Shareholder influence over director nomination via proxy access: Implications for agency conflict and stakeholder value

Corporate governance research indicates that corporate boards of directors may be overly beholden to management, which can be detrimental to firm value creation. Drawing upon agency theory and the governance law literature, we examine the effects of a new SEC rule designed to lessen managerial power by increasing large, long-term shareholders' influence in the director nomination process. We predict and find support for a positive overall market reaction to the rule's announcement as well as a greater reaction for firms with characteristics that suggest compromised board independence or greater CEO control. Moreover, we examine the implications of greater shareholder voice for another key stakeholder group, firm bondholders, and find evidence that it is also value increasing. We conclude by discussing important implications for theory and practice. Copyright © 2012 John Wiley & Sons, Ltd.     

An SAO‐based text‐mining approach for technology roadmapping using patent information

A technology roadmap (TRM) links technologies with a company's strategic objectives and so supports acquisition of required technologies in advance of needs. It is a powerful tool for strategic planning and technology management. Because technology is changing rapidly and market competition is fierce, the role of a TRM is becoming increasingly important. To support the role of a TRM, many firms and governments that use roadmapping are becoming interested in reducing costs while retaining objectivity during TRM development. One suggestion to achieve these goals is to use the keyword‐based quantitative approach to creating a TRM, but the information provided by the approach is limited because of the characteristics of keyword information. To solve this limitation, this research uses the concept of ‘function’ to support quantitative analysis for developing a TRM. The concept of function can provide information on the uses and purposes of a technology. To represent a function, a subject–action–object structure is commonly used. The suggested approach allows research and development (R&D) managers to extend the views of product and technology during development of a TRM. In addition, by reducing the time required to develop a TRM, the proposed approach supports quick and accurate decision‐making by R&D managers.     

A Longitudinal Study of the Impact of R&D,Patents, and Product Innovation on Firm Performance

Because of increasing levels of competition and decreasing product life cycles, a firm's ability to generate a continuous stream of innovations may be more important than ever in allowing a firm to improve profitability and maintain competitive advantage This paper investigates several issues that are central to an examination of the innovation productivity in a firm. First, the relationship between a firm's commitment to research and development and its innovative outcomes is examined. Two innovative outcomes are analyzed: (1) invention, which focuses on the development of new ideas; and (2) innovation, the development of commercially viable products or services from creative ideas. Invention is measured by the number of patents granted, and innovation is assessed by the number of new product announcements. Second, because many inventions ultimately result in marketable innovations and because patents may provide protection for new products, the relationship between patents and product announcements is also investigated. Finally, the ability of a firm to benefit from its inventions and innovations is studied by examining their separate effects on firm performance, measured as return on assets (ROA) and sales growth. Drawing from a sample of 272 firms in 35 industries over 19 years, the results from a model of simultaneous equations provided support for some of the hypotheses, but several other surprising findings were found. As expected, R&D spending was positively related to patents. This finding is consistent with others who argue that internal research capabilities, particularly those with a strong basic research component, is key to enabling a firm to generate creative outputs. More surprising was the finding of increasing returns to scale to R&D spending. While this contradicts much of the existing research, it is consistent with economic arguments for the advantages of scale in innovation. Also interesting is the finding that, while a significant curvilinear relationship exists between R&D spending and product announcements, it is not the predicted inverse‐U but instead a U‐shaped relationship. Consistent with previous work, product announcements were found to be positively related to both performance measures. A negative relationship was found between patents and both ROA and sales growth. While these findings were unexpected, they are intriguing and call into question the value of patents as protection mechanisms. In addition, these results may be resulting from the rise of strategic patenting, where an increasing number of firms are using patents as strategic weapons. As expected, a positive relationship was found between patents and new product announcements.     

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.     

New Product Development Practices and Early‐Stage Firms: Two In‐Depth Case Studies

New product development practices (NPD) have been well studied for decades in large, established companies. Implementation of best practices such as predevelopment market planning and cross‐functional teams have been positively correlated with product and project success over a variety of measures. However, for small new ventures, field research into ground‐level adoption of NPD practices is lacking. Because of the risks associated with missteps in new product development and the potential for firm failure, understanding NPD within the new venture context is critical. Through in‐depth case research, this paper investigates two successful physical product‐based early‐stage firms' development processes versus large established firm norms. The research focuses on the start‐up adoption of commonly prescribed management processes to improve NPD, such as cross‐functional teams, use of market planning during innovation development, and the use of structured processes to guide the development team. This research has several theoretical implications. The first finding is that in comparing the innovation processes of these firms to large, established firms, the study found several key differences from the large firm paradigm. These differences in development approach from what is prescribed for large, established firms are driven by necessity from a scarcity of resources. These new firms simply did not have the resources (financial or human) to create multi‐ or cross‐functional teams or organizations in the traditional sense for their first product. Use of virtual resources was pervasive. Founders also played multiple roles concurrently in the organization, as opposed to relying on functional departments so common in large firms. The NPD process used by both firms was informal—much more skeletal than commonly recommended structured processes. The data indicated that these firms put less focus on managing the process and more emphasis on managing their goals (the main driver being getting the first product to market). In addition to little or no written procedures being used, development meetings did not run to specific paper‐based deliverables or defined steps. In terms of market and user insight, these activities were primarily performed inside the core team—using methods that again were distinctive in their approach. What drove a project to completion was relying on team experience or a “learn as you go approach.” Again, the driver for this type of truncated market research approach was a lack of resources and need to increase the project's speed‐to‐market. Both firms in our study were highly successful, from not only an NPD efficiency standpoint but also effectiveness. The second broad finding we draw from this work is that there are lessons to be learned from start‐ups for large, established firms seeking ever‐increasing efficiency. We have found that small empowered teams leading projects substantial in scope can be extremely effective when roles are expanded, decision power is ground‐level, and there is little emphasis on defined processes. This exploratory research highlights the unique aspects of NPD within small early‐stage firms, and highlights areas of further research and management implications for both small new ventures and large established firms seeking to increase NPD efficiency and effectiveness.     

An empirical analysis of the determinants of technology roadmap utilization

For many years now, firms have managed their research and development (R&D) by applying various approaches drawn from the discipline of technology roadmapping (TRM). The underlying rationale of these roadmapping approaches is to align firms' product and technology developments with their business goals. By visually representing firms' technology strategy, roadmaps support intra‐firm communication and facilitate the coordination of strategic decisions and activities within the technology management domain. Most previously published research on TRMs has focused on the design and implementation of roadmapping processes; that is, relatively few empirical or quantitative studies describe the use and evaluation of roadmapping techniques. This paper seeks to address this gap by conducting a survey of 186 different R&D units within stock market‐listed companies in Korea that have implemented TRM. The paper attempts to identify the antecedent factors behind firms' successful use of roadmaps, further identifying correlations between these antecedent factors through an analysis of the R&D units. It also empirically highlights these antecedent factors by empirically analyzing and verifying correlations between roadmap utilization and R&D performance.     

Synergy,coordination costs,and diversification choices

Sharing common inputs across business lines can potentially generate synergy that justifies related diversification. The pursuit of such synergy through diversification is, however, fundamentally driven by the indivisibility of inputs between firms. Following Penrose's insight, I argue that to realize this synergy, a firm needs to actively manage the interdependencies between different business lines, which, in turn, increases its coordination costs. The coordination costs may increase faster than synergy and set a limit to related diversification. This is particularly salient when the firm's existing business lines already have complex interdependencies among them. I test these arguments on a dataset of U.S. equipment manufacturers for the period 1993 to 2003. The results show that a firm is more likely to diversify into a new business when its existing business lines can potentially share more inputs with the new business; however, the firm is less likely to diversify into any new business when its existing business lines are complex. Importantly, the firm's likelihood of diversifying into a new business decreases more with the complexity in the firm's existing business lines if they share more inputs with the new business. These results suggest that increasing coordination costs counterbalance the potential synergistic benefits associated with related diversification. Copyright © 2010 John Wiley & Sons, Ltd.     

Where to search for process innovations? The mediating role of absorptive capacity and its impact on process innovation

While the potential of open innovation to develop product-related improvements through the use of external knowledge sources is undeniable, our understanding of how firms become process innovators remains limited. Distinguishing between product and process innovation is important, as insights gleaned from investigating product innovation may not relate directly to the study of process innovation. This study provides new insight into open innovation and absorptive capacity by proposing the mediating role of absorptive capacity – potential and realized – on the relationship between knowledge search from external sources and process-related innovation activities. We test our model using a sample of 171 auto component suppliers in Iran, and find evidence that the learning effects of external scanning increase when a firm learns how to better manage external searches in terms of external absorptive capacity routines. Our results indicate that, while knowledge search from value chain partners is related to process innovation, knowledge search from universities and other research organizations is not, and that potential absorptive capacity mediates the relationship between external knowledge search and process innovation. These findings shed further light on the relationship between a firm’s openness and its process innovation.     

Improving Marketing's Contribution to New Product Development

In many firms, the marketing department plays a minor role in new product development (NPD). However, recent research demonstrates that marketing capabilities more strongly influence firm performance than other areas such as research and development. This finding underscores the importance of identifying relevant capabilities that can improve the position of marketing within the NPD process as part of the quest to improve innovation performance. However, thus far, it has remained unclear precisely how the marketing department can increase its influence on NPD to enhance a firm's innovation performance. The results of this study demonstrate that the relationship between marketing capabilities and innovation performance is generally mediated by the decision influence of marketing on NPD. In particular, both marketing research quality and the ability to translate customer needs into product characteristics serve to increase marketing's influence on NPD. This increased influence, in turn, positively contributes to overall firm innovation performance. Hence, these results show that in addition to having the appropriate marketing capabilities, the marketing department must achieve a status in which these capabilities can translate into performance implications.     

Reputation and corporate strategy: A review of recent theory and applications

A corporate reputation is a set of attributes ascribed to a firm, inferred from the firm's past actions. While the intuition behind reputation-building is hardly new, recent research has formalized the concept. We review this research and then, using examples, illustrate some of the strategic behavioral implications of these formal models.     

The influence of prior industry affiliation on framing in nascent industries: the evolution of digital cameras

New industries sparked by technological change are characterized by high uncertainty. In this paper, we explore how a firm's conceptualization of products in this context, as reflected by product feature choices, is influenced by prior industry affiliation. We study digital cameras introduced from 1991–2006 by firms from three prior industries. We hypothesize and find that: (1) prior industry experience shapes a set of shared beliefs that results in similar and concurrent firm behavior; (2) firms notice and imitate the behaviors of firms from the same prior industry; and, (3) as firms gain experience with particular features, the influence of prior industry decreases. This study extends previous research on firm entry into new domains by examining heterogeneity in firms' framing and feature‐level entry choices. Copyright © 2011 John Wiley & Sons, Ltd.     

Network picturing: An action research study of strategizing in business networks

Our paper is concerned with how managers understand their surrounding network and what strategic actions they take based on this insight. Recent research in the areas of network management and business relationships shows increasing interest in the interplay between cognition and action, particularly on how managers relate perceptions about their business network (“network picturing”) to decision-making and strategizing activities. In this study, we apply a novel research approach combining process research and action research methodology. Our sample is introduced to business network theories and concepts, and the use and adaptation of these concepts results in managerial options being articulated and applied. Our findings add new insight in the field of network strategy and network picturing. Network picturing represents a way to understand the boundaries of the firm and how this understanding affects managers' decisions. This differs from the fundamental distinction between the external and the internal environments of classical strategy analysis. In terms of network picturing, strategizing is a way to understand the resulting actions or network outcomes that managers see as viable within their surrounding network. We also provide a conceptual process exercise as an example of how this insight can be relevant for managers in their decision-making processes.     

Do ongoing networks block out new friends? Reconciling the embeddedness constraint dilemma on new alliance partner addition

Research Summary: This study addresses a theoretical dilemma regarding how alliance network constraint (reflected by network cohesion) affects a firm’s alliance formation with new partners. Using a network pluralism approach, we separate a firm’s ego alliance network into two activity‐based networks—an exploratory network and an exploitative network—based on the primary value chain activity involved in each alliance. We argue that the cohesion of exploratory or exploitative networks has an inverted U‐shaped effect on the addition of new partners in the same activity‐based network, and a positive effect on the addition of new partners in the other network. Results based on data from the biotechnology industry largely support our predictions with one exception. Our study contributes to both scholarly understanding of network embeddedness and alliance practice. Managerial Summary: The structure of firms’ ongoing alliance networks may have paradoxical implications for their efforts to search for and form alliance with new partners. That is, when a firm’s alliance partners are tightly connected with each other, the cohesive network tends to both encourage and impede the focal firm to add new partners. We resolve this dilemma by showing that when a firm is deeply entrenched in a cohesive alliance network conducting a certain type of activities (e.g., R&D activities), it may not easily add new R&D alliance partners. However, it may still be able to escape from the cohesive R&D alliance network by seeking new partners conducting other activities (e.g., manufacturing activities).     

New Product Development in Rapidly Changing Markets: An Exploratory Study

Rapid technological change can be both a blessing and a curse. For example, investors and firms of all sizes hope to reap the rewards that may arise from the apparent convergence of the computer, telecommunications, and entertainment industries. With the high level of uncertainty inherent to such rapidly changing markets, however, those potentially dazzling returns are counterbalanced by a daunting level of risk. John Mullins and Daniel Sutherland suggest that firms operating in such markets require NPD practices that can mitigate risk, manage uncertainty, and, of course, increase the likelihood of new product success. To gain insight into the NPD practices that can meet those challenges, they conducted in-depth interviews with managers who were directly involved in NPD projects at US WEST, Inc., a large, multinational firm in the telecommunications industry. The study focused on identifying practices that help the firm bring new products into rapidly changing markets quickly, efficiently, and effectively. A key objective of their study was to go beyond the basics—for example, the use of cross-functional teams—to identify specific practices that allow the firm to address the various levels of uncertainty that characterize its markets. They identify three levels of uncertainty that confront firms operating in rapidly changing markets. First, potential customers cannot easily articulate needs that a new technology may fulfill. Consequently, NPD managers are uncertain about the market opportunities that a new technology offers. Second, NPD managers are uncertain about how to turn the new technologies into products that meet customer needs. This uncertainty arises, not only from customers' inability to articulate their needs, but also from managers' difficulties in translating technological advancements into product features and benefits. Finally, senior management faces uncertainty about how much capital to invest in pursuit of rapidly changing markets as well as when to invest. The study identifies six practices that help the firm address the uncertainty and risk inherent in its rapidly changing markets. For example, market research in this firm's NPD process focuses more on probing than it does on measuring. Involvement of prospective customers in idea generation and the use of prototypes early in the NPD process help the firm uncover customer needs and market opportunities. Large-scale, quantitative market research focuses primarily on determining market size and price points.     

Managing for stakeholders,stakeholder utility functions,and competitive advantage

A firm that manages for stakeholders allocates more resources to satisfy the needs and demands of its legitimate stakeholders than would be necessary to simply retain their willful participation in the firm's productive activities. We explain why this sort of behavior unlocks additional potential for value creation, as well as the conditions that either facilitate or disrupt the value‐creation process. Firms that manage for stakeholders develop trusting relationships with them based on principles of distributional, procedural, and interactional justice. Under these conditions, stakeholders are more likely to share nuanced information regarding their utility functions, thereby increasing the ability of the firm to allocate its resources to areas that will best satisfy them (thus increasing demand for business transactions with the firm). In addition, this information can spur innovation, as well as allow the firm to deal better with changes in the environment. Competitive advantages stemming from a managing‐for‐stakeholders approach are argued to be sustainable because they are associated with path dependence and causal ambiguity. These explanations provide a strong rationale for including stakeholder theory in the discussion of firm competitiveness and performance. Copyright © 2009 John Wiley & Sons, Ltd.     

Building firm capabilities through learning: the role of the alliance learning process in alliance capability and firm‐level alliance success

In recent years, academics and managers have been very interested in understanding how firms develop alliance capability and have greater alliance success. In this paper, we show that an alliance learning process that involves articulation, codification, sharing, and internalization of alliance management know‐how is positively related to a firm's overall alliance success. Prior research has found that firms with a dedicated alliance function, which oversees and coordinates a firm's overall alliance activity, have greater alliance success. In this paper we suggest that such an alliance function is also positively related to a firm's alliance learning process, and that process partly mediates the relationship between the alliance function and alliance success observed in prior work. This implies that the alliance learning process acts as one of the main mechanisms through which the alliance function leads to greater alliance success. Our paper extends prior alliance research by taking a first step in opening up the ‘black box’ between the alliance function and a firm's alliance success. We use survey data from a large sample of U.S.‐based firms and their alliances to test our theoretical arguments. Although we only examine the alliance learning process and its relationship with firm‐level alliance success, we also make an important contribution to research on the knowledge‐based view of the firm and dynamic capabilities of firms in general by conceptualizing this learning process and its key aspects, and by empirically validating its impact on performance. Copyright © 2007 John Wiley & Sons, Ltd.     

The signalling process in initial public offerings

This study uses a sample of Singapore IPOs to examine the signalling process at the time of a new issue of shares. The multiple regression analysis results support three testable implications of the Grinblatt and Hwang model. We show that (1) the value of the firm is positively related to the fractional holding of the issuer, (2) the degree of underpricing is an increasing function of the variance, and (3) firm value is positively related to the degree of underpricing.     

Guest Editors' Introduction to Special Issue. Turnaround in Asia: Laying the Foundation for Understanding this Unique Domain

Turnaround is a subject that is receiving increasing attention from researchers, managers and consultants. However, the subject has received minimal examination in Asia, with studies usually focusing more on the external environment or macroeconomic issues and less on the management of Asian firms themselves. This lack of examination has persisted despite the Asian economic crisis of the late 1990s, which pushed many firms into significant decline. Thus, this special issue will provide a baseline for examining this topic more closely. This introduction presents ten papers of this special issue of the Asia Pacific Journal of Management on firm turnaround in Asia. This paper also suggests key research questions for future examinations of the topic of firm turnaround in and around Asia.     

Business model innovation in strategic alliances: a multi‐layer perspective

Business model innovation (BMI) has recently become a topic of interest for research as well as corporate practice. However, we lack specific insights into actors, drivers, and different forms of BMI as the concept is by now mainly addressed in a very general way. In this paper, we analyze how BMI takes place in strategic alliances with the focus of enhancing the recent knowledge about BMI by developing a concept that links firm‐level BMI with alliance‐driven innovation of business models. Against the background of an in‐depth explorative qualitative study, we shed light on the basic nature business model innovation alliances (BMIA) and their effects on both, alliance level and firm level. We develop a process model of BMIA that is the first model providing a holistic picture of this particular type of BMI. Our findings allow for deep insights into BMI processes in incumbent companies and uncover in detail the importance of boundary spanning activities in this realm. By providing these insights, we pave the ground for a new stream of BMI research that focuses on the in‐depth understanding of the role of collaboration and network effects in recent BMI processes. In addition, we show practical benefits for partners in BMI alliances. These insights may help to overcome the traditional fear of negative effects that is still very often prevalent in companies when it comes to issues of partnering with firm external players in strategic issues.     

The impact of stocks and flows of organizational knowledge on firm performance: an empirical investigation of the biotechnology industry

The knowledge‐based view of the firm is a recent approach to understanding the relationship between firm capabilities and firm performance. Specifically, this approach suggests that knowledge generation, accumulation and application may be the source of superior performance. Other research has conceptualized organizational knowledge in terms of stocks of accumulated knowledge in the firm and flows of knowledge into the firm. This paper tests the relationship between stocks and flows of organizational knowledge and firm performance in the biotechnology industry. We suggest that a firm’s geographic location, alliances with other institutions and organizations and R&D expenditures are representative of knowledge flows, while products in the pipeline, firm citations and patents are indicative of knowledge stocks. Through factor analysis, we develop an aggregated measure of location from several variables. A regression model suggests that location is a significant predictor of firm performance as are products in the pipeline and firm citations. A major contribution of this investigation is the operationalization of geographic location and its statistically significant link to firm performance. Copyright © 1999 John Wiley & Sons, Ltd.