The Layering of Meso‐Level Institutional Effects on Employment Systems in Japan

Japan's corporate governance and employment relations systems have been under considerable pressures to reform towards a more Anglo‐American model, against a back‐drop of intensified global competition and slow economic growth over two ‘lost’ decades. But what is the relationship between these systems, and specifically, how does corporate governance structure condition employment relations practice? This paper adopts the ‘Systems, Society, Dominance and Corporate (SSDC) effects’ framework in order to contextualize and evaluate the outcomes of these pressures, particularly in the period following the 2007–2008 global financial crisis. It reports case study data from various parts of the Japanese economy drawn from a series of firm‐based interviews and a variety of secondary sources. It is argued that there has been a strong degree of continuity in certain employment practices, such as lifetime employment, even in relatively new high technology firms, but that the pattern for other practices, such as seniority‐based pay, is more mixed with increasing differentiation between industries and individual organizations. We articulate a layered assessment of the varying SSDC effects at play in corporate Japan. This differentiation across industries and organizations is a function both of strategic choice (corporate effects) and also the increasing variation in the meso‐level institutional pressures that are experienced at organizational level; that is, the differentiation in the sources and nature of dominance effects that are relevant.     

Global Financial Integration and Real Estate Security Returns

Have globalization and increasing economic and financial integration affected the rates of return of publicly traded real estate companies around the world? Using a set of multifactor models for annual data for 946 firms from 16 countries over the sample period, 1995–2002, we estimate the impact of a country's economic openness on returns of publicly traded real estate firms, controlling for the effects of global capital markets, domestic macroeconomic conditions and firm‐specific variables. We find that a country's real estate security excess (risk‐adjusted) returns are negatively related to its openness. The results are robust across different multifactor model specifications and are a testament to increasing global financial integration and its interplay with the real estate sector.     

Achieving requisite variety in modeling firms' strategy heterogeneities: Explaining paradoxical firm-market performances

This study responds to the view that the crucial problem in strategic management (research) is firm heterogeneity—why firms adopt different strategies and structures, why heterogeneity persists, and why competitors perform differently. The present study applies complexity theory tenets and a “neo-configurational perspective” in proposing firms' complex antecedent conditions affecting firms' complex outcome conditions. The complex outcome conditions include firms with high financial performances in declining markets and firms with low financial performances in growing markets—the study focuses on seemingly paradoxical firm-market outcomes. Based on an analysis of firm strategies and outcomes for separate samples of cross sectional data of 1120 Finish and Hungarian manufacturing firms, this study bridges theory and practice in strategic management of complex firm-orientation configurations and complex firm-performance-capabilities. The study contributes by showing how executives can use “computing-with-words” (CWW) (Zadeh, 1966) for achieving requisite variety in explaining and predicting paradoxical firm performance outcomes.     

Linking Product Development Outcomes to Market Valuation of the Firm: The Case of the U.S. Pharmaceutical Industry*

The purpose of this research was to examine empirically the effects of new product development outcomes on overall firm performance. To do so, first product development and finance literature were connected to develop three testable hypotheses. Next, an event study was conducted in order to explore whether the changes in the stock market valuation of firms are influenced by the outcomes of efforts to develop new products. The pharmaceutical industry was chosen as the empirical context for the present study's analysis largely because the gate‐keeping role played by the Food and Drug Administration (FDA) provides a specific event date on which to focus the event study methodology. As such, this study's events were dates of public announcements of the FDA decisions to approve or to reject the New Drug Applications submitted by the sponsoring firms. Consistent with the efficient market hypothesis, this study's results show that market valuations are responsive strongly and cleanly to the success or failure of new product development efforts. Hence, one of this study's key results suggests that financial markets may be attuned sharply to product development outcomes in publicly traded firms. This study also finds that financial market losses from product development failures were much larger in magnitude than financial market gains from product development successes—indicating an asymmetry in the response of financial markets to the success and failure of new product development efforts. Hence, another implication of this study's results is that managers should factor in a substantial risk premium when considering substantial new development projects. The present study's results also imply that managers should refrain from hyping new products and perhaps even should restrain the enthusiasm that the financial community may build before the product fully is developed. The effect on firm value is severe when expectations about an anticipated new product are not fulfilled. Managers in effect should take care to build reasonable and realistic expectations about potential new products.     

Corporate Culture and Commitment: Impact on Performance of International New Product Development Programs

To achieve success in today's competitive environment, firms increasingly must develop new products for international markets. To this end, they must leverage and must coordinate broad creative capabilities and resources, which often are diffused across geographical and cultural boundaries. Recent writings in the globalization and in the new product development (NPD) literatures suggest that certain “softer” dimensions that define the behavioral environment of the firm—that is, the firm's organizational culture and management commitment—can have an important impact on the outcome of these complex and risky endeavors. But what comprises these dimensions and what type of behavioral environment scenario is linked to high performance in the international NPD effort of firms has not been articulated clearly. This research focuses on these softer dimensions, with the objective of understanding and idengifying their specific makeup as well as their relationship to the outcome of international NPD programs. Based on an integration of three literatures—organizational, new product development, and globalization—the present study develops a research instrument, comprising 18 behavioral environment measurement items as well as several outcome measures, that is administered to a broad empirical sample of goods and services firms active in NPD for international markets. Using empirical results from 252 international NPD programs, three key dimensions are idengified: (1) the innovation/globalization culture of the firm; (2) the commitment of sufficient resources to the NPD program; and (3) top management involvement in the international NPD effort. These dimensions are used to derive four clusters of firms, where each grouping represents a distinctly different behavioral environment scenario. In a preliminary analysis, it is ascertained that other aspects of the firm such as “degree of internationalization,” location of the respondent to the NPD center, and other company parameters do not form the basis of cluster membership. By linking measures of performance to the four behavioral clusters, findings are developed that clearly support this study's hypothesis that international NPD outcomes are associated with the softer behavioral environment dimensions. Scenario performance ranges from “very high” to “very low” and appears to be linked clearly to the dimensions studied. The lower‐performing firms tended to emphasize positively only one, or sometimes two, of the three dimensions. The “best performers” were found to be firms with a “positive balanced” approach to international NPD, where all three behavioral environment dimensions are supported strongly. In other words, firms in this scenario have an open and innovative global NPD culture, they ensure that sufficient resources are committed to the NPD program, and their senior managers play an active and involved role in the international NPD effort. Given this evidence of a direct link between behavioral environment and international NPD performance, the present study's findings suggest some important messages for managers charged with the development of new products for international markets.     

Corporate diversification: the impact of foreign competition,industry globalization,and product diversification

The globalization of markets and industries has fundamentally changed the competitive conditions facing firms. Yet, how globalization has influenced the international diversification strategies of firms is an issue largely overlooked in both the strategic management and international business literatures. This paper develops a theoretical framework to understand how industry globalization, foreign competition, and firm product diversification may influence a firm's choice of its degree and scope of international diversification. Utilizing a panel dataset of U.S. manufacturing firms for the period 1987–99, we provide the first empirical evidence that industry globalization and foreign-based competition are statistically significant factors explaining the degree and scope of international diversification by U.S. firms. Copyright © 2007 John Wiley & Sons, Ltd.     

Financing behaviour of R&D investment in the emerging markets: the role of alliance and financial system

This paper examines the financing behaviour of research and development (R&D) investments in emerging markets. Drawing on institutional theory and using panel data of generalized methods of moment estimation for a sample of 302 firms from 20 countries during the period 2003–2015, we find that emerging market firms tend to use internal funds for financing R&D investments. Interesting results emerged when the sample was divided as alliance and non‐alliance firms, and bank‐based and market‐based financial systems. The results show that R&D financing behaves differently for alliance and non‐alliance firms. Alliance firms use both internal and external funds for R&D investments, while non‐alliance firms do not use external funds. We also document that a country's financial system influences the choice of available sources of finance. Firms from countries that follow a bank‐based financial system tend to rely on external funds while firms from countries that follow a market‐based financial system depend more on internal funds for financing R&D investments. This study is important as it provides new evidence on financing R&D investments in emerging countries taking into account the institutional arguments of financing choices, and so should guide stakeholders about appropriate sources of R&D financing.     

Innovation through Experience Staging: Motives and Outcomes

There is a growing recognition of the opportunities of innovation through experience staging. The literature, however, tends to focus on high‐profile examples of firms from largely hedonic sectors, such as entertainment and hospitality. These cases provide vivid and persuasive examples, but they fail to address how firms outside these sectors can join the experience economy—a term coined in 1998 by Pine and Gilmore—by developing new products and services with experiences at their core. The paper reports on two studies undertaken to examine why firms that do not belong to sectors that are largely hedonic innovate through experience staging and how they benefit from doing so. The first study is an in‐depth case study of 15 diverse firms, which examines these firms' motives for pursuing innovation through experience staging. The second study is a two‐year longitudinal quantitative survey of 131 small‐ and medium‐sized firms (SMEs) to address the question of the benefits that firms that do not have strong brands can gain by from innovation through staging experiences. The first study provides the basis for classifying firms along two dimensions depending on the nature of the new products or services (referred to collectively as offerings) they create. The first dimension has to do with whether new offerings have a functional or experiential core. The second dimension has to do with the degree of experiential augmentation applied to offerings. The first study suggests that firms adopt an experience‐staging strategy to innovation based on both outward‐facing and inward‐facing motives. The outward‐facing motives include improving a firm's image in its market, entering new markets, and attracting new customers. The inward‐facing motives include improving a firm's attractiveness to employees and increasing profitability. The results of the second study suggest that creating offerings with an experiential core can contribute to success by enhancing a firm's image, its attractiveness to employees, and its ability to enter new markets. Moreover, experiential augmentation contributes to profitability, new customer attraction, and employee attractiveness. This research has important implications for theory and practice. In the first place, this research extends existing theory about experience staging to firms outside sectors that are largely hedonic. In the second place, the managerial implications are that innovation through experience staging can be an effective way for SMEs, even those outside industries, such as entertainment or hospitality, to create competitive advantage.     

Established companies diversifying into young industries: A comparison of firms with different levels of performance

Differences in performance among established firms diversifying into young industries were investigated, with hypotheses concerning 11 ‘corporate level’ strategic and organizational variables being examined. Performance was found to be associated with firm size and financial strength, time of entry, and the maturity of the firm's markets. The importance of several variables examined also appears to change as an industry evolves.     

The Augmented Service Offering: A Conceptualization and Study of Its Impact on New Service Success

Unlike companies that produce tangible goods, service firms typically cannot rely on product advantage as a means for ensuring the success of a new service. Developing a competitive response to a tangible product may require significant investments of time and effort. In many cases, however, competitors can easily duplicate the core elements of a firm's new service. This fundamental difference between new products and new services means that managers who hope to find the keys to new-service success must look to factors other than sustainable product advantage. Chris Storey and Christopher Easingwood suggest that managers must understand the totality of the service offering from the customer's perspective. They explain that the purchase of a service is influenced not only by the service itself, but also by such factors as the service firm's reputation and the quality of the customer's interaction with the firm's systems and staff—in other words, by the augmented service offering (ASO). Using the results of a study they conducted in the consumer financial services industry in the U.K., they identify the components of the ASO, and they examine the relative contributions of these components to the success of new services. In their model, the ASO comprises three elements: the service product, service augmentation, and marketing support. The core of the ASO—the service product—includes such dimensions as product quality, product distinctiveness, and perceived risk. The study's results suggest that improvements in the service product open up new opportunities for the firm, but have only modest effects on sales and profitability. Rounding out the ASO model are service augmentation and marketing support. Service augmentation encompasses such dimensions as distribution strength, staff-customer interactions, and reputation. The customer recognizes and responds to these elements of the ASO, but they are not part of the product core. Marketing support involves those marketing and management actions that affect the quality of the product and its augmentation, even though customers typically are not aware of them. These elements include knowledge of the marketplace, training of contact staff, and internal marketing. Enhanced service augmentation has significant effects on profitability and sales for the firms in this study, but it does not offer enhanced opportunities. The marketing support elements contribute significantly to all aspects of performance for the firms in this study.     

Strategic reward systems: a contingency model of pay system design

A limited number of studies have addressed the idea of ‘strategic’ reward systems—the matching of compensation systems to a firm's strategy. Prior research on this topic has been confined to U.S. firms, however, and a number of key questions remain unanswered. Using a sample of 917 employees from two large Swiss financial institutions, we found that pay systems are linked with divisional strategic orientation, but in a different form than prior studies. Additionally, we identify hierarchical position as an important variable in the tailoring of reward systems. Hierarchy has a significant main effect on pay plan design, and an interactive effect with strategic orientation. Copyright © 2001 John Wiley & Sons, Ltd.     

New Product Portfolio Management: Practices and Performance

Effective portfolio management is vital to successful product innovation. Portfolio management is about making strategic choices—which markets, products, and technologies our business will invest in. It is about resource allocation—how you will spend your scarce engineering, R&D, and marketing resources. It focuses on project selection—on which new product or development projects you choose from the many opportunities you face. And it deals with balance—having the right balance between numbers of projects you do and the resources or capabilities you have available. In this article, the authors reveal the findings of their extensive study of portfolio management in industry. This study, the first of its kind, reports the portfolio management practices and performance of 205 U.S. companies. Its overall objective was to gain insights into what portfolio methods companies use, whether they are satisfied with them, the performance results they achieve with the different approaches, and suggestions for others who are considering implementing portfolio management. The research first assesses management's satisfaction with portfolio methods they employ and notes that some firms face major problems in portfolio management. Next, businesses are grouped or clustered into four groups according to management's view of portfolio management: Cowboys, Crossroads, Duds, and Benchmark businesses. The research first assesses management's satisfaction with portfolio methods they employ and notes that some firms face major problems in portfolio management. Next, businesses are grouped or clustered into four groups according to management's view of portfolio management: Cowboys, Crossroads, Duds, and Benchmark businesses. Various performance metrics are used to gauge the performance of the business's portfolio. The results reveal major differences between the best and the worst. Benchmark businesses are the top performers. Their new product portfolios consistently score the best in terms of performance—high-value projects, aligned with the business's strategy, the right balance of projects, and the right number of projects. The authors take a closer look at these benchmark businesses to determine what distinguishes their projects from the rest. Benchmark businesses employ a much more formal, explicit method to managing their portfolio of projects. They rely on clear, well-defined portfolio procedures, they consistently apply their portfolio method to all projects, and management buys into the approach. The relative popularity of various portfolio methods—from financial methods to strategic approaches, bubble diagrams, and scoring approaches—are investigated. Not surprisingly, financial approaches are the most popular and dominate the portfolio decision. But what is surprising is the dubious results achieved via financial approaches. Again, benchmark businesses stand out from the rest: they place less emphasis on financial approaches and more on strategic methods, and they tend to use multiple methods more so than the rest. Strategic methods, along with scoring approaches, yield the best portfolios; financial methods yield poorer portfolio results. The authors provide a number of recommendations and suggestions for anyone setting out to implement portfolio management in their business.     

Amazon Mechanical Turk and the commodification of labour

Crowd employment platforms enable firms to source labour and expertise by leveraging Internet technology. Rather than offshoring jobs to low‐cost geographies, functions once performed by internal employees can be outsourced to an undefined pool of digital labour using a virtual network. This enables firms to shift costs and offload risk as they access a flexible, scalable workforce that sits outside the traditional boundaries of labour laws and regulations. The micro‐tasks of ‘clickwork’ are tedious, repetitive and poorly paid, with remuneration often well below minimum wage. This article will present an analysis of one of the most popular crowdsourcing sites—Mechanical Turk—to illuminate how Amazon's platform enables an array of companies to access digital labour at low cost and without any of the associated social protection or moral obligation.     

Market frictions and the competitive advantage of internal labor markets

Research summary : We show that frictions in labor and capital markets can be a source of competitive advantage for affiliates of corporate groups over stand‐alone firms in environments where benefits from internal markets' flexibility are high. We argue that the advantage of flexibility in changing labor inputs is related to how difficult it is to change capital inputs. We predict that if substituting labor with capital is difficult, the group advantage of flexibly changing labor would be stronger in countries with high levels of financial development. Consistent with this prediction, we find a stronger competitive advantage for group affiliates in countries with rigid labor markets but flexible capital markets. In these environments, group affiliates are more prevalent and outperform stand‐alone firms in terms of growth and profitability. Managerial summary : This research shows that the capacity to redeploy workers across internal units of the firm can be a source of competitive advantage in countries that impose strict employment protection laws. We show that the strategic advantage of labor flexibility is affected by how difficult it is to change capital inputs and that labor flexibility is a stronger source of competitive advantage in countries where developed financial markets allow for more flexible capital adjustment. In these settings, strategies designed to lower costs of internal mobility (e.g., locations of greater geographic concentration between units and in regions with less competitive external markets), development of corporate culture supportive of frequent change, and personnel development through internal rotation can result in substantial financial payoffs. Copyright © 2015 John Wiley & Sons, Ltd.     

Heading for new shores: Do service and hybrid innovations outperform product innovations in industrial companies?

This study investigates the financial outcomes of product, service, and hybrid innovations in industrial markets. To date, empirical research has focused on product innovations, yet industrial firms are increasingly competing with innovative services to maintain their competitive edge. This study assesses the financial impact of service and hybrid innovations compared with more traditional product innovations. We develop a unique data set that combines information on companies' innovation activities with objective financial data. From a sample of 348 German industrial firms, the analysis reveals that service innovations do not outperform product innovations in industrial markets. A focus on service innovations only pays off in highly price-conscious markets. In contrast, hybrid innovations, referring to the simultaneous market introduction of new products and services, have a positive effect on firm performance above and beyond pure product innovations. This effect is particularly pronounced in competitive markets and under conditions of high customer concentration. In sum, this study demonstrates that hybrid innovations outperform both, pure product and service innovations in industrial markets.     

Human Resource Management in the Japanese Financial Institution Abroad: The Case of the London Office

The evidence on human resource management in overseas offices of Japanese multinational service-sector firms is far less abundant than that for manufacturing firms. Existing studies describe employment practices that vary, both between firms and over time. To supplement the existing body of evidence, the present study investigates employment practices at two Japanese financial services firms in the City of London through the use of interviews and questionnaire surveys. It focuses on those facets of the ‘Japanese’ management system that may be considered fundamental characteristics: recruitment and selection procedures, training methods, pay and promotion policies, employment security, company culture, and the position of workers within the overall organization. The study considers the implications of changes over time within the two firms when viewed in the context of the existing evidence; such comparison suggests that both corporate strategy and human resource management policy in Japanese financial organizations may have changed during the 1980s.     

The Setback in Political Entrepreneurship and Employment Dualization in Japan, 1998–2012

Scholars are mainly concerned about how policy makers in advanced countries have succeeded in dualizing labour market regulations in a way to realize their vision or to represent powerful industrial interests. However, Japan's recent experiences suggest the possibility that this dualization is not such a straightforward outcome. This study argues that as Japan's political entrepreneurs have undergone setbacks in their reform attempt to overcome the tradition of employment dualism, they have improvised to close the reform process by institutionalizing this tradition. This study corroborates the argument by investigating state‐industry conflicts over the revisions of the Worker Dispatch Law in 1999, 2003 and 2012.     

The Implications of the Value Chain and Financial Institutions for Work and Employment: Insights from the Video Game Industry in Poland,Sweden and Germany

What are the reasons for national differences of international market access in high‐risk software development and what is the role of employment regulation? This analysis elucidates this question based on national sector studies of the video games industry with particular focus on financial systems, skill formation as well as work and employment systems in Sweden, Germany and Poland. National financial architectures and education are a decisive factor. However, the results also suggest that the ‘varieties‐of‐capitalism’ (VoC) approach underestimates industry divergence within and across supposedly homogeneous national models, especially in the field of labour regulation. The author proposes to link VoC theory to a transnational perspective, which complementarily takes into account firm embeddedness in industry‐specific value chains.     

Perspective: The Innovation Dilemma: How to Innovate When the Market Is Mature

Most companies have ambitious growth goals. The trouble is there are only so many sources of market growth. Markets in many countries and industries are mature and increasingly commoditized; achieving growth in market share is expensive; and acquisitions often do not work. For most companies, product development means line extensions, improvements, and product modifications, and only serves to maintain market share. Markets aren't growing, so firms increasingly compete for a piece of a shrinking pie by introducing one insignificant new product after another. The launch of a truly differentiated new product in mature markets is rare these days. As a result, development portfolios have become decidedly less innovative since the mid‐1990s, and R&D productivity is down. The answer is bold innovation—breakthrough products, services and solutions that create growth engines for the future. This means larger‐scope and more systems‐oriented solutions and service packages. Examples such as Apple's iPod are often cited. (Note that Apple did not invent the MP3 player, nor was this opportunity in a blue ocean; in fact there were 43 competitors when Apple launched!) What Apple did succeed in was in identifying an attractive strategic arena (MP3s) where it could leverage its strengths to its advantage and then to develop a solution that solved users’ problems. The result—an easy‐to‐use, easy‐to‐download MP3 system, which also happened to be “cool.” Our benchmarking studies reveal that five vectors must be in place to undertake this type of innovation to yield bolder and more imaginative development projects. First, develop a bold innovation strategy that focuses your business on the right strategic arenas that promise to be engines of real growth. Most businesses focus their efforts in the wrong areas—on flat markets, mature technologies, and tired product categories. Break out of this box towards more promising strategic arenas with extreme opportunities. Next, foster a climate and culture that promotes bolder innovation. Leadership is vital to success. If senior management does not have the appetite for these big concepts, then all your efforts and systems will fail. Senior management plays a vital role here in promoting an innovative climate in your business. Next, create “big ideas” for integrated product‐service solutions. The best methods for generating breakthrough new product ideas are identified in this paper. Then drive these “big concepts” to market quickly via a systematic and disciplined idea‐to‐launch system designed for major innovation initiatives. Just because these projects are imaginative and bold is no reason to throw discipline out the window. In fact, quite the reverse is true. Finally build a solid business case and focus on the winners. Most innovation teams don't get the facts, and consequently build weak business cases; the result is that many worthwhile innovations don't get the support they need to be commercialized. It's essential to do the front‐end homework, and so build a compelling business case. Then make the right investment decisions—evaluating “big concepts” for development when little information is available. Note that financial models don't work well when it comes to evaluating major innovations, because the data are often wrong. But other methods can be used to make these tough go/kill decisions. Illustrations and examples are provided from many industries and companies to show how to implement these five vectors.     

Foreign IPO capital market choice: Understanding the institutional fit of corporate governance

While product market choices have been central to strategy formulation for firms in the past, the integration of financial markets makes the choice of capital markets an equally important strategic decision. We advance a comparative institutional perspective to explain capital market choice by firms making an IPO in a foreign market. We find that internal governance characteristics (founder‐CEO, executive incentives, and board independence) and external network characteristics (prestigious underwriters, degree of venture capitalist syndication, and board interlocks) are significant predictors of foreign capital market choice by foreign IPO firms. Our results suggest foreign IPO firms select a host market where the firms' governance characteristics and third party affiliations fit the host market's institutional environment. Copyright © 2012 John Wiley & Sons, Ltd.