Knowledge that Transforms

Research Summary Problem formulation is central to recombinant invention, and problem complexity particularly shapes the process and outcome of knowledge recombination. However, research on the antecedents of problem complexity remains limited. This study examines how breakthrough inventions may serve as an important antecedent of the complexity of problems formulated by individual inventors. We propose that a breakthrough invention may facilitate inventors' appreciation of novel knowledge couplings and improve their overall comprehension of knowledge interdependence for problem formulation, thus increasing problem complexity. We further argue that inventors' prior search breadth and experimentation strengthen the above effect. By exploiting the unexpected victory of AlphaGo and tracking the questions posted on StackOverflow.com by developers interested in deep learning, we find empirical evidence that supports our hypotheses. Managerial Summary Because formulating complex problems may result in novel and valuable inventions, it is helpful to understand what drives inventors to formulate problems of higher complexity. In this study, we propose that breakthrough inventions can serve as an important antecedent of problem complexity. In the context of deep learning, we find that developers formulate problems of higher complexity after the unexpected victory of AlphaGo, a widely acknowledged inventive breakthrough. Further, the above effect is more pronounced when developers have broad search experience in the past or engage frequently in experimentation. The insights of this study are not only relevant to managerial practices within the dynamic field of deep learning but also generalizable to broader technological contexts with breakthrough inventions.

Research Summary The behavioral theory of the firm (BTOF) proposes that firm behavior is goal‐directed and that organizational aspirations are a function of prior historical aspirations, past performance, and the performance of others. Despite the centrality of aspirations in the BTOF, little is known about aspiration formation and why firms favor one aspiration type over others, that is, attention rules. Drawing on the attention‐based view, we posit that attention rules are shaped by environmental volatility over time and vary by locus of attention across firms. Data from US manufacturing firms managing their toxic chemical waste provide evidence for attention‐rule adaptation. Managerial Summary Firms must set aspirations, measure, and improve their toxic waste levels to avoid costly economic, regulatory, and environmental hazards. Although aspirations play a vital role in driving firm behavior, we still have limited understanding of how managers allocate their attention to various performance feedback during aspiration formation. We argue that attention allocation differs for managers across organizational hierarchy exposed to varying degrees of environmental volatility. Greater volatility of the business environment steers managerial attention from the performance of others toward their own historical aspirations. We also suggest that the attention of managers at higher levels of the organizational structure are directed from their own historical aspirations toward performance of others. We find corroborating evidence for our conjectures.

Research Summary Venture capital funds have a limited lifecycle. As the fund ages, venture capitalists (VCs) are motivated to promote venture exit discussions with the venture board. We investigate the impact of VCs' exit pressure on the hazard of four types of venture exit (IPO, high‐value M&A, low‐value M&A, and liquidation), considering how VCs' exit pressure influences board collaboration. We find that while the VCs' exit pressure does not affect the hazard of IPOs, the pressure significantly increases the hazard of M&A and liquidation. Achieving important milestones does not reduce the impact of exit pressure on the hazard of low‐value M&A and liquidation. Independent directors moderate the impact of the VC's exit pressure, increasing the hazard of high‐value M&A and lessening the hazard of liquidation. Managerial Summary We investigate whether VCs' exit pressure due to an approaching deadline for fund liquidation influences the time to venture exit and how board composition affects the relationship between VCs' exit pressure and venture exit. Data from a sample of 219 VC‐backed U.S. surgical device ventures founded during 1989–2014 suggest that VCs' exit pressure decreases the time to M&A (both high‐value and low‐value M&A) and liquidation. Boards with more independent directors facilitate high‐value M&A and delay liquidation. VCs' exit pressure does not affect the time to IPO. These results provide evidence of the impact of the venture capital fund's finite life on investees other than the VCs and confirm the crucial role of independent directors in managing VCs' exit pressure.

Research Summary This study investigates the importance of early life training for people's leadership roles later in the workplace. We focus on team leaders in industrial research and analyze changes in team leadership after the abandonment of the military draft by the United States in 1973. This policy produced a twofold effect on leadership training opportunities: it eliminated the training provided during the draft and reduced the incentives to pursue long‐term education to defer conscription. Our results show a decrease in the probability of team leadership for men subject to the policy change. This effect, which is likely explained by the education channel, reduces over time. We discuss the implications of our findings for the formation of human capital to fulfill strategic leadership roles. Managerial Summary The progressive shift toward team‐based innovation practices puts organizations in need of new leaders. Whether leaders can be trained as such is, however, a controversial topic. We argue that one can learn to become a leader through life‐changing experiences. Our results show that people who undergo pervasive leadership‐enhancing opportunities early in life have higher chances of fulfilling leadership positions later in the workplace. Therefore, our study calls for the provision of early life, inclusive leadership enhancing opportunities to shape leadership attitudes and capabilities. These include formal education, corporate internships, and on‐the‐job training but could also span to other domains, such as political activism, associationism, and sporting activities.

Research Summary Building on social psychology research and entrepreneurship work on linguistic framing, we argue that the appreciation of novel ideas varies with the mental construal that members of different audiences use to evaluate them. Specifically, we theorize that the congruency between idea framing and audiences' mental construals depends on audiences' level of expertise in evaluating novel ideas. In four experiments, we found that innovators benefit from deploying framing strategies congruent with audiences' mental construals: novices (e.g., lay people, crowdfunders) appreciate more novel ideas framed in abstract why terms, while experts (e.g., professional investors, innovation managers) novel ideas framed in concrete how terms. Integrating the strategic framing of novel ideas with construal level theory and audience heterogeneity contributes to research on entrepreneurship, innovation, and impression management. Managerial Summary One of the critical challenges that innovators (e.g., entrepreneurs) face is to persuade relevant audiences (e.g., users, crowdfunders, professional investors, and innovation managers) to support their novel ideas. This article integrates various literatures concerned with the evaluation of novelty to examine the impact of different framing strategies on the reception of novel ideas by different audiences. By demonstrating that the framing of a novel business idea affects audience members' evaluation, and that the effectiveness of different frames ( why vs. how ) varies with the target audiences (novices vs. experts), we offer actionable insights into how innovators can strategically use linguistic framing to increase the likelihood of eliciting favorable evaluations and resource commitment for their ideas.

Research contends that internal capital should be allocated in proportion to divisional performance, but scholars are often puzzled to find that managers do not adhere to this winner‐picking approach. We argue this is because scholarship has not incorporated corporate‐level factors that influence how corporate managers structure holistic capital allocation strategies. In this study, we build on the behavioral theory of the firm to focus on analyst performance projections for multidivisional corporations and how they inform corporate managers' allocation strategies. Specifically, we theorize corporate managers deviate from the winner‐picking allocation approach owing to search‐related behaviors stemming from projected performance below or above expectations. We further theorize about conditions that offer corporate managers opportunities to deviate from winner‐picking, focusing particularly on multidivisional relatedness and asset durability.

Research Summary Strategy scholars view innovation through the lens of knowledge recombination, whereas organizational economics scholars view innovation through the lens of effective incentive design. This sets up a tension regarding how firms should structure their research and development (R&D) units. Namely, decentralization facilitates the effective use of incentives but comes with the cost of reduced intra‐organizational knowledge flows. In this study, I unpack this tension by examining the novelty of inventions that firms create and develop. I argue that R&D centralization facilitates the creation and development of inventions that are more novel, whereas R&D decentralization facilitates the creation of more inventions of lower average novelty and their progression through development. I find support for these arguments in the pharmaceutical industry between 1995 and 2015. Managerial Summary When does the effective use of incentives or a firm's knowledge have a greater impact on a firm's innovation? This has important managerial implications as it shapes whether firms are better off centralizing or decentralizing their R&D units. Centralization enables firms to make better use of their knowledge and decentralization ensures the better use of incentives. More effective use of incentives associated with greater decentralization of R&D is more critical if firms wish to create and develop more inventions that are of lower average novelty. In contrast, more effective use of a firm's knowledge associated with greater centralization of R&D is more critical if firms want to create and develop a lower quantity of inventions that are of greater average novelty.

Research Summary We investigate the implications of the degree assortativity of intra‐firm networks for firms' innovation performance. We argue that prevalent patterns of collaborative relationships between organizational members can lead to variations in the levels of degree assortativity in intra‐firm networks, ranging from disassortative structures (highly central members connect with peripheral members) to assortative ones (highly central members connect with other highly central members and vice versa). These patterns influence knowledge access and resource mobilization pathways and are thus associated with various firm‐level invention outcomes. Using coarsened exact matching methodology and controlling for other characteristics of the intra‐firm network structures, we find that assortative structures in the pharmaceutical industry are associated with larger invention output, but inventions originating from assortative structures have lower average novelty and impact. Managerial Summary A central challenge in knowledge‐based industries is the design of collaborative teams to increase innovative output. In this article, we show that firms in the pharmaceutical industry vary in the extent to which central inventors within a firm collaborate with peripheral inventors. Further, the ideal composition varies based on the desired innovative output: Firms with frequent collaborations between central inventors have higher inventive productivity, while firms with higher mixing between central and peripheral inventors generate inventions that are on average more novel and have higher impact. Results have implications for organizational design toward desired innovative outcomes, as well as management of strategic human capital.

Research Summary When platform leaders change the rules guiding who can access and control a platform, the strategies of those who create value from the platform can be upended. Little research examines how platform participants adapt their strategies when a platform leader changes the rules governing access and control. We trace how participation with a development platform evolved under four different governance modes with varied access and control conditions. Participation intensity increased as access opened but decreased when platform leadership became unclear. Distributed platform leadership emerged only once the platform was collectively governed. Rather than assume that all firm participation complements a platform, we show how firms guardedly participate with open and collective platforms in ways that can either extend or subvert a platform's vitality. Managerial Summary As firms consider transitioning proprietary products to more open platforms to grow market share and relevance, we suggest that managers consider the concerns of external participants when designing a system to govern a platform. Opening access to a platform alone may be insufficient to stimulate external participants to contribute and make real commitments. Our research shows that open access did not stimulate external participation when platform leadership was not clear. When a structured but collectively determined development and governance process was created, external participants increased their contributions and even took on project leadership roles—distributing leadership of the platform among many firms.

Research Summary We model how an organization's transparency (toward employees or contractors) affects its ability to sustain relational governance. We show that transparency creates accountability: if the organization reneges on promises made to an agent, the other agents observe its defection and quit. Thus, transparency enables organizations with limited credibility to provide high‐powered incentives. However, transparency also triggers envious social comparisons that reduce profits and may erode its credibility benefit. In that case, the organization may find it optimal to appropriate a smaller share of a larger pie—that is, to elicit high effort from the envious agents by leaving them a rent. Social comparisons therefore create a tension between value creation and profitability, which may call for “sunshine laws” that force the organization to be transparent. Managerial Summary Organizational transparency (in pay and performance reviews) is often advocated but rarely used. Our paper provides a theoretical framework to evaluate the benefits and costs of transparency for organizations. Our model shows that transparent organizations are more accountable to their employees and partners, and hence more credible and trustworthy. At the same time, transparency triggers envious social comparisons among employees, which may reduce organizations' ability to capture value to the advantage of those employees. A managerial implication of our analysis, supported by preliminary evidence presented in the paper, is that organizations that aim to increase their employees' and contractors' trust benefit the most from transparency. A policy implication is that “sunshine laws” that impose transparency may enhance organizations' productivity, output, and value creation.