Knowledge that Transforms

Research summary Platform ecosystems have spurred new products and services, sparked innovation, and improved economic efficiency in various industries and technology sectors. A distinctive feature of the platform architecture is its modular and interdependent system of core and complementary components bound together by design rules and an overarching value proposition. Accordingly, we conceptualize platforms as meta‐organizations, or “organizations of organizations” that are less formal and less hierarchical structures than firms, and yet more closely coupled than traditional markets. To function successfully, however, platforms require coordination among multiple participants not all of whose interests are aligned. These organizational features of platforms raise many interesting and complex strategic challenges and hold implications for how platforms compete. In this paper, we discuss some of the most salient features of platform ecosystems as meta‐organizations, specifically in terms of the sources of authority or power in the ecosystem, the motivation and incentives a platform creates to attract participants, and its governance and coordination structures. We then consider how papers appearing in this special issue inform us about the effects of these features on platform competition along three distinct dimensions: (a) with traditional incumbents as platforms enter and establish themselves in new markets, (b) with other platforms to secure an advantageous market position, and (c) with the different participants on the platform to share the value that has been created jointly. We close by identifying some promising directions for future research. Managerial summary Platform ecosystems have spurred new products and services, sparked innovation, and improved economic efficiency in various industries and technology sectors. A distinctive feature of the platform architecture is its modular and interdependent system of core and complementary components bound together by design rules and an overarching value proposition. This makes platform ecosystems an organizational form on its own (a “meta‐organization”), neither possessing the hierarchical instruments of a firm, nor the largely uncoordinated decisionmaking of markets. Successful platform ecosystems require coordination among multiple participants with possibly conflicting interests. We discuss some of the most salient features of platform ecosystems as meta‐organizations, specifically in terms of the sources of authority or power in the ecosystem, the motivation and incentives a platform creates to attract participants, and its governance and coordination structures. These features affect how platform ecosystems compete: i) with a traditional incumbent, ii) with other platform ecosystems, and iii) between different participants of the same platform ecosystem. The articles published in this special issue speak to different aspects of platform competition from the perspective of organization design.

Research Summary Buyer–supplier collaborations are plagued by multiple frictions—haggling, non‐contractible adaptation, and resource appropriation. This article examines how contracts govern relationship‐specific investment in the face of these frictions. In our model, investment increases the value the supplier creates for the buyer ex post by adapting a component to her needs. At the same time, specific investment exposes the supplier to haggling, while providing him with knowledge needed to appropriate the buyer's preexisting resources. By muting both haggling and adaptation incentives, “closed price” contracts elicit higher investment than “open price” contracts when adaptation is unimportant, and lower investment otherwise. Moreover, an optimal price format seeks to incentivize investment when resource appropriation is unimportant, and to disincentivize investment otherwise. Our evidence on component procurement contracts supports both predictions. Managerial Summary This study offers new insights on how OEMs govern their collaborations with suppliers. We examine settings where the supplier invests in producing a dedicated component, and ask under which contractual form she is more/less motivated to invest. We find that “closed price” contracts decrease supplier's investment when the component has a complex interface with the OEM's product, and hence is more subject to post‐contractual adaptation. We also find that OEMs choose the contract that discourages investment when they possess unique resources that too‐closely‐involved suppliers may copy or appropriate. Managers at OEMs that possess proprietary technologies and customer bases are exposed to the appropriation downside of suppliers' dedicated investment, and will thus benefit from learning through our study how other professionals address this issue.

Research Summary The optimal distinctiveness literature highlights a fundamental trade‐off in product positioning within market categories: Products should be distinct to minimize competition, but similar to build legitimacy. Most recently, this research has focused on understanding sources of variance in the distinctiveness–performance relationship. We extend this literature with an examination of digital products and argue that the relationship depends on products' revenue models: We theorize the relationship is inverted U‐shaped for paid products but U‐shaped for free products, owing to heightened privacy concerns of free product customers. We further argue that this latter relationship becomes flatter for free products that provide greater monetization transparency by publishing a privacy statement or adopting a freemium revenue approach. Hypotheses are tested using a sample of 250,000‐plus Apple App Store apps. Managerial Summary How should firms in the digital space position their products for optimal performance? We study this question in the Apple App Store, and suggest that the optimal positioning of digital products depends on their revenue model. Paid products should be moderately differentiated from competing products. By contrast, free products benefit most from very low or very high levels of differentiation. We attribute the different performance effects of differentiation to customers' privacy concerns over free products. Firms can partially ameliorate those privacy concerns by providing greater monetization transparency by publishing a privacy statement or by adopting a freemium revenue approach, making moderate levels of differentiation more viable. Our findings help managers align choices of positioning and revenue model, two critical aspects of the firm's business model.

Research Summary How does the dyadic collaborative structure between the hiring firm and the losing firm influence knowledge spillovers following an employee's move? We demonstrate that knowledge spill‐ins (to the hiring firm) and spill‐backs (to the losing firm) are the greatest when a firm with a strong collaborative density hires an employee from another firm that too has a strong collaborative density. Furthermore, such a dyadic combination results in the greatest degree of access to the broader knowledge of the other firm. By considering the role of relative collaborative structures in post‐mobility knowledge‐building activities, we inform the extant literature on the importance of this factor. In doing so, we invite scholars to take a more holistic view of the risks and benefits associated with “learning by hiring.” Managerial Summary Firms interested in acquiring the knowledge of other firms through employee recruitment face a dilemma. To best integrate the knowledge brought in by new employees, firms must encourage extensive collaboration between existing employees and new hires. However, such a dense collaboration exposes firms to potential knowledge spill out through these new hires, which may undermine their competitive edge. Firms that lose employees face the reverse dilemma. Accordingly, managers and practitioners should realize that not all recruitments may result in net knowledge gains. Our findings strongly suggest that where a firm hires from also matters, not just who it hires, thereby offering a practical insight for organizations in properly assessing the utility of hiring an employee, particularly in consideration of their relative collaborative structures.

Research Summary Why do inventors facing similar feedback from the technological environment differ in their propensity to search locally or distantly? Problem‐driven decision calculus tends not to sufficiently explain such heterogeneity. We instead examine the individual inventor's calculus surrounding career concern. We propose that with reduced technological opportunities in her local domains, the ensuing career concern induces her to search distantly. This response is attenuated when career concern is less salient—she is relatively productive within the firm or is a star—or when opportunity cost of response is higher—she has more firm‐specific experience or interdependent knowledge. Data from the US electronic industry support our propositions. Findings help explain differential search in response to common problems and illustrate how personal interest intermingles with problem‐driven feedback driving search. Managerial Summary A firm relies heavily on its inventors' search for new, distant technologies to stay on technological frontiers. Faced with technological decline, which of its inventors will engage in this distant search? We bring inventors' career concern into consideration and use data from the US electronic industry to show that, counterintuitively, it is the relatively less‐productive, nonstar inventors with less firm‐specific inventive experience or less interdependence with the rest of the firm's technologies that will more likely engage in distant search. This stresses that managers, in trying to comprehend their inventors' behavior and mindsets, must go beyond understanding how inventors interpret technological problems they are trying to solve, to also consider these inventors' personal concerns which will affect the way they search.

Research Summary Thousands of acquisitions of technology companies result in the de facto hiring of myriad individuals into new employers every year. We analyze the effects of such deals on acquired employee (AE) retention relative to a matched sample of directly hired employees (HEs) joining the same acquirers in the same year. In a dataset with all acquisitions of VC‐backed companies in the previous two decades paired to over 30 million resumes, we find that acquired employees (AEs) turnover at a much higher rate than matched, HEs. Importantly, this difference in turnover rates is larger for AEs in higher job ranks and with advanced degrees. Likewise, we show that the postacquisition departure rate is highest for AEs in critical executive, technical, business development, and sales roles. Managerial Summary Acquisitions of venture‐backed tech‐companies occur for many strategic reasons, including the acquisition of key managerial and technical human talent. The retention of acquired talent is thus an important consideration for the value of the acquisition. Through a dataset of over 30 million resumes, we examine the turnover rates of employees acquired through technology acquisitions in the previous two decades, comparing these AEs to their similar, organically hired counterparts. In this comparison, we find that AEs are more likely to turnover in general. Importantly, the higher turnover rate of AEs increases with seniority and education attainment and is the highest in critical executive, technical, business development, and sales roles.

Research Summary Freemium products require widespread diffusion for their success. One way to do this is by incorporating social features (e.g., multiplayer functionality, virtual collaboration, ridesharing), which can generate network effects and result in a product becoming a superstar . However, social features can be a double‐edged sword: When demand potential for freemium products is large, social features can significantly boost a product's appeal resulting in more adoption, more usage, and more in‐app purchases; but when demand potential is constrained, network effects might fall short and users may feel they are missing out on key aspects of the product. We test this dynamic on a sample of 9,700 digital games on Steam. Findings contribute to our understanding of network effects, freemium strategies, and superstar products in platform markets. Managerial Summary Freemium has become a popular business model among firms competing on digital platforms. Freemium products require widespread diffusion because most consumers do not pay for premium upgrades. One way to stimulate a product's diffusion is by incorporating social features (e.g., multiplayer functionality, virtual collaboration, ridesharing). Social features can boost a product's appeal resulting in more adoption, more usage, and more in‐app purchases. Our analysis of 9,700 digital PC games on Steam reveals that the efficacy of incorporating social features importantly depends on the number of users on the platform itself. Social features can help freemium products become a superstar when the platform's installed base is large, but they hinder a freemium product's success when the platform's installed base is small.

Research summary This article exploits a natural experiment involving self‐regulation in the ready‐to‐eat (RTE) breakfast cereal industry to evaluate the performance impact of product repositioning. It then examines how a product's brand equity value declines with repositioning distance and explores various nonprice responses of firms to increased own and rival competition. Self‐regulation led to a crowding of the product space by forcing differentiated products to become more similar. We find that products constrained by regulation performed relatively worse than unconstrained products. Furthermore, brand equity specific to a product was tightly linked to existing product positions. Increased competition also led to increased brand equity investments and some products with strong brand equity repositioned more aggressively than those with weak brand equity. Managerial summary This article illustrates how firms respond to newly‐imposed regulatory constraints and how product brand equity is tightly linked to underlying product positions. The analysis is an empirical examination of a self‐regulatory initiative that placed advertising restrictions on high sugar RTE breakfast cereal products targeted toward children. We explore the impact of the regulation on performance and then use the setting to examine the connection between brand equity and changes in product positions. Finally, we examine firm responses to rival entry that include exiting, repositioning, and increasing investments in differentiation.

Research Summary What affects organizational units' propensity to learn from each other? Extending the insights of upper echelons theory to the business unit level, we examine the relationship between executive narcissism and inter‐unit knowledge transfer. We predict that the narcissism of executives heading business units is negatively related to a unit's receptivity to knowledge emanating from other units. We further theorize that the effect of narcissism is reduced when there is high environmental complexity or dynamism as these challenging situations provide narcissists an excuse for external learning. Conversely, the effect is amplified when high perceived inter‐unit competition enhances narcissists' distinctiveness‐seeking tendencies. Using a two‐wave, multisource survey design and collecting primary data from 118 business units of a headhunting company in China, we find strong support for hypotheses. Managerial Summary Knowledge transfer among business units inside a multi‐unit firm is beneficial to firm performance but is never easy. Our research suggests that narcissistic executives are likely to impede inter‐unit knowledge transfer, because their sense of superiority may lead them to overestimate the value of internal knowledge and underestimate the value of external knowledge. This tendency is dampened in complex and dynamic environment which give narcissists an excuse for external learning. Conversely, this tendency is amplified by high inter‐unit competition which motivates narcissists to seek distinctiveness with other units. Thus, when seeking to promote inter‐unit knowledge transfer, firms should be aware of the crucial impact of executive narcissism, and more importantly be careful when undertaking relative performance evaluations or other similar practices which strengthen inter‐unit competition.

Research Summary An extensive body of research examines concentration levels (i.e., “mass”) of industry clusters; however, little attention is paid to their dynamics (i.e., “motion”). Understanding cluster dynamics is important because how clusters change over time may have implications for firm strategies and outcomes that are not attributable to cluster mass alone. To advance scholarship, we derive a theoretically grounded measure of cluster motion. Applying this measure to data on establishments in the U.S. computer and semiconductor industries, we document the dynamic nature of clusters both within and across regions. We demonstrate that our measure of cluster motion is distinct from cluster mass. Furthermore, we document that regions rarely follow stylized descriptions of cluster life cycles, which underscores the importance of measuring and investigating cluster dynamics. Managerial Summary Industry clusters have been considered important for firm strategy due to their influence over organizational processes and outcomes. Therefore, many firms attend closely to how clusters change over time. However, strategy researchers have devoted relatively little attention to cluster dynamics and their implications for firms. In this study, we develop a framework for understanding cluster dynamics, including an empirical technique. We suggest that improved understanding of cluster dynamics may be useful for helping firms make better location decisions and react more appropriately to changes in clusters within which they have an established presence.