Knowledge that Transforms

Research Summary Using detailed plant‐ and individual‐level data from a major Japanese cotton spinning company in the early 20th century, we examine the within‐firm allocation of skilled human capital in conjunction with investment in physical capital, accompanying the firm's evolving strategic priorities. We show that the firm leveraged unit‐level two‐way complementarity between managerial talent and strategically important plants when the task was achieving large‐scale output and positioning for a competitive cost advantage. The task of conducting product differentiation, however, ushered in “three‐way complementarity,” where educated engineering human capital and capable managers needed to be bundled with specialized physical capital. A deeper dive into the “nano‐economics” of resource allocation reveals that educated engineers experiencing product differentiation in pioneering plants were reallocated to other plants also pursuing product differentiation. Managerial Summary Effectively allocating critical resources, such as skilled human capital, across establishments in alignment with strategic priorities is a key managerial issue. Through an in‐depth case study of a major Japanese cotton spinning company in the early 20th century, we illustrate how the company shifted the resource allocation policy in response to different strategic management priorities. Initially, the company assigned managerial talent to larger plants requiring operational improvement, leveraging a competitive cost advantage for a standard product. Yet, as the company transitioned toward product differentiation via new production technologies, skilled engineers and plant managers were allocated together to a few selected plants initiating product differentiation. Engineers' experiences in product differentiation in those selected plants were diffused to other plants also pursuing product differentiation through their reallocations.

Research Summary As important stakeholders of a firm, employees are critical to firm success because they are directly engaged in strategy implementation. Accordingly, we theorize that employees' views can impact assessment of the CEO by the board of directors beyond firm financial performance and security analysts' recommendations. Specifically, we hypothesize that employee approval of a CEO's leadership is predictive of the board's CEO dismissal decision, particularly when there is relatively higher firm financial performance, more positive security analyst recommendations, and lower CEO power. Using longitudinal data from 338 firms and 1,252 firm‐year observations between 2010 and 2018, we found empirical support for the above predictions. Our theory and supportive findings have important implications for research and practice regarding employee engagement, strategic leadership, and corporate governance. Managerial Summary Because employees are important stakeholders of a firm and critical to its success, we argue that their views about the CEO can impact how the board of directors evaluates the CEO beyond firm financial performance and security analysts' recommendations. Our results show that higher employee approval of CEO leadership (measured by data collected from Glassdoor.com over multiple years) negatively predicts CEO dismissal, particularly when the firm performs better financially, gets more positive recommendations from security analysts, and the CEO has less power relative to the board. These findings suggest that employees' views do matter in the retention or dismissal of the CEO, and that CEOs should be mindful of how their employees view their leadership and the strategies they are promoting at their firms.

Research Summary This article studies how the entry of an imitative product influences the demand for the original, in markets with a large number of products where consumers are not aware of most products. We suggest that the release of an imitative product triggers two countervailing forces: a discovery effect that increases awareness and demand for the original, and a substitution effect decreasing that demand. When the imitation is horizontally differentiated, the substitution effect is weaker, and the discovery effect leads to increased demand for the original, particularly so when the original is less well‐known. However, when the imitation is vertically differentiated, the discovery effect does not benefit the original, and the demand decreases given the substitution effect. We test our theory in the context of 3D‐printable products. Managerial Summary Imitative products typically harm the performance of the original product. This is in part the rationale for deterring imitation by acquiring intellectual property (IP) rights. However, as we demonstrate, the release of an imitative product may increase discovery of the original product, and therefore demand for it. In markets with a large number of products, products typically compete for attention, and an imitative product may serve as a channel through which attention spills over from the imitation to the original. This effect is more pronounced when the original product is less well‐known. This suggests that, under certain conditions, firms may benefit from pursuing a more open IP strategy that encourages imitation. Examples of marketplaces where imitation may increase demand for the original include those for music, e‐books, software, and mobile apps.

Research Summary Research suggests that multinational enterprises (MNEs) are attracted to locations with concentrated firms from the same home country to benefit from interactions with market forces, but it remains an open question whether such agglomeration facilitates MNEs' interactions with nonmarket actors such as the host government. We submit that since country‐of‐origin agglomeration can enable collective actions and create collective gains, colocation with compatriot firms will help MNEs navigate an adverse institutional environment. In line with this reasoning, we hypothesize that MNEs are more attracted to locations with country‐of‐origin agglomeration when MNEs face an exogenous shock that increases their regulatory burden in the host country. Our analysis offers corroborative evidence. The study adds to research on agglomeration, institutional environment, and location strategy. Managerial Summary Why do multinational enterprises (MNEs) locate near compatriot firms in a foreign location? The commonly recognized benefits include resource access and knowledge spillover from interactions with market forces such as suppliers and customers. We submit that colocation with compatriot firms can also help MNEs navigate an adverse institutional environment by generating “stronger‐together” benefits. Colocation can enable collective actions and create collective gains for MNEs in their interactions with the host government. We find that after a diplomatic dispute, Korean MNEs are more attracted to locations in China that already have a cluster of Korean firms, whether in the same/related industries or in unrelated industries; this is particularly the case for small MNEs and in locations with weak institutions.

Research Summary Monteiro and Miranda (2022) argue that owners differ in their ability to select and work within a particular institutional environment, suggesting “institutional competence” as a dimension of ownership competence distinct from what we call governance, matching, and timing competence. We agree that institutions matter and welcome the chance to describe their role in detail. However, rather than treating institutional competence as a separate channel by which owners create value from their assets, we think institutional features can be modeled as “shift parameters” that moderate the effect of ownership competencies on outcomes. In developing this argument, we reflect more broadly on the interplay between ownership competence and institutional uncertainty, noting that society at large benefits from individual‐level ownership competence, ownership by some owners may cause harm to other owners, and property‐rights enforcement and ownership competence are complements in generating private and societal benefits. Managerial Summary In “Ownership Competence” (Foss et al., 2021) we argued that business owners vary in their ability to create value out of the assets they own, distinguishing between governance, matching, and timing competence. Monteiro and Miranda (2022) argue that we should add “institutional competence” as a fourth kind of competence, describing the ability of owners to choose countries, regions, or environments where they can best exercise their ownership skills. We agree that these external conditions are important but argue that they work by modifying the impact of governance, matching, and timing competence rather than acting as an independent channel. In our response, we also comment on broader issues related to social and institutional aspects of ownership.

Research Summary In social networks, isolated subgroups often aggregate into a massively connected subgroup, or a giant cluster, when bridges are built across subgroups. To understand the roles of bridges in integrating subgroups, we develop models focusing on the percentage of bridges among all ties. When it is below 1%, diffusion does not affect many individuals because the system is merely a collection of fragmented subgroups. Near 1%, however, we find that a slight increase in the percentage of bridges leads to sudden widespread diffusion across many subgroups. This dramatic change stems from a threshold‐like structural characteristic of the network whereby previously fragmented subgroups come together abruptly. Our findings suggest that this integrating role of bridges is an important piece missing from the literature on small‐world networks. Managerial Summary Our findings suggest that the formation of a giant cluster could be a structural precondition for large‐scale diffusion. Detection of such clusters may allow prognostication of the possibility of large‐scale diffusion. With the rise of social media and the availability of large amounts of social network data, the ability to detect giant clusters seems to be more attainable than in the past; such an ability would be a source of competitive advantage. We describe methods of detecting giant clusters and analyzing their structural properties using readily available social network data. With these methods, entrepreneurs and established firms can stimulate user adoption by targeting massive clusters of aggregated subgroups and spreading viral messages about their new products or services throughout the clusters.

Research Summary We examine how and why pre‐existing vertical scope may cause differences in product market exit rates after sudden and exogenous decreases in demand. Our empirical context is the U.S. medical diagnostic imaging industry (2004–2009), wherein a major Medicare reform created a derived demand shock to equipment manufacturers. Using a difference‐in‐difference‐in‐difference design, we find integrated firms were more likely to exit than nonintegrated firms. Building on the literature conceptualizing firms' pre‐shock vertical scope as a representation of existing resources and governance choices, we explain that integrated and nonintegrated firms responded differently by leveraging their own distinctive capabilities. Our qualitative insights suggest that higher market exit of integrated firms was driven by their higher adjustment costs due to frictions across strategies for demand management versus cost reduction. Managerial Summary This study investigates whether having a dedicated sales force or utilizing third‐party distributors can help mitigate the adverse effect of an abrupt demand decrease on manufacturers. In the context of the US medical imaging equipment industry affected by the 2005 Deficit Reduction Act, we show that all firms implemented strategies for demand management, cost reduction, and product portfolio reconfiguration in response. Manufacturers using external distributors experienced fewer frictions across these strategies than those with an internal sales force and were less likely to exit. Thus, a firms' vertical scope can impact how they cope with environmental changes.

Research Summary While multi‐project work (MPW) is becoming an increasingly popular work arrangement, its relationship with project performance is understudied. On the one hand, MPW is deployed to increase employee worktime utilization and productivity, which should be reflected in more timely project completion. On the other hand, MPW also brings switching costs due to attention residue and cognitive setup. Based on this trade‐off, we derive an inverted U‐shaped relationship between MPW and project performance. We find support for this relationship in a longitudinal dataset containing 9,649 project‐month‐employee observations. More specialized experience, project similarity, and employee familiarity positively moderate the inverted U‐shape. Furthermore, the results are robust to a host of model specifications, data structures, assumptions, and alternative explanations. Managerial Summary How many projects can you work on simultaneously? We study this question in the context of new product development (NPD) projects in a multinational organization. We suggest that multi‐project work (MPW) might be a double‐edged sword. On the one hand, MPW academics or engineers can be more productive by filling the gaps in their schedules and developing time management practices. On the other hand, MPW also carries switching costs. This trade‐off creates an inverted U‐shaped relationship between MPW and project performance. So, how can MPW be more beneficial or less costly? We find that more specialized employees can benefit more from productivity gains while working with familiar members or similar projects can alleviate switching costs.

Research Abstract We examine whether salary transparency influences gender pays inequality in the context of Canadian universities by exploiting a policy change enacted in one Canadian province that required salary disclosure through a publicly searchable database, thus lowering the cost of monitoring the gender pay gap. We find that, on average, salary disclosure improves gender pay equality but institutions respond in different ways. Despite little media attention around gender equality at the time of the policy, institutions most likely to anticipate higher scrutiny, such as top ranked institutions, respond more aggressively to improve gender pay equality—both in terms of the magnitude and type of response. Combined, our findings suggest that the extent of change from salary transparency depends on the reduction in monitoring costs and organizational characteristics. Managerial Abstract Salary transparency has been implemented in various ways around the world as a strategy by firms and policy makers to reduce the gender pay gap. However, whether and how it can achieve this in practice is unclear. We examine a salary transparency policy that mandated disclosure to the public through an online database in one Canadian province by comparing the change in gender pay inequality in that province relative to the change in the gender pay gap in provinces without disclosure. We find that salary transparency improves average gender pay equality primarily within the most visible organizations that likely anticipate high levels of public scrutiny. Our findings imply that facilitating low‐cost public monitoring of gender inequalities can motivate organizations to enact change.

Research Summary To grow, startup ventures often require the skills of professional managers familiar with running larger organizations. However, risk considerations may discourage such candidates from departing high‐paying, stable jobs. Interpreting the manager's decision within a household holding a “portfolio” of jobs, we hypothesize that having a spouse whose career is prioritized mitigates risk as a barrier to joining a startup. Survey data corroborate that both men and women with a career‐prioritized spouse are less likely to report risk as a barrier. However, having a career‐prioritized spouse only translates to a greater interest in startup employment among men. Our findings have implications for understanding the challenges startup ventures face when attracting managerial talent, how dual careers and gender affect managers' careers, and regional entrepreneurial ecosystems. Managerial Summary Using survey data from professional managers working in corporate headquarters, we show that being in a dual‐career household increases one's willingness and lowers the perceived risk of leaving their job and joining a startup venture—especially if the household prioritizes their spouse's career. However, the increased willingness to join a startup in households that prioritize their spouse's career is only manifest for men. These findings highlight how dual‐career households can be a talent source for startup ventures and suggest that regions with greater concentrations of dual‐career households might be especially advantageous for startup ventures. Nevertheless, our results also suggest that gender norms are an impediment for dual‐career women when considering employment in startup ventures.