐ups,and the growth of venture capital

Research summary : This article investigates the social context of entrepreneurship in organizational sectors. Prior research suggests that firm foundings are driven by collective patterns of activity—such as patterns of prior foundings in a given sector. Building on research on social salience and signals, we consider the influence of singular sector‐level triggers, which we call entrepreneurial beacons. We argue that the actions or outcomes of single, salient organizations attract and motivate entrepreneurs, thus increasing the rate of foundings. We test this logic by examining the impact of the Y ale U niversity endowment's investment choices and of venture‐capital‐backed IPO run‐ups on venture‐capital foundings between 1984 and 2011. We find support for the existence and influence of beacons and outline boundary conditions for their effects . Managerial summary : What leads entrepreneurs to found new companies in nascent sectors? In contrast to prior research, which emphasizes patterns of activity, we argue that entrepreneurial activity can sometimes be driven by the actions of a singular trigger—what we call an entrepreneurial beacon. We examine the influence of two such beacons, Y ale U niversity's endowment investments and exceptional venture‐capital‐backed IPO run‐ups, on the founding of new venture‐capital firms over a 28‐year period. We find that Y ale's increased allocations to the venture‐capital asset‐class has a significant influence on the founding of new venture‐capital firms, while exceptional venture‐capital‐backed IPO run‐ups only influence venture‐capital foundings under certain conditions. Overall, we offer an explanation for heretofore anecdotal accounts of certain organizations or events that appear to have an outsized influence on entrepreneurial activity . Copyright © 2016 John Wiley & Sons, Ltd.     

Relevance of organizational capabilities and its dynamics: what to learn from entrants' product portfolios about the determinants of entry timing

The resource‐based view of the firm suggests that the timing of market entry by a firm depends on its resources and capabilities, but several important questions remain. First, in a high‐velocity market where capabilities change quickly, how does entry timing depend on the capabilities at varying points in time? Second, how much flexibility does a firm have in altering its capabilities to achieve desirable entry timing? To answer these questions, this study sets out to develop a dynamic, refined version of the resource‐based view that parameterizes a firm by its time‐varying capability relevance with respect to a focal market, and makes predictions on entry timing and future growth of capability relevance. The study develops a novel approach that uses the entrants' product portfolios to infer a potential entrant's capability relevance. The results based on a panel of potential entrants show that the initial and current capability relevance each affect entry timing alone, revealing the persistent effect of the initial condition. However, given the knowledge of the current capability relevance, the initial relevance has no effect on entry timing, suggesting that the initial relevance affects entry timing through its influence on the current relevance. Firms that are in an initially unfavorable position can still achieve early entry, provided that they improve their capability relevance over time. Copyright © 2008 John Wiley & Sons, Ltd.     

Rookies and seasoned recruits: How experience in different levels,firms, and industries shapes strategic renewal in top management

Research summary : This study explores the effect of knowledge integration on strategic renewal. In particular, it examines how executives from different levels and sources influence renewal when added to top management teams (TMT). In contrast to prior work, the study hypothesizes and finds that new outside rookies—those new to top management and the firm—are associated with higher firm growth than other types of executives. We also find that seasoned outsiders—those with prior TMT experience outside the focal industry—contribute to growth only when the existing TMT has a long tenure. The results suggest that the ability of the TMT to integrate new members varies by executive type and has an important effect on incremental strategic renewal. Managerial summary : Conventional wisdom holds that firms are better off hiring those who can demonstrate prior experience and skill in tasks as close as possible to the job. In the realm of the top management team (TMT), however, we find that many firms benefit from hiring rookies from other firms who are new to the top management team level. These candidates bring useful knowledge of the operations of competitors and other firms, and they are easier to socialize and integrate with the existing team. While more experienced senior leaders may bring valuable strategic knowledge, this study suggests that only top management teams with long shared experience can weather the disruption that they cause to realize the potential benefits. Copyright © 2016 John Wiley & Sons, Ltd.     

The relationship between knowledge sourcing and fear of imitation

When firms tap external knowledge sources, they risk spillovers of their own internal knowledge. If the value of this potential loss and the imitation capabilities of neighboring organizations are high, fear of imitation might overshadow the benefits of openness. In such situations, firms might voluntarily reduce their use of external sources, relative to knowledge available internally. Data pertaining to 4,623 European inventions and direct information about the use of knowledge sources confirm that firms reduce their use of external, relative to internal, knowledge when they conduct costly research projects in locations characterized by high levels of absorptive capacity in a specific technology. This study also reveals fear of imitation as a mediating factor of this behavior. Copyright © 2013 John Wiley & Sons, Ltd.     

The perilous leap between exploration and exploitation

Research summary : R&D‐based exploration and exploitation are necessary in order for firms to have sustainable competitive advantage. Yet, transitioning between these orthogonal types of R&D is considered profound organizational change. Building on recent research showing that compact, significant changes in R&D expenditure is an antecedent to the transition between explorative and exploitative R&D, I show that this leap between exploration and exploitation is quite hazardous. The magnitude of changes in R&D expenditure, whether increases or decreases, is positively associated with organizational failure. Firms maintaining higher levels of absorptive capacity are more capable of surviving the leap from R&D‐based exploitation to exploration, and firms that do not use reductions in R&D expenditure to manipulate short‐term earnings performance are more likely to survive the leap from exploration to exploitation. Managerial summary : In order to survive and thrive, innovative companies must be able to exploit their existing competencies, and to explore for new ones once those current competencies decline in value. However, transiting from one form of innovation to the other is difficult because the skills required to explore are fundamentally opposed to those required to exploit. In this article, I describe how difficult this leap between exploration and exploitation can be. I show that the move between R&D‐based exploration and exploitation is related to organizational failure. In addition, firms that are superior learners are more likely to survive the leap from exploitation to exploration, and firms that are not cutting R&D expenditure to manipulate earnings are more likely to survive the leap from exploration to exploitation. Copyright © 2015 John Wiley & Sons, Ltd.     

Measuring organizational knowledge: a conceptual and methodological framework

Knowledge is fundamental to strategic success. Limited progress has been made, however, in measuring organizational knowledge. We employ research on resource‐based theory and organizational epistemology to suggest a perceptual approach to measuring knowledge. We present a research protocol to identify a domain of organizational knowledge resources within industries. Using a sample of organizations from the hospital and textile industries, we interviewed CEOs to identify the feasible set of knowledge resources. We presented this set to managers at those organizations to measure their perceptions of the value‐added of each knowledge resource for their organizations. The results demonstrate that the importance of knowledge resources varies by industry and organization, and calls to question efforts to generate an inventory of generic knowledge resources that is applicable across industries. Copyright © 2003 John Wiley & Sons, Ltd.     

Strategy,human capital investments,business‐domain capabilities,and performance: a study in the global software services industry

Research summary : In knowledge‐based industries, continuous human capital investments are essential for firms to enhance capabilities and sustain competitive advantage. However, such investments present a dilemma for firms, because human resources are mobile. Using detailed project‐level operational, financial, and human capital data from a leading multinational firm in the global IT services industry, this study finds that deliberate investments in improving general human capital can help firms develop superior capabilities and maintain high profits. This paper identifies two types of capabilities essential for success in this industry—technological and business‐domain capabilities—and provides empirical evidence justifying such investments. Theoretical and practical implications of capability‐seeking general human capital investments are discussed. Managerial summary : The primary managerial implication of this research is that capability‐seeking investments in developing general human capital through strategic learning (training and internal certifications) can enhance firm performance. Although investing in general human capital is risky, the firm considered this a strategic necessity in order to thrive in the fast paced IT services industry. By leveraging general technological skills in combination with business‐domain knowledge to address customer's business problems firms can earn and sustain higher profits. Our study also demonstrates how a developing‐country firm responded to strong competitive challenge from global rivals possessing superior capabilities by upgrading the capabilities of its employees through internal development. In doing so the firm was able to narrow the capability gap vis‐à‐vis its foreign peers and expand its business globally. Copyright © 2016 John Wiley & Sons, Ltd.     

Environmental Performance and the Market for Corporate Assets

Research summary : Scholars and policy‐makers have tended to assume that asset sales have a negative effect on stakeholders, but quantitative evidence to inform the debate has been scarce. In our research, we explored one way such sales could be beneficial: by facilitating the transfer of specialized capabilities used for environmental improvement. Employing quantitative data from a longitudinal sample of U.S. manufacturers, we find evidence consistent with the transfer of capabilities to or from acquired assets. Our results inform theories of ownership change and the conditional flow of capabilities among operations. They provide evidence as well of the existence of environmental capabilities. For policy‐makers they provide needed evidence and insight on the merits of regulations designed to limit asset sales. Managerial summary : It is often assumed that acquisitions harm environmental performance‐‐acquisition leads to greater emphasis on efficiency, while focusing on environmental performance is driven by managerial discretion. We propose instead that acquisitions might lead to improvement in environmental outcomes; the key is in knowing where to look for improvement. We studied thousands of facility‐level acquisitions and find that when a clean firm buys a facility from a dirtier firm, that facility's environmental performance improved. When a dirtier firm buys from a cleaner one, however, it is the dirtier firm's other facilities in the same industry of the target that improved. These results, along with extensions we undertook, suggest that managers and policy‐makers should view acquisitions as conduits rather than impediments in transferring environmental capabilities. Copyright © 2017 John Wiley & Sons, Ltd.