Knowledge that Transforms

This paper reviews the progress of the strategy field towards developing a truly dynamic theory of strategy. It separates the theory of strategy into the causes of superior performance at a given period in time (termed the cross-sectional problem) and the dynamic process by which competitive positions are created (termed the longitudinal problem). The cross-sectional problem is logically prior to a consideration of dynamics, and better understood. The paper then reviews three promising streams of research that address the longitudinal problem. These still fall short of exposing the true origins of competitive success. One important category of these origins, the local environment in which a firm is based, is described. Many questions remain unanswered, however, and the paper concludes with challenges for future research.

This paper examines the popular myth that managers in high‐technology industries are altering their critical R&D investments in response to the short‐term profit pressures of large institutional stockholders. The study entails an empirical examination of the relationship between R&D spending and institutional ownership over a 10‐year period for 129 firms based in four research‐intensive industries. Contrary to the view that institutional investors are having a damaging affect on R&D spending, after controlling for intervening effects the results suggest that higher levels of institutional ownership may be associated with greater R&D expenditures. A number of possible explanations for this finding are developed.

Entry order analysis often shows that early entrants to an industry or technical subfield of an industry outperform laggards. Some studies, though, have found that late entrants prevail. This paper tests dual‐clock hypotheses of entry order effects on performance, measured both as market share and survival. One entry clock records the entry of all entrants to a new technical subfield within an industry, while a second clock records the entry of industry incumbents. Relative to the appropriate clock, early entrants are predicted to outperform laggards, but when entry is measured on only one clock, the estimated influences may be inaccurate. Error will be particularly likely if a study contains a survivor bias. The study, which finds entry timing trade‐offs between market share and survival, is generalizable to cases in which a plausible set of conditions is found.

This paper reports an ethnographic study of the initiation of a strategic change effort in a large, public university. It develops a new framework for understanding the distinctive character of the beginning stages of strategic change by tracking the first year of the change through four phases (labeled as envisioning, signaling, re‐visioning, and energizing). This interpretive approach suggests that the CEO's primary role in instigating the strategic change process might best be understood in terms of the emergent concepts of ‘sensemaking’ and ‘sensegiving’. Relationships between these central concepts and other important theoretical domains are then drawn and implications for understanding strategic change initiation are discussed.

This study partitions the total variance in rate of return among FTC Line of Business reporting units into industry factors (whatever their nature), time factors, factors associated with the corporate parent, and business‐specific factors. Whereas Schmalensee (1985) reported that industry factors were the strongest, corporate and market share effects being extremely weak, this study distinguishes between stable and fluctuating effects and reaches markedly different conclusions. The data reveal negligible corporate effects, small stable industry effects, and very large stable business‐unit effects. These results imply that the most important sources of economic rents are business‐specific; industry membership is a much less important source and corporate parentage is quite unimportant.

Based on 173 acquisitions in the U.S. manufacturing industry, this study examines the impact of organizational differences between acquiring and acquired firms on post‐acquisition performance. The findings indicate that differences in top management styles have a negative impact on performance in acquisitions characterized by both high and low levels of post‐acquisition integration. However, no such relationship was observed between differences in the reward and evaluation systems and post‐acquisition performance in either the high or low integration subgroups. Implications of the findings, along with directions for future research, have been discussed in the concluding section of this paper.

Porter's Competitive Advantage of Nations is an important book which bridges the gap between strategic management and international economics while contributing substantially to both. Porter's analysis of the impact of national environment on international competitive performance demonstrates the potential for the theory of competitive strategy to rescue international economics from its slide into refined irrelevance, while simultaneously broadening the scope of the theory of competitive strategy to encompass both the international dimension and the dynamic context of competition. Nevertheless, the breadth and relevance of Porter's analysis have been achieved at the expense of precision and determinancy. Concepts are often ill defined, theoretical relationships poorly specified, and empirical data chosen selectively and interpreted subjectively.

Global competition highlights asymmetries in the skill endowments of firms. Collaboration may provide an opportunity for one partner to internalize the skills of the other, and thus improve its position both within and without the alliance. Detailed analysis of nine international alliances yielded a fine-grained understanding of the determinants of interpartner learning. The study suggests that not all partners are equally adept at learning; that asymmetries in learning alter the relative bargaining power of partners; that stability and longevity may be inappropriate metrics of partnership success; that partners may have competitive, as well as collaborative aims, vis-à-vis each other; and that process may be more important than structure in determining learning outcomes.