Knowledge that Transforms

Research Summary We examine the effect of face‐to‐face interactions between acquirers and targets before the acquisition announcements on acquisition returns. We argue that frequent interactions increase the target management's trust in the acquirer and benefit the acquirer by mitigating competition in the bidding process. For a sample of U.S. domestic acquisitions, we use smartphone geolocational data to measure the movement of people between merging companies in the months before the announcement. We find that with more frequent interactions, acquirers earn higher stock market returns at the announcement and targets receive fewer later bids from other bidders. Moreover, more frequent interactions are associated with lower returns to public targets vis‐à‐vis their acquirers. The effect of interactions is weaker when shareholder‐manager agency problems in the target are less severe. Managerial Summary Previous research shows that while acquisitions can create synergistic gains, the presence of potentially competing bidders forces acquirers to pay a high price for their targets, which makes acquisitions generally unprofitable for acquirers. We provide evidence suggesting that frequent social interactions between the acquirer's and the target's management in the pre‐acquisition phase increase the target management's trust in the acquirer, making it more willing to cede control to the acquirer and less eager to seek alternative bidders. By mitigating competition in the bidding process, social interactions make acquisitions more profitable for acquirers vis‐à‐vis targets. Social interactions are less effective when the target's management owns a larger share of the target or is better monitored by shareholders (e.g., in companies with concentrated ownership or private companies).

Research Summary The purpose of this introduction to the SMS collection is to take stock of advances in language‐based analyses of strategic processes and practices with an eye on the theoretical and methodological insights and opportunities. After a review of the articles included, we develop a framework that identifies four perspectives ranging from the more micro to the macro: (a) microlevel conceptual basis of strategy discourse, (b) use of language in strategy work processes in their socio‐material and multimodal contexts, (c) use of language and especially narratives in long‐term processes of strategic change, and (d) the rhetorical and discursive reconstruction of organizational strategies in their historical contexts. We then move on to offer a set of research opportunities and questions to form an agenda for future research. Managerial Summary This article takes stock of recent research on the role of language and communication in strategic decision‐making and strategy work. The key argument is that we should not treat language merely as a window into other aspects of strategic phenomena but as a central means through which strategies are shaped and made sense of. The paper underscores that language use is a crucial part of strategy work and strategic change—to be taken seriously in its own right in research as well as practice. Another key point is that we need to develop better understanding of the new communication technologies and media that play a key role in contemporary organizations. The new theoretical ideas and methods may also inspire practitioners to develop their communication practices.

Research summary We investigate entrepreneurial network activation—the processes by which entrepreneurs select specific contacts from their existing personal network and persuade the selected contacts to provide referrals to access targeted early‐stage investors (venture capitalists or angel‐investors). We differentiate between selection of entrepreneur‐centric contacts versus investor‐centric contacts. We also distinguish between persuasion tactics that induce contacts' cooperation through promises of reciprocity versus offers of monetary incentives. We conducted two field‐experiments in India and one in Singapore. Our primary field‐experiment involved 42 Singapore‐based entrepreneurs seeking referrals from 684 network contacts to reach a panel of four investors. Our evidence suggests that selecting investor‐centric contacts leads to greater referral success; in addition, persuasion by promising reciprocity also leads to greater referral success. Managerial summary A vital first‐step for resource‐starved entrepreneurs seeking funding for their scalable business‐idea is to obtain referrals to early‐stage investors, because such investors pay more attention to referrals from trusted contacts. Using field‐experiments, we examine how entrepreneurs' choices in selecting network contacts and persuading them to provide referrals drive their access to investors. Results suggest that compared with the habitual pattern of requesting referrals from contacts proximate to themselves, entrepreneurs are about six times more likely to secure successful referrals when they select investor‐centric contacts for referral requests. Furthermore, actively persuading contacts by promising future reciprocity results in about three times higher likelihood of securing successful referrals. Our findings show how thoughtful activation of existing contacts can enable even modestly connected entrepreneurs to gain investor access.

Research Summary Organizations rely on subjective evaluations to reward employees for team‐based performance. However, it is unclear how supervisors determine individuals' contributions to collective output. We theorize that supervisors rely on the covariance between employees' presence and their teams' productivity. If teams are more productive when an employee is present, the supervisor may infer a greater contribution from the employee. Using data from a manufacturing firm, we find that covariation between an employee's presence and her team's output has a positive effect on her evaluation. This relationship is stronger when supervisors have more opportunities to observe an employee across various teams and when the employee has more authority to direct team production, supporting counterfactual information as an important component of evaluations for individuals engaged in team production. Managerial Summary It is notoriously difficult to evaluate the individual performance of employees when the only available metric is team‐based output. We suggest that supervisors help solve this problem by observing how team output correlates with changes in team membership. We construct a measure of the covariance between an employee's presence in a team and the team's productivity, and find a positive relationship between this measure and the employee's annual subjective performance evaluation. Our results indicate that subjective evaluations reflect individual contributions to team production fairly well for employees who (a) have sufficient authority to direct team production and (b) are frequently rotated beyond a single team. We discuss what kinds of organizations might benefit from this measure as an input to their performance evaluation processes.

Research Summary We examine how organizations govern interfirm transactions that involve innovative tasks. Designing contracts that foster innovation is challenging and becomes more complex when exchange hazards are present. We draw on regulatory focus theory to examine the effects of promotion and prevention effects in contract framing contracts to address how firms should design their contracts to balance the need for promoting innovation and protecting against opportunistic behavior. Using a sample of contracts from the information technology services industry, we find that in the presence of exchange hazards, task innovation involves hybrid payment systems, less use of detailed description of requirements, and more use of extensive contingency planning. Managerial Summary Managers must understand how contract design can aid in the success of interfirm innovation endeavors as radical innovation is frequently developed in an interfirm context. Our findings suggest that contract negotiators should pay special attention to several contractual elements when designing contracts for tasks that require more radical innovation. In particular, the payment structure, specifications of outcomes and processes, and contingency planning clauses influence the innovative output of suppliers. Employees who understand the task should participate in contract negotiation and design, allowing them to outsource more innovative tasks and manage them more effectively.

Research summary Our article examines the deliberate creation of learning opportunities in the global rollout of innovations. Some firms launch in only a subset of markets at first, with later launches being conditional on debut‐market performance. Such sequencing decreases the downside of potential innovation failure but increases the downside of potential competitive preemption. Consistent with this trade‐off, handset makers during the feature‐phone era sequence rollout more often when innovations are novel. Also consistent is that sequencing seems to respond to firms' past experience with failure and preemption, and that it begins in markets offering strong signals of success and failure—markets with competing innovations and sophisticated consumers, respectively. Our findings contribute to the understanding of entry strategy and opens avenues for researching intentional organizational experimentation. Managerial summary Firms can decide whether to launch innovations little by little or everywhere at once. Trial launches allow firms to test commercial viability and react to outcomes before rolling out elsewhere, but risks that competitors get their first. An immediate global launch, by contrast, reduces the scope for competitive preemption but increases the costs of potential failure. Our article uses data from the handset industry to highlight conditions that shape rollout decisions and examine the debut markets sought out for trial launches. Firms tend to trial novel innovations in particular, and their experience with prior misses as well as flops influences their preference. Trial launches often begin in markets with strong competition and discerning consumers, indicating an initial prioritization of learning over monetization. Opportunities for experimentation during market rollout thus ought to feature in strategic considerations of entry timing.

Research Summary This study builds on insights from the upper echelons tradition in strategy to examine the effects of chief executive officer (CEO) Machiavellianism on relevant firm costs. While Machiavellianism has been usually construed as a purely negative trait, we argue that the pragmatic focus on the outcomes of exchanges and psychological obsession with winning in transactions that Machiavellian CEOs infuse in their organizations can have important effects on firm cost, a fundamental but frequently understudied driver of financial performance in strategic management research. In line with our arguments, we find that CEO Machiavellianism has negative effects on production costs, financing costs, and acquisition premiums. We find support for our ideas with a sample of S&P 500 CEOs, operationalizing CEO Machiavellianism using a videometric approach Managerial Summary In this study, we investigate the effect of CEO Machiavellianism on firms’ costs. We show that firms with more Machiavellian CEOs will have lower costs than other firms in the market. Rather counterintuitively, this study suggests an explanation for why a personal characteristic that is usually seen as problematic for organizations is rather common in their upper ranks. Ultimately, the study demonstrates the value of the bargaining attitude that Machiavellian CEOs bring to their organizations and suggests this value should be weighed against their risks or acknowledged to manage the risks this common personal characteristic implies.

Research Summary Career paths depend not only on individuals' own competitiveness but also on the competitiveness of others in a position to advocate for them. In this article, we study competitiveness when rewards accrue to another individual. In particular, we ask how female and male managers' competitiveness changes when rewards from competition accrue to their female or male protégés, relative to when they accrue to themselves. Using an experimental approach, we find that when rewards accrue to protégés, male and female managers are equally competitive because female managers increase their competitiveness. However, male managers compete more for male rather than female protégés. This gap disappears when male managers know their protégés' risk preferences, suggesting a novel intervention to ensure equity in the sponsorship process. Managerial Summary Sponsorship is key to individuals' career development and firms' human capital strategy. In this experimental study simulating an organizational setting, we investigate one aspect of sponsorship and ask whether managers' and protégés' genders affect managers' willingness to compete on behalf of their protégés. We find that when the rewards from competition accrue to protégés, female managers increase their competitiveness and eliminate the gender competitiveness gap present when rewards accrue to managers themselves. This suggests that, from a competitiveness standpoint, female and male managers are equally strong sponsors. However, male managers compete more for male, relative to female, protégés. This gap disappears when male managers have information about protégés' risks preferences, suggesting a novel approach that organizations can implement to reduce discrimination in sponsorship.

Research Summary The post‐Enron era is marked with growing discourse of stakeholders, sustainability, and corporate social responsibility (CSR). Yet, commentators debate whether U.S. corporations have indeed moved toward a stakeholder orientation, given the difficulties in measuring such a shift. We assess this shift by examining corporate governance practices, especially the prevalence of shareholder‐ and stakeholder‐oriented practices in chief executive officer (CEO) dismissals. Using data on large firms in 1980–2015, we found that, before the 2000s, CEOs were less heavily penalized for poor firm performance when they demonstrated a shareholder orientation by downsizing and refocusing the corporation and more heavily penalized for CSR activity. This trend, however, reversed after the early 2000s. This article provides evidence of the evolution of U.S. firms' governance practices from a shareholder toward stakeholder orientation. Managerial Summary Many people are skeptical of the assertion that U.S. corporations have become more stakeholder‐oriented over time. It is no wonder, as scant evidence exists for this claim. We tackle this claim head on by analyzing firm practices in 1980–2015 that contributed to chief executive officer (CEO) dismissal when the firm was performing poorly. Some practices, such as downsizing and firm refocusing, are associated with a shareholder orientation and others, such as CSR, are associated with a stakeholder orientation. We found strong evidence for a growing trend toward a stakeholder orientation. When the firm was performing poorly before the 2000s, CEOs were more likely to be dismissed for CSR activities and less likely to be dismissed for downsizing or refocusing the firm. This trend reversed in the early 2000s.

Research Summary Digital platforms offer a promising contemporary means for encouraging social innovation through cross‐sector collaboration. Yet although such “social‐mission platforms” are equipped to facilitate a high number of arms‐length transactions, they are conversely ill‐equipped to provide the necessary consensus which typically characterizes successful examples of cross‐sector collaboration. Employing an in‐depth archival case study of a civic crowdfunding platform, we surface a process model of social‐mission platform creation, which exposes the dilemmas such platforms encounter as they attempt to navigate user growth, and the importance of institutional infrastructure for overcoming these dilemmas. These findings and our emergent model thus contribute new theory regarding the creation of digital platforms for enabling cross‐sector collaboration and social innovation, while bridging the emerging body of research on platforms with institutional theory. Managerial Summary Developing a digital platform for social good requires operators to maintain control over their mission as they grow, while working with actors from across sectors. While the economics of the platform may be clear, the social infrastructure to ensure effective and mission‐aligned interaction between different segments of the platform needs to be developed. In our case study of a civic crowdfunding platform, we demonstrate how this platform strategically generates and promotes understandings of its boundaries, creates bridges between diverse stakeholders necessary for participation, and provides blueprints to shape and standardize platform interactions. We also discuss the potential susceptibility of social‐mission platforms to experience mission drift as they grow, the existential threat that such drift poses in this context, and the ways that organizations might overcome this threat.