Knowledge that Transforms

Abstract This study reveals the multifaceted contribution of alliance portfolios to firms' market performance. Extending prior research that has stressed the value‐creation effect of network resources, it uncovers how prominent partners may undermine a firm's capacity to appropriate value from its alliance portfolio. Analysis of a comprehensive panel dataset of 367 software firms and their 20,779 alliances suggests that the contribution of network resources to value creation varies with the complementarity of those resources. Furthermore, the relative bargaining power of partners in the alliance portfolio constrains the firm's appropriation capacity, especially when many of these partners compete in the focal firm's industry. In turn, the firm's market performance improves with the intensity of competition among partners in its alliance portfolio. These findings advance network research by highlighting the trade‐offs that alliance portfolios impose on firms that seek to manage and leverage their alliances. Copyright © 2007 John Wiley & Sons, Ltd.

Abstract Strategy and finance research suggests that managerial ownership results in increased incentive alignment and therefore is negatively related to corporate diversification. Using a longitudinal approach, we develop arguments to examine whether managerial ownership is associated with subsequent changes in diversification and/or if diversification is associated with subsequent changes in ownership. The results indicate that levels of managerial ownership in one time period are not associated with subsequent changes in corporate diversification, which raises incentive alignment questions. We also find that higher levels of corporate diversification are associated with changes in managerial ownership, which suggests support for the employment risk‐reduction perspective. This study provides important reasons to reassess the longitudinal implications of the managerial ownership‐corporate diversification link from both theoretical and managerial perspectives. Copyright © 2007 John Wiley & Sons, Ltd.

Abstract According to the ‘doing well by doing good’ proposition, firms have a corporate social responsibility to achieve some larger social goals, and can do so without a financial sacrifice. This research note empirically examines this proposition by studying in depth the case of ‘Fair & Lovely,’ a skin whitening cream marketed by Unilever in many countries in Asia and Africa, and, in particular, India. Fair & Lovely is indeed doing well; it is a profitable and fast‐growing brand. It is, however, not doing good, and I demonstrate its negative implications for public welfare. I conclude with thoughts on how to reconcile this divergence between private profits and public welfare. Copyright © 2007 John Wiley & Sons, Ltd.

This paper describes how organizational form can solve the problem of commitment that complicates exchange. I illustrate this by analyzing the commitment problem of hotel chains. Consideration of the commitment problem indicates that hotel chains are better off naming their units the same, so as to create the potential for future business from customers. However, some hoteliers believed units should be named differently so they are not identified with the chain. These two strategies illustrate a powerful tension between strategies that allow the organization to be more consistent, and strategies that facilitate adaptation to local conditions. I analyze the failure rates of hotel chains to show that selection favored chains that employed the naming strategy that generates commitment.

Abstract Using a case study of NUMMI, a joint venture between General Motors (GM) and Toyota, this research note examines alliances and knowledge transfer with a focus on the organizational processes used to transfer knowledge. The results suggest two possible explanations for the knowledge transfer outcome. The primary explanation is that the systematic implementation of knowledge transfer mechanisms can overcome the stickiness and causal ambiguity of new knowledge. A second explanation is that creating successful knowledge transfer should be viewed from a change management perspective in which trial and error learning experiences and experimentation support the transfer outcome. Copyright © 2007 John Wiley & Sons, Ltd.

Abstract Many industries have witnessed the formation of multiple‐partner alliances or constellations competing against each other for both clients and members. Using the global airline industry as an empirical setting, I evaluate the proposition that membership in airline constellations allows carriers to capture externalities from other firms in the form of direct or indirect traffic flow, thereby enhancing their operational performance. I also distinguish between two ways to demarcate the boundaries of constellations: explicitly or implicitly. Analyzing patterns of membership in explicit constellations involving formal, multilateral agreements (such as the Star Alliance, Oneworld, SkyTeam), I find that membership benefits are greatest in groups involving large aggregate traffic and for carriers contributing with a large portion of the group's capacity. I also evaluate patterns of membership in implicit constellations, corresponding to groups of firms showing relatively more ties to one another than to firms outside their group. I find that carriers bilaterally linked with key players of such groups are able to increase their operational performance even if they do not belong to any explicit constellation. Thus, results show that it is worth analyzing distinct patterns of membership simultaneously, because they are likely to have distinct implications for firm performance. Copyright © 2007 John Wiley & Sons, Ltd.

Abstract The authors examine how managers select between corporate restructuring implementation alternatives and how those decisions influence the profitability of the restructuring event. They argue that managers and owners have information asymmetries with respect to the assets in the restructuring and the restructured firms' diversification strategy, and that managers select between two popular implementation alternatives, spin‐offs and sell‐offs, to convert knowledge differences into financial gain. When the restructured assets reside in primary and related business lines or the firm has low and related diversification among its business lines, the restructuring is difficult for observers to assess and understand. Spin‐offs most effectively and profitably reduce information asymmetries by transferring assets to the capital market and increasing the efficiency and transparency of the restructuring firm. Conversely, when the restructured assets reside in secondary and unrelated business lines or the firm has high diversification, sell‐offs best mitigate asymmetries by using market forces to reallocate assets to their most productive uses while improving the strategy and performance of the restructuring firm. Tests of a sample of 204 restructuring events support the hypotheses. Overall, the findings suggest that the influence of corporate restructuring on financial performance is determined in part through how the restructuring is implemented. Copyright © 2007 John Wiley & Sons, Ltd.

Abstract Transaction cost economics (TCE) has guided a variety of research on governance in the strategic management literature. An important question arises, however, as to whether the TCE framework is equally appropriate for all types of firms in all business settings. In this paper, we argue that TCE is not and suggest that firms with high market power may be able to lower transaction costs under high asset specificity and uncertainty in nonintegrated distribution channels, avoiding the need to utilize highly integrated channels as a result. We test our hypotheses with data collected from 40 manufacturers of electronic and telecommunications products in 109 product‐markets in the United States. The results support our hypothesis that transaction cost factors are better at explaining forward channel integration for firms with low market power than for firms with high market power. Our results indicate that the basic TCE framework must be supplemented by the market power construct to adequately explain forward channel integration decisions. Copyright © 2007 John Wiley & Sons, Ltd.

Abstract One of the most enduring puzzles in the strategy literature is the negative association between risk and return known as the Bowman paradox. This paper formalizes a model of strategic conduct based on the concept of strategic fit and the heterogeneity of firm strategic capabilities. This model is shown mathematically to yield the negative association of the Bowman paradox. Furthermore, the model makes several other testable predictions. To examine these predictions, simulated data from the model are compared with a large empirical study of 45 industries during 1991–2000. The predictions of the model are consistent with the empirical data. Copyright © 2007 John Wiley & Sons, Ltd.

Abstract We develop a mediation model in which the number of partners in a joint venture affects venture performance through contract completeness and partner cooperation. In a sample of 224 international joint ventures, we find that the number of partners is negatively related to venture contract completeness and partner cooperation, both of which are positively related to joint venture performance. The number of partners is inversely related to joint venture performance and the relationship is mediated by contract completeness and partner cooperation. We discuss theoretical and managerial implications for joint venture research and practice. Copyright © 2007 John Wiley & Sons, Ltd.