Knowledge that Transforms

Abstract Research Summary This study explores the decision to centralize control over technological resources. We posit that opportunity costs arising from the firm's administrative structure impact this choice. These opportunity costs stem from differences in identifying and evaluating opportunity sets between the unit level (decentralized) and headquarters level (centralized). We propose that a resource's versatility increases the opportunity costs associated with decentralized control, thereby raising the likelihood of its control being centralized. Using a sample of patents acquired through corporate acquisitions in the medical device industry, we find that patents with greater technological and product‐market versatility are more likely to be reassigned to the central level. These findings contribute to elucidating the interplay between resources, strategy, and structure. Managerial Summary In the process of integrating a newly acquired firm, acquirers must decide whether to retain the resources within the acquired subsidiary or reallocate them to the headquarters. Decentralizing resources enables managers at the divisional level to spot, sort, select, and seize opportunities in their specific product‐market domains. However, centralizing resources can help exploit opportunities with a broad scope, spanning across divisions. The key consideration is determining which resources should be centralized after an acquisition? Analysis of data on 507 US acquisitions in the medical device industry undertaken between 1996 and 2015 reveals that acquirers tend to centralize versatile technological resources, especially when the acquirers themselves have a diverse technological base.

Abstract Research Summary Scarcity of productive factors poses a challenge for firms entering underdeveloped regions. We theorize that incumbent firms can overcome scarcity of skilled human capital in local labor markets by redeploying workers from existing units. We predict that redeployment is more valuable when factor markets exhibit large differences in resource scarcity. Redeployment is also more valuable when output is highly sensitive to worker skill and is responsive to complementarities between labor and other inputs. Important implications are that redeployment can endow firms with superior resources and enable them to enter more markets. Data on sugar mills in Brazil, where a sudden demand boom incentivized expansion, corroborate the predictions. Our research identifies a new mechanism of value‐creation from resource redeployment across factor markets. Managerial Summary Firms entering underdeveloped regions often struggle to obtain inputs needed for production, such as skilled labor. We propose that incumbent firms expanding into such regions can overcome resource scarcity by redeploying resources from their existing units. Redeployment allows firms to move resources—such as skilled workers—from markets where resources are relatively abundant to markets where they are scarce. We show that such factor market “arbitrage” is most valuable when firms operate across markets with large differences in resource scarcity and when production is sensitive to worker skill and to complementarities between inputs. By redeploying into markets suffering from resource scarcity, firms can enter more markets and seed units with superior resources. This gives incumbent firms with redeployment capabilities an advantage over de novo entrants.

Abstract Research Summary While the literature highlights the benefits of internally redeploying resources, there is less empirical guidance on which resources are most likely to be redeployed. We examine the relationship between inventor characteristics and redeployment decisions, motivated by the tension between costs and benefits of keeping a resource at the source unit versus moving it to a new target unit. We argue that inventors with inventive breadth are more likely to be redeployed, whereas broker inventors are less likely to be redeployed. Moreover, we consider two source‐unit characteristics that influence internal opportunity costs: resource slack and knowledge interdependence. We test our arguments on the redeployment of inventors following an exogenous profitability shift in the US petrochemical industry in 2012 and find support for our predictions. Managerial Summary Managers move resources between business units to respond to profitability shocks, but which specific resources do they move? Examining the inter‐unit transfers (redeployments) of inventors between business units following the unexpected profitability disparity between ethylene‐based business units and others in the US petrochemical industry, we find that generalist inventors are more likely to be redeployed, while brokers in the collaboration network (inventors who connect others) are less likely to be redeployed. In addition, conditions that alter opportunity costs at the source unit matter. Larger proportions of generalists (and brokers) facilitate redeployment of either type, and knowledge interdependencies in the source unit mitigate redeployment.

Abstract Research Summary Resource‐based‐view scholars have mainly examined two resource allocation approaches for competitive advantage in multiunit firms: resource sharing and resource redeployment. These approaches emphasize allocative efficiency—the optimal allocation of resources to maximize their current value. In technology‐intensive industries, firm success also requires achieving dynamic efficiency to increase its future value‐creation. We propose that the redundant allocation of resources—the parallel deployment of non‐scale‐free resources towards the same objective—although allocatively inefficient, increases dynamic efficiency by stimulating inter‐unit competition. Firms' structural features moderate these effects. An analysis of large pharmaceutical firms reveals that redundant R&D increases innovations with high firm‐specific value but simultaneously increases project terminations to reduce wastage. Organizational proximity increases the former effect and decreases the latter. Firm's R&D centralization amplifies the effect of unit proximity. Managerial Summary In technology‐intensive industries, multiunit firms often employ redundant allocation of R&D resources, that is, the parallel deployment of scientists and equipment in different units towards realizing the same business objective. Although common, there is little managerial guidance on how this practice impacts firms' R&D outcomes, and how organizational characteristics influence this relationship. An analysis of large pharmaceutical firms reveals that redundant allocation of R&D resources across units increases wastage but also stimulates competing units to create innovations with high firm‐specific value. Organizationally proximate units are less likely to have their redundant projects terminated, while creating more high‐value‐innovations. Centralization of the firm's R&D amplifies the effect of unit proximity.

Abstract Research Summary Despite the importance of resource reallocation in shaping a variety of strategic outcomes, strategy scholars have paid only limited attention to the processes by which firms reallocate their resources across successive systemic innovations . To explore these processes, we conducted an in‐depth historical case study on Rolls‐Royce 's role in three distinct systemic innovations that marked the transition from piston engines to jet engines in the civil aviation industry: the turbojet, the turboprop, and the turbofan. The analysis helps explain how and why Rolls‐Royce's central role stemmed from its ability to reallocate existing non‐scale free organizational and technical resources. A key finding of this study is the identification of the horizontal transfer of functional modules as a critical process, especially during the incipient phase of a systemic innovation. The analysis also highlights the role that specific organizational arrangements, particularly a firm's integrative capabilities , have in shaping the effectiveness with which resources are reallocated. Managerial Summary Focusing on resource reallocation is important to understand why some firms effectively reallocate their resources through successive systemic innovations while others cannot, even if they have similar resources and face the same environmental conditions. By delving into the technological aspects of aeroengine development and exploring why Rolls‐Royce had the capabilities to successfully integrate key functional modules across various modular levels, we clarify the relationship between technology and organization that underlies resource reallocation—a topic that has received only scant attention in the strategy literature.

Abstract Research Summary Our field study of new business development in a German‐based global pharmaceutical company reveals that the emergence of co‐selection bias in project‐level stage‐gate resource allocation engendered a corporate‐level innovation portfolio imbalance. We show how the corporate portfolio imbalance resulted from incoherent managerial activities in the multilevel resource allocation process (RAP) decision context and how this caused fizzling out of the proactively established incipient strategic context of the favored‐for‐growth business unit. Moreover, we identify strategic RAP exploitation challenges that explain why sequential exploitation capability and exploitation drive deficits caused an exploitation trap that limited strategic discretion and stymied top management strategic intent to maintain the company's independence. Our integrated frameworks augment strategic management theory of corporate RAP and offer guidance for future research. Managerial Summary We draw attention to the little‐noticed phenomenon of co‐selection bias emerging in the project‐level stage‐gate resource allocation to new business development and maladaptive corporate‐level innovation portfolio outcomes that it may produce. We show how top management can use the Bower–Burgelman RAP model to analyze the multilevel RAP decision context and identify the forces that may engender out‐of‐context managerial agency, such as co‐selection bias. We highlight strategic RAP exploitation challenges that top management must meet by matching the RAP exploitation drive with a commensurate RAP exploitation capability to avoid an exploitation trap, thereby increasing the chances of company survival.

Abstract Research Summary Research suggests firms can reduce stakeholder contention (e.g., lawsuits, protests) by collaborating with threatening stakeholders. We propose that by tapping into stakeholder networks and identities, collaborations also produce ripple effects beyond the firm's partner to attenuate contention from a broader set of stakeholders. Using variation in firms' and stakeholders' willingness to collaborate exogenous to contention to account for selection, our examination of contentious and collaborative interactions between 136 environmental movement organizations and 600 US firms corroborates our arguments. Firms face less contention when they collaborate with a better‐connected stakeholder motivated to share affirming information about the firm, or with a more contentious and authentic stakeholder. Our findings generalize to stakeholder criticism beyond movement organizations, suggesting collaborations are powerful tools for fashioning less contentious environments. Managerial Summary Companies can reduce conflict from hostile stakeholders like social activists by collaborating with their friends. We find social movement organizations mount fewer protests, boycotts, lawsuits, and other conflict against a company that collaborates with an organization that is either well connected in the movement or known for mobilizing movement's grassroots. This suggests that cross‐sector collaborations quell conflict through passing affirming information about a company through interorganizational networks or through the broadcast of an affirming signal to the broader stakeholder environment. We find that criticism from a wide range of stakeholders (e.g., media) also abates, suggesting that collaborations are powerful tools for fashioning less contentious environments.

Abstract Research Summary Investment growth in family firms is constrained by family preferences to retain corporate control, which limits outside equity issuance and increases the expropriation risk perceived by external minority shareholders. Tenure‐based voting rights (TVRs) weaken the link between voting rights and cash flow rights, facilitating new equity capital issuance without loss of control. We find that publicly listed family firms in Italy adopt TVRs to facilitate the continuation of investment growth while retaining family control. We also find that in family firms with fragile control, investment increases after TVR adoption. Our results indicate that control‐enhancing mechanisms such as TVRs can help resolve the control–growth dilemma in family firms. Managerial Summary Family firms tend to invest less than other firms because funding new investment can lead to loss of family control. Tenure‐based voting rights (TVRs) reinforce the control of qualifying family shareholders, giving them extra shareholder voting power. Deviation from the one‐share‐one‐vote principle is generally regarded as detrimental to outside shareholders' interests. However, we find that TVR‐adopting Italian family firms invest more, pay higher dividends, are more profitable and have more outside shareholders on the board of directors. In other words, violation of the one‐share‐one‐vote rule using TVRs can benefit both family owners and outside shareholders. Policymakers could consider whether TVRs can help in promoting economic growth, especially in countries where family firms are important.

Abstract Research Summary Multimodal data, comprising interdependent unstructured text, image, and audio data that collectively characterize the same source, with video being a prominent example, offer a wealth of information for strategy researchers. We emphasize the theoretical importance of capturing the interdependencies between different modalities when evaluating multimodal data. To automate the analysis of video data, we introduce advanced deep machine learning and data fusion methods that comprehensively account for all intra‐ and inter‐modality interdependencies. Through an empirical demonstration focused on measuring the trustworthiness of grassroots sellers in live streaming commerce on Tik Tok, we highlight the crucial role of interpersonal interactions in the business success of microenterprises. We provide access to our data and algorithms to facilitate data fusion in strategy research that relies on multimodal data. Managerial Summary Our study highlights the vital role of both verbal and nonverbal communication in attaining strategic objectives. Through the analysis of multimodal data—incorporating text, images, and audio—we demonstrate the essential nature of interpersonal interactions in bolstering trustworthiness, thus facilitating the success of microenterprises. Leveraging advanced machine learning techniques, such as data fusion for multimodal data and explainable artificial intelligence, we notably enhance predictive accuracy and theoretical interpretability in assessing trustworthiness. By bridging strategic research with cutting‐edge computational techniques, we provide practitioners with actionable strategies for enhancing communication effectiveness and fostering trust‐based relationships. Access our data and code for further exploration.

Abstract Research Summary We inductively examine how the careers of employee entrepreneurs unfold, uncovering the role of motives and attribution for failure. Founders expressing organizational misalignment motives for leaving established organizations engaged in “venture crafting” whereby they actively sought to build well‐functioning organizations. They built successful initial ventures and careers. Founders lacking organizational misalignment motives generally founded initial ventures that failed: however, those making internal attributions altered their behaviors and built successful careers; in contrast, founders making external attributions continued founding unsuccessful ventures. These findings suggest that building organizational capabilities—and not merely inheriting capabilities from existing organizations—is a cornerstone of building successful entrepreneurial careers. Our findings are based on detailed career history and archival data on employee entrepreneurs in the disk‐drive industry. Managerial Summary Our study follows careers of individuals leaving employment to create ventures, providing insights for entrepreneurs and managers. Though entrepreneurs often choose to focus solely on building a stellar product, our study underscores the importance of crafting well‐functioning organizations for career and venture success. Moreover, in case where initial ventures fail, founders who make internal attribution generate a “second chance” at success, whether as serial entrepreneurs or by returning to paid employment. Those who attribute failure to external factors, however, repeat their mistakes. For managers, our study reveals that the genesis of successful entrepreneurial careers is rooted in organizational deficiencies that prevent talented employees from thriving as intrapreneurs. The venture crafters typically left their jobs only after attempts to amend these issues were unsuccessful.