Knowledge that Transforms

Abstract Research Summary We examine political affiliation's role in venture team formation and success. Using data from Crunchbase and L2 on 1125 US‐based startups, we investigate political homophily in team assembly and its association with startup outcomes. Our analysis reveals strong political homogeneity in founding teams: teams with similar political views form more frequently than diverse teams, even after controlling for founders' gender, age, location, and industry. This political homophily relates to venture performance. Startups with politically heterogeneous founding teams are more likely to shut down. Across additional performance measures (capital funding, employee size, Crunchbase rankings), we observe directionally consistent associations with worse outcomes, though these secondary findings vary in robustness. These findings highlight the dual role of founders' political affiliations: their relationship with team composition and startup performance. Managerial Summary Our study examines political diversity's association with startup team formation and venture success. Analyzing data from 1125 US‐based startups, we discovered a strong tendency for teams to form based on political similarity. Individuals with similar political views prefer starting companies together, even when accounting for age, gender, location, and industry. Startups with politically diverse founding teams are more likely to shut down. These teams also tend to receive less funding, have fewer employees, and exhibit worse Crunchbase rankings, although these patterns are less consistent than the survival effect. For entrepreneurs and investors, these findings highlight the need to balance team cohesion against diverse perspectives. Business practitioners should be aware of these dynamics when forming teams or developing management strategies, particularly in a politically charged environment.

Abstract Research Summary Studies using archival organizational structure data are not as prevalent as one might expect for such a critical strategy topic. We seek to facilitate more studies in this domain by introducing a novel, hand‐collected dataset of top management team compositions of S&P 500 firms between 1993 and 2020. Alongside providing the original role titles, we use generative Artificial Intelligence (AI) to categorize executives' titles into 6 role groups and 12 hierarchical levels, enabling easier comparisons of structures across and within firms. Our findings not only align with prior research but also offer insights into industry‐specific structural changes, functional distributions within organizations, and the evolution of executive roles. This work also highlights the potential of generative AI as a tool to empirically investigate key strategy questions. Managerial Summary One of the most important decisions senior managers make pertains to defining their firms' organizational structures. However, obtaining data on firms' structures can be challenging due to difficulties in accessing data and comparing structures across firms. In this paper, we develop a novel dataset of top management team compositions of S&P 500 firms between 1993 and 2020. Alongside providing the original names and job titles, we use generative Artificial Intelligence (AI) to categorize executives' titles into 6 role groups and 12 hierarchical levels, allowing easier comparisons of structures across and within firms. We hope that this new dataset will spur greater scholarly interest in organizational structure, offering insights into how firms are structured and the implications of these structures.

Abstract Research Summary Are less hierarchical firms organized around stronger cultures instead? We analyze 1.5 million employee reviews on Glassdoor.com from 23,000 US‐based firms, alongside data on managerial hierarchy estimated from 42 million professional social media profiles. Our findings confirm a negative association between managerial hierarchy and organizational culture strength. We explore two potential explanations for this association: Functional equivalence between the two, and culture fragmentation caused by managerial hierarchy. Multiple correlational tests show support for functional equivalence as a plausible explanation for the observed negative correlation. Our findings enhance our understanding of the complex relationships between organizational structure and culture utilizing Big Data methods. Managerial Summary Can strong cultures, i.e., systems of widely shared beliefs and values converging on a few organizational dimensions, be an alternative to managerial hierarchy to align the work of employees? Our analysis of 1.5 million Glassdoor employee reviews and 42 million professional profiles from 23,000 U.S. firms shows that organizations with stronger cultures do indeed have a lower fraction of managers to total employees. This suggests that attempts to “flatten” hierarchies by eliminating layers of managers is more likely to succeed if accompanied by efforts to build strong cultures, through mechanisms such as careful selection and socialization of workers.

Abstract Research Summary We examine how firms should allocate their inventors to network locations to achieve their best innovation performance. We use an NK model to model the interactions between key factors that influence a firm's innovation: (a) individuals' embeddedness within the firm's network, (b) individuals' heterogeneity across their search distance as well as their adoption (i.e., imitation) propensity, and (c) the complexity of the firm's landscape. We find that in high‐complexity landscapes, firms benefit from allocating low‐adopter agents to the core and high‐adopters to the periphery, thereby promoting more independent search at the core. The opposite is true for low complexity landscapes. We further find that when agent types are unknown, individuals should be allocated based on their adoption propensity versus search distance. Managerial Summary Where should firms locate their heterogeneous inventors within their networks? Simulating a complex innovation landscape, our study focuses on the interaction of three essential factors that may influence firms' innovation: the location of inventors in the core (embedded position) or periphery of a firm's structure, the distance inventors search for solutions, and the adoption propensity with which inventors will imitate their peers' solutions versus being independent and following their own trajectory. Our results show that firms benefit by placing independent searchers who also search far at the core of the firm when facing highly complex problems, and at the periphery otherwise. Though search distance and adoption propensity have substitutive effects on innovation performance, firms should allocate based on inventors' adoption propensity to lower innovation‐performance variance.

Abstract Research Summary Alignment of incentives to improve value creation in ecosystems is crucial to their growth and survival. We examine how two fundamental ecosystem features affect alignment: types of complementarities and their interplay with multi‐sided bargaining over value. Using a formal model, we find that multi‐sided bargaining typically causes misalignment, in patterns that vary dramatically depending on the type of complementarities. For instance, we find that multiplicative complementarities typically entail weak alignment among participants. In contrast, when value creation is constrained by the weakest component, alignment can be alternatively very strong or very weak. We also find that the starting levels of participants' functionality matter. This suggests new avenues for assessing ecosystem performance and the potential for alignment among participants. Managerial Summary Managers of firms operating in ecosystems need to understand the factors that make their partners aligned with the objective of increasing the ecosystem's value creation. Our research shows that, under multi‐sided bargaining, a major driver of incentive alignment is the type of complementarity between ecosystem's components, that is, how the different pieces of the ecosystem contribute to value creation. Depending on the complementarity type (multiplicative, additive, and weakest‐link), and ecosystem partners' starting levels of functionalities, we show which combinations are intrinsically favorable for aligning development incentives and which ones may undermine alignment. These findings can serve as a guide to diagnose the potential for misalignment among ecosystem partners and how much value creation is at stake.

Abstract Research Summary We examine how the structure of ecosystems shapes firms’ acquisition choices. We develop a theoretical framework comprising three levels of ecosystem structure – local interdependence, clusters, and centrality – that could drive choices of M&A targets based on expected ecosystem synergies, a previously undocumented acquisition synergy that creates benefits for the acquirer and the ecosystem overall. Ecosystem synergy is value created through combination of the acquirer and target's ecosystem positions that improves the combined firm's alignment with third‐party complementors. Such synergies manifest themselves in increased attractiveness of the firms’ components to third parties by strengthening, attracting, or connecting complementarities. In the setting of the e‐commerce technology industry, our results show that firms acquire targets to increase local interdependence of their components and their presence in component clusters. Managerial Summary Innovation ecosystems are critical for firms’ performance. While prior research has established the importance of ecosystems and firms’ positioning within ecosystems, we do not actually know whether and how ecosystem structure shapes firms’ acquisition choices. In this article, we show that M&A targets are not chosen solely for the value created by the acquirer or target, but also for their broader ecosystem synergies. Ecosystem synergies are a previously undocumented acquisition synergy (distinct from internal synergies and market power) that manifest themselves in increased attractiveness of firms’ post‐acquisition components to third parties by strengthening, attracting, or connecting complementarities. We test our theory by mapping the ecosystem structure of 6187 technological components that drives 186 acquisitions in the e‐commerce technology sector during the period 2013 to 2021.

Abstract Research Summary We examine how an incumbent firm navigates internal and external uncertainties when entering a nascent platform ecosystem. Drawing on a longitudinal study of a large telecommunication firm's transition into an evolving IoT ecosystem, we advance a cognitive perspective on platform strategy. We explain how managers' cognitive frames shape platform scope decisions based on shifting assumptions and interpretations of ecosystem dynamics and internal capabilities. Our process model shows how deviations between expected and actual developments trigger changes in managers' attitudes toward uncertainty, thereby shifting their cognitive frames and prompting them to modify platform scope strategies, leading to oscillation between shaping and adapting strategic postures. Our theorization sheds light on the cognitive foundations of platform strategy and the dynamics of incumbent platform transitions in a nascent ecosystem. Managerial Summary Incumbents often enter nascent digital ecosystems by introducing a platform, yet uncertainty complicates decisions about the appropriate platform scope. Our nine‐year study of TELECO’s IoT platform reveals three takeaways. First, scope is not a one‐off decision; it evolves as managers revisit assumptions about opportunities and constraints. Second, scope decision rarely move linearly; firms oscillate between broad and calibrated scopes, creating episodes of overreach and retrenchment. Third, interpretations of uncertainty steer these shifts: reading uncertainty as an opportunity supports shaping bets, whereas interpreting it as a constraint encourages adaptation and selective coopetition. Overall, platform decisions in uncertain ecosystems reflect organizational tensions as firms balance ambitions for dominance against market realities and the actions of ecosystem members.

Abstract Research Summary What human capital do established organizations need to bring new ideas to market? Combining Danish registry and Community Innovation Survey data, we document a robust positive relationship between hiring former founders and firms' sales from innovation. Entrepreneurs join smaller, younger firms (which exhibit larger effects), managerial skills and external industry founding experience matter, while other selection or human capital‐based explanations appear muted. Founder hires especially enhance innovation when given middle management decision rights, for incremental offerings, and in innovation‐active firms. Our collective findings indicate startup experience equips founders with a generalist ability to acquire and mobilize resources around new ideas. By clarifying the nature of entrepreneurial human capital, we highlight a novel innovation input that helps firms unlock its commercial value. Managerial Summary As entrepreneurial careers proliferate, former founders represent a growing pool of potential employees with expertise in bringing new products and services to market. Can hiring entrepreneurs help established organizations enhance innovation? Using data from Denmark, we answer this question affirmatively and offer several explanations. Former founders gravitate towards younger, smaller established firms, where effects are stronger; they also bring valuable managerial skills and external industry founding experience. Notably, they generate more value when given broader authority as middle managers, for less obvious resource combinations, firms already active in innovation or research and development, and higher uncertainty contexts. Taken together, our findings suggest former founders' distinct combination of skills helps firms marshal resources around new offerings.

Abstract Research Summary Research on performance feedback presents conflicting views on how above‐aspiration performance influences organizational change. Some studies argue that it constrains change due to a lack of organizational motivation, while others suggest that it enables change by expanding managerial discretion. Reconciling these perspectives, we suggest that managers’ narcissistic tendencies can fundamentally alter how a firm responds to above‐aspiration performance. We theorize and find evidence that high‐narcissism CEOs respond to above‐aspiration performance with more acquisitions—attention‐generating actions that align with their self‐enhancement motives, while under similar conditions low‐narcissism CEOs avoid acquisitions, due to their uncertainty and risk. Our findings highlight the interplay between managerial discretion and personal motivations in shaping strategic responses to performance feedback, offering new insights into the role of executive personality in corporate decision‐making. Managerial Summary Do successful firms pursue bold strategic moves—or play it safe when firm performance is strong? Our study seeks to answer this question and reconcile conflicting findings about how above‐aspiration performance influences managers’ decisions to undertake risky organizational change, such as corporate acquisitions. We show that it depends on CEO narcissism. High‐narcissism CEOs—who seek attention, hold an inflated self‐view, and are more egoistic—are motivated to initiate bold, high‐risk changes like acquisitions. In contrast, low‐narcissism CEOs—who avoid challenging tasks, hold a modest self‐view, and are sensitive to negative evaluation—are motivated to avoid bold, high‐risk changes like acquisitions. By showing how CEO narcissism affects firms’ risky change actions, we offer new insights into the role of executive personality in corporate decision‐making.

Abstract Research Summary Strategic management research often uses accounting data, despite well‐known concerns that earnings management could obscure the link between actual and measured performance. We apply methods from the econometric literature on bunching to estimate that around 15 percent of firm‐year observations in Compustat manipulate accounting earnings to achieve profitability. We show that cash‐based performance measures are less susceptible to manipulation and that the choice of accrual versus cash‐based measures “matters” for two classic strategy research questions: a decomposition of ROA variance and an analysis of persistence in firm performance. These findings underscore the importance of robustness testing and contribute to an emerging literature that reconsiders the link between theoretical constructs and empirical performance measures. Managerial Summary To understand what drives firm performance, researchers and practitioners often rely on reported accounting measures from annual reports. The most commonly used income‐based measures are strategically inflated or deflated through accounting and operational choices (i.e., earnings management). This article finds that approximately 15 percent of the time that ROA is reported for a fiscal year, a loss would have been reported instead of a gain if not for this manipulation. We then analyze the impact earnings management has on two types of profitability analysis by comparing accrual‐based or cash‐based profit.