Knowledge that Transforms

Recognizing that both the hypercompetition and competitive dynamics research streams rely on Austrian economics and its idea of temporary advantage as an intellectual cornerstone, the present study merges these related, but thus far, disparate perspectives. It develops hypotheses that relate the intensity of the hypercompetitive environment and a firm's TMT dynamics to its action aggressiveness, or the volume and speed with which a firm engages its rivals. Using a survey‐based sample of 104 Taiwanese firms, this study's findings show that the hypercompetitive environment and TMT sociobehavioral integration have direct and interacting effects on firms' action aggressiveness. Moreover, action aggressiveness is an important mediator between TMT integration and firm performance, particularly under hypercompetitive conditions. As such, the study contributes to our understanding of temporary advantage by revealing TMT integration and action aggressiveness as two essential organizational mechanisms for navigating in the hypercompetitive context. Finally, reflective of temporary advantage as a defining feature of hypercompetition, our findings show that performance variation is greater within this context. The article contributes to hypercompetition and competitive dynamics research by providing an integrated perspective of competitive behavior within the broad context of hypercompetitive environment, TMT dynamics, and firm performance.

The antecedents and consequences of pay dispersion are studied using theory that focuses on the social comparisons that occur among members of the CEO's top team. Results from a sample of large public firms indicate that when members of this elite group were similar on a variety of dimensions, and thus likely to compare their pay, the board allowed less dispersion. In addition, pay dispersion was negatively related to company performance, particularly when it exceeded what could be justified by characteristics of the industry, firm, or team. But the strength of that relationship depended on how uniformly members of the team would benefit from subsequent performance gains. Specifically, the negative effect was particularly strong in firms where major differences in compensation—that is, some executives were given significantly more stock options—combined with a volatile stock price to provide only a few team members with the opportunity to realize very large financial gains in the future. The study demonstrates that the social‐psychological factors that affect comparisons among members of the CEO's top team impact the board's pay setting process, which in turn affects pay dispersion, and ultimately firm performance.

A framework is presented that connects managerial decision making to resource building and firm performance. The framework takes a behavioral view of decision making and distinguishes two distinct decision‐making processes. First there is the creative conceptualization of new resource configurations that are intended to deliver competitive advantage. Then there is the painstaking development of resources required to implement strategy. We argue that heterogeneity in the resources of rival firms arises from the interplay of these two processes: resource conceptualization and resource development. Heterogeneity spawns performance differences that can be explained ex ante from characteristics of managerial decision‐making processes. We illustrate the approach in a simulated decision‐making environment representing a highly competitive and dynamically complex industry. Results from repeated simulation experiments conducted with executive and MBA students show vast differences in performance among firms, even when they started with identical resource positions. In a departure from traditional resource‐based literature, we explain how these differences stem from path dependent accumulation of resources and spontaneous variety in the way rivals conceptualize resources.

Engaging the debate regarding the appropriate level of geographic diversification for multinational enterprises (MNEs), we examine a critical, yet unresolved, question: How is performance impacted by the MNE's level of intra‐ and inter‐regional diversification versus the total level of geographic diversification? Using data from 123 U.S.‐based MNEs over a seven‐year period and leveraging both sales‐based and subsidiary‐based measures for diversification, we find that performance increases at an increasingly higher rate as firms concentrate more heavily on intra‐regional diversification. Regarding inter‐regional diversification and total geographic diversification, we find inverted‐U relationships to exist between firm performance and the level of geographic diversification. Different from recent research on multinationality, our robustness checks indicate no evidence of a sigmoidal relationship between the degree of regional diversification and performance.

As one of the most widely accepted theoretical perspectives in strategy, the resource‐based view (RBV) suggests that a firm's resources underlie its ability to achieve competitive advantage. However, much of the extant work in this stream has examined the characteristics that resources must have in order to yield rents, while efforts to specify the crucial link between resources and value creation have been sparse. As a consequence, current theory is not sufficiently clear on how different kinds of resources and capabilities contribute to performance, nor does it clarify how firms can combine different resources and capabilities to achieve superior performance outcomes. Analyzing data obtained from 230 technology ventures with partial least squares (PLS) structural equation modeling and cluster analysis, this study seeks to improve understanding of the resource‐performance link in two main ways. Based on a careful measurement of resources and capabilities in a well‐defined functional area (sales and distribution), we first show how these resources and capabilities contribute to performance in that functional area. Second, we identify four clusters of firms that deploy different configurations of resources and capabilities. Among the four configurational solutions, two are associated with superior (equifinal) performance outcomes.

This study examines the extent to which subnational regions can explain foreign affiliate performance in two host country settings, the United States and China, the world's two largest economies at polar ends of the economic spectrum (i.e., an advanced versus an emerging economy). Our results suggest that the subnational region is significant in explaining foreign affiliate performance, thus confirming its importance as an additional unit of analysis for firm performance. This study also shows that the effects of subnational region are far stronger in China than they are in the United States, thus suggesting that regional differences are more critical in their explanatory power for firm performance in emerging economies than they are in advanced economies.

Prior literature on foreign direct investment (FDI) spillovers has mainly focused on how the presence of FDI affects the productivity of domestic firms. In this study, we advance the literature by examining the effect of the diversity of FDI country origins on the productivity of domestic firms. We propose that the diversity of FDI country origins can facilitate FDI spillovers by increasing the variety of technologies and management practices brought by foreign firms, to which domestic firms are exposed and that they can potentially utilize. Further, the extent to which domestic firms can utilize these technologies and practices depends upon their absorptive capacity. Using panel data on Chinese manufacturing firms during the period 1998–2003, our results support these propositions. We find that the diversity of FDI country origins in an industry has a positive relationship with the productivity of domestic firms in the industry. This positive relationship is stronger when domestic firms are larger, and when the technology gap between FDI and the domestic firms is intermediate.

Whereas conventional wisdom holds that multinational enterprises (MNEs) invest less in host countries that pose greater policy risk—the risk that a government will opportunistically alter policies to expropriate an investing firm's profits or assets—we argue that MNEs vary in their response to host‐country policy risk as a result of differences in organizational capabilities for assessing such risk and managing the policy‐making process. We hypothesize that firms from home countries characterized by weaker institutional constraints on policy makers or greater redistributive pressures associated with political rent seeking will be less sensitive to host‐country policy risk in their international expansion strategies. Moreover, firms from home countries characterized by sufficiently weak institutional constraints or sufficiently strong redistributive pressures will seek out riskier host countries for their international investments to leverage their political capabilities, which permit them to attain and defend attractive positions or industry structures. We find support for our hypotheses in a statistical analysis of the foreign direct investment location choices of MNEs in the electric power generation industry during the period 1990–1999, the industry's first decade of internationalization.

While many rating systems seek to help buyers overcome information asymmetries when making purchasing decisions, we investigate how these ratings also influence the companies being rated. We hypothesize that ratings are particularly likely to spur responses from firms that receive poor ratings, and especially those that face lower‐cost opportunities to improve or that anticipate greater benefits from doing do. We test our hypotheses in the context of corporate environmental ratings that guide investors to select ‘socially responsible,’ and avoid ‘socially irresponsible,’ companies. We examine how several hundred firms responded to corporate environmental ratings issued by a prominent independent social rating agency, and take advantage of an exogenous shock that occurred when the agency expanded the scope of its ratings. Our study is among the first to theorize about the impact of ratings on subsequent performance, and we introduce important contingencies that influence firm response. These theoretical advances inform stakeholder theory, institutional theory, and economic theory.

The success of an innovating firm often depends on the efforts of other innovators in its environment. How do the challenges faced by external innovators affect the focal firm's outcomes? To address this question we first characterize the external environment according to the structure of interdependence. We follow the flow of inputs and outputs in the ecosystem to distinguish between upstream components that are bundled by the focal firm, and downstream complements that are bundled by the firm's customers. We hypothesize that the effects of external innovation challenges depend not only on their magnitude, but also on their location in the ecosystem relative to the focal firm. We identify a key asymmetry that results from the location of challenges relative to a focal firm—greater upstream innovation challenges in components enhance the benefits that accrue to technology leaders, while greater downstream innovation challenges in complements erode these benefits. We further propose that the effectiveness of vertical integration as a strategy to manage ecosystem interdependence increases over the course of the technology life cycle. We explore these arguments in the context of the global semiconductor lithography equipment industry from its emergence in 1962 to 2005 across nine distinct technology generations. We find strong empirical support for our framework.