Governance mode vs. governance fit: Performance implications of make‐or‐ally choices for product innovation in the worldwide aircraft industry, 1942–2000

We examine the impact of governance mode and governance fit on performance in make‐or‐ally decisions. We argue that while horizontal collaboration and autonomous governance have direct and countervailing performance implications, the alignment of make‐or‐ally choices with the focal firm's resource endowment and the activity's resource requirements leads to better performance. Data on the aircraft industry show that relative to aircraft developed autonomously, collaborative aircraft exhibit greater sales but require longer time‐to‐market. However, governance fit increases unit sales and reduces time‐to‐market. We contribute to the alliance and economic organization literatures. Copyright © 2013 John Wiley & Sons, Ltd.     

Actions speak louder than modes: antecedents and implications of parent implementation capabilities on business unit performance

Firm boundaries and strategic execution affect the firm's ability to generate rents, grow, and survive. Boundaries are determined through governance mode choices, such as whether to make or buy a particular good or activity. While significant work has addressed the performance implications of this fit, less attention has been directed toward strategic execution, or implementation. In particular, the impact of corporate parents has been understudied. We suggest that parent‐level implementation capabilities of operating expertise gained through related experience and coordination from collocation combine with governance mode choices to jointly affect performance. By employing theories of organizational economics and testing predictions in casual dining chains, this paper unpacks the relationship between implementation, governance mode choice, and performance. Our findings suggest that parent capabilities may be more important than mode choice fit and that parent benefits are contingent upon mode choice and type of performance. Copyright © 2011 John Wiley & Sons, Ltd.     

Alliance portfolio diversity and firm performance

In this paper, we offer a comprehensive alliance portfolio diversity construct that includes partner, functional, and governance diversity. Grounding our work primarily with the resource‐ and dynamic capabilities‐based views, we argue that increased diversity in partners' industry, organizational, and national background will incur added complexity and coordination costs but will provide broadened resource and learning benefits. Increased functional diversity results in a more balanced portfolio of exploration and exploitation activities that expands the firm's knowledge base while increased governance diversity inhibits learning and routine building. Hypotheses were tested with alliance portfolio and performance data for 138 multinational firms in the global automobile industry during the twenty‐year period from 1985 to 2005. We found alliance portfolios with greater organizational and functional diversity and lower governance diversity were related to higher firm performance while industry diversity had a U‐shaped relationship with firm performance. We suggest firms manage their alliances with a portfolio perspective, seeking to maximize resource and learning benefits by collaborating with a variety of organizations in various value chain activities while minimizing managerial costs through a focused set of governance structures. Copyright © 2010 John Wiley & Sons, Ltd.     

Learning Capability,Technological Parity,and Innovation Mode Use*

The purpose of this research was to examine whether a firm's learning capability interacts with industry technological parity to predict innovation mode use. Learning capability is conceptualized in the current research as a firm's ability to develop or acquire the new knowledge‐based resources and skills needed to offer new products. Industry technological parity is conceptualized as the extent to which similarity and equality exist among the technological competencies of the firms in an industry. Three generic modes of innovation are considered: internal, cooperative, and external innovation. These modes reflect the development of new products based solely on internal resources, the collaborative development of new products (i.e., with one or more development partners), and the acquisition of fully developed products from external sources, respectively. The premises of this research are that (1) technological parity can create incentives or disincentives for innovating in a particular mode, depending upon the value of external innovative resources relative to the value of internal innovative resources and (2) firms will choose innovation modes that reflect a combination of their abilities and incentives to innovate alone, with others, or through others. Survey research and secondary sources were used to collect data from 119 high‐technology firms. Results indicate that firms exhibit greater use of internal and external innovation when high levels of industry technological parity are matched by high levels of firm learning capability. By contrast, a negative relationship between learning capability and industry technological parity is associated with greater use of the cooperative mode of innovation. Thus, a single, common internal capability—learning capability—interacts with the level of technological parity in the environment to significantly predict three distinct innovation modes—modes that are not inherently dependent upon one another. As such, a firm's internal ability to innovate, as reflected in learning capability, has relevance well beyond that firm's likely internal innovation output. It also predicts the firm's likely use of cooperative and external innovation when considered in light of the level of industry technological parity. A practical implication of these findings is that companies with modest learning capabilities are not inherently precluded from innovating. Rather, they can innovate through modes for which conditions in their current environments do not constitute significant obstacles to innovation output. In particular, modest learning capabilities are associated with higher innovative output in the internal, cooperative, and external modes when industry technological parity levels are low, high, and low, respectively. Conversely, strong learning capabilities tend to be associated with higher innovative output in the internal, cooperative, and external modes when industry technological parity levels are high, low, and high, respectively.     

The coevolution of rent appropriation and capability development

Extant approaches to rent appropriation are static in that they explore bargaining power at a fixed point in time. This article contributes by examining how capabilities and bargaining power coevolve. As capabilities are developed, those who are favored by knowledge asymmetries make decisions that balance value creation potential against the rent appropriation regime, such as the organizational form in which the capability will be embedded. Using the example of Apple's development of the iPod, this article illustrates how stakeholders plan for rent appropriation as they assemble new capabilities—well before any value is actually created. Given that firm performance is an outcome of both capability development and rent appropriation, a robust theory must incorporate an understanding of how they coevolve. As such, the article highlights the need to integrate property rights theory with theories of value creation and governance costs as actors constantly make trade‐offs along these dimensions. Copyright © 2010 John Wiley & Sons, Ltd.     

Absolute and relative resources as determinants of international acquisitions

Although it is established that firms sometimes expand abroad to augment their capabilities, previous studies have generally focused on technological determinants of foreign expansion. We analyze capability‐seeking aspects of foreign direct investment by examining the relationship between upstream (technological) and downstream (marketing) capabilities and the choice between acquisition and greenfield modes of international entry. In analyzing 2175 entries by British, German, and Japanese investors into the United States, we find that for downstream capabilities, which tend not to be geographically fungible, the absolute level of capabilities in the entered industry explains the mode choice. However, for upstream capabilities, which tend to be geographically fungible, the acquisition motive stems from a relative capability differential between host and home country firms. These results have implications for the concept of fungibility in the resource‐based view of the firm as well as for the literature on sourcing of resident assets by foreign firms, which has thus far ignored issues of entry mode and downstream assets. Copyright © 2002 John Wiley & Sons, Ltd.     

Governing collaborative activity: interdependence and the impact of coordination and exploration

We examine the performance implications of selecting alternate modes of governance in interorganizational alliance relationships. While managers can choose from a range of modes to govern alliances, prior empirical evidence offers limited guidance on the performance impact of this choice. We use an agent‐based simulation of interfirm decision making to complement empirical studies in this area. Our results point to a complex interplay between interdependencies, governance structures, and firms' search capabilities. Different patterns of interdependence create varying needs with respect to coordination and exploration, while at the same time different governance modes, coupled with organizational search capabilities, supply varying degrees of these factors. Firm performance in an alliance relationship improves when the needs and supplies of coordination and exploration are matched. We find situations in which stronger organizational search capabilities can backfire, leading to lower exploration within the alliance relationship, and hence to lower firm performance. Moreover, we show that for higher levels of interdependence, coordination can become more critical for firm performance than exploration: unless it is tied to coordination, exploration can be ineffective in alliance settings. Copyright © 2010 John Wiley & Sons, Ltd.     

Post‐formation dynamics in strategic alliances

This paper investigates the occurrence and determinants of post‐formation governance changes in strategic alliances, including alterations in alliances' contracts, boards or oversight committees, and monitoring mechanisms. We examine alliances in the biotechnology industry and find that firms' unique alliance experience trajectories affect the likelihood of such ex post adjustments in these partnerships. Transactional features such as the alliance's scope, its division of labor, and the relevance of the collaboration to the parent firm also bear upon alliances' dynamics. We discuss the implications of these findings and how they complement prior research focusing on alliance design or termination at opposite ends of the alliance life cycle. Copyright © 2002 John Wiley & Sons, Ltd.     

Joining Forces or Going It Alone? On the Interplay among External Collaboration Partner Types,Interfirm Governance Modes,and Internal R&D

This paper adds to the emerging literature stream advocating a contingency view on open innovation. Drawing on the relational view of the firm, this study sheds light on the complex interplay among collaboration partner types (market‐ and science‐focused innovation partners), governance modes (informal, self‐enforcing and formal, contractual collaboration governance), and internal research and development(R&D). More specifically, it is proposed that the use of governance modes tailored to both the characteristics of each innovation partner type and the specific innovation objectives pursued by the focal firm (incremental and radical new product development) can increase the payoff from innovation collaboration. Moreover, appropriate collaboration governance is expected to reduce the focal firm's vulnerability to possible negative side effects often assumed to be associated with the simultaneous pursuit of external collaboration and internal R&D, among which most notably the not‐invented‐here (NIH) syndrome. Cross‐industry evidence from 2502 German firms underlines the critical role of collaboration governance—a contingency factor that is at the heart of the relational view, yet has remained surprisingly absent from the open innovation debate so far.     

Pricing process as a capability: a resource‐based perspective

Strategists following the resource‐based view argue that firms can generate rents through value creation. To create value, firms develop and use resources and capabilities that other firms cannot imitate, trade for, or substitute other assets for. Even a firm that has created value, however, may not capture the potential rents associated with that value. To capture rents, a firm must set the right prices for what it sells. Most views of pricing assume that a firm can readily set appropriate prices. In contrast, we argue that pricing is a capability. To develop the ability to set the right prices, a firm must invest in resources and routines. We base our argument on a study of the pricing process of a large Midwestern manufacturing firm. We show that pricing resources, routines, and skills may help or inhibit a firm in setting the right price—and hence in appropriating value created. Our view of pricing as a capability contributes to the resource‐based view because it suggests that strategists should consider the portfolio of value creation and value appropriation capabilities a firm uses to create competitive advantage. Our view also contributes to economics because it suggests that strategic decisions about pricing capabilities have important implications for a fundamental economic action, determining prices. Managers in firms without effective pricing processes may be unable to set prices that reflect the wishes of its customers, so the customers may misuse their resources. As a result, resources may be used ineffectively. Our view of pricing as a capability therefore takes the resource‐based‐view straight to the heart of what is perhaps the central economic question: the best use of resources. Copyright © 2003 John Wiley & Sons, Ltd.     

How to learn in R&D partnerships?

In this article a set of determinants of organisational learning and result appropriation are identified and then tested on a sample of Research and Development (R&D) consortia. The literature review and an exploratory case study highlight the main factors which favour learning and the appropriation of knowledge. The case study observes the organisational learning processes at work in three R&D partnerships entered into by a European high technology firm.
Six hypotheses are formulated. They pertain to the link between the firm's learning and exploitation capabilities. The hypotheses relate to (1) trust between partners, (2) R&D integration in the firm, (3) the access to adequate complementary assets, (4) the member's involvement and motivation in the cooperative process, (5) its own experience in R&D, and (6) the number of partners in the consortium. These hypotheses are tested on a sample of 317 R&D consortia in the European EUREKA initiative.
The results show that a firm's internal organisation and the level of trust between partners influence learning and result appropriation. However, the determinants vary according to the kind of outcome (tangible knowledge, new products/processes, improved products/processes, intangible knowledge). With the knowledge that alliances are increasingly becoming a necessity for firms involved in technology, a better understanding of how to benefit from R&D partnerships can only improve firms' competitiveness in the future.     

Influencing public policymaking: Firm‐, industry‐, and country‐level determinants

This paper examines the determinants of firms' public policymaking influence. Using a novel and global database that measures firms' perceived influence over the executive and legislative branches of government, a systematic analysis of the firm‐, industry‐, and country‐level determinants, and interrelationships among these determinants of firms' public policymaking influence is undertaken. The empirical results indicate that large firms perceive they have more public policymaking influence than small firms, but these differences are conditioned by the number of industry competitors and the structure of the country political institution environment. Nonmarket strategy implications that follow from this refined understanding are developed and discussed. Copyright © 2014 John Wiley & Sons, Ltd.     

Competitive intensity and collaboration: impact on firm growth across technological environments

This article investigates the impact of competitive intensity and collaboration on firm growth across technological environments. I propose that competitive intensity determines the likelihood of firm collaboration, and that the interaction of competitive intensity and collaboration influences firm growth. These relationships are, in turn, moderated by industry‐level technological intensity. Analyzing 1,004 firms and 378 collaborations from the manufacturing sector in Singapore, I find that firms facing high or low levels of competitive intensity collaborate less often than those facing moderate levels of competitive intensity. Industry technology intensity moderates this relationship, with a stronger inverted‐U‐shaped association between competitive intensity and collaboration in more technology intensive industries. Collaboration leads to higher growth for firms facing lower levels of competitive intensity than for firms facing higher levels of competitive intensity only in more technology intensive industries. In technologically less intensive industries, collaboration leads to higher growth for firms facing higher levels of competitive intensity as compared to those facing lower levels of competitive intensity. These findings have important implications for competitive and collaborative dynamics for firm growth in different technological environments. Copyright © 2008 John Wiley & Sons, Ltd.     

An empirical analysis of organizational strategies by entrepreneurial high-technology firms

Many start-up, high-technology firms commercialize an emerging technology through cooperative arrangements. This paper empirically investigates the determinants of entrepreneurial high-technology firms to form cooperative relationships. The statistical results on data drawn from the commercialization of the new biotechnology show that the propensity to cooperate is positively correlated with the distance of firms' competitive position in relation to their rivals. The follower is more likely to seek cooperative relationships than the leader in commercializing new products. However, the competitive pressure impacts firms in different ways, depending on their internal capabilities to commercialize a new product. We found that firm size is negatively correlated with the use of cooperative arrangements. The study also found that the organizational mode of cooperative arrangements is predominantly selected by the high-tech. start-up firm in commercializing their new products in foreign markets.     

Entry mode and equity level: A multilevel examination of foreign direct investment ownership structure

Over the last two decades, strategy researchers have sought to understand the ownership structure of firms' foreign direct investments (FDI) as reflected in entry mode and equity level. However, prior FDI research has ignored the interrelated nature of these key FDI decisions. In addition, prior research does not fully account for the fact that individual ownership structure decisions occur within the context of a firm's broader FDI portfolio, and thus reflect a wide and frequently unobserved range of parent firm and host nation effects. Our research seeks to address both of these limitations. Using a rich dataset of 4,459 subsidiaries established by 858 Japanese firms across 38 countries over a 9‐year period, we specify a conditional bivariate, cross‐classified multilevel model of FDI ownership structure. Our model enables the joint estimation of entry mode and equity level, accounts for the portfolio nature of FDI, and compares the relative predictive power of transaction cost‐ and experience‐based explanatory variables across both facets of ownership structure. Copyright © 2007 John Wiley & Sons, Ltd.     

The Impact of Product Portfolio Strategy on Financial Performance: The Roles of Product Development and Market Entry Decisions

Innovation is one of the most important issues facing business today. The major difficulty in managing innovation is that managers must do so against a constantly shifting backdrop as technologies, competitors, and markets constantly evolve. Managers determine the product portfolio through key decisions about product development and market entry. Key strategic questions are what portfolio strategies provide the greatest reward. The purpose of this study is to understand the relative financial values of each component of a product portfolio. Specifically, the paper examines the short‐term and long‐term financial impacts of product development strategy and market entry strategy. These strategies reflect two critical tensions that must be balanced in product portfolio decision making and essentially determine a firm's product portfolio. In doing so, the paper also investigates how a firm's capabilities drive each component of a product portfolio. From the empirical analyses in the context of the biomedical device industry, the paper found important insights regarding product portfolio strategies. First, a large product portfolio helps a firm's financial performance. In particular, the pioneering new products have strongest impacts on short‐term performances, and nonpioneering mature products do not provide significant contribution. Second, the results indicate a persistent first‐mover advantage. The first‐to‐market new products yield not only an immediate effect, but also persistent long‐term effects, suggesting that it is important to be first in the market even though there may be short‐term losses. Third, the results suggest the need to balance between “mature” and “new” products. Also, firms need to balance “first‐to‐market” and “late‐entered” products. Because a new or pioneering product requires more resource, it may hurt other products in the portfolio. Thus, without support from mature or follower products, new products and pioneering products alone may not increase firm sales or profit. Fourth, from a long‐term perspective, the paper found that the financial market only rewards a firm's overall capability to deliver new products first in the marketplace. Thus, short‐term performance is mainly driven by product‐level innovativeness, whereas firm‐level innovativeness enhances forward‐looking long‐term performance. Fifth, the paper also found that pioneering new products are driven by integrating both primary and complementary technological capabilities. And nonpioneering new products are mainly driven by the capabilities in primary technology domain. These results provide important insight into the relative value and timing of return on investment in radical versus incremental innovation and alternative market entry strategies. By understanding the performance trade‐offs of these different factors in the short and long term, one can develop better guidelines for optimizing innovation strategies, and their dependence on both external and internal environmental conditions.     

From hybrids to hierarchies: shareholder wealth effects of joint venture partner buyouts

This study examines the parent firm performance implications of joint venture (JV) partner buyouts, which involve the conversion of a hybrid governance structure to an internal unit within the firm's hierarchy. Transaction cost theory, as developed and applied in the international literature and market entry research, is extended to the post‐entry investment setting to isolate sources of value creation or dissipation from the governance changes effected by JV partner buyouts. The evidence complements recent research on JV longevity and its determinants. Copyright © 2001 John Wiley & Sons, Ltd.     

Shareholder valuation of foreign investment and expansion

This study analyzes when different foreign investment location choices are value creating for firms at different stages of international expansion. I argue that because direct investment in developing countries is riskier than in advanced countries, shareholders may not value a firm's investment in developing countries until that firm has experience from previous international investments and capabilities to better manage and hedge the higher levels of risk and uncertainty. Using a panel of 191 U.S. manufacturing firms and their foreign investments over a 20‐year period (1981–2000), the empirical results show that firm investments in advanced and developing countries are valued differently by shareholders, depending on the firm's prior international expansion, the firm's capabilities and experiences, and the knowledge intensity of the firm's industry. These results highlight the importance of considering firm location decisions, prior experiences, and resources when analyzing. 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.     

Mutual commitment to support exchange: relation‐specific IT system as a substitute for managerial hierarchy

This paper examines the effects of information technology (IT) on the governance of vertically related firms. We propose that a highly relation‐specific IT system in inter‐firm transactions plays a key role in the resulting inter‐firm governance as a mutual sunk‐cost commitment, in terms of leading to both less vertical integration (i.e., a change in governance mode as a first‐order effect) and a smaller number of suppliers (i.e., a change within a governance mode as a second‐order effect). As a result, this highly relation‐specific IT system (bilateral investment) can be an alternative governance mode of electronic integration that acts as a substitute for managerial hierarchy and vertical financial ownership. From a strategic management perspective, this paper provides transaction costs and resource‐based explanations on IT systems' impact on the organizational boundary decision and its impact on the likelihood of the firm achieving sustainable competitive advantage. Copyright © 2006 John Wiley & Sons, Ltd.