Knowledge that Transforms

Branding and transaction cost economics represent two research streams that rarely cross paths in the literature. In this study, I explore the transaction cost implication of private branding, a practice whereby products supplied by unaffiliated manufacturers are sold under private brands owned by retailers. The main thesis is that private branding can preempt a special case of asset specificity called brand specificity, where retailers also invest in the marketing of an outsourced product, but subsequent reputation effects (positive or negative) are specific to the manufacturer who brands the product. Retailers, thus, will not be fully motivated to optimize their investment in product marketing unless they take over the branding right. With potential barriers to private branding being controlled, data obtained from a national chain reveal that the retailer deploys its marketing resources according to the branding status of a product, implying that private branding can deflect the transaction cost of solving the brand specificity problem. The results offer new theoretical insights into branding and transaction cost analysis. This efficiency‐based approach to private branding also provides practitioners with useful guidelines for crafting a branding strategy that will facilitate cooperation between manufacturers and retailers. Copyright © 2009 John Wiley & Sons, Ltd.

Tsang (2006) contends that certain core assumptions of a theory, which are typically about people's behaviors or thoughts, need be realistic, because they determine the viability of the mechanism that generates a hypothesized relationship. While Tsang's (2006) article rightly emphasizes the importance of realistic assumptions, it neglects the issue that certain kinds of assumptions are necessarily unrealistic for the roles that they play in theory development and testing. Therefore, researchers should not be criticized for making unrealistic assumptions of the latter kinds. Furthermore, by deliberating on the assumptions underpinning a theory, researchers can construct theories with better explanatory power and further develop existing theories. Tsang (2006) also suggests two approaches for testing assumptions, namely, a structural model and direct inquiry approaches. Although these approaches have certain merits, they also have limitations that may render the evidence gathered unreliable under certain situations. Two alternative approaches, namely, the experimental‐causal‐chain and the moderator‐of‐process designs, address these limitations. The researcher could consider adopting these designs as well in order to improve the rigor of assumption testing. Copyright © 2010 John Wiley & Sons, Ltd.

A new model of managerial problem formulation is introduced and developed to answer the question: ‘What kinds of problems do strategic managers engage in solving and why?’ The article proposes that a key decision metric for choosing among alternative problem statements is the computational complexity of the solution algorithm of alternative statements. Managerial problem statements are grouped into two classes on the basis of their computational complexity: P‐type problems (canonically easy ones) and NP‐type problems (hard ones). The new model of managerial cognitive choice posits that managers prefer to engage with and solve P‐type problems over solving NP‐type problems. The model explains common patterns of managerial reasoning and decision making, including many documented ‘biases’ and simplifying heuristics, and points the way to new effects and novel empirical investigations of problem solving‐oriented thinking in strategic management and types of generic strategies, driven by predictions about the kinds of market‐ and industry‐level changes that managers will or will not respond to. Copyright © 2009 John Wiley & Sons, Ltd.

By definition, de novo industry ventures do not share many market‐contact points with incumbents—itself an important source of competitive ‘stability’ through mutual forbearance. As such, these ventures are often subject to aggressive retaliation at the outset, which could threaten their very survival. In this study, the notion of an arch incumbent is developed, hypothesizing that, in general, a large market overlap with an incumbent lowers the survival odds of a de novo entrant. However, a large market overlap with the arch incumbent combined with an aggressive inaugural market entry or a different market positioning reduces the probability of retaliation by the arch incumbent (and subsequently other incumbents as well), and hence increases the probability of survival for a de novo entrant. The empirical experience of de novo ventures in the intra‐European passenger airline industry supports these hypotheses. Copyright © 2009 John Wiley & Sons, Ltd.

An established firm can enter a new product market through acquisition or internal development. Predictions that the choice of market entry mode depends on ‘relatedness’ between the new product and the firm's existing products have repeatedly failed to gain empirical support. We resolve ambiguity in prior work by developing dynamic measures of relatedness, and by making a distinction between entries inside vs. outside a firm's primary business domain. Using a fine‐grained dataset on the telecommunications sector, we find that inside a firm's primary business domain, acquisitions are used to fill persistent gaps near the firm's existing products, whereas outside that domain, acquisitions are used to extend the enterprise in new directions. Copyright © 2009 John Wiley & Sons, Ltd.

Recent theoretical developments in the domain of strategic groups, specifically those related to cognitive groups and strategic group identity, seem to suggest that strategic group membership is likely to be relatively stable over time and that firms in a strategic group co‐evolve. Yet appropriate data analytic approaches that use information about firms over time to identify stable strategic groups and their evolutionary paths have been lacking. To overcome such limitations, this research proposes a new clusterwise bilinear multidimensional scaling model that can simultaneously identify (1) the number of strategic groups, (2) the dimensions on which the strategic groups are based, and (3) the evolution of the strategy of these groups over time. Our discussion encompasses various alternative model specifications, together with model selection heuristics based on statistical information criteria. An illustration of the proposed methodology using data pertaining to strategic variables for a sample of public banks in the tristate area of New York, Ohio, and Pennsylvania across three time periods (1995, 1999, and 2003) identifies two underlying dimensions with five strategic groups that display very different evolutionary paths over time. Post hoc analysis shows pronounced differences in firm performance across the five derived strategic groups. This article concludes with a discussion of the implications of the findings, as well as potential future research directions. John Wiley & Sons, Ltd. Copyright © 2009 John Wiley & Sons, Ltd.

This study investigates how the implementation of special attributes of CEO compensation contracts is determined by both the acquisition and the acquirer features for a set of M&A deals undertaken by Canadian acquiring firms. Our findings reveal that when agency problems are higher, manifested by larger control premiums and poor firm performance, boards of directors tend to implement stronger mechanisms of incentive alignment around M&A transactions. Relying on multiple interdisciplinary logics that are activated to explain directors' ability to effectively perform their monitoring function, we show that boards are reactive rather than proactive in dealing with agency problems. Data are further interpreted in light of the unique aspects of the Canadian institutional context. Based on asymmetric risk properties of two different groups of executive compensation modes examined in this study, testing the substitution effects between alternative governance mechanisms is proposed as an interesting avenue for future research. Copyright © 2009 John Wiley & Sons, Ltd.

We examine the conditions under which the prior partnering experience of firms contributes to value creation in their new alliances. We propose that prior experience with the same partners, that is, ‘partner‐specific experience,’ provides greater benefits than ‘general partnering experience’ that encompasses all prior alliances with any partner. We further explore some of the boundary conditions for the effects of partner‐specific experience. We suggest that the effect of partner‐specific experience on value creation in alliances is moderated by the extent to which the assets of the new partner differ from those of the firm's prior partners. We also propose that the firm's own technological and financial resources increase the benefits of partner‐specific experience. Finally, we predict that the value of partner‐specific experience will increase under high levels of firm‐specific uncertainty. We test these hypotheses with comprehensive longitudinal multi‐industry data on joint ventures formed among Fortune 300 firms between 1987 and 1996. Based on stock market returns to joint venture announcements, the results provide support for the contingent value of partnering experience. The implications for managing alliances and advancing organizational learning are discussed. Copyright © 2009 John Wiley & Sons, Ltd.

This study analyzes whether a diversification strategy facilitates subsequent divisionalization (and hence that ‘structure follows strategy’), and/or whether the multidivisional structure leads to a diversification strategy (and hence that ‘strategy follows structure’). In theoretical terms, this study is original in that it institutes a debate between the Chandler thesis and other perspectives that challenge the generalizability of the strategy‐structure nexus. Interestingly, this new study with contemporaneous data for the period 1993–2003 sheds light on this contested issue and postulates that despite the criticism of Chandler's contribution, it still works. Our results show that strategic diversification affects structural divisionalization, and in turn, structural divisionalization affects strategic diversification. Copyright © 2009 John Wiley & Sons, Ltd.