Knowledge that Transforms

We propose a theory to manage the uneasy relation between strategic choice, chance, and determinism (or inevitability). To do so, we locate arguments in intellectual history that have a clear bearing on this relation. We introduce and defend four conjectures that outline the relationship between each of them and their comparative significance. The paper thus aims at achieving three objectives: (a) to articulate a philosophically sustainable theory of strategic choice that corroborates experience (without being induced by it); (b) to synthesize what remains one of the most sustained debates in strategy, namely the nature, role, and relation of choice, chance and determinism; and (c) to contribute to developing a foundation for multilevel research. Copyright © 2007 John Wiley & Sons, Ltd.

Competitive asymmetry is defined in terms of the directional level of competition among brands/firms (i.e., unit of analysis), where the degree to which brand/firm A may compete with brand/firm B does not equal the degree to which brand/firm B competes with brand/firm A. Such a market structure phenomenon is quite commonplace in virtually every market, e.g., where there exists distinct market leaders and followers. DeSarbo, Grewal, and Wind recently (2006) proposed a new spatial methodology in SMJ to assess these competitive asymmetries based on information on consumer choice sets (i.e., a demand‐based approach). However, the approach espoused by DeSarbo et al . results in as many competitive maps as there are brands/firms in a dataset. In this research, the authors devise a distance‐based unfolding multidimensional scaling procedure for deriving joint spaces of brands/firms both as givers and takers of consumer consideration with the objective to have a more efficient representation of competitive asymmetries (i.e., one map irrespective of the number of brands/firms under study). An application is provided for an actual commercial study undertaken by a major U.S. automobile manufacturer examining the mid‐size car marketplace. The strategic implications of the results are detailed. Copyright © 2007 John Wiley & Sons, Ltd.

The managerial cognition perspective argues that managers operating in complex, dynamic environments develop knowledge structures that help them focus their attention, interpretation, and actions. We explore the content and structure of top managers' strategic knowledge structures by measuring differences in the level of attention they give in annual reports to strategic issues and themes that Miles and Snow used to describe their main strategic types. Twenty‐one themes that form seven main factors describing managers' strategic cognition are identified, and these demonstrate reasonable fit with the Miles and Snow model. We show that expert raters can recognize these factors when they read annual reports that contain them. Cluster analysis is then used to identify groups of firms that share similar profiles on these strategic dimensions which are interpreted as examples of cognitive strategic groups. These groups show alignment with Miles and Snow's strategic types, are relatively stable over time, and differ in financial performance. The sample comprises 1,038 listed Australian firms between the years 1992 and 2003. Copyright © 2007 John Wiley & Sons, Ltd.

We study the effects of organizational code‐preserving and code‐violating changes on external evaluations by third parties—an essential but under‐studied strategic outcome. We define code‐preserving changes as a variation in the firm's product range that preserves the social code within which the firm positions its offering. By contrast, a code‐violating change corresponds to a variation in the product range that breaks with past codes and embraces another social code. Our analyses of French haute cuisine restaurants show that code‐preserving changes and code‐violating changes have positive effects on external evaluations. Both effects decline with prior evaluations received by the organization, but only the effect of code‐violating changes is reduced with age. Moreover, external evaluations improve when restaurants undertake more code‐preserving changes than their direct competitors but decline when they make more code‐violating changes than competitors. These results enable us to derive implications for research on strategic change, strategic groups, and strategic social positioning. Copyright © 2007 John Wiley & Sons, Ltd.

This paper develops a dynamic, stochastic growth system for money market fund families and tests how search behavior within this system affects fund family exit. The outcome of search behavior is measured as the time-varying parameters of the growth system, estimated by the Kalman filter. The results provide no evidence that the continuously updated coefficients influence the risk of failure. However, the cumulative amount of search generally affects exit positively, consistent with Hannan and Freeman's (1984) structural inertia theory. Founding conditions and money market fund performance are also important predictors of money market fund failure. These findings are discussed in the light of Bowman's (1963) theory of managerial coefficients and its applicability to simple industries like money market funds. The implications for future empirical studies on evolutionary growth systems are also discussed.

We examine the labor market consequences borne by executives who remain at financially distressed firms relative to those who flee to another employer to avoid the stigma of failure. Our study makes two contributions. First, we document an ex ante dimension of executive labor markets unaccounted for by ex post settling up models. Specifically, we show that executives who ‘jump ship’—change employers in the two years prior to the failure—suffer fewer labor market consequences than their counterparts who remain with the failing firm. Second, we extend the study of bankruptcy stigma to examine how stigma might be managed by jumping ship. Copyright © 2007 John Wiley & Sons, Ltd.

We study the relation between the percentage of outstanding shares held by a firm's largest institutional owner and the bid–ask spread on that firm's shares, a measure of information risk. We find that the greater the percentage of shares held by the largest institutional investor, the greater the bid–ask spread in share prices. In contrast, the percentage of shares held by smaller institutional owners is related to lower bid–ask spreads. The results imply that only the largest of a firm's institutional owners—and no other institutional owner—is perceived to hold an information advantage. Copyright © 2007 John Wiley & Sons, Ltd.

In this study we examine the changes in executive compensation at the top management team (TMT) level following an environmental shift. Using the context of deregulation in the airline industry, we find that: (1) a dramatic environmental change that heightens managerial discretion leads to greater pay level and performance sensitivity of TMT compensation; and (2) the greater the magnitude of turnover among TMT members following the environmental shift, the greater the compensation change. Copyright © 2007 John Wiley & Sons, Ltd.