Strategic Management Journal

Publisher:
Wiley
Publication date:
2021-02-01
ISBN:
0143-2095

Latest documents

  • Copyright Page
  • Scale matters: The scale of environmental issues in corporate collective actions

    Research Summary: Much of the research on corporate collective action to manage common pool resources is focused on coordinated actions, such as voluntary programs, rather than collaborative actions, such as technology sharing. In this article, we examine inductively the collective actions taken by a consortium of 12 oil sands companies to address three environmental issues of different scale. We identified a set of organizing rules that determined whether the relationship among industry members would be collaborative or competitive, and found that the organizing rules for collaborative collective action were more effective for smaller scale issues (i.e., tailings ponds and water) than the larger scale issue (i.e., greenhouse gas emissions). Our findings contribute to research on the competitive dynamics of collaborating with competitors and on industry self‐regulation. Managerial Summary: Many environmental issues, such as climate change, water quality, and contaminated land, are caused by the overexploitation of commonly shared natural resources. Firms will often overuse resources because their cost of use is less than the benefit that accrues. In Alberta’s oil sands, 12 of the major oil sands operators, all competitors, have agreed to collaborate by sharing technology, which goes against the received wisdom of competition. This multiparty collaboration among competitors, while still relatively rare, is becoming increasingly commonplace. In this article, we outline the rules that allow this collaboration to flourish. Our most important finding is that the rules are shaped by the scale of the issue being managed, not the size of the collaboration.

  • Table of Contents
  • Stakeholder value appropriation: The case of labor in the worldwide mining industry

    Research Summary: We evaluate how the value appropriated by employees varies in response to an exogenous shock to the price of the firm's product and how this variation depends on institutional and ownership structures. Institutional and ownership structures that favor employees can influence firms’ location decisions and shareholders’ incentives to invest. Using data from the main copper mines in the world, we show that the value appropriated by employees rises in response to an exogenous increase in the price of minerals. Our results indicate that the magnitude of the increment in the value captured by employees is larger in stated‐owned companies, when labor regulations promote productivity‐based payments, when wages are determined through a centralized bargaining process, and when regulations associated with hiring and firing are more flexible. Managerial Summary: We show how labor regulations and state ownership affect the value appropriated by employees when there are exogenous changes in the price of the firm's products. Since the value generated by a firm is distributed among different stakeholders, a higher appropriation of value by employees results in lower appropriation by another party. Therefore, by changing the distribution of value, managerial decisions about location and entry could be affected. For instance, shareholders of firms with positive future expectations about the prices of their products might prefer to enter markets in which salary negotiations are not centralized or where partnership with the local government is not mandatory. Overall, our analysis calls for the consideration of the external environment when evaluating value appropriation by different types of stakeholders.

  • The role of senior management in opportunity formation: Direct involvement or reactive selection?

    Research Summary: Much research suggests that entrepreneurial opportunities in established firms result from bottom‐up initiative in a diverse workforce, senior management's main role in the entrepreneurial process is to select among opportunities generated in the bottom‐up process, and it should refrain from directly getting involved in this process. We develop an alternative and more active view of the role of senior management in the opportunity formation process in which senior management intervenes in the entrepreneurial process to resolve coordination and collaboration problems across initiatives and decide on resource allocation. We proffer rival hypotheses concerning the effect of such senior management involvement in the entrepreneurial process. Specifically, we hypothesize that the positive relations between bottom‐up initiative/employee diversity and opportunity formation are positively (negatively) moderated by such direct involvement by senior management. We examine these ideas using two matched data sources: a double‐respondent survey of CEOs and HR managers and employer–employee register data. We find support for the view that senior management involvement positively moderates the relations between bottom‐up processes/diversity and opportunity formation. Managerial Summary: What are the processes through which entrepreneurial opportunities emerge in established companies? Research has pointed to diversity and bottom‐up initiative, but our understanding is limited with respect to what senior managers should do to optimally promote entrepreneurship in such companies. In one view, senior management should keep a distance and limit their involvement to picking the best opportunities out of those they are presented with in the bottom‐up process. In contrast, we argue that given bottom‐up initiative in the context of a diverse workforce, senior management should play a more direct role in the entrepreneurial process. The reason is that senior‐management involvement at early stages of the opportunity formation process is required to handle the management challenges arising from diversity and bottom‐up initiative. Overall, our study suggests that firms that wish to seize the potential benefits (in terms of entrepreneurial opportunities) of having a more diverse workforce and more bottom‐up initiative need senior managers that directly engage in the entrepreneurial process.

  • Dancing with the stars: Benefits of a star employee’s temporary absence for organizational performance

    Research Summary: While research has focused primarily on stars as individual contributors, we examine organizational situations where stars must work closely with non‐stars. We argue that, in such situations, building teamwork around a star is an exercise in learning under complexity. In response, organizations prioritize interactions involving the star to simplify learning. This simplification, however, creates organizational myopia. We claim that a star’s temporary absence helps the organization overcome myopia by triggering a search for new routines. When he returns, the organization may combine these new routines with pre‐absence routines to improve teamwork and performance. We exploit injuries to star players in the National Basketball Association as an exogenous shock and find that on average, teams perform better after a star’s return than before his absence. Managerial Summary: This study examines the effect of the temporary absence of a star employee on organizational performance. We find evidence that a star employee’s temporary absence helps the organization overcome an over‐reliance on the star and improve teamwork. Improved teamwork, in turn, enables the organization to perform better upon the star’s return than it did prior to his absence. This result suggests that organizations might want to revisit the tendency to view stars as too valuable to lose, even for a short time. In particular, organizations may want to pull stars from ongoing projects and encourage them to attend professional development programs. A star’s temporary absence and return from such a program improves not only the star’s skills but also the organization’s teamwork.

  • The differential effects of CEO narcissism and hubris on corporate social responsibility

    Research Summary: While prior studies have predominantly shown that CEO narcissism and hubris exhibit similar effects on various strategic decisions and outcomes, this study aims to explore the mechanisms underlying how narcissistic versus hubristic CEOs affect their firms differently. Specifically, we investigate how peer influence moderates the CEO narcissism/hubris—corporate social responsibility (CSR). With a sample of S&P 1500 firms for 2003–2010, we find that the positive relationship between CEO narcissism and CSR is strengthened (weakened) when board‐interlocked peer firms invest less (more) intensively in CSR than a CEO's own firm; the negative relationship between CEO hubris and CSR is strengthened when peer firms are engaged in less CSR than a CEO's own firm. Managerial Summary: Some CEOs are more narcissistic while others may be more hubristic, but these two groups of CEOs hold different attitudes toward the extent to which their firms should engage in corporate social responsibility (CSR). Our findings with a large sample of U.S. publically listed firms suggest that narcissistic CEOs care more about CSR, but hubristic CEOs care less. Interestingly, when narcissistic CEOs observe their peer firms engaging in more or less CSR than their own firms, they tend to respond in an opposite manner; in contrast, hubristic CEOs will only engage in even less CSR when their peers also do not emphasize CSR. Our findings point to a fundamental difference between CEO narcissism and hubris in terms of how they affect firms' CSR decisions based on their social comparison with peer firms.

  • Who does private equity buy? Evidence on the role of private equity from buyouts of divested businesses

    Research Summary: We examine the role of nonventure private equity firms in the market for divested businesses, comparing targets bought by such firms to those bought by corporate acquirers. We argue that a combination of vigilant monitoring, high‐powered incentives, patient capital, and business independence makes private equity firms uniquely suited to correcting underinvestment problems in public corporations, and that they will therefore systematically target divested businesses that are outside their parents’ core area, whose rivals invest more in long‐term strategic assets than their parents, and whose parents have weak managerial incentives both overall and at the divisional level. Results from a sample of 1,711 divestments confirm these predictions. Our study contributes to our understanding of private equity ownership, highlighting its advantage as an alternate governance form. Managerial Summary: Private equity firms are often portrayed as destroyers of corporate value, raiding established companies in pursuit of short‐term gain. In contrast, we argue that private equity investors help to revitalize businesses by enabling investments in long‐term strategic resources and capabilities that they are better able to evaluate, monitor, and support than public market investors. Consistent with these arguments, we find that when acquiring businesses divested by public corporations, private equity firms are more likely to buy units outside the parent's core area, those whose peers invest more in R&D than their parents, and those whose parents have weak managerial incentives, especially at the divisional level. Thus, private equity firms systematically target those businesses that may fail to realize their full potential under public ownership.

  • Big splash, no waves? Cognitive mechanisms driving incumbent firms’ responses to low‐price market entry strategies

    Research Summary: Low‐price market entries, aiming for rapid sales growth, tend to prompt strong competitive reactions. This research explores whether and how firms using low‐price entry strategies can mitigate retaliatory incumbent reactions. An experiment with 656 managers shows that entrants can attenuate the strength of incumbents’ responses by fostering perceptions of high aggressiveness or low commitment. Entrants may be able to accomplish this by adjusting their entry strategy to embed (subtle) cues of aggressiveness and (lack of) commitment. A replication experiment with university students reinforces our overall theoretical argument. However, the results also indicate that the interpretation of cues embedded in the entry strategy may be affected by the experience of incumbent firm managers. Overall, these results clarify the cognitive foundations of competitive responses to market entry. Managerial Summary: What drives incumbents to respond strongly to market entries, and what can the entrant, if anything, do to mitigate those responses? This research offers empirical evidence and theoretical insights for managers faced with these questions by shedding light on the thinking processes preceding competitive responses. The study shows that while managers are motivated to respond strongly to market entries that appear to be highly consequential to their business, these responses may be mitigated if the entrant manages to foster perceptions of high aggressiveness or low commitment to the market. Managers form these perceptions in part on the basis of the entrant’s behavior, creating an opportunity for entrants to adjust their entry strategies in a manner that demotivates strong competitive responses.

  • Competing for government procurement contracts: The role of corporate social responsibility

    Research Summary: This study examines whether corporate social responsibility (CSR) improves firms’ competitiveness in the market for government procurement contracts. To obtain exogenous variation in firms’ social engagement, I exploit a quasi‐natural experiment provided by the enactment of state‐level constituency statutes, which allow directors to consider stakeholders’ interests when making business decisions. Using constituency statutes as instrumental variable (IV) for CSR, I find that companies with higher CSR receive more procurement contracts. The effect is stronger for more complex contracts and in the early years of the government‐company relationship, suggesting that CSR helps mitigate information asymmetries by signaling trustworthiness. Moreover, the effect is stronger in competitive industries, indicating that CSR can serve as a differentiation strategy to compete against other bidders. Managerial Summary: This study examines how companies can strategically improve their competitiveness in the market for government procurement contracts—a market of economic importance (15–20% of GDP). It shows that companies with higher social and environmental performance (CSR) receive more procurement contracts. This effect is stronger for more complex contracts, in the early years of the government–company relationship, and in more competitive industries. These findings indicate that firms’ CSR can serve as a signaling and differentiation strategy that influences the purchasing decision of government agencies. Accordingly, managers operating in the business‐to‐government (B2G) sector could benefit from integrating social and environmental considerations into their strategic decision making.

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