Big losses in ecosystem niches: how core firm decisions drive complementary product shakeouts

This study examines shakeouts in the context of business ecosystems. Market turbulence generated by core firm decisions in competing differentiated ecosystems can generate financial losses and exit for complementary niche market firms. I develop hypotheses predicting which niche markets will suffer larger losses and be more susceptible to shakeouts, and how core firm decisions will drive complementor performance and survival. I then apply these hypotheses to brand‐based differentiated ecosystems in the automotive industry, where networks of suppliers, customers, and complementors surround car manufacturers. More specifically, I study the complementary niche market of automotive leasing, where manufacturers sway leasing markets through product change, entry, and subsidization. To test the hypotheses, I use a proprietary dataset of 200,000 individual car leases between 1997–2002 to identify how manufacturer product design and niche market entry drive complementor losses and exit. These data allow a unique opportunity to understand how the strategic choices of core firms can have substantial and often devastating effects on niche markets in their ecosystem. Further, the results suggest how the dynamic capabilities to adapt to core firm behavior might improve performance for certain niche market complementors. Copyright © 2008 John Wiley & Sons, Ltd.     

Dynamic capabilities as antecedents of the scope of related diversification: the case of small firm accountancy practices

We propose that differences in the scope of related diversification in firms can be accounted for by differences in their dynamic capabilities. In order to test this, we analyze 254 Norwegian small firm accountancy practices' possession of key dynamic capabilities including the heterogeneity of their human capital, their internal development routines, and their alliances with complementary service providers. We also analyze the influence of strategic choice, in terms of the positioning of the practice and its underlying strategic intent. While we observe no clear effects for these two latter factors, we find that dynamic capabilities have a distinct impact on the scope of services. Copyright © 2008 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.     

Surviving the gales of creative destruction: the determinants of product turnover

Innovative industries are often characterized by rapid product turnover. Product longevity may be driven by both a product's position within a market as well as its position within a firm's larger product portfolio. However, we have little understanding of the relative importance of these factors in determining product turnover and how they interact as an industry evolves. Although researchers have invested substantial effort in analyzing firm survival and turnover, there are far fewer studies of the determinants of product survival and turnover. We use hazard rate models and count regression models to describe the behavior of firms and their products with a new and detailed database on the laser printer industry. We show, first, that competition and market structure variables have a large impact on both speeding product exit and delaying product entry. Second, there is some evidence that firms that have maintained a high market share for a number of years keep their products on the market longer than those with lower market share. Finally, firms with high innovative capacity tend to enter markets frequently, but withdraw their products at average rates. Firms with strong brands tend to introduce few products and withdraw their products slowly. With these findings, the paper links product entry and exit decisions to the broader literature on firm strategic and product management. Copyright © 2006 John Wiley & Sons, Ltd.     

Learning to collaborate through collaboration: How allying with expert firms influences collaborative innovation within novice firms

Research summary : Strategic alliances have been recognized as a means for firms to learn their partners' proprietary knowledge; such alliances are also valuable opportunities for partner firms to learn tacit organizational routines from their counterparts. We consider how relatively novice technology firms can learn intraorganizational collaborative routines from more experienced alliance partners and then deploy them independently for their own innovative pursuits. We examine the alliance relationships between Eli Lilly & Co. (Lilly), a recognized expert in collaborative innovation, and 55 small biotech partner firms. Using three levels of analysis (firm, patent, and inventor dyad), we find that greater social interaction between the partner firm and Lilly subsequently increases internal collaboration among the partner firm's inventors. Managerial summary : Can collaborating externally advance internal collaboration? Yes. Our research found that collaboration among scientists at small, early‐stage biotechnology firms significantly increased after these firms formed highly interactive R&D alliances with a large pharmaceutical company known for its expertise in such collaboration. It is well known that alliances help new firms learn specific new technologies and commercialize innovations. Our study broadens the scope of potential benefits of alliances. New firms can also learn collaboration techniques, deploying them internally to enhance their own abilities in collaborative innovation. Managers should take this additional benefit into consideration in developing their alliance strategies. Pursuing alliance partners with expertise in collaboration and keeping a high level of mutual interactions with partner firm personnel should be important considerations to extract this value. Copyright © 2015 John Wiley & Sons, Ltd.     

Product variety and firm survival in the microcomputer software industry

This article provides an analysis of product variety and scope economies in the microcomputer software industry by using detailed firm‐level and product‐level information on firms' bundling of functionalities over application categories and computing platforms. We find that the management of product variety through the way different application categories are integrated in products and the platforms on which these products are offered can be as important as the significance of scope economies at the more aggregated firm level. Specifically, we find that there is little evidence of firm benefits from economies of scope in production, but there is substantial evidence that products benefit from economies of scope in consumption. In addition, we find that firms with products that encapsulate more application categories perform better, and those with products that cover more computing platforms perform worse. Finally, changes in product variety through new product introductions improve firm performance, but extensions to existing products hinder the performance of the firm and the product. We conclude that research in scope economies can benefit from a more detailed model of the evolution of product variety that includes data and analysis at the firm level and at the product level. Copyright © 2004 John Wiley & Sons, Ltd.     

Entry, exit, and shakeouts in the United States in new manufactured products

During their early evolution, new manufacturing industries commonly experience a ‘shakeout’ period during which the number of producers declines by 50% or more. In order to gain additional insight into shakeouts, we develop new information on the patterns of entry and exit for 16 major new manufactured products from their commercial inception through 1980. We use a model in which entry and exit coordination problems can generate shakeouts to structure the analysis of the data. We find that shakeouts are distinguished by entry falling off sharply but rates of exit remaining steady or rising over time.     

DYNAMIC PRICE DISCRIMINATION WITH ASYMMETRIC FIRMS*

This paper considers variants of a dynamic duopoly model where one firm has a stronger market position than its competitor. Consumers' past purchases may reveal their different valuations for the two firms' products. Price discrimination based on purchase histories tends to benefit consumers if it does not cause the weaker firm to exit; otherwise it can harm consumers. The effect of price discrimination also depends on firms' cost differences, market competitiveness, and consumers' time horizon. The stronger firm may price below cost in the presence of consumer switching costs, with the purpose and effect of eliminating competition.     

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.     

Implementing the lead user method in a high technology firm: A longitudinal study of intentions versus actions

The customer or user's role in the new product development process is limited or nonexistent in many high technology firms, despite evidence that suggests customers are frequently an excellent source for new product ideas with great market potential. This article examines the implementation of the Lead User method for gathering new product ideas from leading edge customers by an IT firm that had not previously done much customer research during their new product development efforts. This case study follows the decision‐makers of the firm through the process, where the end result is the generation of a number of useful product concepts. Besides the ideas generated, management at the firm is also impressed with the way the method makes their new product development process more cross‐functional and they plan to make it a part of their future new product development practices. Approximately one year later the firm is revisited to find out if the Lead User method has become a permanent part of their new product development process. The authors find, however, that the firm has abandoned research on the customer despite the fact that several of the lead‐user derived product concepts had been successfully implemented. Management explanations for their return to a technology push process for developing new products include personnel turnover and lack of time. Using organizational learning theory to examine the case, the authors suggest that the nontechnology specific product concepts generated by the lead users were seen as ambiguous and hence overly simplistic and less valuable by the new product development personnel. The technical language spoken by the new product personnel also increased the inertia of old technology push development process by making it more prestigious and comfortable to plan new products with their technology suppliers. The fact that the firm was doing well throughout this process also decreased the pressure to change from their established new product development routine. The implications for these finding are that: 1) it is necessary to pressure or reward personnel in order to make permanent changes to established routines, and 2) researchers should be careful at taking managers at their word when asking them about their future intentions.     

Technology and Corporate Scope: Firm and Rival Innovation as Antecedents of Corporate Transactions

This paper studies the role of technological innovation as an antecedent of changes in corporate scope. It argues that technological innovations prompt the firm to reconfigure its corporate portfolio—to redeploy resources to areas of new opportunity while it divests out of marginal businesses. Results from a cross‐industry sample of U.S. manufacturing firms show successful innovation by a firm is followed by both expansion into new areas through complementary resource seeking acquisitions and divestment out of existing noncore businesses. This relationship is found to be moderated by the level of investible resources available to the firm, and supports the notion of scarce resources as a constraint on firm scope. In addition, firms are found to change their corporate scope in response to rival innovation. Copyright © 2011 John Wiley & Sons, Ltd.     

Merger Incentives and the Failing Firm Defense

The merger incentives between profitable firms differ fundamentally from the incentives of a profitable firm to merge with a failing firm. We investigate these incentives under different modes of price competition and Cournot behavior. Our main finding is that firms strictly prefer exit of the failing firm to acquisition. This result may imply that other than strategic reasons, like economies of scale, must be looked for to understand why firms make use of the failing firm defense. However, when products are sufficiently heterogenous, we find that (i) the failing firm defense can be welfare enhancing and (ii) a government bail‐out increases total welfare when the number of firms is sufficiently low.     

Global Integration of Brands and New Product Development at General Motors

The rapidly globalizing marketplace reflects environmental characteristics requiring the development of unique capabilities that enable the firm to create competitive advantages. Correspondingly, this study addresses challenges faced by managers in a large company with a broad global footprint as it integrates the product development process and the portfolio of brands across geographic markets. In a global organization, the unique dynamic capabilities that need to be developed include a global orientation, global market knowledge competencies, and global coordination. The present study considers these capabilities with respect to process, position, and evolutionary history of the firm and its brands. Qualitative research methodology is employed to explore the phenomenon of moving products and brands from multidomestic to global. The findings indicate the structure of a global brand portfolio evolves through complex interactions among new product development, marketing, and brand management. Overall, the organization's current positions and past history form the basis of the ways routines, practices, and means of learning are combined and coordinated to implement product decisions that support brand objectives.     

New Product Activities and Performance: The Moderating Role of Environmental Hostility

In the race to bring new products to market, a company may be tempted to cut corners in the new product development (NPD) process. And a hostile environment—that is, one marked by intense competition and rapid technological change—only heightens the pressure to reduce NPD cycle time. However, hasty completion of the NPD process may actually jeopardize a product's chances for success. In a study of Fortune 500 manufacturers of industrial products, Roger J. Calantone, Jeffrey B. Schmidt, and C. Anthony Di Benedetto explore the relationships among new product success rates, proficiency in the execution of NPD activities, and the perceived level of hostility in the competitve environment. Their study examines how proficiency in NPD activities affects the odds of success for industrial new products. Adding environmental hostility to the mix, they also investigate whether the perceived level of hostility in the competitive environment affects the relationship between NPD proficiency and success. In this way, they provide insight into the factors managers must consider when attempting to accelerate cycle time in a hostile competitive environment. The respondents to their survey—142 senior managers involved in NPD or product innovation rated environmental hostility in terms of the extent to which the firm perceives its industry as safe, rich in investment opportunity, and controllable. To assess NPD proficiency, respondents were asked about their firms' performance in predevelopment marketing and technical activities, development marketing and technical activities, and financial analysis. Respondents assessed new product performance in terms of product profitability. As expected, the responses indicate that proficiency in the performance of NPD activities increases the likelihood of new product success. Proficiency in development marketing activities produced the largest increase in likelihood of success—nearly 25 percent over that of projects in which respondents rated performance of these activities at any level below “most proficient.” More importantly, the responses indicate that a hostile competitive environment increases the impact of NPD proficiency. In other words, by improving performance of key NPD activities under hostile environmental conditions, a firm can greatly increase the likelihood of success for a new industrial product. Rather than simply cut corners in the NPD process, a firm faced with a hostile environment must strike a balance between speed and quality of execution.     

A question of (mis)alignment: innovation mandates and absorptive capacity routines

Research suggests that effective R&D requires the right combination of inward-looking and outward-looking absorptive capacity routines. However, we do not have an adequate understanding of how these routines influence innovative output in R&D units with different mandates. In this paper, we argue that adopting an absorptive capacity routine would positively or negatively influence the R&D subsidiary’s innovative output, depending on whether the routine is aligned or misaligned with the subsidiary’s innovation mandate to ‘exploit’ existing knowledge or ‘explore’ new knowledge. We test this using data collected from a global packaged-software firm with 14 international R&D subsidiaries that implemented six major absorptive capacity routines in the period 2000–2010. Our research provides new insights for both scholars and practitioners in R&D management, by showing that balancing of absorptive capacity routines should be considered in light of innovation mandates of subsidiaries as well as the firm. Our analysis also provides insights on why decision makers may still adopt misaligned routines.     

All experience is not created equal: learning,adapting, and focusing in product portfolio management

This study explores the contingencies relating firm experience to product development capabilities, focusing on experience type (breadth versus depth) and timing (prior versus concurrent). Results from empirical tests in the U.S. mutual fund industry offer two primary findings. First, firms increase proficiency at adapting their processes to address new opportunities as they accumulate experience in entering new niches, but face initial hurdles broadening their experience base. Second, concurrent learning is capacity constrained, as product quality increases in the number of products introduced simultaneously in one niche, but quality decreases as the firm's concurrent portfolio of new products broadens. Jointly, these findings highlight that dynamic capabilities are built through prior adaptation experience and that management of a product development portfolio is an important managerial capability. Copyright © 2011 John Wiley & Sons, Ltd.     

Optimal inventory and pricing policies for remanufacturable leased products

In this paper we consider a company which leases new products and also sells remanufactured versions of the new product that become available at the end of their lease periods. When the amount of end-of-lease items in stock is not sufficient to meet the demand for remanufactured products, the firm may purchase additional cores from a third-party supplier. We develop a dynamic programming formulation for determining the optimal price of remanufactured products, and optimal payment structure for the leased products. Our objective is to maximize the discounted system-wide profit over a finite horizon. The profit function consists of revenues that are obtained from remanufactured product sales and leasing, remanufacturing and manufacturing costs, inventory holding and shortage costs. We consider a consumer choice based demand model for mapping a potential customer into one of the product segments (a remanufactured product customer or a customer for a leased product with a particular lease period) for a given price/lease payment vector. We explore several properties of the discounted profit function and provide insight on the behavior of pricing and inventory policies. We also investigate the effect of key product characteristics such as deterioration in age, cost of shortage in remanufacturable product inventory, and key market characteristics such as relative willingness-to-pay for buying a remanufactured product and relative willingness-to-pay for leasing a new product on optimal pricing policies through a computational study.     

The role of functional conflict in international buyer-seller relationships: Implications for industrial exporters

In their attempt to compete successfully in foreign markets, exporting firms must comprehend the decision-making and attitude of their overseas customers. Yet, there is a noticeable lack of research dealing with the import behavior of the firm. Focusing on import distributor firms trading with export manufacturers of industrial products, this study investigates the role of functional conflict in importer-exporter relationships. Results indicate that functional conflict is related positively to exporter cultural sensitivity and asset specificity and negatively to exporter opportunism. More importantly, importers' future purchase intentions are associated negatively with opportunism and positively with asset specificity and functional conflict. Theoretical and managerial implications of the findings are discussed along with suggestions for future research.     

Entry and exit in Dutch manufacturing industries

The purpose of this paper is to analyse entry and exit of establishments in 71 3-digit industries in Dutch manufacturing between 1986 and 1990. A distinction is made between existing firm entry and new firm entry and between general exit and exit by bankruptcy. The incentive effect of profitability and the barrier effect of capital intensity and advertising intensity appear to be stronger for new firm entry than for existing firm entry. Growth and capital intensity turn out to reduce exit by bankruptcy, whereas R&D intensity reduces general exit. The positive impact of general exit on new firm entry and vice versa points to replacement and displacement.An earlier version of this paper was presented at the 21st annual EARIE conference, Crete, Greece, September 4–6, 1994. We thank David Audretsch, Martin Carree, Roy Thurik and participants of the conference for valuable comments.