Resource relatedness and the mode of entry into new businesses: Internal resource accumulation vs. access by collaborative arrangement

When firms seek to enter a new business segment, they have to decide how to best gain access to the required resources. This paper analyzes how resource relatedness influences a firm's decision between internal development and collaborative arrangement as modes of entry. We distinguish between a firm's capacity to transfer its established resources to the new segment (resource transferability) and the integration and synergistic combination of current firm resources with target segment resources in day‐to‐day operations (resource complementarity). Resource transferability makes entry by internal development more likely, but this effect depends on segment characteristics. Synergies from complementary resources can be exploited more easily within firm boundaries than across an alliance interface. However, certain partner characteristics can substitute in part for belonging to the same firm. Copyright © 2014 John Wiley & Sons, Ltd.     

Do foreign entrepreneurs benefit their firms as managers?

Research summary: The entrepreneurship literature has extensively studied an individual's decision to found a new venture, but it has little to say about the individual's choice to operate this venture personally or hire an agent. This decision is particularly challenging for foreign entrepreneurs, who, in addition to traditional factors, such as agency costs and personal preferences, need to take into consideration the benefits and liabilities of foreignness. Using novel data on foreign entrepreneurial firms and instrumenting for the owner‐manager choice with a visa policy change, we find that managing foreign entrepreneurs significantly improve firm performance. Our results further suggest that foreign owner‐managers reduce operating costs but have no effect on the firm's productivity and growth. Managerial summary: Immigrants represent a significant part of the population in the United States and Europe and are often more entrepreneurial than local nationals. However, a person starting a firm in a foreign country faces unique challenges. One important choice that a foreign entrepreneur has to make is whether to operate the firm personally or hire a local agent. Foreign entrepreneurs are often believed to be worse managers because they have limited local knowledge and skills. However, our results point to the contrary: We find that managing foreign entrepreneurs significantly improve firm performance by decreasing firms' operating costs. This happens because foreign owner‐managers often have access to unique resources, higher work incentives, and superior management skills acquired at home. Copyright © 2016 John Wiley & Sons, Ltd.     

Stock market undervaluation of resource redeployability

Research Summary : Stock market undervaluation of resources was often assumed to have strategic implications. Such undervaluation lets firms buy resources relatively cheaply, but it can also constrain resource deployment. This article shows that the option to redeploy a firm's resources to a new business can be undervalued in stock markets when investors face ambiguity about that option due to uniqueness of redeployment. The developed formal model derives conditions under which stock markets undervalue resources. Those conditions are summarized with an empirical operationalization that can be tested with a broad range of strategic implications. Besides, the model provides a more complete account of resource redeployability by demonstrating the redeployability paradox. The paradox highlights that some determinants of redeployability enhance undervaluation, while simultaneously increasing objective value of redeployable resources. Managerial Summary : Stock markets can systematically undervalue resources. On the one hand, such undervaluation creates a profitable opportunity for a firm that needs some resources for its growth and compares the option to buy stock in another firm, whose resource are undervalued, with the option to build those resources internally. On the other hand, such undervaluation poses limits to resource deployment strategies of the undervalued firm. When does such undervaluation occur? This study highlights one possible source for undervaluation, ambiguity that is faced by stock market investors about the option to redeploy a firm's resources to a new business. The study specifies conditions under which stock markets are more likely to undervalue resources. The understanding of those conditions can guide managers toward strategic opportunities.     

Resource ambidexterity through alliance portfolios and firm performance

Research summary : Partner resources can be an important alternative to internal firm resources for attaining dual and seemingly incompatible strategic objectives. We extend arguments about managing conflicting objectives typically made at the firm level to the level of a firm's alliance portfolio. Specifically, will a balance between revenue enhancement and cost reduction attained collectively through partner resources accessed via a firm's various alliances be similarly beneficial for firm performance? Additionally, how do strategic attributes of alliance portfolio configuration, specifically alliance portfolio size and partner resource scope, condition the balance‐performance relationship? Based on data from the global airline industry, we find support for the balance‐performance relationship, though such balance is less beneficial for firms in the case of access to a broader resource scope per partner . Managerial summary : Increasing revenue and reducing costs simultaneously can potentially enhance firm competitiveness. We highlight that an alliance strategy can be an important alternative to internal resources for attaining such dual strategic objectives, particularly when partner resources accessed through alliances are treated collectively as portfolios. We examine the importance of balancing product‐market extending and efficiency‐improving partner resources in the global airline industry as well as the impact of two alternate strategies for accessing resources through alliances: fewer partners with more resources per partner or more partners with fewer resources per partner. We find that resource balance at the portfolio level helps airlines improve performance. Our results also suggest that managers should be cautious of accessing too many resources through just a few partners . Copyright © 2015 John Wiley & Sons, Ltd.     

Are there always synergies between productive resources and resource deployment capabilities?

While the independent impacts of particular firm resources and deployment capabilities on firm performance are unambiguous cornerstones of the strategy field, it is commonly assumed that their joint impacts are synergistic. This article seeks to understand whether this common misconception of resource‐based theory can be refuted empirically. Using data from hospitals conducting specialist surgery, I find hospital performance improves independently through better surgical resource quality and from more use of a streamlined form of resource management in which overall patient team leadership and operating team leadership are held by the same physician. Generally the interaction of these two firm activities had no impact on performance. These results contribute to the strategy field's understanding of whether and when internal fit affects performance, clarifying an incorrect inference commonly made about resource‐based theory. Copyright © 2013 John Wiley & Sons, Ltd.     

Emerging Market Firms' Internationalization: How Do Firms' Inward Activities Affect Their Outward Activities?

Research summary : In this study we examine how an emerging market firm's inward international activities (“inward activities”) are related to its outward international activities (“outward activities”) by focusing on the role of the firm's gain from its inward activities. On the one hand, drawing upon the organizational learning perspective, we propose that a firm's gain from inward activities may facilitate its outward activities through improving its resource fungibility. On the other hand, we draw upon the prospect theory to propose that a firm's gain from inward activities may hinder its outward activities by discouraging the firm's top managers from taking risks that are inherent in outward activities. With detailed data from a sample of manufacturing firms in China, we find empirical support for both lines of arguments . Managerial summary : Are emerging market firms with higher inward gain more likely to engage in outward internationalization activities? We argue that it depends upon how a firm uses its gain from inward activities. If the firm can improve its resource fungibility (particularly organizational resource fungibility) from its inward gain, it is more likely to engage in outward activities. If the firm cannot improve its resource fungiblity, the answer is no. Our findings suggest that for emerging market firms, internationalization is not just a path toward new markets; instead, it reflects how these firms exploit and explore what they have learned from their interactions with foreign firms at home in foreign markets. Therefore, managers must think more strategically on developing (organizational) resource fungibility from their inward activities . Copyright © 2017 John Wiley & Sons, Ltd.     

Did victories in certification contests affect the survival of organizations in the American automobile industry during 1895–1912? A replication study

Research summary: We successfully replicate the highly influential study: “The social construction of reputation…,”(Rao, 1994 ) which reports that cumulative victories in certification contests are negatively associated with firm failure. The replication is robust to the inclusion of additional controls. As in the original, tests of whether the theory is most powerful under higher uncertainty are not supported. Further, placing second, third, or merely participating in races also negatively predicts firm failure, and there is insufficient information in the data to tease out the importance of these predictors versus race victories. We discuss the assumptions under which the evidence can be interpreted as supportive of a more general argument of “loose coupling”, where affiliation with certification contests reduces firm failure. Managerial summary: We successfully replicate a study that related victories in races to the survival of early automobile firms. This result was interpreted as evidence that rank‐order certification contests legitimized firms and led to survival. We then demonstrate that there is insufficient information to tease out the relative importance of victories, as opposed to placing second, third, or merely participating in predicting survival. Our result is consistent with an argument that affiliation with certification contests, not only winning them, increases a firm's chances of survival. It is also consistent with an argument that firms with better quality automobiles won races and survived. An implication of our work is that there is insufficient evidence to determine if firms in new industries should expend finite resources on participation in certification contests or improvement of product quality.     

How constraints and knowledge impact open innovation

Laursen and Salter (2006) examined the impact of a firm's search strategy for external knowledge on innovative performance. Based on organizational learning and open innovation literature, we extend the model hypothesizing that the search strategy itself is impacted by firm context. That is, both ‘constraints on the application of firm resources’ and the ‘abundance of external knowledge’ have a direct impact on innovative performance and a firm's search strategy in terms of breadth and depth. Based on a survey of Swiss‐based firms, we find that constraints decrease and external knowledge increases innovative performance. Although constraints lead to a broader but shallower search, external knowledge is associated with the breadth and the depth of the search in a U‐shaped relationship. Copyright © 2013 John Wiley & Sons, Ltd.     

Making the most of what you have: managerial ability as a source of resource value creation

The current study investigates a central premise of the resource‐based view of the firm—that managers are a potential source of value creation for the firm. Using data from professional sports teams, we test theory regarding the effects of managerial ability, human resource stocks, and managers' actions on resource value creation. While results indicate managerial ability affects resource productivity, this effect is less pronounced with increases in the quality of firm resources. Further, we investigate the extent to which managerial actions that synchronize resource bundles account for the influence of managerial ability and resource context on a firm's performance advantage. These results contribute to our understanding of resource management and provide empirical evidence for the importance of managerial ability in the resource‐based view. Copyright © 2008 John Wiley & Sons, Ltd.     

Corporate diversification and the value of individual firms: A Bayesian approach

Research summary: Prior theory suggests that the performance effects of a firm's diversification strategy depend on a firm's individual resources and capabilities and the setting within which it is operating. However, prior tests of this theory have examined the average diversification‐performance relationship across all firms, instead of estimating the diversification‐performance relationship at the individual firm level. Efforts to estimate this average relationship are inconsistent with a central assumption of much of strategic management theory—that firms maximize value by choosing strategies that exploit their heterogeneous resources and individual situation. By adopting an approach that allows an evaluation of the diversification‐performance relationship for individual firms, this article shows that firms, both focused and diversified, tend to choose that diversification strategy—focus, related diversification, or unrelated diversification—that maximizes value. Managerial summary: Instead of a universal diversification discount or premium, this article shows that the effect of diversification on performance is heterogeneously distributed across firms and that firms tend to be rational in their diversification decisions. Copyright © 2015 John Wiley & Sons, Ltd.     

Strategic human capital management in the context of cross‐industry and within‐industry mobility frictions

Research Summary: We develop and test a theory examining how frictions that restrict mobility across industries and frictions constraining mobility within an industry can co‐occur to effectively isolate individual human capital, ultimately changing the firm's make‐versus‐buy decision for human capital. Empirically, we demonstrate that when cross‐industry frictions in the form of limited skill transferability and within‐industry frictions in the form of noncompete enforceability are both present, employees exhibit longer tenures, firms hire workers with less initial experience, firms change the amount and nature of training provided, and wages marginally increase. These findings suggest that sufficiently strong and complementary mobility frictions shift the emphasis of firms’ human capital management practices toward internal development of human capital relative to acquisition on the external market. Managerial Summary : In the face of frictions to employee mobility both within and across industries, which we capture empirically using measures of noncompete enforceability and limited skill transferability across industries, firms tend to hire less experienced workers, such workers exhibit longer tenures, and firms invest more in their training, particularly in the development of new skills. Our findings imply that for firms operating under such complementary frictions, better hiring and internal development capabilities are particularly important for performance, while those firms without such capabilities may benefit from considering ways to circumvent the mobility frictions, including moving out of the focal state or lobbying for different noncompete laws.     

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.     

Strategic Suppliers' Technical Contributions to New Product Advantage: Substitution and Configuration Options

Current theory lacks clarity on how different kinds of resources contribute to new product advantage, or how firms can combine different resources to achieve a new product advantage. While several studies have identified different firm‐specific resources that influence new product advantage, comparatively little research has explored the contribution of strategic supplier resources. Combining resource‐based and relational perspectives, this study develops a theoretical model investigating how a strategic supplier's technical capabilities impact focal firm new product advantage and how firms combine different resources to gain this advantage. The model is tested using detailed survey data collected from 153 interorganizational new product development projects in the United Kingdom within which a strategic supplier had been extensively involved. Empirical results support our research hypotheses. First, supplier technical performance is shown to have a significant positive impact on new product advantage. Next, we show that while supplier technical capabilities have a positive influence on supplier technical performance, the a priori nature of the supplier's task moderates the relationship. Finally, our data support our hypotheses related to the positive relationship between relationship‐specific absorptive capacity and new product advantage, and the proposed negative moderation of supplier technical capabilities on this relationship. Based upon these findings, we encourage managers to recognize that strategic suppliers' with greater technical capabilities perform better regardless of the degree of creativity required by their task; but that strategic suppliers with lower technical capabilities may partially compensate (substitute) for their lack of technical capabilities, if they are able to respond to high problem‐solving task requirements. Furthermore, we suggest that the firm's development of relationship‐specific absorptive capacity is much more important when a strategic supplier is less technically capable. A buying firm's relationship‐specific absorptive capacity can, according to our data, substitute for low supplier technical capabilities. On the other hand, where the supplier has strong technical capabilities, investments in relationship‐specific absorptive capacity have no effect on new product advantage. Our findings reinforce recent calls for research on how firms can combine different resources and capabilities to achieve superior performance.     

Who leaves,where to,and why worry? employee mobility,entrepreneurship and effects on source firm performance

We theorize that the value provided by the firm's complementary assets has important implications for the exit decisions of employees and their subsequent effects on the firm's performance. Using linked employee‐employer data from the U.S. Census Bureau on legal services, we find that employees with higher earnings are less likely to leave relative to employees with lower earnings, but if they do, are more likely to create a new venture than join another firm. Employee entrepreneurship has a larger adverse impact on source firm performance than moves to established firms, even controlling for observable employee quality. Our findings suggest that in knowledge intensive settings, managers should focus on tailoring compensation packages to help minimize the adverse impact of employee entrepreneurship, particularly among high performing individuals. Copyright © 2011 John Wiley & Sons, Ltd.     

Intellectual Property, Architecture, and the Management of Technological Transitions: Evidence from Microsoft Corporation

Many studies highlight the challenges facing incumbent firms in responding effectively to major technological transitions. Though some authors argue that these challenges can be overcome by firms possessing what have been called dynamic capabilities, little work has described in detail the critical resources that these capabilities leverage or the processes through which these resources accumulate and evolve. This paper explores these issues through an in‐depth exploratory case study of one firm that has demonstrated consistently strong performance in an industry that is highly dynamic and uncertain. The focus for the present study is Microsoft, the leading firm in the software industry. The focus on Microsoft is motivated by providing evidence that the firm's product performance has been consistently strong over a period of time in which there have been several major technological transitions—one indicator that a firm possesses dynamic capabilities. This argument is supported by showing that Microsoft's performance when developing new products in response to one of these transitions—the growth of the World Wide Web—was superior to a sample of both incumbents and new entrants. Qualitative data are presented on the roots of Microsoft's dynamic capabilities, focusing on the way that the firm develops, stores, and evolves its intellectual property. Specifically, Microsoft codifies knowledge in the form of software “components,” which can be leveraged across multiple product lines over time and accessed by firms developing complementary products. The present paper argues that the process of componentization, the component “libraries” that result, the architectural frameworks that define how these components interact, and the processes through which these components are evolved to address environmental changes represent critical resources that enable the firm to respond to major technological transitions. These arguments are illustrated by describing Microsoft's response to two major technological transitions.     

Conglomerate mergers and subsequent industry effects

The focus of most studies of conglomerate mergers has been on the effects on companies involved. Of more direct relevance to antitrust policy is the question of industry effects of this type of merger. This article looks at eleven cases of “large firm/leading firm” conglomerate mergers completed between 1958 and 1970 and examines census data to see if structure or performance of the acquired “leading firm's” market was altered due to the merger. The results suggest that industry structure is not significantly affected, but that there may be adverse performance effects when the acquired firm is a leader in an unconcentrated market with substantial entry barriers.     

Market Orientation and Innovativeness in Supply Chains: Supplier's Impact on Customer Satisfaction

As today's firms increasingly outsource their noncore activities, they not only have to manage their own resources and capabilities, but they are ever more dependent on the resources and capabilities of supplying firms to respond to customer needs. This paper explicitly examines whether and how firms and suppliers, who are both oriented to the same customer market, enable innovativeness in their supply chains and deliver value to their joint customer. We will call this customer of the focal firm the “end user.” The authors take a resource‐dependence perspective to hypothesize how suppliers' end‐user orientation and innovativeness influence downstream activities at the focal firm and end‐user satisfaction. The resource dependence theory looks typically beyond the boundaries of an individual firm for explaining firm success: firms need to satisfy customer demands to survive and depend on other parties such as their suppliers to achieve customer satisfaction. Accordingly, the research design focuses on three parties along a supply chain: the focal firm, a supplier, and a customer of the focal firm (end user). The results drawn from a survey of 88 matched chains suggest the following. First, customer satisfaction is driven by focal firms' innovativeness. A focal firm's innovativeness depends, on the one hand, on a focal firm's market orientation and, on the other hand, on its suppliers’ innovativeness. Second, no relationship could be established between a focal firm's market orientation and a supplier's end‐user orientation. Market orientation typically has within‐firm effects, while innovativeness has impact beyond the boundaries of the firm. These results suggest that firms create value for their customer through internal market orientation efforts and external suppliers' innovativeness.     

A Causal Model of the Impact of Skills, Synergy, and Design Sensitivity on New Product Performance

Notwithstanding the best efforts of outstanding managers, project team members, researchers, and consultants, no product development plan can guarantee success. Every new products organization will experience its fair share of failures, but a firm can take steps to ensure that its failures do not outweigh its successes. By benchmarking the competition, a firm can gain insight into best practices–the factors that lead most directly to new product success. To help identify these best practices, X. Michael Song, William E. Souder, and Barbara Dyer develop and test a causal model of the relationships among the key variables leading to new product performance. The proposed model identifies five factors that lead to marketing and technical proficiency: process skills, project management skills, alignment of skills with needs, team skills, and design sensitivity. According to the model, marketing and technical proficiency directly determine product quality, and ultimately lead to new product success or failure. The causal model was tested using information on 65 completed projects–34 successes and 31 failures–from 17 large, multi-divisional Japanese firms. The study participants develop, manufacture, and market high-technology consumer and industrial products. These firms judged the success or failure of the projects in this study by using seven criteria: return on investment, profit, market share, sales, opportunities for technical leadership, market dominance, and customer satisfaction. These firms generally assigned the greatest importance to customer satisfaction, opportunity creation, and long-term growth. For the most part, the responses from these firms support the relationships presented in the causal model. According to the respondents, marketing proficiency and product quality have a strong, positive influence on their new product performance, as do process skills, project management skills, and alignment of skills and needs. The responses highlight the importance to these firms of responsiveness to customer wants and needs, as well as ensuring a close fit between project needs and the firm's skills in marketing, R&D, engineering, and manufacturing. Somewhat surprisingly, the responses do not support the model's suggested relationships between skills/needs alignment and technical proficiency or between technical proficiency and product quality.     

The fog of feedback: Ambiguity and firm responses to multiple aspiration levels

This study examines firms' responses to performance assessments relative to multiple aspiration levels. We argue that comparisons of performance to multiple aspiration levels over time affects the interpretative clarity of feedback and, consequently, shapes a firm's responsiveness. We further conceptualize the relationship between performance relative to social and historical aspirations as ambiguous, inconsistent, and consistent performance feedback. Empirically, we examine the effects—on firms' responsiveness—of weak, negative, and positive correlations between performance relative to social and historical aspirations, where responsiveness is measured in terms of new product introductions. We find that both inconsistent and consistent feedback increase a firm's responsiveness, whereas ambiguous feedback dampens responsiveness. Our focus on this type of feedback ambiguity is novel, and it establishes the functional form of the relationship between feedback clarity/ambiguity and responsiveness. This paper augments the behavioral theory of the firm and research on performance feedback; it also extends previous work on ambiguity in strategic decision making. Copyright © 2014 John Wiley & Sons, Ltd.