Knowledge that Transforms

Research Summary : While extant research recognizes the importance of collective action for market formation, it provides little understanding about when and to what extent collective action is important. In this article, we develop a novel theoretical framework detailing what collective action problems and solutions arise in market formation and under what conditions. Our framework centers on the development of market infrastructure with three key factors that influence the nature and extent of collective action problems: perceived returns to contributions, excludability, and contribution substitutability. We apply our framework to diverse market formation contexts and derive a set of attendant propositions. Finally, we show how collective action problems and solutions evolve during market formation efforts and discuss how our framework contributes to strategic management, entrepreneurship, and organization literatures. Managerial Summary : This article lays out the key considerations that players operating in new markets should contemplate when making nontrivial investments in those spaces. As collective action problems can thwart efforts to establish new markets, we ask: When and under what conditions should market players collaborate rather than act independently? And if players collaborate, how should they coordinate to establish a new market? To address these research questions, we develop a novel generalizable framework of collective action in market formation. Our framework assesses the presence and type of collective action problems that hinder market formation and identifies potential solutions tied to those collective action problems.

Research Summary: This study contributes to the literature on strategic alliances by examining the impact of collaboration on competition between partners in product markets. We integrate the alliance learning and social network perspectives to examine how different combinations of exploratory and exploitative alliances between a firm and its partner influence the firm’s competition against its partner in product markets. Using a longitudinal dataset collected in the U.S. pharmaceutical industry (1984–2003), we find an inverted U‐shaped relationship between relative exploration (i.e., the proportion of exploratory alliances in the collaborative portfolio between a firm and its partner) and the firm’s competition against its partner. This relationship is negatively moderated by firms’ relational and structural embeddedness, but positively moderated by their positional embeddedness. Managerial Summary: This study examines how different combinations of exploratory and exploitative alliances between two firms affect their competition in the product market. Using a 20‐year dataset collected in the U.S. pharmaceutical industry, we find that the proportion of exploratory alliances (i.e., joint development of critical innovations) in the alliance portfolio between a firm and its partner increases the firm’s competition against its partner, up to a tipping point at which such competition starts to decline. Given a certain combination of the two types of alliances, such competition is stronger if the firm has more alternative allies than its partner but weaker if the firm and its partner have previously collaborated or share common allies in their networks.

Research summary: Managers can disclose information to security analysts as a form of impression management, but doing so is problematic because competitors can use that same information at the expense of the firm. We identify an impression management technique we call foreshadowing, which refers to hinting about future potential strategic activity. Foreshadowing provides information of value to analysts that can influence their evaluations of a firm, but not so much information as to put the firm at a competitive disadvantage. We hypothesize and find that managers who foreshadow acquisition announcements receive fewer analyst downgrades following the announcements, especially when there is more analyst uncertainty about the firm. We also hypothesize and find that analysts' responses to foreshadowing positively influence the likelihood that managers eventually acquire other firms . Managerial summary: Security analysts are often suspicious when firms announce acquisitions as those announcements are cumbersome to analyze on short notice and raise questions about managerial motivations that might not represent the best interests of the firm. We find that managers can improve analyst reactions to acquisition announcements by disclosing some information of value to analysts—specifically by hinting that an acquisition could occur in the future. We refer to such hints as foreshadowing. Foreshadowing entails giving analysts information to reduce their suspicions and facilitate their analyses, but not so much information as to degrade the firm's competitive information advantage over other firms. Foreshadowing also allows managers the option to reconsider actually executing the acquisition if analysts respond negatively to its possibility .

Research summary: I examine how acquisition motives relate to the distribution of post‐acquisition performance. I argue that acquisitions motivated by operating synergies have the potential to experience greater gains than acquisitions driven by financial synergies but are harder to value and implement, making them more uncertain. Using SEC filings, conference calls and press releases to capture acquisition motives, I find that acquirers pursuing operating synergies are more likely to experience highly positive and highly negative long‐term returns than acquirers pursuing financial synergies. I also find that acquisition experience and geographic proximity to targets soften acquirers' extreme downside outcomes in operating synergy acquisitions. My theory and results suggest that approaches that emphasize average outcomes for acquirers and use industry classifications to capture acquisition motives may be incomplete . Managerial summary: Managers engage in acquisitions for various reasons. In this study, I find that reasons related to operating synergies (e.g., revenue growth through new product offerings or cost savings through economies of scale) are more likely to result in extreme high and low performance outcomes for the acquiring firm compared to reasons related to financial synergies (e.g., diversification of cash flow streams). In addition, I find that the acquirer's prior acquisition experience and the geographic proximity between the target and acquirer help soften the extreme low performance outcomes related to operating synergies .

Research Summary : What drives middle managers to search for new strategic initiatives and champion them to top management? This behavior—labeled divergent strategic behavior—spawns emergent strategies and thereby provides one of the essential ingredients of strategic renewal. We conceptualize divergent strategic behavior as a response to performance feedback. Data from 123 senior middle managers overseeing 21 multi‐country organizations (MCOs) of a Fortune 500 firm point to social performance comparisons rather than historical comparisons in driving divergent strategic behavior. Moreover, managers’ organizational identification affects whether they attend to organizational‐ or individual‐level feedback. These results contribute to research on performance aspirations and strategy process by providing a multilevel, multidimensional framework of performance aspirations in middle management driven strategic renewal. Managerial Summary : Middle managers are essential actors in strategic renewal. Their unique positions offer insights into operations alongside knowledge of strategy. In contrast to typical assessments of managerial performance with reference to a prior year, this research shows that performance comparisons relative to peers and other organizational units better motivate managers’ divergent strategic behavior. Our results also show that managers who identify with the firm are more attentive to organizational rather than individual performance discrepancies. Thus, our study unveils an important approach for organizations aiming to spark strategic renewal.

Research Summary : A common challenge among qualitative Strategy Process and Strategy‐as‐Practice scholars concerns the need to link micro‐level processes and practices to organizational‐level outcomes in order to make their research more managerially relevant. In this methodological article, we explore and evaluate different ways of addressing this challenge. We draw on a corpus of qualitative process and practice studies to develop and illustrate three micro–macro linking strategies associated with these perspectives: correlation, progression, and instantiation. The strengths and weaknesses of the different linking strategies are discussed, and opportunities for complementarity, combination, and development are proposed. The article reveals the distinctive but complementary contributions of Strategy Process and Strategy‐as‐Practice strands of scholarship to understanding how microprocesses affect macro‐outcomes. Managerial Summary : Managers engage in a variety of strategic management processes and practices in order to develop and implement better strategies, achieve commitment to them from organization members, and ultimately improve organizational outcomes such as financial performance and competitive advantage. Qualitative research on these processes and practices is valuable because it can capture the detail and richness of strategic management as it is practiced in real organizations over time. Yet, it may not always be easy to see how this kind of research can derive useful knowledge about how these processes and practices actually affect outcomes. This article addresses this issue, identifying three methodological approaches (correlation; progression; instantiation) that can help scholars and managers understand these linkages, outlining their strengths and limitations.

Research Summary : Building on the communications and linguistics literatures, we explore the language attributes managers use in interactions with investors and the subsequent reactions of investors. Specifically, we hypothesize that top managers’ use of concrete language attributes in communication with investors broadly associates with positive investor reactions. We further posit that this relationship will be moderated by the level of firm risk. Our results support our hypotheses and, thus, offer important insights to the impression management literature. First, subtle elements of managerial communication can have significant impression management consequences. More specifically, language concreteness is a key language attribute that generally induces positive investor responses. Finally, the effectiveness of language concreteness is conditional on the informational environment of the firm. Managerial Summary : How can managers communicate in a way that presents the firm more positively or reduces the negativity associated with perceived firm risks? Our findings indicate that choosing appropriate persuasive language features in interactions with investors can help a firm manage its impressions. Specifically, we find that top managers’ use of concrete language that provides details and specific information in communication with investors, in general, garners positive investor reactions. Further, the effectiveness of top managers’ use of concrete language depends on investor concerns. More specifically, we find that when a firm is seen as having a riskier profile, using concrete language helps induce a more positive investor response; while when a firm is seen as low risk, using abstract language may be more beneficial.

Research Summary : When faced with complex strategic problems that exceed their individual sensemaking capacities, organizations often engage in inter‐organizational collaboration. This enables them to pool the participants’ different perspectives and to grasp the problem at hand more comprehensively. Drawing on data collected from two longitudinal case studies, we examine how those who participate in inter‐organizational sensemaking processes are selected and how the particular selection of participants affects the dynamics of the sensemaking process in turn. In our analysis, we show how the selection of specific problem issues influences who joins or withdraws from the collaboration and we identify a mechanism that accounts for changes in the particular dynamics of the sensemaking process over time. Our findings help explain how the process of inter‐organizational sensemaking can yield different outcomes. Managerial Summary : The ability to make sense of the business environment is central to strategic management. As the complexity of the environment increases and interpreting it becomes more difficult, organizations increasingly turn to inter‐organizational collaboration, which allows them to pool their expertise in order to explore strategic issues. We examine how the participants in projects of joint exploration are selected and how the selection of participants affects the process of exploration in turn. More specifically, we describe how the aspects on which collaborating organizations choose to focus influence who joins and who withdraws from a collaboration. We also identify a mechanism that accounts for differences and changes in the dynamics of the sensemaking process over time. These changes affect how the collaborators come to understand their organization's business environment.

Research Summary We develop a formal model of CSR, with both a for‐profit and a non‐profit organization providing social goods to needy recipients and competing for resources from consumers. We show that CSR results in financial benefit if it is either related to the firm's core business, or non‐overlapping with non‐profit efforts, but only leads to social benefit if both conditions apply, with these relationships being moderated by the firm's core business capabilities. Our article thus makes a case for CSR based on the comparative efficiency of for‐profits in providing social goods relative to non‐profits, while also highlighting the potential divergence between the financial and social impact of CSR. In addition, it offers new insights into the heterogeneity of CSR, and the role of non‐profits and hybrids. Managerial Summary Firms that undertake socially responsible actions are often rewarded for these actions by supporters of social causes, enabling the firms to make additional profits from CSR. Whether CSR is socially beneficial, however, depends on how the firm compares to a non‐profit serving the same cause. CSR activities that are non‐overlapping with existing non‐profit efforts, and that are closely related to the firm's core business, are likely to most strongly benefit society, especially when undertaken by high‐performing firms. Where this is not the case, CSR adds little social value and may even be harmful. Managers seeking to maximize both firm profits and social welfare through CSR should thus ask themselves: What is my firm's unique advantage in serving this cause relative to alternative providers, for example, non‐profits?

Research summary : We study how two dimensions of reputation (i.e., generalized favorability and being known) and attribution of crisis responsibility affect firm value at the onset of a crisis. Analyzing 126 corporate crises befalling publicly listed firms in China from 2008 to 2014, we find that generalized favorability serves as a buffer, while being known can be a burden, in influencing firm value. We also find that the buffering effect of generalized favorability is stronger when the attribution of crisis responsibility is low (vs. high). In addition, there is a negative interaction effect between the two dimensions of reputation such that the buffering effect of generalized favorability weakens when firms are better known. We discuss our contributions to research on corporate reputation and crisis management . Managerial summary : Corporate reputation is an intangible asset, especially at the onset of a corporate crisis. This research sheds light on the “double‐edged sword” of corporate reputation by examining the effects of two reputation dimensions (i.e., being liked and being known) on firm value. Our results suggest that well‐liked firms can leverage their generalized favorability among stakeholders to assuage firm value loss, whereas well‐known firms may have to better communicate with stakeholders to overcome the burden of stakeholders' attention that escalates firm value loss. To better cope with the onset of a crisis, firms should therefore enhance their generalized favorability and simultaneously avert stakeholders' excessive attention. In addition, well‐liked firms can further buffer against the loss in firm value by reducing the perceived intentionality of a crisis .