Dynamic capabilities and new product development in high technology ventures: An empirical analysis of new biotechnology firms

In industries populated by entrepreneurial high technology firms, the rapid development of new products is viewed as a key determinant of success. Developing a portfolio of new products is necessary to gain early cash flows, external visibility and legitimacy, early market share, and increase the likelihood of survival (Schoonhoven, Eisenhardt, and Lymman 1990). In addition, recent research has shown that new product development improves a firm's ability to raise money through an initial public offering (Deeds, DeCarolis, and Coombs 1997).This paper develops a model of new product development which is tested on a sample of 94 pharmaceutical biotechnology companies. We hypothesize that new product development capabilities are a function of a firm's scientific, technological, and managerial skills. To test this relationship, we develop several firm specific measures in an attempt to triangulate in on the core construct of firm specific new product development capabilities.Some important implications for entrepreneurs/managers of high technology firms flow from our results. First, entrepreneur/managers need to view the choice of geographic location as an important strategic decision which will impact their firm's access to the skilled technical personnel and the streams of knowledge. Our results indicate that a choice location has a significant concentration of similar firms, but the level has not yet reached a point where competition for resources in the local environment offsets any advantages of the location. In the case of biotechnology, this would seem to indicate that the prime locations would be expanding areas such as San Diego, Seattle, and Philadelphia rather then the established locations of Silicon Valley and Boston.Second, as scientific knowledge plays an ever more important role in a firm's success the quality of the firm's scientific team is a critical ingredient in a firm's new product development capability. But how do you evaluate the quality of scientific personnel? Our results indicate that there is a strong positive relationship between the impact—as measured by citations—of a team's prior research in the academic community and the productivity of that team in a commercial research laboratory. Therefore, the judgement of a scientific field, captured by citations or perhaps expert judgement, should prove to be a useful tool when evaluating personnel for a firm's research team.Third, the results from our measures of CEO experience and the percentage of the top management team with a Ph.D. are interesting. As expected the prior experience of CEO in managing a commercial research facility enhances a firm's new product development capabilities. However, results for our top management team variable appears to indicate that the over reliance on technical personnel in the management of the organization detracts from the product development process. Taken together these results seem to imply that it is important that the leadership of the organization have knowledge of and experience in managing the new product development process, but that diverting the firm's scientific personnel's energies away from the laboratory and into the management of the organization maybe counter-productive. Therefore, what a high technology venture appears to need is leadership that understands and has experience in the new product development process, but which is separate and distinct from the scientific team. This type of leadership keeps the scientific team focused on research and development, and out of the boardroom.     

MANAGING LOGISTICS OUTSOURCING RELATIONSHIPS: AN EMPIRICAL INVESTIGATION IN CHINA

While many companies outsource their logistics functions, creating a collaborative relationship with third‐party logistics service providers remains a challenge. The current study explores the effects of often overlooked human factors in this context. Data on buyer perspectives were collected in China. The analysis results suggest that buying firm's top management championship, supplier firm's designated employees, and the buyer‐seller personal relationships (i.e. Guanxi) at different levels, all have significant impacts on inter‐firm collaboration, which in turn enhances the buying firm's logistics performance.     

Technology strategy and software new ventures' performance: Exploring the moderating effect of the competitive environment

Technology strategy (TS) is one of the most important aspects of any firm's strategic posture especially in dynamic environments such as the computer software industry. Not only do new ventures face the pressures that accompany all young companies (e.g., shortages of capital), but they also have to keep up with a rapid rate of technological change. Consequently TS, the sum of a firm's choices on how to develop and exploit its technological resources, can profoundly affect a venture's performance and survival.This empirical study examines the relationships between TS and new venture performance (NVP). By focusing on TS variables and analyzing their performance outcomes, the study offers insights into the factors that can influence the success of new ventures in a fast-paced environment. This study also examines key environmental moderators, those external environmental forces, which can significantly impact the strength or direction of the relationship between a firm's TS and NVP.The study examines five TSs that can enhance NPV. The first is radicality, which means developing and introducing new products ahead of competitors. The second is the intensity of product upgrades, which refers to a venture's commitment to introducing more refinements and extensions of its products than its competition. The third is the level of R&D spending, which indicates a venture's strong investment in internal research and development activities. The fourth is the use of external technology sources (e.g., strategic alliances and licenses) to augment a firm's own R&D efforts. The final dimension is the use of     

Presuccession Performance,CEO Succession,Top Management Team,and Change in a Firm's Internationalization: The Moderating Effect of CEO/Chairperson Dissimilarity

Extending the literature on CEO succession, we found that a succession event together with a change in top management related positively to strategic change toward greater internationalization. In a study of 160 Taiwanese firms, we found relationships between firm performance, outside CEO appointment, change in firm's top management team (TMT), and the degree of a firm's internationalization. Moreover, the positive association between a post succession TMT structural change and degree of internationalization was observed only in those cases where dissimilarity between CEO and chairperson (with respect to educational degree and overseas education) was low. The implications of these findings for scholarship and practice are discussed. Copyright © 2011 ASAC. Published by John Wiley & Sons, Ltd.     

Benevolent dictatorship and buyer-supplier exchange

In this research, we identify and advance the concept of benevolence as a key social exchange mechanism in buyer-supplier exchange. Specifically, we (1) advance a theoretical model of benevolence to include affective, calculative, and normative dimensions, (2) highlight specific actions and resources that a focal firm uses to promote the perception of benevolence, including concessions, idiosyncratic investments, and reputation, and (3) identify how these perceptions, mediated by its own rising commitment to the exchange, impact the focal firm's economic response (i.e., concessions and idiosyncratic investments). In particular, we explore the possibility of “benevolent dictators” in exchanges marked by power asymmetry. Our model and conclusions are drawn from the confidential reports of over 500 informants at the boundaries of firms across multiple industries. Our results demonstrate the differential effects of a partner firm's actions and reputation on the three forms of benevolence and find evidence for how powerful partner firms can signal their benevolence to weaker firms through the use of concessions, dedicated investments and marketplace reputation. Moreover, we show that the responses of the partner firm to the focal firm's benevolence are not simply a reciprocation of the focal firm's actions, but are instead mediated through the enhanced commitment of the focal firm with implications for theory and management practice.     

Asymmetric expectations: Cross-national coalitions in a Japanese transplant in Italy

This article is a study of the experience of a Japanese production unit transplanted to Italy. It employs the concepts of “Fordism” and “lean production” which are well known in industrial sociology and management studies. The article shows how the interplay of the owner's nationality with the local managerial and organizational characteristics of the firm resulted in a production and market crisis, and how following a series of cross-cultural misunderstandings, a new system of trust relations evolved permitting the firm's transition to lean production. © 1995 John Wiley & Sons, Inc.     

But you promised! Managing consumers’ psychological contracts

In management literature, a psychological contract generally refers to an employee's beliefs about the reciprocal obligations that exist between him or her and an organization. Legal contracts, on the other hand, are agreements that create obligations between the parties that are enforceable by law. Psychological contracts are different from legal contracts in that they are characterized by the belief that both parties have entered into a set of mutual obligations. While marketing scholars and practitioners have largely overlooked the notion of psychological contracts, this article argues that a firm's customers might view the promises they believe a firm has made to them as psychological contracts. Psychological contracts are as relevant to marketing as they are to management. This article expands the notion of psychological contracts to marketing relationships and outlines internal and external strategies firms can employ to manage psychological contracts more effectively.     

Modeling firm specific internationalization risk: An application to banks’ risk assessment in lending to firms that do international business

Drawing on internationalization process theory, we develop a new model for firm-specific internationalization risk assessment. The model shows that firm-specific internationalization risks can be determined from a firm's experiences and from current business activities in a firm's network. Experiential risks are categorized as international, country market, network, or relationship experience risks. Risk assessment in current network activities can be determined from a firm's dependency on a network and from the network's performance and evolution. We apply our model to credit risk assessment by banks and other credit institutions. This article adds to research on financial institutions’ credit risk assessment by focusing on firm-specific internationalization risk assessment, an area that has previously received little attention in the literature. In addition, this article provides a better understanding of risk assessment in the internationalization process, shedding light not only on the risks involved in firms’ commitment to internationalization but also on the risks that banks and other institutions take when they commit by lending to internationalizing firms.     

Managerial Opportunism and Capital Structure Adjustments: Equity–for–debt Swap and Convertible Debt

This paper shows how capital structure adjustments through an equity–for–debt swap and convertible debt can resolve the inefficiency caused by managerial opportunism. We consider a situation in which a corporate manager's investment decision is affected by the firm's debt level. Although both an equity–for–debt swap and convertible debt can induce the self–interested manager to undertake only value–increasing projects through capital structure adjustments, there exists a significant difference between these two financial instruments. An equity–for–debt swap, which requires the agreement of both shareholders and debt holders, can change a firm's debt level only prior to the manager's investment decision. On the other hand, convertible debt, which gives debt holders a unilateral right to convert, can change a firm's debt level even after the manager's investment decision.     

Cooperation versus competition: do buyers and suppliers really see eye-to-eye?

Purchasers have used a variety of tools to help improve the performance of their suppliers’ processes and products. Results of two large-scale surveys that compare buyer and supplier perceptions of a common customer firm's supplier development and its supply base's adoption of total quality management are reported here. One customer, known for its cooperative (partnership-like) approach to supplier relations, is contrasted with another firm that uses supplier switching to meet its procurement needs. Analysis of the survey data indicates that buyers and suppliers have a better “shared understanding” (smaller satisfaction gap) within the “competitive” relationship than within the “cooperative” relationship.     

Moral Hazard,Agency Cost,and Firm Growth

We study how the agency cost implied by the moral hazard problem in a firm dynamics model affects the life cycle growth pattern of firms. In the early stage of a firm's growth, the agency cost restricts the firm's capital input and diminishes over time, so that the firm's growth is driven by efficiency improvements and an exogenous progress in productivity. In the long run, when the firm loses its potential to improve efficiency, growth is driven only by the progress in productivity. As a result of this growth mechanism, consistent with the data, the growth rate and its volatility, as well as Tobin's Q, decrease with age and size. Moreover, the cross‐sectional distributions of firm size and managerial compensation obey a power law, as they do in the data. In addition, the model provides novel implications for how the characteristics of the production technology and the preferences of the economic agents affect the growth pattern of firms, and these implications are potentially testable.     

The Role of Turnover Costs in the Enforcement of Performance–Related Pay Contracts

Labour contracts which establish performance–related pay are afflicted with the firm's moral hazard problem because of the difficulty in the verifiability of performance by an external authority. Some models have explored the possibility that such contracts could be enforced through a mechanism of the firm's reputation or thanks to an excess of demand in the labour markets (unfilled job vacancies). In this paper a simple model is proposed to show the working of an alternative mechanism for performance–related pay contracts based on turnover costs, borne by firms arising from the process of hiring, training and firing. By sinking a certain amount of resources as turnover costs, employers may credibly promise to pay a bonus, if faced with the worker's threat to quit in the case of cheating, to avoid the loss of specific capital. This provides a formalization of the insight that turnover costs and specific investments might support the enforcement of implicit contracts. The welfare implications of this mechanism are worked out, showing how turnover costs on the one hand reduce the available social surplus but on the other hand increase this surplus by providing incentives for optimal effort.     

Geographic Distance as a Moderator of Curvilinear Relationship Between Cultural Distance and Shared Ownership

This study tests geographic distance as a moderator of the curvilinear relationship between cultural distance and a firm's preference for shared ownership entry mode. The sample consisted of US foreign direct investments in 60 countries spread over 18 years. Results showed that an inverted U‐shaped relationship between cultural distance and preference for shared ownership is stronger for firms separated by high geographic distance. While full equity ownership is most likely when both cultural and geographic distances are either low or high, shared ownership is most likely when the cultural distance is high (low) but the geographic distance is low (high). Copyright © 2012 ASAC. Published by John Wiley & Sons, Ltd.     

Production and hedging under state‐dependent preferences

This study examines the behavior of the competitive firm under output price uncertainty and state‐dependent preferences. When there is a futures market for hedging purposes, the firm's optimal production decision is independent of the output price uncertainty and of the state‐dependent preferences. If the futures contracts are unbiased, the firm's optimal futures position is an over‐hedge or an under‐hedge, depending on whether the firm is correlation averse or correlation loving, and on whether the output price is positively or negatively expectation dependent on the state variable. When the firm has access not only to the unbiased futures but also to fairly priced options, sufficient conditions are derived under which the firm's optimal hedge position includes both hedging instruments. This study thus establishes a hedging role of options, which is over and above that of futures, in the case of state‐dependent preferences. © 2011 Wiley Periodicals, Inc. Jrl Fut Mark 32:945–963, 2012     

Examining the impacts of institutional change on knowledge sharing and management learning in the People's Republic of China

As increasing numbers of markets and businesses internationalize, understanding the factors that determine how knowledge is shared and how management learning occurs within international businesses is also becoming more pronounced. In examining management learning in a major transition economy, the People's Republic of China (PRC), this article specifically addresses how institutional developments within this nation are affecting the extent to which knowledge is shared and management learning ensues. The article elucidates new ways of thinking about the role of institutional building for knowledge sharing and management learning and concludes with presenting some challenges for international managers working with institutional changes in the PRC. © 2005 Wiley Periodicals, Inc.     

Age,order of entry,strategic orientation,and organizational performance

This paper proposes an empirical test of several hypotheses linking age, order of entry, and strategic orientations to a firm's performance. Three strategies are defined: cost-leadership strategy, innovative differentiation, and marketing differentiation. The aim is to show that the impact on performance of both age and each of the three strategic orientations may differ according to a firm's order of entry into an industry.Following Lieberman and Montgomery's (1998) evaluation of their major contribution on first mover advantage, we emphasize three points. First, we develop and test hypotheses related to early and late followers' strategic orientations, broadening the scope of traditional studies on pioneers. Second, the model combines the dimensions of a firm's age, order of entry, and strategic orientations, as well as industry conditions (stage of the industry, environmental unpredictability, and technology diffusion), to establish a contingent model of performance analysis. Finally, the empirical study deals chiefly with organizational performance and not market share, which is considered a typical advantage accruing to pioneers.In addition, the scope of the study (582 French manufacturing firms) provides the means to fill a void in empirical studies because it is a broad cross-sectional test on non-U.S. data. The firms are mainly private, small to medium-sized, and single or dominant business firms. Therefore, our assumptions must be understood as particularly applicable to this type of firm.The results reveal important lessons for practitioners. First, we did not find a first-mover advantage in terms of organizational performance. In addition, pioneers' organizational performance is enhanced by the cost leader strategy—contrary to our assumption emphasizing innovative differentiation for these firms. Second, early followers' performance benefits from innovative differentiation and marketing differentiation. Finally, late entrants developing a cost leader strategy have a significantly higher performance. All groups considered, late followers are the firms most sensitive to environmental uncertainty and age effects.Our study clarifies the impact of a firm's age and strategic orientations on its performance depending on the firm's order of entry. The implications of these results are particularly relevant for practitioners and entrepreneurs. First, a cost leadership strategy seems to be a guarantee for a pioneer to increase its organizational performance. New ventures should therefore take into consideration the fact that newness and innovative differentiation might not be the best strategic orientations for high performance in the long run. Second, as a second mover, however, developing a superior product and being able to market it efficiently appear to be the enhancing factors of firm performance. Third, for both pioneers and early followers, age does not significantly reduce their performance. However, the longer a firm waits before entering, the greater is the negative effect of age on its performance. This is due to the difficulty of resisting competitive erosion, because pioneers and early followers drive the changes in the industry. The identification of these effects should help managers and stakeholders to make more effective entry decisions to sustain a firm's advantage, leading to better performance and higher probability of survival.     

Asset or constraint: Corporate reputation and MNCs’ involvement in the least developed countries

This study investigates the relationship between corporate reputation and a firm's involvement in the least developed countries (LDCs), where the most impoverished base of the pyramid markets are located. We draw upon extant literature in corporate reputation and international business to develop competing hypotheses regarding the foreign investment of the highly reputable firms in the LDCs. Corporate reputation can be a double-edged sword: while it can be a valuable asset to be leveraged in the LDCs, it demands monitoring and protection which might be challenged by a firm's LDC presence, thereby constraining the involvement in LDCs. Our results show that corporate reputation has a negative effect on a firm's foreign direct investment involvement in LDCs, supporting the view that reputation could constrain firm action in uncertain environments. We contribute to a more nuanced understanding of the relationship between reputation and international action than that of existing literature.     

Exploration and exploitation in established small and medium-sized enterprises: The effect of CEOs' regulatory focus

Based on theory of regulatory focus and organizational ambidexterity, we hypothesize that the level of engagement in exploration and exploitation in a small or medium-sized enterprise (SME) is affected by the respective CEO's chronic regulatory focus. In our analysis of survey responses from CEOs in Switzerland, we find that the CEO's level of promotion focus positively affects the firm's engagement in both, exploration and exploitation, while the CEO's prevention focus is negatively associated with the firm's exploration but not significantly related to its exploitation. The positive associations between a CEO's promotion focus and the firm's exploration/exploitation activities are enhanced under conditions of intense competition.     

Entry,Growth and Patenting in Industrial Clusters: A Study of the Aerospace Industry in the UK

This paper studies how firm performance is influenced by the strength of the industrial cluster (or industrial district) in which it is located. The paper presents estimates of firm-level employment and patent growth models for a range of '5-digit' aerospace industries in the UK. In these models, employment in the firm's own sector and employment in other sectors is taken as a measure of the strength of the cluster. Strong positive clustering effects are found in many sectors, but nevertheless some clustering effects are negative. Entry into clusters of this industry is also examined and some sectors are found to attract new entry while others are only attracted.     

A Note on Dynamic Optimization,Maintenance Expenditure and Quality of Capital

The dynamic interaction between investment–maintenance decisions and uncertainty about the capital's future productivity status is considered. Maintenance influences the flow of services provided by a stock of capital, affecting the firm's technological knowledge of capital productivity. In a simple Lerner–Haavelmo–Jorgenson framework with constant returns to scale and linear homogeneous cost of adjustment, two closed forms for the firm's market value are presented and the impact of uncertainty on investment–maintenance policy is analyzed. The optimal management strategy uses maintenance to sustain the profitability of existing capital. This smooths out investment fluctuations and lengthens the periods of time in which the firm invests. Nevertheless, since the random movement of quality of capital makes the marginal revenue products of capital decline over time and maintenance cannot offset this tendency, a stochastic switching time emerges at which the firm will find it optimal to stop investing and let the stock deplete.