Customer‐specific synergies and market convergence

We use an analytical model to study the effects of customer‐specific synergies, i.e., synergies that arise when firms sell multiple products to the same customers. At the firm level, we show that the profitability of a customer‐specific synergy depends upon cross‐market correlation of customer preferences, differs when the synergy is cost‐based versus differentiation‐based, and can even be negative when the synergy is kept proprietary to a single firm. We also show that returns to imitating such a synergy may decline as it strengthens. At the industry level, we find that exploiting customer‐specific synergies causes endogenous market convergence at a point that depends upon whether the synergy is cost‐based or differentiation‐based and whether it is imitated. Copyright © 2015 John Wiley & Sons, Ltd.     

The clock is ticking! Executive temporal depth,industry velocity,and competitive aggressiveness

We examine how the interplay between executive temporal depth (time horizons that executives consider when contemplating past and future events) and industry velocity (the rate at which new opportunities emerge and disappear in an industry) shapes competitive aggressiveness (a firm's propensity to challenge rivals directly and intensely in order to maintain or improve its market position) and firm performance. Based on panel data (from 1995 to 2000) from 258 firms in 23 industries, we found that executive temporal depth exhibited different patterns of relationships with competitive aggressiveness in low‐ and high‐velocity industries. Moreover, competitive aggressiveness had a positive main effect on firm performance, but this effect was stronger in high‐velocity industries than in low‐velocity industries. Copyright © 2015 John Wiley & Sons, Ltd.     

Strategy and industry effects on profitability: evidence from Greece

The present study examines the impact of firm and industry‐specific factors on profitability, using census data on Greek manufacturing. At the firm level, particular attention is given to strategy effects. Based on a modification of Porter's typology, these effects are captured through different forms of both ‘pure’ and ‘hybrid’ strategies. Industry effects are represented using industry concentration, entry barriers, and growth. Hypotheses are developed taking into account both previous research and the particular idiosyncrasies of the national context. The results obtained provide important insights on specific determinants of firm profitability. With respect to strategy, results confirm the hypothesis that hybrid strategies are clearly preferable compared to pure ones. In addition, it was found that the more generic strategy dimensions are included in the strategy mix, the more profitable the strategy is, provided that one of the key ingredients is low cost. Industry‐level effects, although weaker, show strong impact of industry entry barriers. Moreover, the findings suggest that while both sets of factors significantly contribute to firm profitability, firm‐specific factors explain more than twice as much profit variability as industry factors. Copyright © 2003 John Wiley & Sons, Ltd.     

Playing dirty or building capability? Corruption and HR training as competitive actions to threats from informal and foreign firm rivals

Research summary : We examine why a firm takes specific competitive action in nonmarket and resource‐market spaces, particularly when it perceives threats from informal and foreign competitor groups, respectively. We address this question by combining insights from competitive rivalry, strategic groups, and nonmarket strategy literatures in an emerging economy context. Specifically, we theorize how threats from informal and foreign rival firms in an emerging market influence a firm's engagement in corruption activities and its investments in HR training, respectively. We also argue that the likelihoods of such focal firm actions against competitor group threats differ, contingent on the focal firm's market and resource profiles. Results from the empirical analyses, with survey data from the Indian IT industry, provide broad support to our hypotheses. Managerial summary : Based on a World Bank dataset on the Indian IT industry, this study finds that corruption and HR training are pursued by firms in emerging economies as mindful strategies against specific types of rivals—informal and foreign firm rivals, respectively, and are not pursued simply as culturally‐based practices. Multinational companies may need to understand that domestic firms in emerging countries will engage in corruption strategically to reduce their costs and time to market of their products/services. Therefore, multinational firms may need to devise suitable strategies other than corruption to reduce their costs and time to market if they wish to compete with firms in emerging economies for customers who don't care about ethical issues and will buy a cheaper product/service that is delivered quickly. Copyright © 2015 John Wiley & Sons, Ltd.     

Understanding competitive advantage in the general hospital industry: evaluating strategic competencies

This study examines the drivers of competitive advantage within the hospital industry. Specifically, we examine both the direct and joint effects of market structure, firm‐level competencies, and interorganizational relationships on organizational performance. The results of this approach indicated that managers, through their strategic actions related to the capabilities and relationships they develop and deploy, can establish advantageous competitive positions and influence the negative effects of market structure by developing important strategic competencies. Copyright © 2003 John Wiley & Sons, Ltd.     

The influence of executive cognition on competitive dynamics

Prior competitive dynamics research has drawn on theories of information processing to model the subjective antecedents of executives' retaliation choices. This prior work has made great progress in developing our understanding of the retaliation choices most firms will make to a given type of attack. What the information processing perspective has not been able to do is explain firm‐specific behavior to predict which competitive moves individual firms will challenge, or explain why individual firms differ in the types of actions that they are most likely to challenge. The goal of this paper is to sharpen the theoretical and empirical focus on predicting firm‐level retaliation proclivities. We leverage managerial cognition research to examine the relationship between firm‐level differences in the cognitive frameworks that executives possess, and firm‐level differences in whether and how quickly firms challenge a market move. Results from a longitudinal study of the airline industry suggest that the addition of a cognitive perspective provides important insights into competitive retaliation. Copyright © 2010 John Wiley & Sons, Ltd.     

Firm‐specific human capital investments as a signal of general value: Revisiting assumptions about human capital and how it is managed

Research summary : Prior scholarship has assumed that firm‐specific and general human capital can be analyzed separately. This article argues that, in some settings, this is not the case because prior firm‐specific human capital investments can be a market signal of an individual's willingness and ability to make such investments in the future. As such, the willingness and ability to make firm‐specific investments is a type of general human capital that links firm‐specific and general human capital in important ways. The article develops theory about these investments, market signals, and value appropriation. Then, the article examines implications for human resource management and several important questions in the field of strategic management, including theories of the firm and microfoundations of competitive advantage. Managerial summary : While managers don't often use the terms firm‐specific and general skills, they certainly recognize that investments employees make in their skill sets are more or less relevant to a specific firm. For instance, investing in specific relationships within a firm or learning a firm's proprietary software would be considered firm‐specific investments. While such skills may seem relevant only to the particular firm in which they were invested, these investments may also send valuable signals to competing firms that such employees are willing and able to make similar investments elsewhere. Hence, managers should be interested in determining if a potential hire has made prior firm‐specific investments to help them know whether that person might be likely to make such investments in his or her future place of employment. Copyright © 2016 John Wiley & Sons, Ltd.     

Nested identities as cognitive drivers of strategy

Research Summary: Organizations face tensions to conform to industry norms for legitimacy yet differentiate for competitive advantage when implementing strategies. We suggest this tension is due to and resolved through organizations’ cognitive negotiations of multiple levels of identity. Through an inductive study in the recreational vehicle industry, we find that organizations concurrently draw on identities at the organizational, industry, and strategic group levels to formulate and enact specific competitive actions. Specifically, we find that organizational identity relates to decisions on product offerings; industry identity relates to downstream strategy; and strategic group identity relates to upstream strategy, firm boundaries, and expansion mode. Our findings highlight the importance of strategic group identity and inform a grounded model describing how organizations draw upon different levels of identity to influence strategy. Managerial Summary: Many managers experience tensions of differentiating their firms’ competitive actions from rivals, while conforming with industry norms and practices. In this article, we argue that a manager can navigate these tensions by understanding their firm, strategic group, and industry identities and how these identities interrelate. Through a qualitative case study of the U.S. recreational vehicle industry, we show that each level of identity influences different competitive actions, with firm identity connected to product offerings, industry identity related to managing downstream distribution, and strategic group identity related to firm boundary and acquisition strategies. Overall, strategic group identity is the most critical for managers as this level filters how they view competitors and provides the rules of competition.     

Revisiting the firm,industry, and country effects on profitability under recessionary and expansion periods: A multilevel analysis

Research summary: Despite voluminous past research, the relevance of firm, industry, and country effects on profitability, particularly under adverse contexts, is still unclear. We reconcile institutional theory with the resource‐based view and industrial organization economics to investigate the effects of economic adversity, such as the 2008 global economic crisis. Using a three‐level random coefficient model, we examine 15,008 firms across 10 emerging and 10 developed countries for the 2005–2011 period. We find that firm effects become stronger under adversity, whereas industry effects become weaker, as well as country main and interaction effects, particularly among the emerging economies. These findings confirm our assumptions that the firm's own fate is, to a great extent, self‐determined; a reality that is even more pronounced during periods of extreme economic hardship. Managerial summary: In this research, we examine how generalized economic adversity affects the balance across the firm‐, industry‐, and country‐specific factors determining firm profitability. We specifically examine 15,008 firms from 10 emerging and 10 developed countries during the 2005–2011 period to investigate the effects of the 2008 global economic crisis on firm performance. We find that in such adverse conditions, the role of the industry and the country are reduced and the firm's own resources and capabilities become more pertinent for firm performance. This phenomenon is more pronounced across emerging markets. We conclude that the firm's own fate is, to a great extent, self‐determined, a reality that is markedly more evident during periods of extreme economic hardship. Copyright © 2015 John Wiley & Sons, Ltd.     

Taking industry structuring seriously: A strategic perspective on product differentiation

Given legal impediments to consolidation and collusion, firms often resort to product differentiation to attain market power. This paper provides a formal analysis of product differentiation as a tool for such industry structuring at both the firm and industry level. We examine: how industry structure differs when firms collaborate on their differentiation decisions, and when the profitability of such collaboration is greatest; how an individual firm's differentiation decisions affect subsequent market outcomes under price competition, such as margin, market share, and profit; how mere differentiation differs from a ‘differentiation advantage’; and how changing a firm's differentiation affects its rivals through both positive externalities (by restraining rivalry) and negative externalities (by shifting competitive advantage). Our results have implications for empirical research, strategy theory, and pedagogy.     

Why strategic factor markets matter: “New” multinationals' geographic diversification and firm profitability

This study examines firm profitability differences among “new” multinational enterprises (NMNEs) pursuing geographic diversification into two distinct types of geographic locations based on the development of strategic factor markets. Building on strategic factor markets theory, we propose that firm‐specific advantages of NMNEs contribute differentially to firm profitability because they evolve differently given strategic factor market differences in host compared to home countries. Using a sample of Korean manufacturing MNEs during the 1993–2003 period, we find that geographic diversification into resource‐poorer host countries has a positive relationship with firm profitability, whereas geographic diversification into resource‐richer host countries has a U‐shaped relationship with firm profitability. Our study demonstrates why strategic factor markets—an important and often overlooked contextual factor—matter in exploring rationales for geographic diversification. Copyright © 2014 John Wiley & Sons, Ltd.     

Competitive advantage and performance: the impact of value creation and costliness of imitation

We create an industrial organization type model to relate resources to the spread between product market demand and marginal cost. We define competitive advantage as the cross‐sectional differential in this spread, and performance as the longitudinal differential between what a firm appropriates in the product market and what it paid in the factor market. With factor markets imposing different costs on the innovator and potential imitator(s), competitive advantage, performance, and high resource value do not necessarily coincide. Also, the interaction between resource value and the cost of imitation is complex and affected by the number of firms in the industry. Copyright © 2009 John Wiley & Sons, Ltd.     

Corporate and industry effects on business unit competitive position

We partition the variances of market shares, which we use as surrogates for competitive position, of the business units of all public manufacturing companies available in the Trinet data base into industry factors, corporate parent‐specific factors, and business unit‐specific factors. Our results differ somewhat from Rumelt's (1991) , which decomposed variances in profitability. We find that corporate parent effects on market share are considerably greater than zero when lines of business are defined more narrowly, when small business units are included, and when firms are medium‐sized. Our results suggest that the relative importance of corporate, industry, and business unit effects depends on the types of criteria, such as the level of industry aggregation, whether small business units are included, and firm size, that are used to construct samples. Copyright © 2000 John Wiley & Sons, Ltd.     

Competition‐driven repositioning

We study competition as an impetus for firms to reposition—to abandon their current positioning strategy and adopt a new one. We predict that as a strong firm moves closer, competition erodes the profitability of situated firms and prompts them to reposition. We expect this effect is pronounced the greater difference in competitive strength. However, we expect that countervailing forces exist such that the viability of alternative positions and the opportunity cost of abandoning a current position mitigate this effect. Evidence from a natural experiment in China's satellite television industry supports our hypotheses. This research adds to the existing literature on repositioning, which emphasizes the phenomenon as opportunity‐driven, and to the competitive interaction literature, which typically does not distinguish between noncounterattack strategies. Copyright © 2013 John Wiley & Sons, Ltd.     

Is performance driven by industry‐or firm‐specific factors? A new look at the evidence

In this study we revisit the question of whether firms' performance is driven primarily by industry or firm factors, extending past studies in two major ways. Firstly, in a departure from past research, we use value‐based measures of performance (economic profit or residual income and market‐to‐book value) instead of accounting ratios (such as return on assets). We also use a new data set and a different statistical approach for testing the significance of the independent effects. Secondly, we examine whether the findings of past research can be generalized across all firms in an industry or whether they apply to a particular class of firms within the same industry. We find that a significant proportion of the absolute estimates of the variance of firm factors is due to the presence of a few exceptional firms in any given industry. In other words, only for a few dominant value creators (leaders) and destroyers (losers) do firm‐specific assets seem to matter significantly more than industry factors. For most other firms, i.e., for those that are not notable leaders or losers in their industry, however, the industry effect turns out to be more important for performance than firm‐specific factors. Copyright © 2002 John Wiley & Sons, Ltd.     

The Performance of US Corporations: 1981–1994

This study decomposes the performance of US public firms between 1981 and 1994 into year, industry, corporate-focus and firm effects. Performance is measured by Tobin’s q, accounting profitability, and a hybrid measure. The results show that firm effects were more important to performance than industry effects, although industry effects had a large permanent component. Corporate focus was not important. The stylized facts suggest that competitive advantages – that is, differences between direct competitors in the same industry – were at least as important as industry influences on performance. Industry influences were more predictable and sustainable than competitive advantages, however.     

When Product Development Performance Makes a Difference: A Statistical Analysis in the Electronics Industry

Throughout the pages of JPIM and other publications, researchers and practitioners devote considerable effort to identifying the dimensions of new-product development (NPD) performance that relate most closely to business success. Although we may hope to unveil a set of universal truths about the relationship between NPD performance and business success, the relevant NPD performance measures appear to depend on the industry in which a firm competes. In fact, Christian Terwiesch, Christoph Loch, and Martin Niederkofler suggest that the overall relevance of NPD performance to business success depends on the firm's competitive market environment. In a study of 86 business units operating in 12 different electronics industries worldwide, they develop a market contingency framework for understanding the impact of NPD performance on a firm's profitability. Their study uses data from the “Excellence in Electronics” project, a joint research effort by Stanford University, the University of Augsburg, and McKinsey & Co. They describe market context in terms of three dimensions: market share, market growth, and external stability—that is, the average product life cycle duration in the market. Looking at all 86 business units in the study, they find that industry membership accounts for 23% of the variance in profits, with 18 percent of the variance determined by industry profitability and 5% by the three dimensions of market context. For the firms in the study, development performance has the most significant effect in slow-growth markets and in markets with long product life cycles. In these stable industries, low development intensity, product line freshness, and technical product performance increase profitability. The results indicate that NPD performance plays a much more important role for explaining the profitability of dominant firms than that of the low-market-share firms in the study. NPD performance explains 30% of the profitability variance among the high-market-share business units in the study, but none of the variance for the low-market-share business units. Although the profitability of the smaller firms in the study is driven primarily by the industry environment, these firms can compete on the basis of superior technical performance.     

Relationship between innovativeness,quality, growth,profitability, and market value

The purpose of this study is to examine the relationship between innovativeness, quality, growth, profitability, and market value at the firm level. Building on concepts from a resource‐based view of a firm and organizational learning, innovation and quality literature, we propose the innovativeness–quality–performance model, which describes how a firm's capability to balance innovativeness with quality drives growth and profitability, and in turn drives superior market value. Results of structural equation models indicate that (1) innovativeness mediates the relationship between quality and growth, (2) quality mediates the relationship between innovativeness and profitability, (3) both innovativeness and quality have mediation effects on market value, and (4) both growth and profitability have mediation effects on market value. Implications for theories and practices are discussed. Copyright © 2005 John Wiley & Sons, Ltd.     

Hidden but in plain sight: The role of scale adjustment in industry dynamics

While much is understood about the general pattern of industry dynamics, a critical element underlying these dynamics, the rate of the expansion of individual firms, has been largely overlooked. We argue that the rate at which firms can reliably increase their scale of operations is a critical factor in understanding the structure of industries. Further, success at scaling‐up the firm's operations provides a dynamic‐isolating mechanism that insulates established firms from new competition. We show that the bases of profitability in the industry (monopoly‐like profits stemming from the restriction of output, efficiency rents based on firm‐specific productivity differences, or transitory Schumpeterian profits) can be traced to the scale adjustment process. We explore these issues in a computational model of industry dynamics. Copyright © 2013 John Wiley & Sons, Ltd.     

Strategy,human capital investments,business‐domain capabilities,and performance: a study in the global software services industry

Research summary : In knowledge‐based industries, continuous human capital investments are essential for firms to enhance capabilities and sustain competitive advantage. However, such investments present a dilemma for firms, because human resources are mobile. Using detailed project‐level operational, financial, and human capital data from a leading multinational firm in the global IT services industry, this study finds that deliberate investments in improving general human capital can help firms develop superior capabilities and maintain high profits. This paper identifies two types of capabilities essential for success in this industry—technological and business‐domain capabilities—and provides empirical evidence justifying such investments. Theoretical and practical implications of capability‐seeking general human capital investments are discussed. Managerial summary : The primary managerial implication of this research is that capability‐seeking investments in developing general human capital through strategic learning (training and internal certifications) can enhance firm performance. Although investing in general human capital is risky, the firm considered this a strategic necessity in order to thrive in the fast paced IT services industry. By leveraging general technological skills in combination with business‐domain knowledge to address customer's business problems firms can earn and sustain higher profits. Our study also demonstrates how a developing‐country firm responded to strong competitive challenge from global rivals possessing superior capabilities by upgrading the capabilities of its employees through internal development. In doing so the firm was able to narrow the capability gap vis‐à‐vis its foreign peers and expand its business globally. Copyright © 2016 John Wiley & Sons, Ltd.