The implementation imperative: Why one should implement even imperfect strategies perfectly

Research summary : We propose a theory that explains why the relentless pursuit of perfect implementation of strategy may be useful even in a world in which the strategies being implemented are far from optimal. We formulate a computational model in which an organization's strategy adapts based on performance feedback. However, the distinctive feature of our approach is that we abandon the “organization as a unitary actor” assumption, and model a separation of beliefs and actions. The central insight is that, given this separation, precise implementation has benefits beyond the well‐known effect of enabling exploitation of good strategies. It enables the discovery of better strategies by allowing more effective learning from feedback on the value of current strategies. Managerial summary : Given the reality that the strategies coming from the C‐suite are seldom perfect, is it sensible for managers to place such a heavy emphasis on implementing them precisely? In this paper we develop a theory that explains why the answer may be “yes”. In most organizations, the formulators and implementors of strategy are distinct. Imprecise implementation makes it difficult for the formulators to learn the value of their strategies, as neither success nor failure necessarily indicates something about the value of the strategy itself, when implementation is imprecise. Copyright © 2015 John Wiley & Sons, Ltd.     

Estimating Value Creation from Revealed Preferences: Application to Value‐based Strategies

Research summary : We develop and apply a new set of empirical tools consistent with the tenets of value‐based business strategies, leveraging the principle that “no good deal comes undone” and the methods of revealed preferences, to empirically estimate drivers of value creation. We demonstrate how to use these tools in an analysis of value creation in buyer–supplier relationships in the UK corporate legal market. We show that our approach can uncover evidence of subtle mechanisms that traditional methods cannot easily distinguish from each other. Furthermore, we show how the estimates can be used as parameters of biform games for out‐of‐sample analyses of strategic decisions. With readily available data on relationships between firms, this approach can be applied to many other contexts of interest to strategy researchers. Managerial summary : Managers need to understand the drivers of value creation for customers in order to make competitive positioning decisions and understand when they can capture value under competition. However, estimates of the relative importance of each driver are typically difficult to obtain. In this article, we help remedy this problem by demonstrating a novel method that obtains estimates of the contribution of various drivers of value creation from commonly available data of buyer–supplier relationships. These estimates can then be used to inform the strategy‐making process. Copyright © 2017 John Wiley & Sons, Ltd.     

Unpaid crowd complementors: The platform network effect mirage

Platforms have evolved beyond just being organized as multi‐sided markets with complementors selling to users. Complementors are often unpaid, working outside of a price system and driven by heterogeneous sources of motivation—which should affect how they respond to platform growth. Does reliance on network effects and strategies to attract large numbers of complementors remain advisable in such contexts? We test hypotheses related to these issues using data from 85 online multi‐player game platforms with unpaid complementors. We find that complementor development responds to platform growth even without sales incentives, but that attracting complementors has a net zero effect on on‐going development and fails to stimulate network effects. We discuss conditions under which a strategy of using unpaid crowd complementors remains advantageous. Copyright © 2014 John Wiley & Sons, Ltd.     

Niche and performance: the moderating role of network embeddedness

What is the relationship between niche and performance? We identify two types of niche positions—product niche and process niche—defined by the extent to which a firm offers distinctive products and has distinctive operational processes, respectively. We argue that the effect of each niche on firm performance is contingent upon network embeddedness—the extent to which a firm is involved in a network of interconnected inter‐firm relationships. Using data covering the period 1995–98 pertaining to venture capital firms and their holdings in initial public offerings (IPOs), we show that both product niche and process niche interact with network embeddedness to determine firm performance. Our findings suggest that the extent to which a firm offers distinctive products or processes will be more positively associated with firm performance when network embeddedness is high. Copyright © 2004 John Wiley & Sons, Ltd.     

Mental representation and the discovery of new strategies

Research summary : Managers' mental representations affect the perceived payoffs and alternatives that managers consider. Thus, mental representations affect how managers search for profitable strategies as well as the quality of strategies they discover. To study how mental representation and search interact, we formally model the dual search over possible representations and over policy choices of a strategy “landscape.” We analyze when it is preferable to emphasize searching for the best policies rather than the best mental representation, and vice versa. We show that, in the long run, a balance between the two search modes not only results in better expected performance, but also reduces the variation in performance. Additionally, the article describes conditions under which increased accuracy of mental representations can actually worsen firm performance. Managerial summary : Managers' mental representations affect the perceived payoffs and alternatives that managers consider. Thus, mental representations affect the quality of strategies managers can discover. We analyze a computer simulation of how managers use mental representations to search for strategies. This sheds light on how managers should deal with the trade‐off between searching for policies and searching for representations; that is, whether managers should think creatively about how to represent a strategy problem or whether they should just stick to the current problem understanding, and try to find ways to improve performance as suggested by the current representation. We provide insight regarding the balance between the two search modes and describe conditions under which increasingly accurate mental representations can worsen firm performance. Copyright © 2015 John Wiley & Sons, Ltd.     

Competing with complementors: An empirical look at Amazon.com

Research Summary : Platform owners sometimes enter complementors' product spaces and compete against them. Using data from Amazon.com to study Amazon's entry pattern into third‐party sellers' product spaces, we find that Amazon is more likely to target successful product spaces. We also find that Amazon is less likely to enter product spaces that require greater seller efforts to grow, suggesting that complementors' platform‐specific investments influence platform owners' entry decisions. While Amazon's entry discourages affected third‐party sellers from subsequently pursuing growth on the platform, it increases product demand and reduces shipping costs for consumers. We consider the implications of these findings for complementors in platform‐based markets. Managerial Summary : Platform owners can exert considerable influence over their complementors' welfare. Many complementors with successful products are pushed out of markets because platform owners enter their product spaces and compete directly with them. To mitigate such risks, complementors could build their businesses by aggregating nonblockbuster products or focusing on products requiring significant platform‐specific investments to grow. They should also develop capabilities in new product discovery so that they could continually bring innovative products to their platforms.     

Performance feedback and middle managers’ divergent strategic behavior: The roles of social comparisons and organizational identification

Research Summary: What drives middle managers to search for new strategic initiatives and champion them to top management? This behavior—labeled divergent strategic behavior—spawns emergent strategies and thereby provides one of the essential ingredients of strategic renewal. We conceptualize divergent strategic behavior as a response to performance feedback. Data from 123 senior middle managers overseeing 21 multi‐country organizations (MCOs) of a Fortune 500 firm point to social performance comparisons rather than historical comparisons in driving divergent strategic behavior. Moreover, managers’ organizational identification affects whether they attend to organizational‐ or individual‐level feedback. These results contribute to research on performance aspirations and strategy process by providing a multilevel, multidimensional framework of performance aspirations in middle management driven strategic renewal. Managerial Summary: Middle managers are essential actors in strategic renewal. Their unique positions offer insights into operations alongside knowledge of strategy. In contrast to typical assessments of managerial performance with reference to a prior year, this research shows that performance comparisons relative to peers and other organizational units better motivate managers’ divergent strategic behavior. Our results also show that managers who identify with the firm are more attentive to organizational rather than individual performance discrepancies. Thus, our study unveils an important approach for organizations aiming to spark strategic renewal.     

A demand‐based perspective on sustainable competitive advantage

We develop an approach to analyzing the sustainability of competitive advantage that emphasizes demand‐side factors. We extend the added‐value approach to business strategy by introducing an explicit treatment of how firms create value for consumers. This allows us to characterize how consumer heterogeneity and marginal utility from performance improvements on the demand side interact with resource heterogeneity and improving technologies on the supply side. Using this approach, we address a variety of questions including whether technology substitutions will be permanent or transitory; the sequence in which new technologies attack different market segments; how rents from different types of resources change over time; whether decreasing marginal utility and imitation give rise to similar rent profiles; the extent of synergies within a firm's resource portfolio; the emergence of new generic strategies; and the conditions that support strategic diversity in a market. Our focus on consumer utility and value creation complements the traditional focus in the strategy literature on competition and value capture. Copyright © 2006 John Wiley & Sons, Ltd.     

Towards a theory of ecosystems

Research Summary: The recent surge of interest in “ecosystems” in strategy research and practice has mainly focused on what ecosystems are and how they operate. We complement this literature by considering when and why ecosystems emerge, and what makes them distinct from other governance forms. We argue that modularity enables ecosystem emergence as it allows a set of distinct yet interdependent organizations to coordinate without full hierarchical fiat. We show how ecosystems address multilateral dependences based on various types of complementarities—supermodular or unique, unidirectional or bidirectional—which determine the ecosystem's value‐add. We argue that at the core of ecosystems lie nongeneric complementarities, and the creation of sets of roles that face similar rules. We conclude with implications for mainstream strategy and suggestions for future research. Managerial Summary: We consider what makes ecosystems different from other business constellations, including markets, alliances, or hierarchically managed supply chains. Ecosystems, we posit, are interacting organizations, enabled by modularity, not hierarchically managed, bound together by the nonredeployability of their collective investment elsewhere. Ecosystems add value as they allow managers to coordinate their multilateral dependence through sets of roles that face similar rules, thus obviating the need to enter into customized contractual agreements with each partner. We explain how different types of complementarities (unique or supermodular, generic or specific, uni‐ or bi‐directional) shape ecosystems and offer a “theory of ecosystems” that can explain what they are, when they emerge, and why alignment occurs. Finally, we outline the critical factors affecting ecosystem emergence, evolution, and success—or failure.     

网络状产业链的价值创新协同与平台领导

在网络状产业链中,创新由分散的模块生产商和互补品生产商独立进行,传统的一体化组织模式不再适用,需要新的创新组织形式。平台领导者通过一系列的策略,协调网络状产业链各参与主体的价值创新行为。本文将防降价均衡(UPE)用于网络状产业链价值创新的动态博弈过程中,揭示平台领导者实现模块标准升级的相关策略与模块和网络等技术参数的匹配关系。平台领导企业通过模块规则的知识产权策略、互补品创新的横向兼容决策、标准升级的纵向兼容决策等,形成封闭策略组合和开放策略组合,协同模块生产商、互补品生产商的行为,实现价值创新协同,通过最终顾客价值的创造,吸引消费者购买新产品,实现标准的升级。     

Investigating Adoption of Free Beta Applications in a Platform‐Based Business Ecosystem

Planning new product development (NPD) activities is becoming increasingly difficult, as contemporary businesses compete at the level of business ecosystems in addition to the firm‐level product‐market competition. These business ecosystems are built around platforms interlinking suppliers, complementors, distributors, developers, etc. together. The competitiveness of these ecosystems relies on members utilizing the shared platform for their own performance improvement, especially in terms of developing new valuable offerings for end users. Therefore, managing the development of the platform‐based applications and gaining timely end‐user input for NPD are of vital importance both to the ecosystem as a whole and to the developers. Subsequently, to succeed in NPD planning developers utilizing beta testing need a thorough understanding of the adoption dynamics of beta products. Developers need to plan for example resource allocation; development costs; and timing of commercial, end‐product launches. Therefore, the anticipation of the adoption dynamics of beta products emerges as an important antecedent in planning NPD activities when beta testing is used for gaining end‐user input to the NPD process. Consequently, we investigate how free beta software products that are built upon software platforms diffuse among their end users in a cocreation community. We specifically study whether the adoption of these beta products follows Bass or Gompertz model dynamics used in the previous literature when modeling the adoption of stand‐alone products. Further, we also investigate the forecasting abilities of these two models. Our results show that the adoption dynamics of free beta products in a cocreation community follow Gompertz's model rather than the Bass model. Additionally, we find that the Gompertz model performs better than the Bass model in forecasting both short and long out‐of‐sample time periods. We further discuss the managerial and research implications of our study.     

Corporate diversification and the value of individual firms: A Bayesian approach

Research summary: Prior theory suggests that the performance effects of a firm's diversification strategy depend on a firm's individual resources and capabilities and the setting within which it is operating. However, prior tests of this theory have examined the average diversification‐performance relationship across all firms, instead of estimating the diversification‐performance relationship at the individual firm level. Efforts to estimate this average relationship are inconsistent with a central assumption of much of strategic management theory—that firms maximize value by choosing strategies that exploit their heterogeneous resources and individual situation. By adopting an approach that allows an evaluation of the diversification‐performance relationship for individual firms, this article shows that firms, both focused and diversified, tend to choose that diversification strategy—focus, related diversification, or unrelated diversification—that maximizes value. Managerial summary: Instead of a universal diversification discount or premium, this article shows that the effect of diversification on performance is heterogeneously distributed across firms and that firms tend to be rational in their diversification decisions. Copyright © 2015 John Wiley & Sons, Ltd.     

Knowledge spillover in corporate financing networks: embeddedness and the firm's debt performance

Building on social embeddedness theory, we examine how the competencies and resources of one corporate actor in a network are transferred to another actor that uses them to enhance transactions with a third actor—a strategic process we dub ‘network transitivity.’ Focusing on the properties of network transitivity in the context of small‐firm corporate finance, we consider how embedded relations between a firm and its banks facilitate the firm's access to distinctive capabilities that enable it to strategically manage its trade‐credit financing relationships. We apply theory and original case‐study fieldwork to explore the types of resources and competencies available through bank–firm relationships and to derive hypotheses about how embedded bank–firm relationships affect the strategy of small‐ to medium‐sized firms. Using a separate large‐scale data set, we then test the generalizability of our hypotheses. Our qualitative analyses show that embedded bank–firm ties provide special governance arrangements that facilitate the firm's access to bank‐centered informational and capital resources, which uniquely enhance the firm's ability to manage trade credit. Consistent with our arguments, our statistical analyses show that small‐ to medium‐sized firms with embedded ties to their bankers were more likely to take lucrative early‐payment trade discounts and avoid costly late‐payment penalties than were similar firms that lacked embedded ties—suggesting that social embeddedness beneficially affects the financial performance of the firm. Copyright © 2002 John Wiley & Sons, Ltd.     

Entry into platform‐based markets

This paper examines the relative importance of platform quality, indirect network effects, and consumer expectations on the success of entrants in platform‐based markets. We develop a theoretical model and find that an entrant's success depends on the strength of indirect network effects and on the consumers' discount factor for future applications. We then illustrate the model's applicability by examining Xbox's entry into the video game industry. We find that Xbox had a small quality advantage over the incumbent, PlayStation 2, and the strength of indirect network effects and the consumers' discount factor, while statistically significant, fall in the region where PlayStation 2's position is unsustainable. Copyright © 2011 John Wiley & Sons, Ltd.     

Disrupting the Disruptors or Enhancing Them? How Blockchain Reshapes Two-Sided Platforms

The importance of platform-based businesses in the modern economy is growing continuously and becoming increasingly relevant. Specifically, the deployment of digital technologies has enhanced the applicability of two-sided business models, enabling companies to act not just as builders and owners of assets, but also as orchestrators of external resources. Management research has, therefore, focused increasingly on the unique aspects of this model. At the center of a two-sided platform there is a platform provider that enables a transaction between the sides, reducing the relative transaction costs. However, in recent years, a new technology emerged that challenges some of the underlying assumptions of this model: the blockchain. Blockchain enables the creation of a peer-to-peer network that is able to authenticate transactions, upon which applications and services may be built. It allows users to conduct transactions without the need for a central platform. We explore how blockchain technology reshapes two-sided platforms, focusing in particular on the role of the platform provider. The research is based upon multiple case studies, using an inductive approach to explore this emerging phenomenon. Our findings show there is a significant shift in the role of the central player that links the two sides of a transaction using blockchain. We frame this as a shift from a “platform provider” to a “service provider,” leveraging the blockchain as a Platform-as-a-Service. Our work examines the peculiarities of this model, unveiling new dynamics in these businesses. Specifically, we show that different variables must be considered to classify two-sided platforms using blockchain. Furthermore, the essential characteristics of two-sided platforms must also be enlarged. For example, traditional platform theories emphasize the importance of cross-side network externalities in creating value. In blockchain-enabled platforms however, we show the use of “tokens” play a key role in creating different types of externalities between the two sides.     

Organizing for knowledge generation: internal knowledge networks and the contingent effect of external knowledge sourcing

Research summary : When faced with a new technological paradigm, incumbent firms can opt for internal development and/or external sourcing to obtain the necessary new knowledge. We explain how the effectiveness of external knowledge sourcing depends on the properties of internal knowledge production. We apply a social network lens to delineate interpersonal, intra‐firm knowledge networks and capture the emergence of two important firm‐level properties: the incumbent's internal potential for knowledge recombination and the level of knowledge coordination costs. We rely on firm‐level internal knowledge networks to dynamically track the emergence of these properties across 106 global pharmaceutical companies over a 25‐year time period. We find that a firm's success in developing knowledge in a new technological paradigm using external knowledge sourcing is contingent on these internal knowledge properties . Managerial summary : Incumbent firms in high‐tech industries often face competence‐destroying technological change. In their effort to adapt and develop new knowledge in a novel paradigm, incumbent firms have several corporate strategy options available to them: internal knowledge development and a wide array of external knowledge sourcing strategies, including alliances and acquisitions. In this study, we make an effort to address a critical question: How effective is external knowledge sourcing under different internal knowledge generation regimes? We find that external sourcing strategies are less effective when firms can already internally generate new knowledge or if they have high internal coordination costs. Therefore, when considering external sourcing, managers must carefully weigh the benefits of it vis‐à‐vis its commensurate costs as the benefits of external sourcing may be overstated . Copyright © 2015 John Wiley & Sons, Ltd.     

Battle on the Wrong Field? Entrant Type,Dominant Designs,and Technology Exit

Research summary : Startups often compete with diversifying entrants in the technology race to define dominant designs, which can be platform technology‐based or non‐platform technology‐based. However, little research has examined the relative risk of technological exits for startups vs. diversifying entrants in such “dominance battles.” We develop a contingency framework that links a firm's technology exit to its pre‐entry experience and the characteristics of the dominance battle. With a sample of 134 technologies involved in 31 dominance battles in the information technology industry from 1979 to 2007, we show that technologies of startups were more likely than those of diversifying entrants to exit from platform technology‐based dominance battles; however, this relationship did not exist in non‐platform technology‐based dominance battles, or after the emergence of dominant designs. Managerial summary : How can a startup that tries to create a dominant design strategize to survive the fierce technology race? This study demonstrates that choosing the right battlefield is of paramount importance. Two aspects of a battlefield are shown as relevant: the type of technology and the stage of industrial evolution. Our results show that technologies sponsored by startups tend to have higher exit rates than those sponsored by diversifying entrants in dominance battles characterized by platform technologies, but this penalty is not evident in dominance battles characterized by non‐platform technologies or after the emergence of dominant designs. Furthermore, our study suggests that lack of organizational legitimacy, complementary assets, and integrative capabilities may explain why startups have a higher risk of technology exit than diversifying entrants. Copyright © 2017 John Wiley & Sons, Ltd.     

The impacts of technology platform openness on application developers’ intention to continuously use a platform: From an ecosystem perspective

With the development of information and communication technologies and Internet of things, the open-platform strategy has come into the spotlight. Opening a platform allows external firms or individuals to enter the platform ecosystem without any restrictions. A platform connects diverse products and services, and thus the aim of this study is to simultaneously investigate the effect of platform openness on multiple groups of products and services from an ecosystem perspective. This study specifically focuses on the manner in which Android's openness to both applications and devices influences the intentions of application developers to continuously participate in Android platform through the structural equation modeling. First, openness to applications directly influences the participation intention of application developers as well as the user base of the platform. An increased user base leads to the enhanced participation intention of application developers through indirect network effects. Second, openness to devices contributes to increasing the user base, which in turn, positively influences the intention of application developers. Openness to a device also incurs coordination costs between applications and devices, and this has a partially negative effect on the participation of application developers. The contributions of the study include presenting an analytical model that offers a comprehensive understanding of the mechanisms of platform openness to external developers.     

The Impact of Frictions in Routine Execution on Economies of Scope

Research summary: Based on a detailed database of a beverages producer‐distributor that expanded its product variety by leveraging its logistic network, we show that product diversification generates economies of scope and also higher operational costs. The result is an inverted‐U relationship between variety and productivity: When the firm offers few additional categories, productivity grows, but as the number of categories rises, the costs of executing the operational routines increase rapidly and productivity falls. The negative effect on productivity increases if the added product category is more dissimilar to previous ones, and decreases with learning from operational experience. Our results highlight how frictions at the operational level can limit the benefits of diversification, even in the absence of other sources of diseconomies, such as increased coordination needs. Managerial summary: One of the prevalent reasons for companies to expand to adjacent product lines is attaining economies of scope. However, such growth strategy also generates operational frictions, even if the day‐to‐day routines do not appear to change at all. Product diversity is disruptive for routine execution, as it requires coordination and exception handling, and may ultimately overcome any efficiency obtained from growth. We estimate the relevance of such operational friction using data from a beverages distribution network. When product variety is low, additional categories do generate efficiency, but after reaching a given threshold, friction prevails. We find that operational friction increases when products are more dissimilar, but is attenuated when workers learn from their own and other's experience. Copyright © 2017 John Wiley & Sons, Ltd.