The right speed and its value

Slow investments cause substantial revenue losses, yet acceleration increases costs. This tradeoff implies that an optimal investment speed usually exists; it is faster the higher a firm's intrinsic speed capability. We hypothesize that it is a firm's intrinsic speed capability, rather than its speed relative to industry competitors per se, that boosts firm value. Using data on oil and gas facilities (1996–2005), we find that intrinsic speed capabilities augment firm value in a varied way: their value is larger with better corporate governance, lower cost of capital, and higher ability to draw value from R&D investment. Our work elevates the discussion of speed from a project‐level consideration to a firm‐level competitive advantage issue and raises the need to further explore its strategic value. Copyright © 2013 John Wiley & Sons, Ltd.     

Predicting a firm's forecasting ability: the roles of organizational illusion of control and organizational attention

Recent research shows that forecasting ability is an organizational distinctive competence. We propose and test a model accounting for interfirm differences in forecasting ability. After controlling for reciprocal effects, we find that two principal firm‐level factors (i.e., organizational illusion of control and organizational attention) influence both bias and magnitude of errors in estimates. High organizational illusion of control increases positive forecast bias. As for organizational attention, higher relative investments in market information appear to reduce positive forecast bias and magnitude of errors; they also moderate forecast bias due to illusion of control. Finally, higher relative investments in employee capability increase both negative forecast bias and, unexpectedly, magnitude of errors for the majority of observed cases. Copyright © 2003 John Wiley & Sons, Ltd.     

Profitability Goals,Control Goals,and the R&D Investment Decisions of Family and Nonfamily Firms

Research and development (R&D) investments can help build sustainable competitive advantages and improve firm performance. Nevertheless, managers also acknowledge the difficulties associated with managing R&D and the low chances of success of innovation programs. For this reason, researchers have long been interested in understanding how managers make R&D investment decisions. Research grounded in the behavioral theory of the firm suggests that a primary driver of R&D investment decisions is profitability: when profitability goals have not been met, managers are more likely to initiate a problemistic search through increasing R&D investments. While emphasizing profitability goals and their relationship with R&D investments, prior research largely downplays the role of goals beyond profitability that exist in a significant number of firms (family firms) that are owned and managed by family members whose primary concern is preserving their control over the organization. Research indicates that these family‐centered noneconomic goals lead family managers to minimize R&D investments and that the coexistence of multiple goals produces highly variable R&D investment behavior. Yet, how family‐centered goals for control and profitability enter decision‐making in family firms is not fully understood. In this study, we propose that family managers form distinctive reference points that capture supplier bargaining power and are used to evaluate the degree of external obstruction to their managerial control. The empirical analysis of panel data on 431 private Spanish manufacturing firms observed over the period 2000–2006 shows that the importance of profitability and control goals follows a sequential logic in family firms, such that family firms react more strongly to increasing supplier bargaining power when their profitability reference points have been reached. This study extends current understanding of the distinctive organizational processes engendered by family management in business organizations leading to new research opportunities at the intersection of the innovation management and family business literatures.     

Firm non‐market capabilities and the effect of supranational institutional safeguards on the location choice of international investments

Research Summary : We investigate the extent to which firms rely on supranational institutional safeguards versus their non‐market capabilities to offset the risks of investing abroad. We argue that firms with non‐market capabilities are insensitive to supranational institutional safeguards when choosing the location of their international investments. We show that supranational agreements between an investor's home and host nation, operationalized as bilateral investment treaties (BITs), increase the likelihood of investment, but there is substantial firm heterogeneity with respect to this relationship. Firms with various forms of non‐market capabilities are not sensitive to BITs, whereas other firms are more likely to invest under BITs. We advance the understanding of how firm non‐market capabilities can substitute for supranational institutional arrangements in addressing risks associated with host country institutional weaknesses. Managerial Summary : The risk of expropriation is one of the main concerns companies have when investing abroad. Because of this, many countries implement bilateral investment treaties (BITs) to safeguard foreign investments, alleviate foreign investor concerns, and promote investments. We show that only those companies without political competence or political connections favor countries with BITs when choosing where to invest. Companies with political competence or political connections, on the other hand, ignore BITs and apparently rely on their ability to influence governments whenever their foreign investments face expropriation threats. As a result, politically connected or competent companies can enter markets most of their competitors lacking these capabilities shy away from. They can, therefore, do business in environments in which they face less competition.     

Shareholder valuation of foreign investment and expansion

This study analyzes when different foreign investment location choices are value creating for firms at different stages of international expansion. I argue that because direct investment in developing countries is riskier than in advanced countries, shareholders may not value a firm's investment in developing countries until that firm has experience from previous international investments and capabilities to better manage and hedge the higher levels of risk and uncertainty. Using a panel of 191 U.S. manufacturing firms and their foreign investments over a 20‐year period (1981–2000), the empirical results show that firm investments in advanced and developing countries are valued differently by shareholders, depending on the firm's prior international expansion, the firm's capabilities and experiences, and the knowledge intensity of the firm's industry. These results highlight the importance of considering firm location decisions, prior experiences, and resources when analyzing. Copyright © 2006 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.     

Social Capital as a Microlevel Origin of Organizational Capabilities

The microlevel concept of social capital has received significant attention in management and sociological research but has not yet been empirically associated with the development of organizational capabilities. The major purpose of this paper is to investigate the relationship of social capital with marketing and research and development (R&D) capability and to explore how the environmental context moderates the social capital–organizational capability link. It is suggested that top management's social capital provides a firm with important information and control benefits that facilitate effective access to the knowledge and resources necessary for building superior organizational capabilities. In addition, we identify the role of two important environmental factors influencing the social capital–organizational capability link: technological turbulence and competitive intensity. The strength of the relationship between social capital and organizational capabilities is proposed to vary depending on the level of these two environmental characteristics. This study conceptualizes and operationalizes social capital as a multidimensional construct reflected by the structural dimension of tie strength, the relational dimension of trust, and the cognitive dimension of solidarity. Survey and archival data on 280 firms from various industries are analyzed using structural equation modeling. Empirical support for the proposed three‐dimensional structure of social capital is found. Results further indicate that social capital is a significant antecedent to both marketing and R&D capability, which in turn significantly affect firm performance. While a positive relationship between social capital and organizational capabilities is supported in general, the strength of this relationship depends on the environmental context the firm is embedded in. The positive effect of social capital on marketing capability increases in environments with high technological turbulence and competitive intensity; the opposite holds for R&D capability. This research contributes to the resource‐based view by introducing social capital as an important microlevel factor promoting the development of organizational capabilities. By identifying and evaluating two important environmental contingencies, our study also decreases some of the ambiguity surrounding the effectiveness of antecedents to organizational capabilities. The findings further help practitioners decide under what circumstances investing in top‐managers' social capital provides an effective means for achieving superior performance through enhanced organizational capabilities. This should have an important bearing on issues such as management training and incentives as well as on hiring policies.     

This is what you came for? University–industry collaborations and follow-on inventions by the firm

The positive impact of university–industry collaborations on firms' innovative performance is well recognized. However, to date, the existing heterogeneity within university–industry collaboration processes and the sources of value creation underlying the resulting inventions are left underexplored. As a result, our understanding as to why some of the joint inventions resulting from such collaborations turn out to present a more fertile source of follow-on developments and value for the collaborating firm than others is limited. The present paper sheds light on this question through the application of a knowledge recombination perspective. Hence, we open the black box of innovation and put a spotlight on the knowledge components that make up the joint inventions resulting from university–industry collaborations. We evaluate how the nature—scientific versus technological—and origins—internal versus external to the collaborating partners—of these knowledge components relate to the inventive impact of the partners' joint invention. Examining a sample of 9102 USPTO co-patents, joint inventions created through university–industry collaborations are shown to be most fertile as a source of firm follow-on inventions when they are the result of a recombination process that includes technological knowledge components stemming from both collaborating partners. This effect is most pronounced when the partners' technological knowledge contributions are moderately similar. In contrast, when the joint technology development takes place in a technology domain that is novel to the firm, the resulting joint inventions are most fertile as a source of firm follow-on inventions when the university contributes through the input of technological knowledge components situated in exactly this technology domain that is novel to the firm. Remarkably, no evidence for such direct effects is found regarding the partners' scientific contributions. Together, these findings provide important insights for firms who intend to spur their internal technology development through collaboration with a university partner.     

Where Do Breakthroughs Come From? Characteristics of High‐Potential Inventions

Breakthrough technological inventions create the foundation for many innovative opportunities. Through novel scientific fundamentals and unique combinations of knowledge, they form a new basis for technology development and innovation, shifting their industry's mindset about what is feasible and valuable. Prior research has, to date, characteristically taken an organizational‐level perspective on technology breakthroughs, seeking to explain the occurrence of breakthroughs as a function of firm‐level characteristics and processes. This tells us less, however, about the underlying knowledge structures of the technologies themselves. This research is based on the assumption that an examination of the knowledge foundations of high‐potential inventions can enrich our understanding about the underlying features of innovations that transform industries and advance societies. In this manner, we can clarify how certain technologies are advanced and extended, providing the basis for future discoveries. Our analysis focuses on high‐potential patents: those having the highest number of forward citations in a given class. We conduct this analysis on a sample of 298 breakthrough patents and two comparison nonbreakthrough groups in drug and semiconductor classes. Our results show that breakthrough technologies, compared with nonbreakthroughs, are more likely to build on: (1) the past technological developments of others, by backward citing and embodying knowledge from prior discoveries (earlier patents), but not one's own previous developments; (2) the latest technologies, by backward citing recent patents; (3) geographic proximity, evidenced by the fact that the focal patents backward cite patents from one's own country; and (4) greater technological breadth, evidenced by the fact that knowledge captured in the patents encompasses a larger number of technical fields. Based on these results, we frame the occurrence of breakthroughs as involving a process where these significant developments happen early in the progress of a technology, but after some relevant knowledge has accumulated. This reinforces the concept that a learning effect needs to occur before breakthroughs can happen. In addition, our findings suggest that the knowledge underlying breakthroughs is likely to come from other organizations or individuals, rather than the developing entity. They also incorporate broader insights from technological diversity but do not exhibit geographic diversity. Instead, they are associated with geographic proximity, which may better enable knowledge sharing and integration given the reliance on other entities and diverse knowledge.     

Time compression (dis)economies: An empirical analysis

Research Summary: To investigate time compression diseconomies (TCD), this study estimated time–cost elasticities using 459 oil and gas global investment projects (1997–2010). Results show that the average cost of accelerating investments is negative: a firm could cut $6.3 million in costs of a single project by accumulating asset stocks 1 month faster. About 88% of the projects exhibit negative time–cost elasticities with over 39% of unrealized economies of time compression. Only 12% of the projects are subject to TCD. These time inefficiencies or frictions do not negate the existence of TCD, but suggest they are less prevalent than assumed in the literature. Management experience, R&D investment, firm size, economic development, and political stability are shown to be associated with greater time compression efficiency. Managerial Summary: How fast should firms invest? The conventional view is that acceleration increases market revenues but also inflates costs. However, there is no recent empirical evidence of this tradeoff. Our article systematically investigates the costs of compressing time in investment projects. Results show that most firms in the oil and gas industry are significantly time inefficient in their operations. Specifically, by accelerating investments, firms would also substantially decrease costs. We estimate the magnitude of these time inefficiencies for specific oil and gas industries and firms and study which strategies might mitigate this problem. This fine‐grained analysis should help firms assess their financial incentives to accelerate projects and prove informative to stock market analysts’ valuations of firm investment timing.     

Entry into Nascent Industries: Disentangling a Firm's Capability Portfolio at the Time of Investment Versus Market Entry

Research summary : This article examines the capability antecedents of firm entry into nascent industries. Because a firm's technological investments in nascent industries typically occur before market entry, this study makes a distinction between firm capabilities at the time of market entry and at the time of initial investment. At the time of market entry, core technical capabilities and complementary assets influence the likelihood of entry. However, at the time of investment, a firm's integrative capabilities as well as the initial stocks of related technical capabilities and complementary assets become critical, as they enable endogenous development of core technical capabilities and complementary assets by the time of entry. The empirical sample consists of firms involved in field experiments in agricultural biotechnology during the period 1980–2010. Managerial summary : New product commercialization in a nascent industry typically requires access to not only core technologies of the focal industry, but also supporting commercialization assets. However, firms may not possess these critical capabilities when they first invest in the industry. Instead, empirical evidence from the context of agricultural biotechnology shows that at the time of first investment, a firm's integrative capabilities partly explain their likelihood of entry. Integrative capabilities encompass a set of practices that enable effective coordination and communication, and in turn put firms in an advantageous position to develop the needed capabilities by the time of entry. Copyright © 2017 John Wiley & Sons, Ltd.     

Incubation of an industry: Heterogeneous knowledge bases and modes of value capture

Research summary : We examine firms' technological investments during an industry's incubation stage—the period between a technological breakthrough and the first instance of its commercialization. Using the agricultural biotechnology context, we develop stylized findings regarding the understudied knowledge evolution preceding product evolution in an industry's life cycle, the trend and diversity of firms undertaking technological investments in anticipation of industry emergence, their leverage of markets for technology and corporate control, and their use of alternative modes of value capture. We juxtapose these stylized findings with existing literature to identify new theoretical insights, and set the stage for future scholarly work to develop and test new theories for the incubation period, examine its existence in other industries, and study its impact on subsequent firm and industry evolution. M anagerial summary : New technological breakthroughs present managers of existing firms and aspiring entrepreneurs with opportunities to create altogether new industries. During the vibrant incubation period, we find that multiple firms capitalize on diverse knowledge bases to shape the industry's knowledge evolution and also capture economic value in diverse ways. Existing firms in the obsolescing industry are more likely to become targets in acquisitions given their complementary knowledge. Science‐based start‐ups are more likely to engage in acquisitions and collaborations with established firms. Diversifying firms are more likely to commercialize products after leveraging of internal development, acquisitions, and alliances. Our study highlights the importance for managers to think about “success” and “failure” across multiple yardsticks of performance, rather than only as product commercialization as the sole goal. Copyright © 2016 John Wiley & Sons, Ltd.     

Investment opportunities and R&D investments in family and nonfamily firms

The firm’s investment opportunity set (IOS) reflects the prospective growth opportunities related to physical and human capital investments. IOSs are largely firm specific, embedded in assets-in-place, or generated by experience curves, learning-by-doing, and other similar phenomena. However, the value of an IOS can be destroyed if a firm does not exercise the option to invest. In this study, we theorize that a firm’s ability to invest in R&D is conditional on the availability of a favorable IOS. We test our theoretical propositions in the European business environment using a sample of large publicly traded firms with concentrated ownership. Our findings support the notion that the IOS is a significant determinant of corporate R&D investments, but the magnitude of this effect depends on the identity of the ultimate owner. Specifically, the sensitivity of R&D investments of family- and state-owned corporations is higher to favorable IOS than that of widely held corporations, suggesting these firms are more responsive to favorable IOS than others. By introducing the IOS dimension, our results have interesting implications for both theory and practice.     

Declared essential patents and average total R&D expenditures per patent family

The sharp increase in SEP declarations and declaring firms emphasizes the necessity for understanding firms’ innovation investment behavior in standardization. This paper empirically investigates whether declared standard-essential patents (SEPs) and the declaring firm’s business model (operationalized as a firm’s location in the value chain) are associated with a firm’s innovation investment behavior. To this end, we measure firms’ innovation investment behavior through average total research and development (R&D) expenditures per filed patent family for publicly listed firms from 1999 to 2018. Our sample mainly includes major SEP family declarants. We rely on a binary business model taxonomy differentiating upstream and downstream firms. Within that setting, total R&D expenditures rise with increasing fragmentation of declared SEP families, suggesting that firms adjust their R&D investments to declaration developments in standard-setting organizations (SSOs). We also show that upstream firms have significantly lower total R&D expenditures than downstream firms, which could indicate structural differences in their intellectual property (IP) and R&D management processes. Our results can help SSOs and regulators better understand firms’ innovation investment behavior.     

CEO career horizon,corporate governance,and real options: The role of economic short‐termism

Research Summary: Combining studies on real options theory and economic short‐termism, we propose that, depending on CEOs’ career horizons, CEOs have heterogeneous interests in strategic flexibility, and thus, have different incentives to make real options investments. We argue that compared to CEOs with longer career horizons, CEOs with shorter career horizons will be less inclined to make real options investments because they may not fully reap the rewards during their tenure. In addition, we argue that long‐term incentives and institutional ownership will mitigate the relationship between CEOs’ career horizons and real options investments. U.S. public firms as an empirical setting produced consistent evidence for our predictions. Our study is the first to theoretically explain and empirically show that a CEO's self‐seeking behavior will impact real options investments. Managerial Summary: This article helps to explain how a CEO's self seeking‐behavior may shape a firm's real option investment, which could result in different level of strategic flexibility. We argue that CEOs with short career horizons have less time to exercise their firms’ real options, which should lower the investments in the firms’ real options portfolios relative to CEOs with long career horizons. We study a sample of U.S. public firms and find strong evidence that a CEO's expected tenure in the firm is positively related to the real options investments at the firm level. We find that this agency issue can be mitigated by adopting appropriate corporate governance mechanisms such as long‐term incentives and institutional investors.     

Firm‐specific human capital investments as a signal of general value: Revisiting assumptions about human capital and how it is managed

Research summary : Prior scholarship has assumed that firm‐specific and general human capital can be analyzed separately. This article argues that, in some settings, this is not the case because prior firm‐specific human capital investments can be a market signal of an individual's willingness and ability to make such investments in the future. As such, the willingness and ability to make firm‐specific investments is a type of general human capital that links firm‐specific and general human capital in important ways. The article develops theory about these investments, market signals, and value appropriation. Then, the article examines implications for human resource management and several important questions in the field of strategic management, including theories of the firm and microfoundations of competitive advantage. Managerial summary : While managers don't often use the terms firm‐specific and general skills, they certainly recognize that investments employees make in their skill sets are more or less relevant to a specific firm. For instance, investing in specific relationships within a firm or learning a firm's proprietary software would be considered firm‐specific investments. While such skills may seem relevant only to the particular firm in which they were invested, these investments may also send valuable signals to competing firms that such employees are willing and able to make similar investments elsewhere. Hence, managers should be interested in determining if a potential hire has made prior firm‐specific investments to help them know whether that person might be likely to make such investments in his or her future place of employment. Copyright © 2016 John Wiley & Sons, Ltd.     

Customer,regulatory, and competitive pressure as drivers of environmental innovation

We develop an economic analysis in order to examine the effects of consumer, regulatory, and competitive pressure on firm investments in environmentally friendly production. Specifically, we ask: Why do firms vary in their levels of environmental innovation? Under what conditions are such pressures effective in bringing about environmental innovation? We first consider a monopolist who faces the twin pressures of reduced customer demand and regulatory penalties, as a result of its emissions. In response to these pressures, the firm has the opportunity to make a costly investment in reduction of emissions. Secondly, we consider a competitive scenario in which two firms compete for environmentally sensitive customers. Solving our model, we find that pressure has the intended effect as long as the firm's initial level of emissions is below a certain threshold. If the emissions are above this threshold, we find that pressure might have an adverse effect on the firm's environmental investment, and that subsidies that support environmental innovation can be a better alternative. We also show that competition over environmentally sensitive customers can improve the effectiveness of environmental pressures.     

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.     

The Effect of Family Involvement on Innovation Outcomes: The Moderating Role of Board Social Capital

Innovation is an essential and yet puzzling part of family firms’ strategic focus. While family firms are generally characterized as conservative regarding their research and development (R&D) activities, researchers have recently argued that family firms can still achieve innovation-based competitive advantages. Seeking to understand the link between family influence and the outcomes of innovation, we suggest that it is necessary not only to observe the depth of family involvement, but also to differentiate between technological inventions and market innovations. We further posit that the board members’ social capital constitutes an important contingency for this link. We, therefore, investigate the relationship between family involvement and two different outcomes: the number of the firm’s inventions and the market relevance of innovations. Our analysis of S&P 500 firms comprises 1.85 million patents and manual evaluations of 1774 product announcements. The results of our estimations suggest that family involvement is negatively related to the number of inventions and positively related to the market relevance of innovations. They further show that internal and external board social capital moderate the relationship between family involvement and the number of inventions. This study adds to the discussion about family firm innovation by using socioemotional wealth to explain heterogeneity in innovation patterns and revealing that relational resources derived from board social capital are crucial boundary conditions for families’ influence on technological inventions. Taken together, it works toward a more holistic view of innovation in family-influenced firms.     

The benefits of geographic sales diversification: How exporting facilitates capital investment

Many strategic investments require firms to make upfront outlays to generate profits at a later date. When firms have limited access to external capital, they have to rely on internally generated funds for these investments. In this case, their strategic investments are constrained by cash flow. I predict that by geographically diversifying sales (i.e., exporting), firms can relax this constraint because exporting signals more stable expected cash flows and firm quality, which can increase external capital providers' willingness to fund investments. Examining a representative sample of Spanish manufacturers from 1990 to 1998, I find support that exporting mitigates investment liquidity constraints allowing firms to make strategic investments they would not otherwise be able to make. This highlights how diversification can be a strategy to create and maintain competitive advantage. Copyright © 2011 John Wiley & Sons, Ltd.