Knowledge that Transforms

Research Summary This study examines how divisionalized firm structures shape the gender gap in internal chief executive officer (CEO) promotion. We argue that divisionalized firms may narrow the gender gap in CEO succession by generating more individually attributable performance information about senior managers. In contrast to firms in which candidates' contributions are difficult to isolate, divisionalized firms create profit‐and‐loss (P&L) accountability that makes managerial performance more visible and comparable. Using longitudinal data on over 616,000 managers in 49,135 US firms, we find that women are more likely to be promoted to CEO in divisionalized firms. We also find that the gender gap is smaller among managers with prior P&L‐accountable experience. Among managers in divisionalized firms, stronger unit performance relative to within‐firm peers is more positively associated with promotion to CEO for women than for men. The results highlight organizational structure as a potential source of variation in gender inequality in executive advancement. Managerial Summary Why do so few women become CEOs? Part of the answer lies in how firms are organized. When a company is structured into divisions with their own profit‐and‐loss responsibility, the results of the managers who lead those units are easier to observe, compare, and credit to the individual. This leaves less room for subjective judgments through which gender bias often enters promotion decisions. In data on more than 600,000 managers at roughly 49,000 US firms, we find that women are more likely to be promoted to CEO in divisionalized firms. The pattern is strongest for women who have led a business unit, and strong unit results count for more in women's promotion prospects. For boards seeking greater gender equity in CEO succession, structures and evaluation systems that give senior leaders clear, comparable performance records may matter as much as diversity initiatives.

Research Summary Strategy scholars have theoretically explored the relationship between legal knowledge protection and modularity of innovation activities in firms, but this relationship has yet to be empirically tested in the literature. Leveraging state‐level changes in US trade secrecy law and using a network modularity measure, this paper examines how trade secret protection affects the modularity of firms' innovation activities. Analyzing intrafirm inventor collaboration patterns in US patent data from 783 high‐tech firms between 1976 and 2017, we find that increased trade secret protection is negatively associated with the modularity of innovation activities within firms. This effect is more pronounced for firms with superior technologies and those geographically collocated with competitors—factors that enhance firms' knowledge appropriability concerns—and less pronounced for firms in industries where alternative appropriability mechanisms are highly effective. Moreover, our findings suggest that the increased betweenness centrality of new hires (skilled and junior) serves as an important underlying mechanism for the treatment effect. These results contribute to the literature by illuminating how firms strategize their internal innovation activities for knowledge protection and by underscoring its underlying mechanism. Managerial Summary Firms often modularize innovation activities to safeguard proprietary knowledge, but this approach can undermine innovation performance by restricting knowledge integration within organizations. This study demonstrates that stronger legal mechanisms alleviating firms' knowledge protection concerns, such as increased trade secret protection, encourage firms to adopt a less modularized, more integrated innovation system. Furthermore, we find that under such protections, firms are more likely to position new hires, including both skilled and junior employees, in central roles to connect innovation communities within the organization. These findings offer valuable insights for managers, illustrating how knowledge protection concerns can shape the structure of firms' innovation activities.

Research Summary Firms seeking competitive advantage need both internal fit and a distinctive market position, yet strategy research says little about how the search for the two is related. We develop a model of strategic search that integrates an NK landscape with differentiated Cournot competition, allowing a firm's position to shape both its internal fit and distinctiveness. We show that, under low complexity, competition constrains search, locking firms into resource configurations and creating a trade‐off between internal fit and distinctiveness. Conversely, under high‐complexity competition drives distant search, so that internal fit and distinctiveness go hand‐in‐hand. We further show that competitive lock‐in constrains search by early leaders, while distant search drives the emergence of new leaders, thus offering a search‐based theory of market disruption. Managerial Summary How does the search for operationally effective configurations of resources and capabilities affect the distinctiveness of a firm's offering, and vice versa? Our work suggests that the need for distinctiveness may constrain search close to rivals but also enable the discovery of effective configurations far away from them. In relatively simple environments, where firms tend to converge on the same relatively obvious configurations, the search for distinctiveness is constraining, but in more complex environments it may enable the discovery of superior configurations. Further, early leaders may be constrained in their search as rivals cluster around them, while early followers may benefit more from distant search, potentially leading to a disruption of the market as early success proves constraining.

Research Summary Modular systems play a central role in technological innovation. Such systems emerge when interdependencies among modules in a complex system are isolated through interfaces. While early seminal work highlighted the importance of interface design, subsequent research on modularity has largely overlooked it. We develop a model that treats interfaces as a set of design choices, separate from module choices. This model elucidates the mechanisms through which interface design influences system performance and identifies novel strategies for sequencing the search of interface and module designers to improve outcomes. The framework has implications not only for standalone innovations but also for the design of standards in platforms and ecosystems. Ultimately, it demonstrates that interface design is as much a strategic challenge as it is a technical one. Managerial Summary Managers increasingly rely on modular designs to enable innovation, yet often overlook interfaces as a strategic lever. This study shows that actively designed and periodically updated interfaces can coordinate interdependencies without constraining decentralized search, enabling modular systems to approach the performance of integrated designs. Crucially, sequencing matters: allowing modules to evolve before introducing interfaces improves long‐run performance, as early experimentation generates knowledge that interfaces can later build upon. Finally, infrequent interface redesign is sufficient to sustain coordination, reducing the need for continuous adaptations. Overall, interfaces should be treated as evolving strategic choices that shape innovation trajectories in products, platforms, and ecosystems.

Research Summary We study the impact of generative artificial intelligence (GAI) tools on product‐level innovation outcomes in the context of software products. Specifically, we illustrate how GAI can alter the direction of innovation by shifting the activities of developers away from generational innovation and toward original innovation, which may be new to the market but not necessarily more novel than previous innovations. We argue that this shift is driven by GAI's ability to facilitate tasks in both the ideation and implementation of software products, which enables some developers to create software products that were previously beyond their reach, while allowing others to reallocate their effort with respect to different activities. Our analyses in the context of browser add‐ons provide empirical evidence for these arguments. We discuss implications for innovation research and the generalizability of our findings to other domains. Managerial Summary Generative AI tools are changing how organizations innovate. Studying the Firefox browser add‐on ecosystem, we find that after ChatGPT's release, the number of new add‐ons increased by 34%, driven by both existing and first‐time developers. However, developers simultaneously reduced improvements to their existing add‐ons by 20%, redirecting effort toward new projects. While new add‐ons drew on a broader set of knowledge domains, they were not substantially different from what already existed. This suggests that generative AI helps developers efficiently combine existing knowledge rather than produce truly novel ideas. For platform managers and business leaders, these findings highlight that although Generative AI can democratize product creation and accelerate new product launches, it may require new strategies to maintain product quality and encourage genuine novelty.

Research Summary This study investigates client tie diversification, where firms enter markets with existing clients. Recognizing the theoretical basis for both positive and negative performance implications, the paper adopts a question‐driven approach and discovers a strong negative correlation between client tie diversification and firm performance. Using data from the US federal lobbying industry during the creation of the Homeland Security issue market post‐9/11, I find that lobbying firms entering the new market with existing clients underperform compared to other firms. This underperformance is associated with over‐embeddedness with clients and agency costs from dispersed client tie ownership among lobbyists. These findings challenge the notion that client ties are readily fungible and highlight relational and agency‐related complexities that can lead firms to pursue value‐destroying diversification. Managerial Summary Do firms perform better when they diversify into new markets with their existing clients, or by pursuing new opportunities independently? This study found that firms that enter new markets alongside their current clients often underperform compared to those that do not. While it might seem beneficial to leverage existing client relationships, this approach can push firms into areas where they lack capabilities, create inefficiencies, and complicate relationships with other clients, leading to weaker performance. Managers should be cautious about letting client needs drive diversification decisions. Prioritizing current clients may offer short‐term gains but can limit the firm's ability to explore new markets and achieve long‐term growth. Strategic choices should balance client requests with the firm's own strengths and future prospects.

Research Summary Prior research predicts that information technology (IT) decentralizes decisions by increasing access to information relevant for decision‐making. Yet this view underestimates the coordination challenges and communication costs created by interdependent work. We argue that while an IT system with its accessibility and standardization of information may facilitate the decentralization of decisions, decentralization also requires uniform interpretation and utilization of the information. Using a quasi‐natural experiment based on the staggered introduction of electronic health records (EHR) in a large US hospital system, we find EHR implementation increases decentralization, but this effect is amplified when care team members exhibit mutual understanding of other team members, task‐related processes, and the clinical problem‐solving context. We contribute to theories of information processing, organization design, and coordination in healthcare. Managerial Summary Organizations often adopt information technology (IT), expecting that better access to standardized information will allow frontline employees to make more decisions independently. Our study shows that IT alone does not increase decentralization. In highly interdependent environments, such as hospitals, decentralized decision‐making also requires that team members interpret and use information more uniformly. Using the staggered rollout of electronic health records (EHR) in a large US hospital system, we find that EHRs increase decentralization, with substantially stronger effects when care team members share a mutual understanding of each other, of core work processes, and of the clinical context. In practice, this means routine decisions move down to nurses and other care team members, freeing physicians' time for work that requires specialized clinical expertise. Our study demonstrates that organizations should pair technology investments with efforts to build shared knowledge and common practices across teams to better ensure changes to the design of hospital care teams.

Abduction offers a mode of scientific inquiry that focuses on formulating explanations for unexplained phenomena. By building a bridge between philosophy of science and strategic management research, this article offers a pluralistic view of abduction, highlighting abductive triggers as the starting point in seeking explanations and the essential role of both creative and selective abduction in formulating explanations. Additionally, this article provides practical guidance for the design, execution, and evaluation of abductive research, including the usefulness of abduction for studies not designed as abductive. We offer orienting considerations about abduction's steps and elements, illustrate with examples, and outline potential missteps. Abduction does not lend itself to a fixed template, and we aim to lower the barriers to using abduction in strategic management research.

Research Summary Recent technological advancements have enabled more data‐driven decision‐making across firms. While prior literature highlights the value of using more data, there is less insight on the impact of information speed, particularly how quickly decision‐makers can access it. We study how faster information access influences how decision‐makers acquire information and make decisions, using data from healthcare. We examine a technology that visually displayed when test results became available, accelerating information access for 64,152 decisions by 387 physicians. Faster access allowed decision‐makers to gather less but more targeted information, resolving uncertainty earlier and speeding up decisions, while ultimately improving decision outcomes by supporting more effective information processing. Our findings show that investing in data velocity can yield significant benefits through both faster and better decisions. Managerial Summary Our research shows that the speed at which decision‐makers access information can be just as important as the amount of data available. Studying the introduction of a real‐time dashboard in a hospital emergency department, we find that simply reducing delays in seeing lab results‐without changing the information itself‐led physicians to order fewer and more targeted tests (cutting charges by 25%), reduce patient length of stay by 13% (about 75 minutes), and improve outcomes, with lower hospitalization rates and higher patient satisfaction. The biggest gains occurred under high workload and in less common cases, where early signals are especially valuable. The key insight for managers is that faster information access does not just accelerate decisions; it improves how decisions are made by enabling more focused information gathering and better use of early signals. Investing in tools that reduce friction in accessing data can therefore increase efficiency and quality simultaneously, creating advantage not just through speed, but through better decision‐making.

Research Summary This study examines whether training entrepreneurs to apply systematic approaches to strategic decision‐making influences their self‐perception of ability. Using a field experiment in which 151 entrepreneurs in Tanzania were randomly assigned to two different versions of entrepreneurial training (an evidence‐based vs. a theory‐and‐evidence‐based approach), we find entrepreneurs in the theory‐and‐evidence‐based condition experience a larger and more persistent increase in their self‐perception of ability to deal with challenges compared to the evidence‐based condition. Additionally, entrepreneurs across the two conditions respond differently to the training depending on their initial levels of perceived ability. By integrating insights from social cognitive psychology, this study contributes to research on entrepreneurial experimentation by uncovering the effect of strategic decision‐making training on individuals themselves, not just their ventures' outcomes. Managerial Summary Entrepreneurs' self‐perceptions of ability are critical for how they engage with learning opportunities and respond to challenges that arise as they develop their businesses. To explore how different versions of training on strategic decision‐making impact entrepreneurs' self‐perceived abilities to deal with such challenges, we conducted a field experiment with Tanzanian agribusiness entrepreneurs. Results show that entrepreneurs who learn to develop a theory‐of‐value before engaging in experimentation experience a larger increase in self‐perceived ability compared to those who experiment without such a theory‐of‐value, and this effect persists for longer. Our results have practical value for entrepreneurs and support organizations offering training programs and point to self‐perception of ability as an important factor to help entrepreneurs follow the behavioral advice they receive during those trainings.