Knowledge that Transforms

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Research summary: T his paper studies the coordination burden for firms that pursue variety as their main product strategy. We propose that product variety magnifies the tension between scale economies in production and scope economies in distribution, giving rise to complex sourcing relationships. Sourcing complexity worsens performance and poses a dilemma for organization design: A hierarchical structure with intermediate coordinating units such as sourcing hubs reduces sourcing complexity for downstream distribution but creates bottlenecks at the hubs, hurting performance for both the hubs and downstream distribution. We empirically examine operations data for about 300 distribution centers within a major soft drink bottling company in 2010–2011. Results support our hypotheses, illuminating the source of complexity in multi‐product firms and the challenge for organization design in managing complexity . Managerial summary: T his paper uses data for about 300 distribution centers within a major soft drink bottling company to study how a large product variety creates complex sourcing networks. We find that, in addition to poor performance (e.g., increased stockouts), complex sourcing networks can cause challenges for organization design. In particular, the benefits of converting an existing distribution center into a sourcing hub (i.e., reduction in sourcing complexity for downstream distribution) and the costs of doing so (i.e., reduction in performance for both the hubs and downstream distribution) are both real and significant. The design of an efficient sourcing network despite its complexity involves important managerial decisions. Experiences in building and managing such networks can be the basis of a dynamic capability . © 2016 The Authors. Strategic Management Journal published by John Wiley & Sons Ltd.

This paper investigates the relationship between divestitures and firm value in family firms. Using hand‐collected data on a sample of over 30,000 firm‐year observations, we find that family firms are less likely than non‐family firms to undertake divestitures, especially when these companies are managed by family rather than non‐family‐ CEOs . However, we then establish that the divestitures undertaken by family firms, predominantly those run by family‐ CEOs , are associated with higher post‐divestiture performance than their non‐family counterparts. These findings indicate that family firms may fail to fully exploit available economic opportunities, potentially because they pursue multiple objectives beyond the maximization of shareholder value. These results also elucidate how the characteristics of corporate owners and managers can influence the value that firms derive from their corporate strategies .

Research summary: This article focuses on organizational naming as a strategic choice organizations make to overcome liabilities of atypicality. We argue that, in markets presenting an “illegitimacy discount,” atypical organizations may use deliberate names—names that communicate the market categories to which organizations claim membership—to offset the consequences of atypicality. Using data from the global hedge fund industry, we show that atypical hedge funds are more likely than typical funds to have deliberate names. Importantly, the selection of a deliberate name is economically significant. First, funds with deliberate names grow faster than funds without deliberate names, especially among atypical funds. Second, while atypicality heightened the likelihood of failure during the recent financial crisis—even after controlling for fund performance—having a deliberate name mitigated this effect . Managerial summary: Differentiation is a core element of many organizations' competitive advantage. Nevertheless, as differentiation implies being atypical among one's competitors, differentiation strategies can also lead to an “illegitimacy discount” whereby differentiators are at risk of being misunderstood, miscategorized, and ignored by consumers. Here we investigate how atypical hedge funds—funds that differentiate themselves from their competitors by investing in notably unique ways—use names to offset the potential consequences associated with the “illegitimacy discount.” Our analysis of more than 12,000 hedge funds over 12 years highlighted a trend whereby atypical hedge funds were more likely to choose names that unambiguously associated them with a known investment strategy—for instance, choosing the name “Apex Global Macro Capital” over simply “Apex Capital.” Importantly, name selection proved to be economically significant. For example, among atypical hedge funds, those with unambiguous names grew faster than those without. Furthermore, while being atypical increased the level of disinvestment during the recent financial crisis, having an unambiguous name reversed this effect. Organizational names play an important communication role with consumers, which, while highly symbolic, may also help resolve the dual organizational need to both conform to consumer expectations and differentiate from market competitors .

Research summary : This paper advances strategic management research by taking a close look at the reasons, procedures, and results of cluster identification methods, focusing on a density‐based algorithm that organically define clusters from actual locations of economic activities. Despite being a popular research topic and analytical tool, geographic clusters are often studied with little consideration given to the underlying economic activities, the unique cluster boundaries, or the appropriate benchmark of economic concentration. Our goal is to increase awareness of the complexities behind cluster identification, and to provide concrete insights and methodologies applicable to various empirical settings. The method we propose is especially useful when researchers work in global settings, where data available at different geographic units complicates comparisons across countries. Managerial summary : Geographic proximity has been recognized as a fundamental factor driving firm performance, especially in knowledge‐intensive industries. However, despite increasing interest in the study of geographic clusters—locations with a high concentration of economic activity—we as researchers have not given sufficient consideration to the underlying economic activity, the unique cluster boundaries, or even the definition of economic concentration. In this paper, we carefully examined the existing methodologies for cluster identification and proposed a method that defines clusters based on the actual location of economic activity. This new method is applicable to various empirical settings beyond geographic clusters. In addition, because clusters are defined by actual economic activity rather than administrative boundaries, it allows for meaningful comparison across countries.

Research summary: We revisit the empirical relationship between multinationality and performance by attempting to replicate the widely cited S‐shape relationship reported in Lu and Beamish (2004). Using a longitudinal and comprehensive database on the population of U.S. MNCs from 1989 to 2007, we find no evidence of an S‐shaped relationship; nor do we see a moderating effect of intangible assets. Although our results do show a marginally significant U‐shaped association between multinationality and performance for a subsample of manufacturing firms, this relationship disappears once we account for the endogeneity of multinationality. Our study contributes to empirical research on the multinationality‐performance relationship, highlighting the need for caution in generalizing results across countries and the importance of controlling for the endogeneity of multinationality when assessing its effect on performance. Managerial summary: Our study examines the relationship between a firm's multinationality and its performance. In a much‐cited study, Lu and Beamish (2004) found evidence of an S‐shaped relationship—with firm performance first decreasing, then increasing, then decreasing again as firms internationalized—in a sample of Japanese firms from 1986 to 1997. We test for the same relationship across all U.S. MNCs from 1989 to 2007, and find no evidence of an S‐shaped pattern, or indeed, of any effect of multinationality at an aggregate level. Our study thus suggests that the effect of multinationality may vary with firm capabilities and home country environments, and that managers and academics alike should focus on understanding these specifics, rather than searching for a universal effect of multinationality on performance .

What are the dynamics of R&D investment when firms agglomerate in environments with weak intellectual property rights protection? Specifically, do foreign and domestic firms present equal opportunities for free riding by domestic firms in such environments? We examine the impact on local firms' R&D investment from knowledge spillovers originating from co‐located foreign and domestic firms within and across industries. Building on fieldwork in I ndia, we predict free riding by local firms on nearby foreign and local firms. Furthermore, we expect local firms to free ride more from other local firms within their industry and from foreign firms across industries. Analyzing a sample of 3,475 R&D lab investment decisions during 2003–2010 in I ndia, we find that local firms free ride from other local firms both within and across industries .