Knowledge that Transforms

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.

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.

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.

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.

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.

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.

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.

We model the two‐firm alliance as an iterated prisoners' dilemma game with an exit option and test several theoretical predictions in experimental studies regarding the effect of reputation information. Following the literature, we hypothesize that reputation benefits cooperation; however, our experimental results instead show that reputation decreases cooperation. A contingency explains this result while remaining consistent with the general proposition of reputation as beneficial in games of incomplete information. Implications include a recommendation for when to invest in reputation and whether the lemon's market story is applicable to alliance‐related inefficiencies.

We develop an institutional change perspective to examine the tension that can exist between evolving external environmental influences and internal organizational influences on foreign entry attempts. Using data on the entries of 215 U.S. public firms made into 11 Central and Eastern European transition economies during the period of 1990–2003, we find that shifts in national institutional environments, from a socialist to a market economy, reduce the extent of challenges encountered to make a hierarchical entry, which leads to an increase in foreign hierarchical entry attempts but not necessarily to a decrease in relational entry attempts as institutional transformation. We find evidence of inertial influences as experienced entrants tend to follow their previous decisions when making subsequent entry attempts. Further, they are less responsive in their foreign entry strategies to the institutional transformation in a given host country than inexperienced firms. We also find that the experience gained from relational entries results in more hierarchical entry attempts, but hierarchical entry experience results in fewer relational entry attempts.

By highlighting conditions under which viable interorganizational relationships do not materialize, we explore the limitations of interorganizational knowledge acquisition. In the empirical context of corporate venture capital (CVC), we analyze a sample of 1,646 start‐up‐stage ventures that received funding during the 1990s. Under a regime of weak intellectual property protection (IPP), an entrepreneur‐CVC investment relationship is less likely to form when the entrepreneurial invention targets the same industry as corporate products. In contrast, under a strong IPP regime, industry overlap is associated with an increase in the likelihood of an investment relationship. Our findings suggest that many relationships do not form because the corporation will not invest unless the entrepreneur discloses his or her invention, and the entrepreneur may be wary of doing so, fearing imitation. To the extent that a CVC has greater capability and inclination to target same‐industry ventures, such industry overlap would exacerbate imitation concerns under a weak IPP regime, yet facilitate an investment relationship under a strong IPP regime. Beyond CVC, this insight may explain patterns of other interorganizational relationships, including research and development alliances and technology licensing between start‐ups and incumbents.