Integration,knowledge creation and B2B governance: The role of resource hierarchies in financial performance

Knowledge is a critical competitive resource for firms that increasingly exploit resources and capabilities combined with those of channel partners to create new knowledge. However, the opportunism risks inherent in any B2B relationship require firms to employ governance mechanisms to protect their interests. These tensions call for further study of how B2B partners exploit combined resources to produce new knowledge. This research employs a Resource Hierarchy View of resource bundling to describe the ways that firms integrate internal and external processes to achieve financial performance through knowledge creation, and the role that relational governance approaches play in enabling those resource combinations. The study finds that normative and formalized governance forms both enable complex combinations of knowledge creation and integration resources in a way that affects financial performance more than either resource could in simpler combination. However, there are differences in how knowledge is created through internal and external process integration.     

Development of Trust: A Study of Interfirm Relationships in Vietnam

The radical political and economic reforms sweeping through former socialist countries during the last decade have opened rich opportunities for privately owned businesses to emerge and develop. Since the market institutions and infrastructures in these countries are largely underdeveloped, private firms in transition economies rely extensively on interfirm partnerships. This raises the question of how—in the absence of institutions that legitimate markets, contracts, and private property—managers of new business ventures develop new relationships. This paper addresses this issue through analysis of multiple subcontracting relationships formed at a private garment company in Vietnam. This analysis suggests that firms in transition economies develop interfirm trust in ways that are quite different from their counterparts in more highly developed economies.     

Managing business and social network relationships in Russia: The role of relational capabilities,institutional support and dysfunctional competition

The current study provides empirical insight into the nature of creating relational rents when managing business relationships in the context of the emerging Russian economy. Addressing both formal and social business network relationships, the study aims to understand the role of a systematic and purposeful approach to building and managing business relationships in order to generate superior relational advantage. The study explores the effects on both subjectively and objectively measured relational rents. Additionally, the role of institutional context in both shaping relationships and obtaining relational rents is considered through the inclusion of dysfunctional competition and institutional support. The results of a survey on a sample of 148 business-to-business firms demonstrate the leading role of the business relationship portfolio in generating relational rents, as well as the supporting role of relational capabilities in building this relationship portfolio. These effects are significantly affected by institutional moderators, demonstrating multidirectional effects on the mechanisms behind building relationships and obtaining the associated relational advantage.     

The strategic role of relational capabilities in the business-to-business service profit chain

This paper extends the original service profit chain by examining the role of relational capabilities with employees, customers and strategic partners on process and performance outcomes in a business-to-business context. More specifically, we demonstrate how satisfied and loyal employees are better in developing relationships with customers and strategic partners. These relationships enable firms to be more responsive towards customers and become more innovative, which increase customer satisfaction and loyalty and, ultimately, financial performance. Our results provide support for the development of relational capabilities in a business-to-business environment by extending the service profit chain (SPC) model. However, we find that while the development of strong customer relationships contributes to an improved service responsiveness of the firm, strategic partners do not.     

Marketing capabilities: Antecedents and implications for B2B SME performance

The study provides a new perspective on SME marketing strategies in the B2B context. Using a resource-based view of the firm, the study develops a structural model linking marketing capabilities and marketing performance. A study of 367 SME Australian firms reveals that two key marketing capabilities, namely branding and innovation, have major performance outcomes in the SME B2B context. This is the first SME study to evaluate concurrently the contribution of innovation and branding marketing capabilities, with innovation capability the strongest determinant of SME performance. The study also finds market orientation and management capability act as enabling mechanisms for building marketing capabilities. Disaggregation tests indicate that the same findings apply to three size categories denoting micro firms (less than 20 staff), small firms (20-99 staff) and medium-sized firms (100-499 staff).     

Performance of Global New Product Development Programs: A Resource-Based View

Gaining a competitive edge in today's turbulent business environment calls for a commitment by firms to two highly interrelated strategies: globalization and new product development (NPD). Although much research has focused on how companies achieve NPD success, little of this deals with NPD in the global setting. The authors use resource‐based theory (RBT)—a model emphasizing the resources and capabilities of the firm as primary determinants of competitive advantage—to explain how companies involved in international NPD realize superior performance. The capabilities RBT model is used to test how firms achieve superior performance by deploying organizational capabilities to take advantage of key organizational resources relevant for developing new products for global markets. Specifically, the study evaluates (1) organizational NPD resources (i.e., the firm's global innovation culture, attitude to resource commitment, top‐management involvement, and NPD process formality); (2) NPD process capabilities or routines for identifying and exploiting new product opportunities (i.e., global knowledge integration, NPD homework activities, and launch preparation); and (3) global NPD program performance. Based on data from 387 global NPD programs (North America and Europe, business‐to‐business), a structural model testing for the hypothesized mediation effects of NPD process capabilities on organizational NPD resources was largely supported. The findings indicate that all four resources considered relevant for effective deployment of global NPD process capabilities play a significant role. Specifically, a positive attitude toward resource commitment as well as NPD process formality is essential for the effective deployment of the three NPD process routines linked to achieving superior global NPD program performance; a strong global innovation culture is needed for ensuring effective global knowledge integration; and top‐management involvement plays a key role in deploying both knowledge integration and launch preparation. Of the three NPD process capabilities, global knowledge integration is the most important, whereas homework and launch preparation also play a significant role in bringing about global NPD program success. Tests for partial mediation suggest that too much process formality may be negative and that top‐management involvement requires careful focus.     

Who does private equity buy? Evidence on the role of private equity from buyouts of divested businesses

Research Summary: We examine the role of nonventure private equity firms in the market for divested businesses, comparing targets bought by such firms to those bought by corporate acquirers. We argue that a combination of vigilant monitoring, high‐powered incentives, patient capital, and business independence makes private equity firms uniquely suited to correcting underinvestment problems in public corporations, and that they will therefore systematically target divested businesses that are outside their parents’ core area, whose rivals invest more in long‐term strategic assets than their parents, and whose parents have weak managerial incentives both overall and at the divisional level. Results from a sample of 1,711 divestments confirm these predictions. Our study contributes to our understanding of private equity ownership, highlighting its advantage as an alternate governance form. Managerial Summary: Private equity firms are often portrayed as destroyers of corporate value, raiding established companies in pursuit of short‐term gain. In contrast, we argue that private equity investors help to revitalize businesses by enabling investments in long‐term strategic resources and capabilities that they are better able to evaluate, monitor, and support than public market investors. Consistent with these arguments, we find that when acquiring businesses divested by public corporations, private equity firms are more likely to buy units outside the parent's core area, those whose peers invest more in R&D than their parents, and those whose parents have weak managerial incentives, especially at the divisional level. Thus, private equity firms systematically target those businesses that may fail to realize their full potential under public ownership.     

The Importance of Social Capital to the Management of Multinational Enterprises: Relational Networks Among Asian and Western Firms

Social capital is an important concept for multinational firms. Firms operating in global markets rarely have adequate resources to compete effectively in global markets; they access the needed resources through formal and informal relationships with other firms. The cultures in Asian countries have emphasized relationships much more strongly than Western firms. Thus, relational capital, based on guanxi (China), kankei (Japan) and inmak (Korea), provides the framework for business dealings in many Asian countries. As a result, the social capital of many Asian firms gives them a potential competitive advantage in global markets. Western firms must develop social capital and learn to manage relational networks to gain and sustain a competitive advantage in global markets. Western firms can learn how to develop and manage social capital from Asian firms. Alternatively, social capital has some disadvantages. Firms are limited by their networks and thus experience opportunity costs and path dependence. Additionally, while Asian firms often have strong network ties in their domestic markets, they have to develop many more ties globally to operate effectively in global markets. As a result, the development and management of social capital has become of critical importance for competitive advantage in global markets.     

Learning: The interface of quality management and strategic alliances

In this paper, we investigate the practice of quality management in strategic alliances. By employing a relational view of inter-organizational competitive advantage, the paper addresses the concept of quality management in strategic alliances and networks. We argue that institutional/network relationships influence the practice of quality within a network. In that regard, firms that have adopted quality management practices are more effective in managing and coordinating their interactions with other firms in the network, which results in their enhanced learning capability within the alliance.The proposed framework recognizes the role of trust and cooperative learning as critical factors that affect the success of strategic alliances. It has been argued that firms within an alliance need to achieve the paradox of control and learning. We examine the role of trust as a control mechanism in strategic alliances and address the importance of cooperative learning within alliances. Several hypotheses have been proposed and future research has been outlined.     

Strategic Suppliers' Technical Contributions to New Product Advantage: Substitution and Configuration Options

Current theory lacks clarity on how different kinds of resources contribute to new product advantage, or how firms can combine different resources to achieve a new product advantage. While several studies have identified different firm‐specific resources that influence new product advantage, comparatively little research has explored the contribution of strategic supplier resources. Combining resource‐based and relational perspectives, this study develops a theoretical model investigating how a strategic supplier's technical capabilities impact focal firm new product advantage and how firms combine different resources to gain this advantage. The model is tested using detailed survey data collected from 153 interorganizational new product development projects in the United Kingdom within which a strategic supplier had been extensively involved. Empirical results support our research hypotheses. First, supplier technical performance is shown to have a significant positive impact on new product advantage. Next, we show that while supplier technical capabilities have a positive influence on supplier technical performance, the a priori nature of the supplier's task moderates the relationship. Finally, our data support our hypotheses related to the positive relationship between relationship‐specific absorptive capacity and new product advantage, and the proposed negative moderation of supplier technical capabilities on this relationship. Based upon these findings, we encourage managers to recognize that strategic suppliers' with greater technical capabilities perform better regardless of the degree of creativity required by their task; but that strategic suppliers with lower technical capabilities may partially compensate (substitute) for their lack of technical capabilities, if they are able to respond to high problem‐solving task requirements. Furthermore, we suggest that the firm's development of relationship‐specific absorptive capacity is much more important when a strategic supplier is less technically capable. A buying firm's relationship‐specific absorptive capacity can, according to our data, substitute for low supplier technical capabilities. On the other hand, where the supplier has strong technical capabilities, investments in relationship‐specific absorptive capacity have no effect on new product advantage. Our findings reinforce recent calls for research on how firms can combine different resources and capabilities to achieve superior performance.     

Inbound open innovation for enhanced performance: Enablers and opportunities

Open innovation, defined as a firm's purposive pursuit and integration of external inputs for new product development, offers an alternative perspective on innovation. Drawing on resource-based and capability theories, this study identifies key factors that enable inbound open innovation and increase its efficacy in a business-to-business context. Because open innovation relies on external connections, relational capability—that is, the firm's ability to make and manage relationships with other firms—should enhance the effects of inbound open innovation on firm performance. Two key resources may further enhance the moderating effects of relational capability: network spillovers that indicate knowledge-rich surroundings, and flexibility that allows for responsiveness and adaptability. The authors test these relationships with data from managers in 204 business-to-business high-tech firms, as well as secondary data pertaining to firm performance and flexibility. The results support the expectations that the ability to build interfirm relationships in a knowledge-rich environment increase the efficacy of inbound open innovation for gaining superior financial performance. Interestingly, additional analyses suggest an unexpected nonlinear interaction effect with flexibility. When firms possess strong relational capabilities and adopt an open innovation approach, they achieve higher financial performance if they have a low or a high level of flexibility. The theoretical and managerial implications of these findings are discussed.     

Organizing for Radical Innovation: An Exploratory Study of the Structural Aspects of RI Management Systems in Large Established Firms

To escape the intense competition of today's global economy, large established organizations seek growth options beyond conventional new product development that leads to incremental changes in current product lines. Radical innovation (RI) is one such pathway, which results in organically driven growth through the creation of whole new lines of business that bring new to the world performance features to the market and may result in the creation of entirely new markets. Yet success is elusive, as many have experienced and scholars have documented. This article reports results of a three-year, longitudinal study of 12 large established firms that have declared a strategic intent to evolve their RI capabilities. In contrast to other academic research that has analyzed specific projects to understand management practices appropriate for RI, the present research reported explores the evolution of management systems for enabling radical innovation to occur repeatedly in large firms and reports on one aspect of this management system: organizational structures for enabling and nurturing RI. To consider organizational structure as a venue for capability development is new in the management of innovation and dynamic capabilities literatures. Conventional wisdom holds that RIs should be incubated outside the company and assimilated once they have gained traction in the marketplace. Numerous experiments with organizational structures were observed that instead work to manage the interfaces between the RI management system and the mother organization. These structures are described here, and insights are drawn out regarding radical innovation competency requirements, transition challenges, senior leadership mandates, and business-unit ambidexterity. The centerpiece of this research is the explication of the Discovery–Incubation–Acceleration framework, which details three sets of necessary, though not sufficient competencies, for building an RI capability.     

Mobilizing suppliers when starting up a new business venture

Prior research has shown that new ventures can complement their capabilities and extend their limited internal resources by drawing on suppliers. Yet, our knowledge of the supplier mobilization process in new ventures is limited. In this paper, we take a relational perspective on the mobilizing process, which entails investigating the scope for mobilizing suppliers in new ventures and new ventures' attractiveness to suppliers. Drawing on three new venture cases, we posit that for new ventures the scope for mobilizing suppliers: 1) ranges from the use of suppliers for the procurement of well-defined existing inputs to the co-development of various resources and capabilities with suppliers; 2) varies across ventures, reflecting the new venture's distance to market; and 3) depends on the supplier's assessment of the new venture's attractiveness as a customer. We also argue that the attractiveness of new ventures as customers to the suppliers is based on elements that differ from those found in studies of ongoing businesses, and include: 1) stimuli to innovate and develop new competencies, 2) reputational benefits and prestige, and 3) personal satisfaction.     

Inter‐temporal economies of scope,organizational modularity,and the dynamics of diversification

The question of whether corporations add value beyond that created by individual businesses has engendered much debate in recent years. Some of this debate has focused on the pros and cons of related vs. unrelated diversification. A standard explanation of the benefits of related diversification has to do with the ability to obtain intra‐temporal economies of scope from contemporaneous sharing of resources by related businesses within the firm. In contrast, this paper deals with inter‐temporal economies of scope that firms achieve by redeploying resources and capabilities between related businesses over time, as firms exit some markets while entering others. The transfer of resources due to market exit distinguishes our treatment of inter‐temporal economies of scope from standard intra‐temporal economies of scope. In addition, these inter‐temporal economies can benefit from a decentralized and modular organizational structure. This ability to obtain inter‐temporal economies of scope via organizational modularity and recombination suggests that corporations do not necessarily need a high degree of coordination between business units in order to benefit from a strategy of related diversification. Copyright © 2004 John Wiley & Sons, Ltd.     

Cooperative Innovation Projects: Capabilities and Governance Mechanisms*

This paper is concerned with how firms in a project‐based industry cooperate in technological innovation projects in the construction industry. The main focus of the paper is on the sharing of capabilities in cooperative innovation projects and how these cooperations are governed. A knowledge‐based perspective is applied, and four cooperative innovation projects in the construction industry are compared. Based on the case studies, a set of propositions is defined. First, a cooperation aimed at a mutual strategic benefit in mutually gaining access to the knowledge bases of the involved firms, while maintaining their own differentiated knowledge base, can result in more stable and long term relationships with mutual trust between the cooperating firms. Second, in a cooperation aimed at a mutual strategic benefit in mutually gaining access to the knowledge bases of the involved firms, partners not only gain access to each other's technological capabilities but also develop and share knowledge about organizational aspects and market situations and gain knowledge about the way of working of the partner firm. Third, in a cooperation aimed at mutual strategic benefit in mutually gaining access to the knowledge bases of the involved firms, noncodifiability of the capabilities is conditional to create a win–win situation. And fourth, cooperation aimed at a mutual strategic benefit in mutually gaining access to the knowledge bases of the involved firms is based on mutual competence and intentional trust as its main governance mechanism, whereas contracting between market parties aimed at knowledge–output transactions is represented by limited trust and arms' length (contractual) relationships as its main governance mechanism.     

The impact of psychological contract breaches within east-west buyer-supplier relationships

The expanding role of Asian firms in global supply chains has meant that their Western counterparts need to be capable of transcending the East-West divide in their relational building efforts if they wish to successfully participate in these networks. This paper draws upon social exchange (SE) theory to integrate the exit, voice, loyalty, neglect (EVLN) typology with the psychological contract (PSYCON) literature, to examine how Australian buyer firms build and nurture relationships with their Chinese suppliers. Data from 327 Australian managers collected using an online self-administered questionnaire reveals the negative effects of PSYCON breaches towards their suppliers on neglect, voice and loyalty in the relationship. In addition, contrasting effects of neglect and voice behaviours on trust and commitment, suggest that these behaviours can help erode and build East-West B2B relationships, respectively. These findings extend research on B2B relationships and offer useful managerial insights for decision makers operating in global supply chains involving relationships between firms from Eastern and Western backgrounds.     

Evolution or revolution? Dynamic capabilities in a knowledge‐dependent firm

In this paper we examine the technological and organizational innovations which have facilitated rapid growth in a small firm. Evidence from the case suggests that the relational elements of inter-firm transactions provide entrepreneurs with the opportunity to expand their organizational capabilities. The importance of business networks is that they have resources which can supplement internal skills and knowledge. The two owner-directors of RWL have been instrumental in building relationships with suppliers and customers which have benefited all parties. In doing so, they have renewed their own firm's dynamic capabilities by creating a structure and associated routines that focus on opportunity recognition and exploitation. These new capabilities are based on a recognition that competitive advantage can be created by acting as a knowledge-integrator. In that sense, RWL is a knowledge-dependent firm because there is no emphasis on the acquisition of intellectual property rights nor even an attempt to retain knowledge in-house. In pursuing this strategy to achieve growth, the directors have resolved a number of concurrent crises that suggests it is necessary to revisit traditional linear models of firm growth ( Greiner, 1972; Churchill and Lewis, 1983 ).     

Strategic interaction in alliances

Research summary: This article studies strategic interactions between firms that form alliances to exploit synergistic benefits. Firms cooperate to create value, but they can also compete to capture value. Fundamental questions rarely addressed by strategy scholars relate to how the configuration of control over resources influences firms' strategies, the potential for termination, and the emergence of cooperation and trust. The formal results reveal crucial aspects of the interorganizational rent‐generating process and yield testable implications. With greater synergistic benefits, firms invest more, but they also compete more intensively to capture more value. With symmetric control, more value gets created, which limits the potential for termination, but also exacerbates the competition for value; from a relational perspective, this form of control augments the calculative rationale of cooperation and trust . Managerial summary: When forming an alliance to exploit synergies, firms engage in a complicated strategic interaction that is part cooperation and part competition. What happens when partner firms cooperate and invest to create value while competing and using costly adversarial tactics to capture value? The analysis reveals that with greater synergistic benefits, firms invest more in value creation, but the fear of opportunism pushes them to waste more resources on value capture tactics. The balance between value creation and value capture, and the possibility that the alliance is terminated depend on the configuration of control over resources. The analysis further reveals under what conditions there can be trust between the partners, such that they focus on value creation and avoid wasting resources in the competition for value . Copyright © 2016 John Wiley & Sons, Ltd.     

Managing business relationships during a pandemic: Conducting a relationship audit and developing a path forward

During stable times, firms will generally aim to create reliable B2B relationships that provide increased efficiency and profitability. However, tumultuous times, such as the time during a major pandemic, cause many significant disruptions in both internal and external environmental domains. Thus, we argue that it is critical during this time to reevaluate the company's business relationships as a whole. While long-term partnerships are great for handling incremental changes during stable times, disruptive environmental changes may require managers to consider disruptive changes to their businesses. A pandemic may also present opportunities for establishing new relationships as there may be other partners/suppliers who are better equipped to help the company address urgent short-term needs and to capitalize on significant long-term opportunities. In this paper, we design a new relationship audit template to help B2B firms weather the immediate crisis at hand and position themselves more strategically for the future. We explore this idea in relation to the coronavirus outbreak, introduce the idea of a B2B crisis relationship audit, and offer potential steps forward for firms.     

The influence of resource bundling on the speed of strategic change: Moderating effects of relational capital

Integrating the theoretical perspectives of resource orchestration and relational capital, this research examines how the managerial capability involved in resource bundling approaches (i.e., stabilizing, enriching, and pioneering) affect the speed of strategic change, and how managerial ties (i.e., government ties, customer ties and supplier ties) as external resources influence the effects of resource bundling capabilities on strategic change speed. Using data from 508 Chinese firms, we demonstrate that the stabilizing bundling process is negatively related to the speed of strategic change, and enriching and pioneering bundling processes are positively related to the speed of strategic change. Importantly, we find that specific effects of resource bundling on strategic change speed are influenced by different types of external social relationships. These results suggest that managerial capabilities and external ties affect the speed with which strategic change can be implemented.