The double‐edged effect of knowledge acquisition: How contracts safeguard pre‐existing resources

Research summary : Acquiring knowledge on a partner's pre‐existing resources plays an important yet ambiguous role in collaborative relationships. We formally model how contracts trade off productive and destructive uses of knowledge in a buyer‐supplier relationship. We show that, when the buyer's pre‐existing resources are vulnerable to the revelation of sensitive knowledge, the supplier overinvests in knowledge acquisition as it expects to use the knowledge as a threat in price negotiations. A non‐renegotiable closed‐price contract prevents such overinvestment and reduces the supplier's ability to expropriate the buyer ex post. Our results extend to the cases of renegotiable closed‐price contracts, repeated interactions between a buyer and a supplier, and the use of nondisclosure policies. We draw theoretical, empirical, and managerial implications from our model. Managerial summary : This study yields new insights regarding the use of contract design in protecting pre‐existing, nonrelationship specific assets in buyer‐supplier arrangements. Anecdotal examples illustrate the “dark side” of these arrangements where opportunistic suppliers exploit knowledge of buyers' pre‐existing resources to seek rent and appropriate value. When a supplier is likely to act harmfully, a closed‐price contract that specifies the price of the supplier's component upfront may reduce the supplier's incentives to overinvest in acquiring and exploiting knowledge of the buyer's pre‐existing resources. As such, when a buyer's pre‐existing resources are highly valuable, and thus more vulnerable to use by the supplier outside of the arrangement, a non‐renegotiable closed‐price contract is more efficient. Additionally, limited disclosure policies and informal agreements based on repeated interactions complement indirect governance via price contracts. Copyright © 2015 John Wiley & Sons, Ltd.     

From core to periphery and back: A study on the deliberate shaping of knowledge flows in interfirm dyads and networks

We study 892 Italian motorcycle industry projects carried out via 184 different buyer–supplier and supplier‐supplier relationships to provide evidence on the knowledge dynamics occurring in dyads and networks and to understand the underexplored but important (perhaps even dominant) leading role that some firms play in the evolution of networks and interfirm learning processes. We develop a multiphase model which, from a multilevel perspective addressing different relational subsets, suggests how firms can best organize to generate and exchange knowledge efficiently. We argue that extant theoretical perspectives can profitably draw on our findings to strengthen their dynamic components and help them explain the widely diffused ‘exploring through partner’ strategies more effectively. Copyright © 2013 John Wiley & Sons, Ltd.     

Value creation,competition, and performance in buyer‐supplier relationships

The value‐based approach to strategy argues that a firm's ability to capture value depends on the extent of its added value. In this paper, I empirically test the link between added value and value capture using a longitudinal dataset of United Kingdom law firm performance, capabilities, and client relationships. In this setting, competitors relevant for defining a firm's added value are those that share a client with the firm. Further, within a client relationship, value creation, and hence added value, can be decomposed in two parts: product‐line capability and client‐specific scope economies. I find that added value, measured at the level of each buyer‐supplier relationship, is a driver of relationship stability and supplier profitability. This suggests that suppliers with similar capabilities might enjoy different economic returns depending on the composition of their set of relevant competitors. These findings shed light on the conditions under which firms can appropriate returns from their capabilities. They indicate that concepts from cooperative games can be fruitfully applied to empirical studies of firm performance and to the elaboration of insights from the resource‐based view of the firm. Copyright © 2010 John Wiley & Sons, Ltd.     

Managing interdependencies in supplier networks

Building and managing a supplier base has been referred to in the literature as a key aspect of supplier management. Scholars have proposed a number of models aimed at enhancing the effectiveness of supplier network management, mainly based on a portfolio approach. In the IMP tradition of research, those models are often criticized as they ignore the interdependencies between the different existing dyadic relationships of a focal buyer company and its suppliers. Such interdependencies are the main focus of this paper, which has four objectives: (1) To analyze the types of relationships linking suppliers, (2) to understand the factors and dynamics underlying the creation and management of these relationships (3) to uncover existing links between buyer-supplier and supplier-supplier relationships, and (4) to clarify how different configurations of supplier relationship interactions impact on the performance of the actors involved. The paper discusses two empirical case studies, using the supplier networks of two focal buyer companies. We find that supplier interdependencies are mainly a by-product of the buyer-supplier dyads. Furthermore, the nature and dynamics of these dyads are a strong determinant of the scope and frequency of supplier connections and the corresponding effects on performance.     

Competition,governance, and relationship‐specific investments: Theory and implications for strategy

This paper uses biform games to examine the endogenous decision to invest in relationship‐specific assets. It addresses the questions of how competition affects suppliers' decisions to produce a general‐purpose product or a relationship‐specific product for a buyer and under what circumstances a governance arrangement designed to share investment costs between the transacting parties increases the investment in relationship‐specific assets. We offer a balanced perspective that emphasizes both the superior transaction value of relationship‐specific products and their high transaction costs while considering the competition effects generated by alternative investment plans. The model and its extensions generate new insights into investment decisions regarding relationship‐specific assets. Copyright © 2013 John Wiley & Sons, Ltd.     

Demand‐side strategy,relational advantage,and partner‐driven corporate scope: The case for client‐led diversification

Research Summary: We advance research on corporate diversification by joining insights from the demand‐side and relational views in strategy to offer a novel theory of client‐led diversification. We propose that client‐led diversification results from a combination of the customer‐driven opportunities emphasized in the demand‐side view and the creation of added value through relational assets that is a central tenet of the relational view. Furthermore, we hypothesize that suppliers’ client‐specific knowledge, clients’ relational commitment to suppliers, and growth opportunities in clients’ markets (relative to the suppliers’ own markets) will magnify the client‐led diversification effect. We test our hypotheses using a longitudinal dataset on patent law firms and their diversification into new domains of patent prosecution work for their corporate clients. Managerial Summary: Explanations of why firms diversify into new lines of business have largely concerned the redeployment of underutilized resources, with little regard to opportunities or influences stemming from firms’ existing customers. In our article, we show how the changing scope of business needs from a knowledge‐based supplier firm's set of existing clients is a central driver of supplier‐firm diversification, and this is especially the case when the level of relational assets shared between a supplier and its clients is higher. In a competitive landscape where suppliers compete intensively for the business of clients, our results show how managers can increase the likelihood of capturing additional business from its existing exchange relationships rather than bearing the risks of seeking new exchange relationships.     

Gaining from vertical partnerships: knowledge transfer,relationship duration,and supplier performance improvement in the U.S. and Japanese automotive industries

We study sources of operational performance improvement in supplier partnerships. We argue that supplier performance will benefit most where time‐bound relational assets have developed between a buyer and supplier and the firms exploit the resulting communication efficiency by transferring productive knowledge. We examine the effects of two forms of knowledge exchange together with the prior duration of the buyer–supplier relationship. We find similar interaction patterns in two survey samples of Japanese and U.S. automotive suppliers. The effect of ordinary technical exchanges on supplier performance improvement does not vary with relationship duration. The effect of higher‐level technology transfer, however, grows more positive as relationship duration increases. Other results show relevant contrasts consistent with heterogeneous sourcing behavior between the two countries. The findings highlight the role of relational assets and show that it is important to distinguish between simple techniques and higher‐level technological capabilities when studying interfirm relationships. This research extends the literatures on knowledge transfer, buyer–supplier partnerships, and the performance dynamics of interfirm and intrafirm relationships in general. Copyright © 2002 John Wiley & Sons, Ltd.     

Thinking about U: Theorizing and testing U‐ and inverted U‐shaped relationships in strategy research

Research summary : U‐ and inverted U‐shaped relationships are increasingly explored in strategy research, with 11 percent of all articles published in Strategic Management Journal (SMJ) in 2008–2012 investigating such quadratic relationships. Moreover, a movement towards introducing moderation to quadratic relationships has emerged. By reviewing 110 articles published in SMJ from 1980 to 2012, we identify several critical issues in theorizing and testing of these relationships for which current practice falls short. These include insufficient causal argumentation, incorrect testing, mixing up two different types of moderation, and not realizing that the curve can flip completely. For these and other issues, a guideline is provided which, when followed, may bring clarity to theoretical motivation and rigor to empirical testing. Managerial summary : Too much can be as bad as too little. Many relationships in strategic management follow an inverted U‐shaped pattern, where moderate levels of a strategy lead to optimal performance. To gain deeper insights into the conventional wisdom that too much of a good thing can be harmful to performance, we discuss how such relationships can be better theorized and tested based on a review of articles exploring U‐shaped relationships in Strategic Management Journal during 1980–2012. We identify several critical issues that require close attention and provide a guideline to further develop and validate this important managerial intuition. Copyright © 2015 John Wiley & Sons, Ltd.     

Unpacking value creation and capture in B2B relationships

Although the relationships among different dimensions of value creation, characteristics of dyadic relationships and value concepts are well studied, they have been conceptualized independently and without much linked theorizing. Hence, little is known about how these concepts and their effects interplay with each other. This article takes a configurational approach and investigates how different dimensions of value creation and relationship factors affect value capture. The study draws on an embedded case study encompassing relationships of a focal customer in the financial payments industry with six specialized service suppliers, followed by a Qualitative Comparative Analysis (QCA) of 29 relationship conditions. For both buyers and suppliers, value creation is based on “core” value dimensions, and relationship characteristics, such as power and change in supply strategy. Five different configurations of these constructs represent sufficient conditions to increase value capture, by either negotiating better prices or shifting volume among the parties involved. Focusing on both buyer and supplier perspectives of the same phenomenon, the study increases knowledge on how contextual variables interact in influencing value capture. From a practical perspective, the proposed configurations help managers to choose adequate supply strategies, or better allocate resources according to specific conditions of a business relationship.     

Value creation and value capture under moral hazard: Exploring the micro‐foundations of buyer– supplier relationships

We combine the formalism of a principal–agent framework with a value‐based analysis in order to investigate the micro‐foundations of business partner selection and the division of value in contracting relationships. In particular, we study how the key contracting parameters such as efficiency, transactional integrity, incentive alignment, and gaming affect outcomes when buyers face competing suppliers. We show that integrity and efficiency increase value creation and capture for all parties and are complements. While incentive gaming is unambiguously bad for value creation, and reduces buyers' value capture, it can benefit some suppliers. For alignment, we find that neither party has an incentive to use fully aligned performance measures that maximize total value creation. We conclude by analyzing buyers' and suppliers' incentives to invest in integrity. Copyright © 2014 John Wiley & Sons, Ltd.     

Measuring value creation and appropriation in firms: The VCA model

Research summary : Using a productivity technique (VCA model), we estimate the economic value created by a firm and appropriated by its stakeholders in two specific empirical contexts. In the first application, we use publicly available data from the U.S. airline industry to illustrate how the VCA model can be used with multiple stakeholder groups. In the second application, we provide estimates for three global automobile companies (GM, Toyota and Nissan), showing how the model can be reformulated using value added. In both industries we find substantial heterogeneity among firms in the creation and distribution of value. We discuss strengths and limitations of the VCA model and implications for strategic management research. Managerial summary : Firms create value not only for shareholders, but also for other stakeholders, including employees, customers and suppliers. This article applies a method to quantify the “new” economic value created by a firm over an interval of time; the method also reveals the distribution of that value among the stakeholders. The proposed method gives managers some means to assess changes in the economic value created and distributed. We find that the creation and distribution of value has varied greatly among major U.S. airlines and global automakers in recent decades. Moreover, returns to shareholders typically accounted for only a small proportion of firms' total value creation and often had little relation to broader changes in the magnitude and distribution of value. Copyright © 2016 John Wiley & Sons, Ltd.     

Monitoring global supply chains

Research summary : Firms seeking to avoid reputational spillovers that can arise from dangerous, illegal, and unethical behavior at supply chain factories are increasingly relying on private social auditors to provide strategic information about suppliers' conduct. But little is known about what influences auditors' ability to identify and report problems. Our analysis of nearly 17,000 supplier audits reveals that auditors report fewer violations when individual auditors have audited the factory before, when audit teams are less experienced or less trained, when audit teams are all male, and when audits are paid for by the audited supplier. This first comprehensive and systematic analysis of supply chain monitoring identifies previously overlooked transaction costs and suggests strategies to develop governance structures to mitigate reputational risks by reducing information asymmetries in supply chains. Managerial summary : Firms reliant on supply chains to manufacture their goods risk reputational harm if the working conditions in those factories are revealed to be dangerous, illegal, or otherwise problematic. While firms are increasingly relying on private‐sector “social auditors” to assess factory conditions, little has been known about the accuracy of those assessments. We analyzed nearly 17,000 code‐of‐conduct audits conducted at nearly 6,000 suppliers around the world. We found that audits yield fewer violations when the audit team has been at that particular supplier before, when audit teams are less experienced or less trained, when audit teams are all male, and when the audits were paid for by the supplier instead of by the buyer. We describe implications for firms relying on social auditors and for auditing firms. Copyright © 2015 John Wiley & Sons, Ltd.     

Strategy tools‐in‐use: A framework for understanding “technologies of rationality” in practice

In response to critiques of strategy tools as unhelpful or potentially dangerous for organizations, we suggest casting a sociological eye on how tools are actually mobilized by strategy makers. In conceptualizing strategy tools as tools‐in‐use, we offer a framework for examining the ways that the affordances of strategy tools and the agency of strategy makers interact to shape how and when tools are selected and applied. Further, rather than evaluating the correct or incorrect use of tools, we highlight the variety of outcomes that result, not just for organizations but also for the tools and the individuals who use them. We illustrate this framework with a vignette and propose an agenda and methodological approaches for further scholarship on the use of strategy tools. Copyright © 2014 John Wiley & Sons, Ltd.     

Pawn to Save a Chariot,or Drawbridge Into the Fort? Firms' Disclosure During Standard Setting and Complementary Technologies Within Ecosystems

Research summary: W ithin an ecosystem, standard setting coordinates development of complementary technologies across firms. But each firm can itself own multiple of these complementary technologies. We study how a firm's own complementary technologies influence its disclosure inclination during standard setting. We identify a tradeoff: disclosure increases value‐creation of the firm's non‐disclosed complementary technologies, but also heightens expropriation risk. Using data on the U.S. communications equipment industry 1991–2008, we show that the firm's complementary technologies increase its disclosure inclination when its technological areas are less crowded, but decrease such inclination when there are SSO members with strong expropriation abilities. Findings stress that disclosure involves but a piece of the firm's portfolio; a systemic perspective of the entire portfolio provides a more comprehensive picture of value‐creation during standard setting . Managerial summary: W hy should a firm disclose its key technology to participate in standard setting within an ecosystem? We urge managers to think beyond “disclosing to ensure compatibility with other firms' complementary technologies within the ecosystem” as a motivation, to also consider how disclosure affects the firm's own complementary technologies within its portfolio. Disclosure in one technological area makes the firm's nondisclosed complementary technologies in other areas more valuable to itself, especially with fewer rivals competing in these other areas. But disclosure also renders the firm susceptible to losing these complementary technologies to rivals, especially when rivals have strong expropriation abilities. Analyzing disclosure decisions by communication equipment firms, we show that this tradeoff is indeed a relevant consideration in managers' strategic calculations when participating in standard setting . Copyright © 2017 John Wiley & Sons, Ltd.     

Alliance or Acquisition? A Mechanisms‐Based,Policy‐Capturing Analysis

Research summary : While alliance researchers view prior partner‐specific alliance experience as influencing firms' subsequent alliance or acquisition decisions, empirical evidence on the alliance versus acquisition decision is surprisingly mixed. We offer a reconciliation by proposing and testing an analytical framework that recognizes prior partner‐specific experiences as heterogeneous along three fundamental dimensions: partner‐specific trust, routines, and value certainty. This allows us to use a policy‐capturing methodology to rigorously operationalize and test our mechanism‐level predictions. We find that all three mechanisms can increase the likelihood of a subsequent alliance or acquisition, and in terms of the comparative choice between alliances versus acquisitions, partner‐specific trust pulls towards alliances, and value certainty pulls towards acquisitions. We conclude with a discussion of the theoretical and empirical implications of our approach and method . Managerial summary : This study focuses on an important corporate decision: When a firm has had an alliance with another firm, how would that experience affect the likelihood of a future alliance or acquisition with that same firm? We first suggest that it will depend on three factors: the level of trust that existed in that prior alliance, the extent to which specific work routines were developed, and the degree to which the firm was able to confidently assess the value of the partner firm's resources. We then find that trust is a particularly strong predictor of future alliances, while confidence regarding value more strongly predicts future acquisitions. In this way, we demonstrate more precisely how past corporate choices can affect (consciously or unconsciously) future ones . © 2017 The Authors. Strategic Management Journal Published by John Wiley & Sons Ltd.     

How Do Social Media Affect Analyst Stock Recommendations? Evidence from S&P 500 Electric Power Companies' Twitter Accounts

Research summary : The importance of firm‐stakeholder relationships is gaining increasing attention. Although a theory of the drivers and consequences of stakeholder pressure has been developing, it focuses on pressures from organized stakeholders such as shareholders, NGOs, and activists, and does not incorporate the emerging possibility that individual voices may matter. By exploring corporate Twitter, which facilitates movement of individual stakeholders such as customers to a higher stakeholder class by providing them with a greater sense of power and urgency, we study the circumstances under which customer voices significantly affect analyst stock recommendations. We find that favorable reactions to firm‐initiated messages matter, directly or indirectly, depending on the messages' growth implications. Customer‐initiated negative messages have a significant impact only with high volume and formal institutions that support customer opinions. Managerial summary : Social media is increasingly used by firms for disclosing information and engaging stakeholders. Yet, we know little about whether and how social media usage matters. We show how corporate Twitter usage may influence analyst stock recommendations. Our interviews of securities analysts suggest that social media is not institutionalized yet, but increasingly used as a source of channel checks, especially for vibes, validations, and so on. Our analyses of corporate Twitter accounts show that both firm‐initiated and customer‐initiated tweets can have significant impact on analyst recommendations under certain conditions. For firm‐initiated tweets, the extent of retweets is an important factor, along with the content of tweets, in particular, growth implications. For customer‐initiated tweets, negative tweets matter, but only with high volume and regulatory structure that supports customer protection. Copyright © 2017 John Wiley & Sons, Ltd.     

Supplier development and the relationship life-cycle

The mainstream view holds that over time buyer–supplier relationships evolve through a number of phases. As a consequence, supplier development as a buyer–supplier relationship management practice should also be adapted to the life-cycle phase. Supplier development activities matching the buyer–supplier relationship life-cycle phase will lead to more favorable performance improvements. However, prior studies have neglected the relationship life-cycle perspective. This empirical study shows how the length of the buyer–supplier relationship can be used to improve the explanatory power of models investigating the performance outcomes of supplier development activities. The results show that supplier development is more effective in mature as opposed to initial and declining life-cycles phases.     

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.     

Increase in takeover protection and firm knowledge accumulation strategy

Research summary : We argue that the extent to which a firm faces takeover threats affects its knowledge structure. In particular, takeover threats may lead to managers' reluctance to adopt a strategy toward firm‐specific knowledge accumulation because implementing this strategy requires them to acquire specialized skills, which are at risk under takeover threats. Conversely, takeover protection leads to an increase in firm‐specific knowledge. Further, the relationship between takeover protection and firm‐specific knowledge is positively moderated by managerial ownership, which helps align managerial interests with those of shareholders. But the relationship is negatively moderated by managerial tenure, as long‐tenured managers have already committed to their firms. Using a differences‐in‐differences method with Delaware antitakeover rulings in the mid‐1990s as an exogenous shock, we found results supporting these arguments. Managerial summary : We examined how changes in the Delaware antitakeover rulings in mid‐1990s affected the knowledge structure of firms incorporated in Delaware. We reasoned that with a greater level of takeover protection, top managers of those firms incorporated in Delaware felt higher job security, thus providing them stronger incentives to make strategic decisions toward the development of firm‐specific knowledge and to make corresponding human capital investments in specialized skills. Empirically, firms incorporated in Delaware were found to have an increase in the level of firm‐specific knowledge in their knowledge structure after the mid‐1990s. Furthermore, our analysis suggests that the role of takeover protection on top manager incentives is particularly salient when the managers are awarded with more company shares and when the managers have shorter organizational tenure. Copyright © 2015 John Wiley & Sons, Ltd.     

Once bitten twice shy? Experience managing violent conflict risk and MNC subsidiary‐level investment and expansion

Research summary : Researchers have increasingly emphasized the need to better understand how context affects the value of experiential learning. We address this gap by investigating when corporate‐level experience can be leveraged across borders and when experience needs to be country‐specific to be valuable. We test our hypotheses using a unique multi‐source panel dataset of 379 large MNCs from 29 home countries and their subsidiaries in 117 host countries over a 10‐year period, 1999–2008. In contrast to prior research, we find that the ability of a firm to leverage its experience with political risk across borders is limited by the type of risk involved. Experience with nonstate violent conflicts may be transferrable, but only country‐specific experience appears to yield measureable benefits for conflicts involving the host country government . Managerial summary : Violent conflicts not only increase social unrest but also impose added costs of doing business. For managers who find themselves in the midst of violent conflicts or who wish to survive and potentially gain a competitive advantage in operating in such challenging environments, is it possible to learn to manage such a seemingly “unmanageable” problem? In contrast to studies that have examined other types of political risk, we find that the ability of a firm to leverage its experience with violent conflict risk across borders is limited. Specifically, only country‐specific experiential knowledge about how the host government prepares and manages such conflict risks yields measureable economic benefits for MNCs and their subsidiaries operating in countries during conflict . Copyright © 2016 John Wiley & Sons, Ltd.