Knowledge that Transforms

Abstract Research Summary Our field study of new business development in a German‐based global pharmaceutical company reveals that the emergence of co‐selection bias in project‐level stage‐gate resource allocation engendered a corporate‐level innovation portfolio imbalance. We show how the corporate portfolio imbalance resulted from incoherent managerial activities in the multilevel resource allocation process (RAP) decision context and how this caused fizzling out of the proactively established incipient strategic context of the favored‐for‐growth business unit. Moreover, we identify strategic RAP exploitation challenges that explain why sequential exploitation capability and exploitation drive deficits caused an exploitation trap that limited strategic discretion and stymied top management strategic intent to maintain the company's independence. Our integrated frameworks augment strategic management theory of corporate RAP and offer guidance for future research. Managerial Summary We draw attention to the little‐noticed phenomenon of co‐selection bias emerging in the project‐level stage‐gate resource allocation to new business development and maladaptive corporate‐level innovation portfolio outcomes that it may produce. We show how top management can use the Bower–Burgelman RAP model to analyze the multilevel RAP decision context and identify the forces that may engender out‐of‐context managerial agency, such as co‐selection bias. We highlight strategic RAP exploitation challenges that top management must meet by matching the RAP exploitation drive with a commensurate RAP exploitation capability to avoid an exploitation trap, thereby increasing the chances of company survival.

Abstract Research Summary Research suggests firms can reduce stakeholder contention (e.g., lawsuits, protests) by collaborating with threatening stakeholders. We propose that by tapping into stakeholder networks and identities, collaborations also produce ripple effects beyond the firm's partner to attenuate contention from a broader set of stakeholders. Using variation in firms' and stakeholders' willingness to collaborate exogenous to contention to account for selection, our examination of contentious and collaborative interactions between 136 environmental movement organizations and 600 US firms corroborates our arguments. Firms face less contention when they collaborate with a better‐connected stakeholder motivated to share affirming information about the firm, or with a more contentious and authentic stakeholder. Our findings generalize to stakeholder criticism beyond movement organizations, suggesting collaborations are powerful tools for fashioning less contentious environments. Managerial Summary Companies can reduce conflict from hostile stakeholders like social activists by collaborating with their friends. We find social movement organizations mount fewer protests, boycotts, lawsuits, and other conflict against a company that collaborates with an organization that is either well connected in the movement or known for mobilizing movement's grassroots. This suggests that cross‐sector collaborations quell conflict through passing affirming information about a company through interorganizational networks or through the broadcast of an affirming signal to the broader stakeholder environment. We find that criticism from a wide range of stakeholders (e.g., media) also abates, suggesting that collaborations are powerful tools for fashioning less contentious environments.

Abstract Research Summary Investment growth in family firms is constrained by family preferences to retain corporate control, which limits outside equity issuance and increases the expropriation risk perceived by external minority shareholders. Tenure‐based voting rights (TVRs) weaken the link between voting rights and cash flow rights, facilitating new equity capital issuance without loss of control. We find that publicly listed family firms in Italy adopt TVRs to facilitate the continuation of investment growth while retaining family control. We also find that in family firms with fragile control, investment increases after TVR adoption. Our results indicate that control‐enhancing mechanisms such as TVRs can help resolve the control–growth dilemma in family firms. Managerial Summary Family firms tend to invest less than other firms because funding new investment can lead to loss of family control. Tenure‐based voting rights (TVRs) reinforce the control of qualifying family shareholders, giving them extra shareholder voting power. Deviation from the one‐share‐one‐vote principle is generally regarded as detrimental to outside shareholders' interests. However, we find that TVR‐adopting Italian family firms invest more, pay higher dividends, are more profitable and have more outside shareholders on the board of directors. In other words, violation of the one‐share‐one‐vote rule using TVRs can benefit both family owners and outside shareholders. Policymakers could consider whether TVRs can help in promoting economic growth, especially in countries where family firms are important.

Abstract Research Summary Multimodal data, comprising interdependent unstructured text, image, and audio data that collectively characterize the same source, with video being a prominent example, offer a wealth of information for strategy researchers. We emphasize the theoretical importance of capturing the interdependencies between different modalities when evaluating multimodal data. To automate the analysis of video data, we introduce advanced deep machine learning and data fusion methods that comprehensively account for all intra‐ and inter‐modality interdependencies. Through an empirical demonstration focused on measuring the trustworthiness of grassroots sellers in live streaming commerce on Tik Tok, we highlight the crucial role of interpersonal interactions in the business success of microenterprises. We provide access to our data and algorithms to facilitate data fusion in strategy research that relies on multimodal data. Managerial Summary Our study highlights the vital role of both verbal and nonverbal communication in attaining strategic objectives. Through the analysis of multimodal data—incorporating text, images, and audio—we demonstrate the essential nature of interpersonal interactions in bolstering trustworthiness, thus facilitating the success of microenterprises. Leveraging advanced machine learning techniques, such as data fusion for multimodal data and explainable artificial intelligence, we notably enhance predictive accuracy and theoretical interpretability in assessing trustworthiness. By bridging strategic research with cutting‐edge computational techniques, we provide practitioners with actionable strategies for enhancing communication effectiveness and fostering trust‐based relationships. Access our data and code for further exploration.

Abstract Research Summary We inductively examine how the careers of employee entrepreneurs unfold, uncovering the role of motives and attribution for failure. Founders expressing organizational misalignment motives for leaving established organizations engaged in “venture crafting” whereby they actively sought to build well‐functioning organizations. They built successful initial ventures and careers. Founders lacking organizational misalignment motives generally founded initial ventures that failed: however, those making internal attributions altered their behaviors and built successful careers; in contrast, founders making external attributions continued founding unsuccessful ventures. These findings suggest that building organizational capabilities—and not merely inheriting capabilities from existing organizations—is a cornerstone of building successful entrepreneurial careers. Our findings are based on detailed career history and archival data on employee entrepreneurs in the disk‐drive industry. Managerial Summary Our study follows careers of individuals leaving employment to create ventures, providing insights for entrepreneurs and managers. Though entrepreneurs often choose to focus solely on building a stellar product, our study underscores the importance of crafting well‐functioning organizations for career and venture success. Moreover, in case where initial ventures fail, founders who make internal attribution generate a “second chance” at success, whether as serial entrepreneurs or by returning to paid employment. Those who attribute failure to external factors, however, repeat their mistakes. For managers, our study reveals that the genesis of successful entrepreneurial careers is rooted in organizational deficiencies that prevent talented employees from thriving as intrapreneurs. The venture crafters typically left their jobs only after attempts to amend these issues were unsuccessful.

Abstract Research Summary We examine whether impact investing is more effective in fostering business venture success and social impact when investments are directed toward ventures in disadvantaged urban areas compared to similar investments directed toward ventures outside these areas. We explore this question in the context of loans made to business ventures in French “banlieues” versus “non‐banlieues.” We find that, following the loan issuance, banlieue ventures achieve greater improvements in financial performance and greater social impact in terms of the creation of local employment opportunities, quality jobs, and gender‐equitable jobs. This suggests that impact investors are able to contract with ventures of greater unrealized potential in banlieues, as banlieue ventures tend to be discriminated on the traditional loan market. The latter is corroborated in a controlled lab experiment. Managerial Summary We shed light on the unrealized potential of business ventures in economically disadvantaged urban areas, known as “banlieues” in France. Our results show that, after receiving loans from an impact investor, banlieue ventures achieve greater financial performance compared to non‐banlieue ventures. What is more, banlieue ventures achieve greater social impact by creating more jobs that benefit the local community. Why are traditional investors missing out on these opportunities? Our results point toward discrimination of banlieue ventures on the traditional loan market. This is confirmed in a controlled lab experiment, in which participants are less likely to approve loans to banlieue ventures compared to identical non‐banlieue ventures. These insights can guide managers and investors seeking sustainable, socially impactful, and financially viable investment opportunities.

Abstract Research Summary “Open strategy” is a new macro discourse on strategy that differs fundamentally from the conventional strategy discourse. In this paper, we examine how actors deal with the co‐existence of the two discourses, given their conflicting nature. For this purpose, we draw on a longitudinal, in‐depth case study of an international finance firm that introduced open strategy alongside the conventional strategy discourse that had shaped their strategy work in the past. We find that strategy actors deal with interdiscursive tensions by enacting meta‐discursive practices that regulate the mobilization of the two strategy discourses. Furthermore, we identify power as an important driver and necessary resource in enacting these practices. With these findings, we contribute to the open strategy literature and the literature on organization and strategy discourse. Managerial Summary There is a recent trend for opening up the strategy process to actors outside the upper echelons, which is referred to as “open strategy.” This new approach is based on a fundamentally different logic than the conventional approach to strategy making; while the latter highlights exclusivity and secrecy, the former stresses inclusivity and transparency. This empirical study examines how managers deal with tensions that arise from the co‐existence of these approaches. We find that managers try to resolve these tensions by regulating where and when each approach can be applied. We also show that the switch from one way of regulating the application of approaches to another depends on the power and interests of the participants.

Abstract Research Summary The paradox of rejecting novel ideas while being motivated to select them exists in many realms. Deviating from prior research that investigated several internal levers to promote the funding of novel ideas in the sciences, we focus on an external lever by investigating how seconded employees increase the selection of novel ideas in two ways: (1) they select more novel ideas themselves, and (2) they influence permanent employees to do the same. Combining unique quantitative longitudinal data and 37 in‐depth interviews, we test our predictions in the secondment program at the National Science Foundation and find broad support for our theoretical arguments. Our findings have implications for scholars of science and innovation by proposing a relatively light‐touch intervention to facilitate the selection of novel ideas. Managerial Summary Organizations often face a paradox: they want to select novel ideas but tend to reject them. This study shifts focus from internal measures to an external solution, examining how seconded employees can help. Through both quantitative data and interviews at the National Science Foundation's secondment program, we found that seconded employees choose more novel ideas and influence permanent staff to do the same. This suggests a simple intervention can significantly boost the acceptance of innovative ideas, offering valuable insights for those in the science and innovation. Understanding this dynamic can empower managers to strategically leverage seconded employees, fostering a more innovative and adaptive organizational culture.

Abstract Research Summary During armed conflicts, when the rule of law collapses, bribery often becomes prevalent. Yet, the effect of bribery on firm performance under those circumstances remains unclear. Bribery could provide access to scarce resources, but it could also be the result of extortion. This study argues that bribes can improve firm performance during certain conflicts, when violence reduces public officials' ability to threaten firms. Using longitudinal data from businesses in Nigeria during the Boko Haram insurgency in 2009–2014, I find that firms exposed to Boko Haram attacks that bribed outperformed firms that did not bribe. Qualitative data suggest that the insurgency limited public officials' ability to threaten firms, making bribes less a means of rent extraction and more a way for firms to access resources. Managerial Summary In many economies, bribery is widespread despite being illegal. This study shows that during times of violent conflict bribery can be a way for firms to maintain operations despite the disruption. Using data from firms in Nigeria during the 2009–2014 Boko Haram insurgency, I find that firms that bribed tended to suffer less from the effects of the insurgency. Bribing firms were better able to secure protection and access transportation networks. At the same time, the conflict reduced local officials' ability to extort firms, making bribes less likely to involve extortion. These results highlight the extreme circumstances that firms face during violent conflicts and the illicit practices that may enable them to survive in the short run.

Abstract Research Summary This study extends recent findings that inventor CEOs increase innovative output in large established firms by examining how their involvement in the innovative process influences the nature of innovations produced. Our theory suggests that inventor CEOs who take a hands‐on approach to innovation lead their firms to engage in more exploitative rather than exploratory innovation. We further posit that this effect is particularly strong for insider inventor CEOs, and especially founders, but weaker for outsiders and when the firm's board has broader industry experience. Using a sample of S&P 1500 firms from 1994 to 2010 and inventor CEOs' engagement in patenting as an indicator of hands‐on involvement, we find considerable support for our predictions. Managerial Summary CEOs with hands‐on experience innovating can substantially increase innovative output in large established firms. Yet, we show that inventors who remain directly engaged in their firms' innovation activities as CEO can limit their scope to incremental innovations that exploit existing technologies as opposed to more radical innovations that result in novel product or service offerings. These tendencies are stronger for inventors who come to the CEO position from inside the firm, especially founders, but weaker when the firm's board has broader industry experience. Overall, our study reveals an important tradeoff for large firms of having an inventor as CEO, how hands‐on involvement by inventor CEOs may narrow their firms' innovative trajectories, and how or when these tendencies can be mitigated.