Getting beyond relatedness as a driver of corporate value

Our paper scrutinizes how corporate value derives from redeployability of firms' resources to new product markets. We focus on the underexplored determinant of redeployability, inducements, defined as advantages in returns in new over existing markets. We assemble separate dimensions of inducements from research on corporate diversification and real options and consider inducements in their entirety. A simulation model casts redeployability as a real option to switch the use of resources across markets and explicates important interdependences among the dimensions of inducements. The model also demonstrates that inducements modify the effect of relatedness on corporate value. Our theoretical arguments amend existing theory and have important implications for corporate diversification research. Copyright © 2014 John Wiley & Sons, Ltd.     

Knowledge relatedness and the performance of multibusiness firms

This study examines corporate performance effects of cross‐business knowledge synergies in multibusiness firms. It synthesizes the resource‐based view of diversification and the economic theory of complementarities to conceptualize cross‐business knowledge synergies in terms of the relatedness and the complementarity of knowledge resources across business units of the multibusiness firm. The study hypothesizes that corporate performance is improved when the firm simultaneously exploits a complementary set of related knowledge resources across its business units. In a sample of 303 multibusiness firms, the study finds that synergies arising from product knowledge relatedness, customer knowledge relatedness, or managerial knowledge relatedness do not improve corporate performance on their own. Synergies arising from the complementarity of the three types of knowledge relatedness significantly improve both market‐based and accounting‐based performance of the multibusiness corporation. Copyright © 2004 John Wiley & Sons, Ltd.     

Manufacturing‐based relatedness,synergy, and coordination

This paper explores the basic question of whether manufacturing‐based relatedness between business units within a multibusiness firm serves as a basis for a competitive advantage at the business unit level. We developed a system for describing manufacturing relatedness that combines the study of value chain activities with 4‐digit SIC codes, then we assessed presence of manufacturing synergies. We found no evidence that, on average, organizations involved in manufacturing‐related businesses are reaping financial benefits from shared resources in manufacturing. However, some firms, through explicit commitment to coordination, do realize performance benefits from such involvement. Copyright © 1999 John Wiley & Sons, Ltd.     

Stock market undervaluation of resource redeployability

Research Summary : Stock market undervaluation of resources was often assumed to have strategic implications. Such undervaluation lets firms buy resources relatively cheaply, but it can also constrain resource deployment. This article shows that the option to redeploy a firm's resources to a new business can be undervalued in stock markets when investors face ambiguity about that option due to uniqueness of redeployment. The developed formal model derives conditions under which stock markets undervalue resources. Those conditions are summarized with an empirical operationalization that can be tested with a broad range of strategic implications. Besides, the model provides a more complete account of resource redeployability by demonstrating the redeployability paradox. The paradox highlights that some determinants of redeployability enhance undervaluation, while simultaneously increasing objective value of redeployable resources. Managerial Summary : Stock markets can systematically undervalue resources. On the one hand, such undervaluation creates a profitable opportunity for a firm that needs some resources for its growth and compares the option to buy stock in another firm, whose resource are undervalued, with the option to build those resources internally. On the other hand, such undervaluation poses limits to resource deployment strategies of the undervalued firm. When does such undervaluation occur? This study highlights one possible source for undervaluation, ambiguity that is faced by stock market investors about the option to redeploy a firm's resources to a new business. The study specifies conditions under which stock markets are more likely to undervalue resources. The understanding of those conditions can guide managers toward strategic opportunities.     

Contingent value of director identification: The role of government directors in monitoring and resource provision in an emerging economy

Research summary: Although previous studies have explored the value of government directors, less attention has been directed at the antecedents of government directors' engagement in value‐adding activities, such as managerial monitoring and resource provision. Drawing on social identity theory, we offer a novel model that specifies how a government director's dual identifications with the focal firm, and with the government individually and interactively affect his or her governance behavior. An investigation of government directors in China shows that their identification with the focal firm enhances monitoring and resource provision, while their identification with the government affects monitoring and resource provision differently. depending on the dominance of state ownership. The synergistic/substitutable effects between the two types of identification are contingent on state ownership and governance roles. Managerial summary: This study examines how a government director's dual identities—as a government official and as a board member of a focal firm affect his or her engagement in managerial monitoring and resource provision. Using data of Chinese listed firms, we find that government directors who strongly identify with the focal firm or with the government are highly motivated to fulfill their fiduciary obligations. However, the positive effects of their identification with the government differ between state‐owned enterprises (SOEs) and non‐SOEs. The combination of the two identifications offers a further boost to monitoring in non‐SOEs, and to resource provision in both SOEs and non‐SOEs, but it acts as a disincentive to monitoring in SOEs. Copyright © 2015 John Wiley & Sons, Ltd.     

Explicit and tacit synergies between alliance firms and radical innovation: the moderating roles of interfirm technological diversity and environmental technological dynamism

This study draws on theories of organizational inertia and relational view to examine how the pursuit of partnership synergy influences radical innovation in different technological contexts. We differentiate between two types of synergy: explicit synergy, defined as the potential to exchange interfirm operational elements to renew processes or capabilities, and tacit synergy, conceptualized as the potential to synthesize cross-boundary resources to develop new perspectives or thinking modes. We find that both explicit and tacit synergies have positive impacts on radical innovation, and such impacts are contingent on interfirm technological diversity and environmental technological dynamism in opposing ways. Specifically, environmental technological dynamism positively moderates the relationship between explicit synergy and radical innovation but not the relationship between tacit synergy and radical innovation. In contrast, interfirm technological diversity positively moderates the relationship between tacit synergy and radical innovation but not the relationship between explicit synergy and radical innovation. Our study sheds new light on the generation of radical innovation in alliances. It also provides practitioners with useful guidelines for crafting synergy strategies that will facilitate the pursuit of radical innovation.     

Social capital,strategic relatedness and the formation of intraorganizational linkages

This paper investigates the evolutionary dynamics of network formation by analyzing how organizational units create new interunit linkages for resource exchange. Using sociometric techniques and event history analysis, this study predicts the rate at which new interunit linkages are created between a newly formed unit and all the existing units in a large multinational organization. Two important constructs: social capital, derived from the literature on social structure and network formation, and strategic relatedness, derived from research on diversification and the resource‐based view of the firm, are used to explain the rate of new linkage creation. Results show that the interaction between social capital and strategic relatedness significantly affects the formation of intraorganizational linkages. Copyright © 2000 John Wiley & Sons, Ltd.     

Resource relatedness and the mode of entry into new businesses: Internal resource accumulation vs. access by collaborative arrangement

When firms seek to enter a new business segment, they have to decide how to best gain access to the required resources. This paper analyzes how resource relatedness influences a firm's decision between internal development and collaborative arrangement as modes of entry. We distinguish between a firm's capacity to transfer its established resources to the new segment (resource transferability) and the integration and synergistic combination of current firm resources with target segment resources in day‐to‐day operations (resource complementarity). Resource transferability makes entry by internal development more likely, but this effect depends on segment characteristics. Synergies from complementary resources can be exploited more easily within firm boundaries than across an alliance interface. However, certain partner characteristics can substitute in part for belonging to the same firm. Copyright © 2014 John Wiley & Sons, Ltd.     

Firm growth,adaptive capability,and entrepreneurial orientation

Research summary: This paper posits adaptive capability as a mechanism through which a firm's prior growth influences the exhibition of future entrepreneurial action. Defined as the firm's proficiency in altering its understanding of market expectations, increased adaptive capability is a consequence of the new resource combinations that result from expanding organizational boundaries. Increased adaptive capability in turn corresponds to expansion of entrepreneurial activity, as firms increase their entrepreneurial orientation as the strategic mechanism to capitalize on their improved understanding of market conditions. We find support for our research model in a two‐study series conducted in South Korea and the United Kingdom. Managerial summary: Most would agree that entrepreneurially oriented firms—being innovative, entering new markets, and taking risk—grow faster. But how a firm becomes entrepreneurial is a complicated question. In this study, we flipped the growth relationship around and found support for growth contributing to a firm's entrepreneurial orientation. But between growth and being more entrepreneurial is the firm's ability to recognize changes in market expectations. We argue that as a firm grows, it acquires new resources and new knowledge of how to use those resources. These new resource combinations increase its ability to recognize changes in market expectations—its adaptive capability. This capability uncovers new entrepreneurial opportunities for value creation. To capture this potential value, firms expand their entrepreneurial orientation. Copyright © 2016 John Wiley & Sons, Ltd.     

Money secrets: How does trade secret legal protection affect firm market value? Evidence from the uniform trade secret act

Research summary : We investigate the impact of trade secret legal protection on firm market value in the context of acquisitions. On one hand, market value may increase because trade secret assets become better protected from rivals. On the other hand, market value may decrease because trade secret protection reduces information about the target and its competitors available to potential buyers, increasing uncertainty about its value. Buyers will discount their offers in expectation of being compensated for riskier deals. Using a sample of private equity investments in the United States, we find that trade secret protection has a positive effect in industries with high mobility of knowledge workers, but a negative effect in industries with (1) high resource–value uncertainty and (2) high poor‐investment risk. Managerial summary : We argue that an increase in trade secret legal protection might not unequivocally benefit firm owners when selling their business. A stronger trade secret protection increases the market value of firms in industries with high workers' mobility, but it decreases the market value of firms in industries with uncertain resource value and/or high risk of poor‐acquisition investments. Based on the contingent effect of trade secret protection, companies may want to adjust their strategic decisions, including where to locate or relocate, based in part on whether they will derive benefits or suffer losses when trade secrets are better protected. Finally, our study should help policymakers understand more fully the economic impact of government policies associated with trade secrets. Copyright © 2016 John Wiley & Sons, Ltd.     

The Influence of Regular Work Systems on Compensation for Contingent Workers

Using data from a nationally representative survey of U.S. establishments, this article explores how features of regular work influence outcomes for contingent workers. The results show that firms combine regular and contingent work in varied ways: Some managers design contingent work to achieve performance objectives not possible with the regular workforce, whereas managers in other cases create contingent jobs to reinforce the same goals as regular work. In the latter case, contingent workers are more likely to be integrated with regular workers and to receive benefits. Benefit provision for contingent workers is also influenced by traditional internal labor market rules and by spillover effects in which efficiency or regulatory requirements lead benefits to be extended to contingent staff once offered to regular workers.     

Role of industry relatedness in performance of Indian acquirers—Long and short run effects

We explore the effect of industry relatedness on the performance of Indian acquirers using both short run and long run performance measures. We argue that mergers and acquisitions are distinct strategies, because of the unique regulatory structure and equity ownership pattern that exists in India. Their choice depends on control considerations on the one hand and regulatory imperatives on the other. Correspondingly, their sources of value creation or destruction do not always correspond to extant theories of synergy or agency. We present a modified synergy story and illustrate that, while related acquisitions create value and non-related acquisitions destroy value, both related and unrelated mergers create value.     

Equity‐based incentives and collaboration in the modern multibusiness firm

Research summary : This paper examines the role of equity‐based incentives in fostering cross‐business‐unit collaboration in multibusiness firms. We develop a formal agency model in which headquarters offers equity and profit incentives to business‐unit managers with the objective of maximizing total expected firm returns. The resulting compensation contract provides a rich mechanism for aggregating value from collaborative interactions across business units, aligning managers' efforts with the firm's growth prospects and organization structure and managing the dual risks in profits and firm market value. The inclusion of equity incentives elicits higher levels of own‐unit and collaborative efforts over the profits‐only contract. Our results suggest that equity‐based incentives are most beneficial when profitability is uncertain relative to long‐term growth prospects, in firms pursuing related diversification strategies, and in periods of rising equity markets. Managerial summary : Equity‐based compensation such as restricted stock grants and options are increasingly common, not only for CEOs and other top executives, but also for business unit managers and other non‐C‐suite employees. The paper studies the role of such “global” incentives in enabling multibusiness firms to benefit from cross‐unit collaboration. Results from our model show that managerial contracts that include appropriate levels of equity incentives, in addition to profit‐based incentives, generate higher own‐unit and collaborative efforts. We also find that equity incentives are likely to be most beneficial for large firms in high‐growth sectors, for firms pursuing a related diversification strategy, and in periods of rising stock markets. The model can also provide useful guidance on designing return‐maximizing compensation contracts for business unit managers in different firm, organizational, and industry contexts. Copyright © 2015 John Wiley & Sons, Ltd.     

Technology-enabled value co-creation: An empirical analysis of actors,resources, and practices

How do economic actors in complex business-to-business (B2B) service systems co-create value when resource exchange is contingent on available and accessible Information and Communication Technology (ICT)? In this paper, we draw on findings from a multiple case study of the consulting industry to provide empirical insights into the nature of these technology-enabled value co-creation processes. Our analysis demonstrates that technology-enabled value co-creation processes are complex interactions between interdependent actors who perform any of eight distinct roles. Specifically, our theoretical contribution consists of five propositions that define the roles of actors (who?), resources (what?), and practices (how?) underlying technology-enabled value co-creation in complex B2B service systems. This exploratory study establishes a foundation for future research, and offers managerial guidance in this increasingly important area.     

The Relationships between Resource Configurations and Launch Strategies in Taiwan's IC Design Industry: An Exploratory Study

Within the last decade, the link between launch strategies and new product performance has been widely investigated. However, the relationship between resource configurations and launch strategies has received little attention. This study endeavors to fill that void by examining the relationships between resource configurations and launch strategy selections. In addition, this study investigates the moderating effects of market growth and competitiveness on the relationship between resources and launch strategies. Drawing on contingency theory and strategic studies, this study proposes that resource contingencies affect changes in launch strategies. This study also suggests that market characteristics play a contingent role in the relationships between the configurations of resources and launch strategy choices. Based on extensive studies reporting on market characteristics and their links to strategies, this study proposes that two market characteristics—market growth and competitiveness—are relevant for launch strategy decision making. Taiwan's integrated circuit (IC) design industry has been used as the analytical sample, as it has been identified as a promising sector for new product development. Based on the result of investigating 90 firms, four resource configurations are identified: (1) strategic and organizational abilities; (2) technological capabilities; (3) societal assets and goodwill; and (4) physical assets. Furthermore, two different launch strategies—innovative and product advantage and cost oriented—also are discovered. The results from a seemingly unrelated regression model reveal that technological capabilities and societal assets and goodwill contribute to the variation in the firms' choices of launch strategies. This study further conducted the simple slope analysis to observe the effect of the technological capabilities on the innovative and product advantage strategy under different levels of the market growth rate. The results interestingly showed that firms with technological capabilities demonstrated different degree of tendencies in employing this strategy in alignment with various market growth rates. The finding sheds some lights on the moderating role market characteristics play on the relationships between resource configurations and launch strategy selections. Academic implications and suggestions for practitioners also are provided.     

Whom are you promoting? Positive voluntary public disclosures and executive turnover

Research summary: This paper uses signaling theory to bring together two complementary research streams that have largely ignored each other: strategic human resource management and media relations management. We argue that when publicly traded firms voluntarily and publicly disclose positive information about their value creation and appropriation activities, they also send positive signals to managerial labor markets regarding executives' capabilities. Accordingly, we hypothesize a positive association between public disclosures and voluntary executive turnover. An analysis of pharmaceutical and communications equipment firms from 1990 to 2004 supports this prediction, underscoring the need to understand better the effects of voluntary public disclosures on a firm's ability to protect its human capital. More generally, our results highlight the importance of considering the impact of a single signal on multiple receivers. Managerial summary: Given the organizational benefits of positive media coverage, the considerable effort that firms put into managing their image in the media is not surprising. We argue and show, however, that when a firm enhances its public image it also improves its executives' positions in the managerial labor market and, by so doing, increases their likelihood of voluntarily leaving the firm. In particular, we find that corporate press releases, an important mechanism for managing information released in the public domain to signal a firm's competitive advantages, may result in unintentional loss of senior management talent. This trade‐off suggests that firms should increase coordination between their strategy, human resources, and corporate communications/investor relations departments to ensure that they collectively weigh the benefits and costs of publicly disclosing value‐relevant information. Copyright © 2015 John Wiley & Sons, Ltd.     

Inter-firm collaboration in new product development in Chinese pharmaceutical companies

High-tech firms increasingly rely on inter-firm collaboration (IFC) in new product development (NPD). While there is a growing research interest in exploring the economic rationale of IFC through the transaction cost economics (TCE) and the resource synergy of IFC through the resource-based view of the firm (RBV), little attention has been given to the institution-based view (IBV) that also has important implications for firms’ choice of IFC. In particular, how national institutional environment affects IFC in the NPD process remains under-researched. This study aims to contribute to the literature by extending our understanding of the role of IFC in firms’ NPD process, taking into account transactional, resource, and institutional factors. Based on a case study of two firms: a state-owned and a private pharmaceutical firm in China, our research identifies three key forms of IFC, which are dynamic at different stages of NPD and contingent upon an array of institutional, resource, and transactional rationales underpinning firms’ choice of different forms of IFC. Our study is the first one that investigates the role of IFC in the NPD process bringing together the IBV, RBV, and TCE perspectives.     

Slack resources,firm performance,and the institutional context: Evidence from privately held European firms

Research summary : Integrating the behavioral and institutional perspectives, we propose that a country's formal institutions, particularly its legal frameworks, affect managers' deployment of slack resources. Specifically, we explore the moderating effects of creditor and employee rights on the performance effects of slack. Using longitudinal data from 162,633 European private firms in 26 countries, we find that financial slack enhances firm performance at diminishing rates, whereas human resource (HR) slack lowers performance at diminishing rates. However, financial slack has a more positive effect on firm performance in countries with weaker creditor rights, whereas HR slack has a more negative effect on performance in countries with stronger employee rights. The results provide a richer view of the relationship between slack and firm performance than currently assumed in the literature. Managerial summary : A key dilemma managers often encounter is whether, on the one hand, they should build in excess resources to buffer their firms from internal and external shocks and to pursue new opportunities or whether, on the other hand, they should develop “lean” firms. Our study suggests that excess cash resources—which are usually viewed as easy to redeploy—benefit firm performance, especially when firms operate in countries with weaker creditor rights. However, excess human resources—which are usually viewed as more difficult to redeploy—hamper firm performance, particularly when firms operate in countries with stronger labor protection laws. Thus, the management of slack resources critically depends on the characteristics of these resources (e.g., redeployability) and the institutional context in which managers operate. Copyright © 2016 John Wiley & Sons, Ltd.     

Incumbents,technological change and institutions: How the value of complementary resources varies across markets

This article examines the influence of complementary resources on the performance of incumbents after a radical technological change. In investigating this relationship, we join the technological management literature and the institution‐based view of strategy and maintain that the value of complementary resources is contingent on the institutional environment in which the firm operates. In particular, we submit that formal institutions, both economic and political, moderate the relationship between the stock of complementary assets and firm performance. We test our hypotheses in the context of the world mobile telecommunications industry (39 countries and 134 mobile service providers). Our findings reveal how these resources are more valuable for incumbents in markets where market‐supporting institutions are weaker and political stability is higher. Copyright © 2014 John Wiley & Sons, Ltd.