BLS Reading Summaries - Exam Prep PDF

BLS READING SUMMARIES → EXAM PREP Reading 1: Boyd and Bresser 2008, performance implications of delayed competitive response: evidence from the U.S. retail industry. Theory: - Fast second strategy is more profitable than first mover strategy. o Due to: ▪ Enjoying more...

BLS READING SUMMARIES → EXAM PREP Reading 1: Boyd and Bresser 2008, performance implications of delayed competitive response: evidence from the U.S. retail industry. Theory: - Fast second strategy is more profitable than first mover strategy. o Due to: ▪ Enjoying more cost advantages. ▪ Learning for others mistakes. ▪ Improve original action. - This needs to be done before the first mover can build up a sizable advantage. - Responsive aggressiveness is recommended. o Porter stress why quick response is important: 1) prevents first mover from building barriers as buyer switching costs (BSC) o BSC = costs consumers pay because of switching brands/ products (can be non/monetary) 2) signal incumbent commitment to defend market position. - Response timing decision = balanced act → effectiveness depends on ability to assess market dynamics o Balance between risks of premature entry against missed opportunities. o Curvilinear relationship is proposed. ▪ LOWER SUCCES FOR FAST REPSONDERS, HIGHER SUCCESS WITH INTERMEDIATE DELAY AND LOWER SUCCESS FOR LATE RESPONDERS. - Response too quickly/ slowly due to: 1) Back luck Correct info and response timing but unexpected events make analysis incorrect. 2) Conscious choices Correct response timing but choose not to go through with it therefore accepting the risk. 3) Blind spots in competitor analysis Cognitive biases leading to mistakes due to not seeing the significance of event, perceiving them incorrectly or perceiving too slowly. EXAMPLES of 1,2 and 3: - Other explanations for wrong timing: o Problem framing limitations → o Overconfident/ optimistic thinking they can keep control. o Past success → think they are better than first mover…so no stress.  - Longer first mover remains unchallenged = more market share and profit - Empirical evidence supports a + linear relationship between first mover performance and the length of time it takes for competitors’ response. Research gap/ contribution: - Developing a theory on first mover and follower advantages - Developing a better understanding of the performance implications of different response timings → literature overlook the risk of responding too fast. Research question: WHAT IS THE NATURE OF REPOSNE TIMING-PERFORMANCE RELATIONSHIP? Hypothesis: H1: responder performance and response delays are related in an inverted U-shape. - fast and late responders = lower performance - intermediate responders = higher performance H2: first mover performance and response delays ate related in a linear manner. - as response delays are longer performance decreases are smaller Method: - Event study - US retail industry - Nine move types (if needed on iPad) Findings: 1) response delay and tactical action are negatively correlated. 2) industry concentration is positively correlated to imitation (higher dominance of a firm = more imitation by others). 3) higher sales growth is associated with longer response delays. o firms take more time to respond in industry growth environments. 4) negative correlation between stock effects and response delays in the spender model, and a positive correlation in the first mover model. o Spender model o First mover model Practical implications: - Paper is one of the first to directly link response timing to stock market performance. - Managers need to be aware of the risk responding too fast had → requires a balance (mentioned before). Limitations: - Focus more on how conscious choices and blind spots in competitor analysis is linked to response time. Reading 2: Nadkarni, Chen T and Chen J 2016, The clock is ticking! Executive temporal depth, industry velocity and competitive aggressiveness. TEMPORAL = RELATED TO TIME Theory: - Competitive dynamics research has identified 2 temporal forces: 1) MACRO: temporal features of the environment→ act as time givers and determine degree CA is temporary or sustainable 2) MICRO: reflected in the actions taken by firms in creating and pursuing new opportunities o Macro and micro interact to shape inter-firm rivalry (between different firms) - Perceptual filters → enhance/inhibit executives’ awareness of relevant cues in competitive environment and degree they can accurately gauge opportunities and threats. - Temporal orientations: inherent persistent and relatively stable tendencies in evaluating and interpreting time. o Executives temporal orientation: serves as a filter to shape which stimuli they select/ignore. - (Executives) Temporal depth: temporal distance (time horizons) into the past/future that executives consider when contemplating events. o Creates temporal filter that influences a firm competitive aggressiveness. o 2 types of temporal depth: ▪ PAST TEMPORAL DEPTH (PTD): more focus on the past. uses past experiences for new situations. can filter out critical aspects of current context and use past cues that may not be relevant. ▪ FUTURE TEMPORAL DEPTH (FTD) More focus on the future (double-edged sword in DM) Increases awareness of future and allows them to make prior investments to prep. Can become overcommitted to long-term and not focus on critical short-term changes → can cause inertia. - By undertaking more actions (volume) and acting quicker in the wake of the rivals move, firms can proactively address the time-dependent nature of competitive advantages. - Entrainment (alignment with other firms) theory: how the temporal adjustment/ internal organizational activities to the temporal features of the environment result in superior adaptation and performance. o Dominant system sets the tempo of activity cycles. - Moderating effect = industry velocity (speed of which new opportunities emerge/disappear) o High velocity = fast changes in CA o Low velocity = longer temporal window to gain CA Research gap/ contribution: - Gap: limited understanding of how executives’ temporal orientation shapes competitive behavior - Contribution: match executive temporal depth (PTD/FTD) and industry velocity to gain CA and increase performance. Hypothesis: H1: velocity will moderate relationship between executives PTD and competitive aggressiveness. - relationship positive in low velocity - negative in high velocity. H2: velocity will moderate relationship between executives FTD and competitive aggressiveness. - relationship linear positive in low velocity - inverted U in high velocity. H3: velocity will moderate relationship between competitive aggressiveness and firm performance. - more positive in high velocity than in low velocity Visualization of H1 and H2: (are also the findings) HV LV PTD - + FTD Inverted u + Method: - Quantitative analysis: - 3 step content analysis procedure to measure executives PTD & FTD Findings: - firms that successfully match the temporal aspects of their micro competitive actions to the temporal features of the environment ensure superior performance. o In simpler words: ▪ Companies that successfully align the timing of their competitive actions with the timing of changes in their environment are more likely to achieve better performance. Theoretical implications: - Not only is executive temporal orientation an important force in shaping temporally rooted competitive behaviors, but also that executive temporal orientation cant be considered in isolation for macro temporal features of the environment. Future research: - Further explore different mechanism of this relationship - Combine insights on executives’ temporal depth with strategic decision making. o RQ could be: “how do executive temporal orientation influence competitive behaviors differently in different environments?” NOTE: - Upper Echelons Theory, executive temporal depth is a key psychological characteristic that can influence decision-making and strategic choices. - Upper Echelons Theory = suggests that the experiences, values, and personalities of top executives shape their interpretations of the situations they face and thus affect their strategic choices. Reading 3: Sirmon, Hitt, Arregle and Campbell 2010, The dynamic interplay of capability strengths and weaknesses: investigating the bases of temporary CA. Theory: - Differences among rivals’ capability strength and weakness sets are expected to affect a firms’ RELATIVE performance. - Enhance in strength set = differentiation = more CA. - Negative relationship between the firms’ weakness set and relative performance. o Due to: ▪ Likelihood of being attacked. ▪ Inefficiencies. ▪ Inability to exploit opportunities. - Firms must integrate their capabilities to allow them to cope with external uncertainties and accomplish consumer satisfaction and wealth. - Strength and weakness set are interdependent. → they will offset each other when there is an imbalance, performance will tip towards dominant forces → NEGATIVE EFFECT LOGIC - When CA is fragile/ uncertain, managers need to be particularly mindful of their strategies to ensure they capitalize on what the firm does well and mitigate any vulnerabilities. - Both environmental munificence (ability to gain resources easily/ scarcity) and prior firm performance influences changes in the firms’ capability sets over time. o Environmental munificence = exogenous = no control over. o Prior performance = endogenous = control over. - While environmental munificence is unlikely to affect change in a strength set it allows the firm to reduce weakness sets over time. o Unlikely to change strength sets because if it easy to gain the resources everyone will be able to gain them = no CA, if they are hard to gin no one can get them and it doesn’t help strength sets either. Research gap/ contribution:  - Focus on capability sets for a more accurate view on the relationship it has with competitive outcome. - Understanding of how exogenous and endogenous factors affect the nature of competitive advantage. - Understanding of how environmental and firm-specific factors affect change in firms’ strength and weakness sets. Hypothesis: H1: positive curvilinear relationship between a firm’s strength sets and relative performance. H2: negative curvilinear relationship between the firm’s weakness sets and relative performance. ❌ H3: a) integration of a high strength set with low weaknesses set has a positive effect on relative performance. b) integration of low strength set with high weakness sets has a negative effect on relative performance. c) integration of high strength set with high weakness set has a positive effect on relative performance. ▪ strengths outweigh weaknesses. d) precarious advantage produces greater variation in performance outcome than robust advantage. ▪ precarious = subject to change H4: a) higher munificence leads to a decrease in firms weakness sets over time. b) higher prior performance leads to an increase in firms’ strength sets over time. c) higher prior performance leads to a decrease in firms weakness sets icer time. Method: - Wide range of manufacturing small to medium firms - Radom sample - 3 DV - Measures on 6 capabilities Findings: - 3 reasons why H1: 1) Synergistic effects exist among strengths. 2) Continuing to build capability strengths pays major dividend. 3) Strengths complement one another and yield increasingly positive relative performance. - Precarious advantage products much more performance than robust advantage - In munificent environment firms are not aware/motivated to respond to rivals taking action to reduce weakness sets but are aware/motivated to match investments if it increases strength sets → much more likely to decrease weakness sets. Practical implication: - Need to focus on both sets, but to increase performance they need to first reduce weaknesses. - if investments not sustained strengths can become weaknesses --> developing capabilities is crucial. Limitations: - 6 capabilities, some might be omitted. - Results may be influenced by perceptual filters. - Difficulty generalizing results. - Focus on synergistic relationships → could make firms susceptible to quick erosion of CA. Reading 4: Schilke 2014, On the contingent value of dynamic capabilities for competitive advantage: the nonlinear moderating effect of environmental dynamism. Theory: - Dynamic capabilities = organizational routines (often leant, highly patterned) that affect change in the firms existing resource base. o Proposed to have a positive effect on CA. - Environmental dynamism is characterized by 2 variables: 1) Volatility 2) Unpredictability - Competing views on the effect of environmental dynamism on link between dynamic capabilities and CA. 1) A critical need for chance is necessary to gain significant value form the capabilities, as building and using dynamic capabilities is expensive. 2) Routine-based dynamic capabilities are not always an adequate means of change. a. Matching problem: don’t have the knowledge/ capabilities for new experiences. b. Inertia problem: even though you know the environment if it keeps changing your capabilities won’t help you as much. - Environmental dynamism low = limited potential of dynamic capabilities - Environmental dynamism high = dynamic capabilities also have a relatively weak effect on CA. - Environmental dynamism intermediate = best o Too much and too little change in the environment is not food for CA. - Alliance management capabilities: o Extent to which firms engage in alliances depends on environmental dynamism. ▪ Low = little need for alliance management. ▪ High = differs firm one relationship to the next. Likely to face matching problem. ▪ A balance is needed between firms’ ability to leverage their alliance management investments and to effectively exploit their experience-based alliance management routines. - New product development capabilities: o Stable environments make new product development capabilities less central. o High = matching and inertia problem → may decreases the relative effectiveness of an experience-based new product development capability.  o Moderate = ideal context Research gap/ contribution - Offers a new, integrative position on the relationship between dynamic capabilities, environmental dynamism, and CA (U-shape → spoken about already) - Reduces the scarcity of empirical research on the consequences of dynamic capabilities for organizational outcomes. - Examines the efficacy of dynamic capabilities under conditions carrying environmental dynamism. - Conceptualization of dynamic capabilities in terms of organizational routines. Hypothesis: H1: relationship between alliance management capabilities and CA is strongest under intermediate levels of environmental dynamism and weaker when dynamism is low or high. H2: relationship between new product development capabilities and CA is strongest under intermediate levels of environmental dynamism and weaker when dynamism is low or high. Method: Three sequential stages: - Qualitative interviews. - Large-scale survey (to check the accuracy of the survey they also looked at the financial performance of the firm). - Collected measures for the DV. Findings: - MAIN: effect of dynamic capabilities on CA is highest in moderately dynamic environments but lower under low and high levels of environmental dynamics. - Support the notion that dynamic capabilities should not be universal. - The efficacy of dynamic capabilities decreased significantly when moving form medium to high environmental dynamism. - Practical implication: - Managers need to pay attention to building and exploiting these capabilities in ways that generate a CA. Limitations: - Not generalizable. - Firms develop multiple types of dynamic capabilities thus there affect should also be investigated.  - Deeper insight into the variety of mechanisms that underlie performance effects of capabilities. - Study adopts a rather narrow definition of dynamic capabilities that focuses on experience- based, rather static routines and excludes more flexible forms. Reading 5: Flammer 2013, CSR and shareholder reaction: the environmental awareness of investors. Main idea: does CSR have an impact on shareholder behavior? Theory: - Looks at environmental CSR as a resource that can lead to CA rather than a cost. - Institutional theory: how structures, norms and rules shape organizational behavior o External pressure for CSR o Companies do what is most legitimized in their field. - Shareholder theory - Neoclassical theory: ‘if you keep adding more of a production factor (e.g., workers, machines), while keeping the rest constant (e.g., amount of tech), the additional output you get from each unit will eventually decrease. o Decreasing marginal returns o Logic: most applicable to the market when you apply it, applicability decreases over time as markets evolve. - Insurance based view: having more environmental resources can reassure investors that the harmful event is a one off, not recurring, which reduces shareholder reaction. Research gap/ contribution: - Looks at how environmental CSR adds value to the company in terms of stock market (investors). - Environmental CSR generates new and competitive resources for firms. - ‘Environment-as-a-resource’ depends on both external norms and internal levels. Hypothesis: Focuses on institutional theory (external CSR) H1: shareholders react positively to the announcement of eco-friendly corporate initiatives. H2: shareholders react negatively to the announcement of eco-harmful corporate initiatives. H3: shareholders negative reaction to eco-harmful event increases overtime. H4: shareholders positive reaction to eco-friendly events decreases over time. Focuses on neo-classical theory (decreasing marginal returns) H5: a) shareholders of companies with stronger environmental performance react less positively to the announcement of eco-friendly initiatives. b) shareholders of companies subject to more severe environmental concerns react more positively to the announcement of eco-friendly initiatives. H6: a) shareholders of companies with stronger environmental performance react less negatively to the announcement of eco-harmful behavior. b) shareholders of companies subject to more severe environmental concerns react more negatively to the announcement of eco-harmful events. Method:  - Event study (CAR→ CUMULATIVE ABNORMAL RETURNS). - Stock price reaction to news or events. - Wall street journal → key word search. Findings: - Increasing external pressure to become green. - The more green norms → the greater the negative affect on perception form negative news o Firms are punished for not complying with norms. - Once they do go green → less rewards by shareholders. - CSR is a resource with decreasing marginal returns. o The higher the stock the lower the additional value created by further investment in CSR. - The higher the stock of CSR, the lower the punishment for eco-harmful behavior. - Positive perception based on the past mitigates shareholders negative reactions → form of insurance. Implication: - Think about what managers would do → trainings, committees to become more green. - The more companies going green the lower the reward from shareholders. Limitations: - Event study → only addresses short-run stock market reaction → focus more on long-run. Reading 6: Hawn & Ioannau 2016, Mind the gap: the interplay between external and internal actions in the case of CSR. Theory: - The relationship between CSR and firm performance is statistically significant and positive. - Many firms contribute positively through internal CSR actions but fail to strategically communicate these efforts externally, limiting their impact. - The lack of external CSR actions is a common mistake, preventing the full value of CSR from being reflected in market performance. - When external actions outweigh internal ones, firms risk being seen as "green-washing" and face penalties. - When internal actions outweigh external ones, the market may undervalue the firm due to a lack of transparency and credibility. - CSR is a unique, intangible resource that requires time to develop and offers multiple, simultaneous benefits. - Both internal and external CSR actions contribute to firm legitimacy, which is crucial for growth, profitability, and survival.  - Firms that align internal and external CSR actions can reduce information asymmetry with stakeholders, increasing credibility and market value. - A gap between internal and external actions negatively affects market value, as it raises concerns about transparency or credibility. - Firms that prioritize external actions without internal change are at greater risk of being exposed as green-washing, leading to long-term reputational damage. Research gap/ contribution: - The study explores CSR actions through the lens of neo-institutional theory, distinguishing between external and internal CSR efforts as key units of analysis. - It conceptualizes how external and internal CSR actions can either jointly enhance or undermine each other, affecting a firm's market value. - By applying the market-value approach from innovation economics, the study empirically examines the relationship between CSR actions and firm performance, advancing strategic CSR research. Research questions: Arguing for a prominent distinction between external and internal actions and on understanding hi the interplay between then is associated with firm performance. Hypothesis: H1: the more prior internal and current external actions the firm undertakes the higher its market value H2: the wider the gap between a firms current external and prior internal actions the lower its market value Method: - Use of market-value equations - TOBIN’S Q → ratio used to compare company market value of assets to their replacement cost. - Control variable → including R&D intensity, SG&A intensity, SRI index, sales growth etc. Findings: - Key finding: the wider the gap the more internal actions a firm undertakes than external, the more the firm is penalized in terms of market value. - Double edge of CSR: wider gap poses a significant risk on a firm performance. o Meaning of double edged: its positive effects are balanced by its negative effects, or that its negative effects are greater. - Gap is on average due to insufficient external actions. o Due to policies, or they think more experimentation is needed, might not want to attract additional stakeholders, or me more risk averse.  - Not common = external outweighs internal. - TOBIN’S Q is the lowest when internal actions completely outweigh external ones. - Implications: - Create greatest market return if changes are made to implement CSR and if these changes/ initiatives are communicated. Limitations: - Limitation on operationalization of key component → due to secondary nature - Potential endogeneity issues → evaluating the sum of (or gap between) internal and external actions on firm value. o Endogeneity: where the effect of an independent variable on a dependent variable cannot be casually interpreted because it includes omitted causes leading to biased (i.e., inconsistent) estimates Reading 7: Hatch & Dyer 2004, Human capital and learning as a source of sustainable competitive advantage. Theory: - Learning by doing → observed phenomenon of manufacturing cost falling as manufacturing experiences increases. - Pattern of cost reduction is denied by the learning curve (degree of cost reduction associated with a doubling in experience) o Learning curve: ▪ graphically depicts how a process is improved over time due to learning and increased proficiency. ▪ theory is that tasks will require less time and resources the more they are performed. - learning by doing van confer CA, as long as which is learnt remains proprietary. o They must be protected by some isolating mechanisms. ▪ Time compression diseconomies, firm specificity, casual ambiguity, social complexity, and path dependence (future depends on past) → they make it possible to create sustainable CA. - Theory behind hypothesis: o Better educated employees will learn more quickly = contribute more to the firms’ learning activities o Pre-employment screening tests serve to identify needed skills and competencies. o As training builds prim-specific human capital it speeds the rate at which human resources lean their duties → improving their productivity. o Both deploy more personnel to learning activities and encourage workers to allocate a greater % of time to learning activities → should increase learning by doing performance. o Obstacle in gaining stock of new firm-specific human capital is through forgetting and relearning. o human resources that leave and take their knowledge with them and are replaced by new employees without firm-specific knowledge required to significantly contribute to learning by doing. Research gap/ contribution:  - tests propositions of the resource-based view related to the impact of firm-specific investments in human capital on learning by doing performance. o Resource-based view: management theory that suggests a firm's competitive advantage comes from its unique resources and capabilities. - Objective: To identify what affects the amount of unique knowledge a firm has and how using this valuable resource can enhance the firm’s learning activities Hypothesis: H1a: higher human resources education levels increase learning by doing → WEAK SUPPORT H1b: pre-employment screening tests improve learning by doing performance. H2: greater investments in human resource training increase learning by doing performance → NOT MENTIONED H3: greater deployment of human capital to teaming activities increase learning by doing performance. H4a: greater prior industry experience in newly hired human resources reduced learning by doing H4b: greater human resource turnover reduces leaning by doing performance. Method: - Questionnaires sent to plant managers (25) and follow up interviews → qualitative data. Results: - Technical Education: Reduces defects but doesn't significantly affect how experience (cumulative volume/engineering) helps firms lower defect levels over time. - Hiring Screening: Firms with better screening processes identify employees with strong learning abilities, placing them on a better learning curve than competitors. - SPC Training: Statistical process control (SPC) training for equipment operators significantly reduces defects by enabling them to solve simpler problems, freeing engineers to focus on more complex issues.  - Employee Turnover: Replacing experienced employees with less-skilled new hires requires extra training, leading to more mistakes and slower development. - Sustainable Human Capital Advantage: Human capital provides a lasting competitive edge because it is difficult and costly for competitors to imitate. Conclusions: - Managing the selection, development and deployment of human capital can improve learning by doing performance. - Employees are more productive and can meaningfully participate in the learning activities of a firm if trained through SPC. - Deployment of human capital to learning activities creates significant cost advantages. - Firms attempt to obtain human capital by hiring with experience in rival firms significantly suffer performance losses. Reading 8: Riley, Michael and Mahoney 2017, Human capital matters: market valuation of firm investments in training and the role of complementary assets. Theory: - Human Capital Theory: Investments in employee training and education improve knowledge and skills, enhancing productivity but do not necessarily boost financial performance directly. - Capturing Returns: Firms can only capture the benefits of training if productivity rises more than wages, which is unlikely in perfectly competitive labour markets. - Imperfect Labour Markets: In less competitive markets, firms can improve financial performance and gain sustainable competitive advantage from general human capital. - Supply Side Frictions: Trained employees may be reluctant to switch jobs due to high job search costs and personal ties, limiting their mobility. - Employee Commitment: When firms invest in employee training, employees may feel a commitment to the firm, making them more willing to accept lower wages compared to competitors. - Demand Side Considerations: Hiring firms must offer competitive wages, matching increases in employee productivity, which can be difficult to estimate. - Labour Market Frictions: High job-switching costs and uncertain benefits of training create labour market frictions that firms can exploit for competitive advantage. - General Human Capital Advantage: Firms may pay employees less than their full marginal product if general training is effective and employees are reluctant to leave due to adjustment costs. - Firm-Specific Training: Companies gain economic returns from firm-specific training that increases productivity, as such skills are hard for competitors to imitate. - Tacit Knowledge: Firm-specific human capital is often tacit, complex, and difficult to copy, making it a source of sustainable competitive advantage. - Resource-Based View: The resource-based approach suggests higher financial performance is achieved by investing in complementary resources alongside human capital. - Complementary Resources: Complementarities between human capital and other resources, such as R&D, physical capital, and advertising, enhance firm performance. - R&D Complementarity: Human capital investments help increase the success rate of R&D projects, enabling firms to focus on high-margin innovations and competitive advantage. - Physical Capital Complementarity: High physical capital intensity, especially in firms with significant R&D efforts, amplifies the financial impact of human capital investments.  - Advertising and Differentiation: Employees in firms with strong product differentiation, often signalled by advertising, are more motivated to apply their skills in ways that improve financial performance. Research gap/ contribution - Examine empirically weather effective investments in general training can benefit firms financially and if so, what factors influence the variance in their financial returns. Hypothesis: H1: A signal of firms’ effective investments in human capital leads to a positive stock price reaction. H2: The higher the firms’ R&D intensity, the greater the positive stock price reaction to the signal of effective investments in human capital. H3: The higher the firms’ physical capital intensity, the lesser the positive stock price reaction to the signal of effective investments in human capital. H4: The higher the interaction of R&D intensity and physical capital intensity, the greater the positive stock price reaction to the signal of effective investments in human capital. H5: The higher the firms’ advertising intensity, the greater the positive stock price reaction to the signal of effective investments in human capital. Method: - Publicly traded rims receiving ‘training top 125’ awards (2005-2008). - Accounting measures used for financial performance. - Event study. Findings: - Firms receiving awards for excellence in training and human capital management experience significantly positive abnormal stock returns. - Human capital has a positive impact when combined with high R&D intensity, physical capital intensity, and advertising, demonstrating the power of complementarities. Implications: - Research Implications: o General training contributes to general human capital but usually includes elements of firm-specific training o Training involving firm-specific assets leads to strong returns, as it is harder for competitors to replicate. - Managerial Implications: o Human capital investments add economic value and positively impact stock prices, which financial markets recognize. o Managers should accurately report human capital investments, but should be cautious about revealing too much to avoid giving valuable information to competitors. Limitations: - The sample used is not generalizable, as it only includes firms known for good training practices. - The study lacked data on firms' monetary expenditures on human capital training. - Using awards as a signal of effective training introduces potential bias. - The study assumes the efficient market hypothesis for stock price reactions, which may limit interpretation. Reading 9: Cassiman and Veugelers 2016, in search of complementarity in innovation strategy: internal R&D and External knowledge acquisition Theory: - Empirical research suggest that in-house R&D and external know-how are complementary. o Complementary = relationship between 2 or more elements. - Sappho study→ better innovative firms develop better coms between internal and external → allowing more effective use of external know-how. - May need internal know-hows to screen possible projects or may need internal know-how to use external know-how effectively. o Using SCIENTIFICS know-how as a proxy for INTERNAL know-how o Using TECHNOLOGICAL know-how as a proxy for external know-how. ▪ Findings suggest that → scientific and technological operation if a firms R&D may be an important driver of the complementarity between internal and external technology acquisition. - Open market innovation → opening up to external knowledge flows. o Using external resources with their own resources to accelerate development and commercialization. - Own internal know-how will increase the marginal return to external knowledge-acquisition strategies. o Known as: NOTION OF ABSORPTIVE CAPACITY ▪ Stresses the importance of a stock of prior knowledge to effectivity scan, screen and absorb external know-how. - Study of complementarities can be tracked back to THOERY OF SUPER MODULARITY o Definition: adding an activity while the other activity is already being performed has a higher incremental effect on performance than adding the activity in isolation. Contribution: - Analyses both the organizational of the firm’s innovation strategy and its effect on the performance of the innovation process. - Careful and rigorous empirical methos for analyzing complementarities among innovation activities. Research gap: - First to systematically examine complementarity among different activities within a firm’s innovation strategy. Method: - Productivity direct approach: paper tests the existence of complementarity direct by regressing a measure of innovation process performance on exclusive combinations of innovation activities. - Adaption (indirect) approach: paper testes the existence of complementarity through an exclusion restriction on a bivariate profit model.  - Characterize a firms innovation strategy into 2: 1) R&D in-house and develop their own technology → MAKE decision. 2) Acquire technology externally → BUY decision. - Regresses the measure of innovation performance (% sales from new products) on the exclusive combination of innovation activities. Results: Section 1: - Consists of an analysis of how combining innovation activities affects the performance of the innovation processes. - Data suggest that small firms and more intensive innovation spenders are more successful in terms of innovation performance. - More export-oriented firms are more innovation productive → because of the more competitive environment they face. Section 2: - The innovation strategy adaption decisions are examined. - Searches for variables that can explain the joint occurrence of innovation activities. - Results confirm the importance of having in-house basic R&D capability for exploiting the complementarity between internal and external sourcing. - Firm size positively affects all combinations of innovation activities, relative to not doing any innovation activity. Section 3: - Search to understand the contextual variables that affect individual innovation strategy choices is refined and used to improve the search for complementarity. - Results imply that: o complementarity is relatively more important for firms with a high reliance on basic R&D. o Other firms it can’t be rejected that complementarity is a subset of firms. Conclusion: - Firms are experimenting with innovation processes and combining internal and external know-how. o Results are consistent with the existence of complementarity between internal and external innovation activities. o Innovation management requires tight integration to capture the positive effects each innovation activity has on the marginal returns of the others. - Extent to which the innovation process relies on basic R&D affects the strength of the complementarity between innovation actives → they are connect specific. - Success in innovation will depend not only on the combination but also on creating the right context. - Careful management of the innovation process (understanding of these principles) can provide sustainable CA. Reading 10: Klingebiel and Joseph 2016, Entry timing and innovation strategy in feature phones Theory: - Timing is not exogenous (not out of firms control → managers can decide this) o This makes it difficult to relate timing to performance directly. - Entry speed varies with the proximity of a firm’s capability base.  o Such variation is due to deliberate DM → is early or late more advantageous for the firm. - Repeated nature of feature-entry decision also makes it likely that the company often follow broader strategy that applies to several entry decisions. o Useful to view these choices as a part of a larger plan. o Managers may consider the overall strategy when deciding when to enter. - Notion that firms differ in how they allocate resources across new product propositions to capture unclear market opportunity is important. - Such variation in portfolio approaches is likely to influences by the uncertainty of product success and the propensity of competitors to gain footholds in new product categories. - Interplay between timing and portfolio considerations could provide explanations for conflicting findings on the relationship between entry timing and performance. Contribution: - Focus on deliberate DM that can explain systematic strategic differences among firms. - Paper offers a better understanding of the process by which both early and late movers may achieve high performance. Research gap: - Entry timing is a key concern in CA. - Timing influences adaption and diffusion and is often used to explain firms’ performance. - Few studies have shed light on how managers make timing decisions. - This is the gap the paper addresses. Method: - Interviews with managers (qualitative) - Quantitative information from secondary sources about their firms feature entries. - Objective = to build theory and a hybrid approach to be inductive Hypothesis (propositions): H1: firms generate strategic fit between timing, breadth, and selectiveness. - Breadth = range/ diversity of activities/ products/ services/ markets Specifically: - Early movers display greater portfolio breadth and lower selectiveness than late movers. - Late movers display lower portfolio breadth and higher selectiveness than early movers. H2: strategic fit between timing and breadth/selectiveness aid performance. Specifically: - Early movers are more likely to benefit from portfolio breadth than late movers. - Late movers are more likely to benefit from portfolio selectiveness than early movers. Findings: - Firms express timing preferences through multiple product entry decisions. o enter the market early → high-uncertainty → high-reward opportunities, o late entry → lower-risk → lower-reward options. - firms deliberately choose their timing strategy. - Early-entry firms aim for occasional high-reward hits, accepting frequent failures. - Early movers tend to launch more features than late movers, partly due to firm size, but even after adjusting for size, early movers still launch more. - Entry timing is not directly linked to short-term performance; instead, it shapes the success of broader portfolio strategies. - Early movers may benefit from a broad range of features, while for late movers, a larger portfolio may no longer yield high rewards due to the costs associated with failures. - High-performing late movers may succeed through adaptive learning and selective feature launches. Early movers Late movers Greater portfolio breadth Lower portfolio breadth Higher premiums, increased uncertainty Lower premiums, decreased uncertainty Less selectiveness More selectiveness Less learning More learning Limitations: - Should include selectiveness in the set proposition.