Strategic Management Journal

Publisher:: Wiley
Publication date:: 2021-02-01

ISBN:: 0143-2095

Issue Number

No. 45-2, February 2024

Latest documents

Issue Information
Positioning for optimal distinctiveness: How firms manage competitive and institutional pressures under dynamic and complex environment
Research Summary How firms strategically balance legitimacy and distinctiveness has garnered significant attention but reflects inconsistent perspectives. This inconsistency may stem from the inherent complexity of optimal distinctiveness (OD), which are sensitive to both the context and temporality. This article explores dynamic changes in institutional and competitive pressures and how they co‐evolve with different OD strategies. Through an exploratory, multi‐case study, we propose a pressure‐response model to uncover how firms dynamically pursue OD in response to different combinations of pressures. Furthermore, our findings reveal the mechanisms that drive the dynamic interactions between distinctiveness and legitimacy across different OD strategies. In essence, this study contributes to the OD research agenda by providing insights into the evolution of OD strategies, addressing the how and why behind their development. Managerial Summary Can enterprises effectively balance their needs for legitimacy and distinctiveness by achieving an optimal level of similarity and differentiation from their competitors? This article demonstrates that, in the face of multiple pressures with varying intensities, enterprises continuously adapt their strategic choices to achieve optimal distinctiveness (OD). As institutional and competitive pressures gradually intensify, an enterprise's OD strategies may transition from isomorphic and balancing approaches toward deviation. However, when accumulated inertia hinders the enterprise's ability to respond to emerging pressures, adjustments to the OD strategy may become necessary. Therefore, this study offers entrepreneurs a practical guide on how to dynamically maintain their enterprise's OD by selecting appropriate strategies based on the specific circumstances at hand.
Human resource redeployability and entrepreneurial hiring strategy
Research Summary The timing of talent acquisition is a central decision for new ventures. On one hand, hiring after demand is proven minimizes losses. On the other hand, hiring before demand is proven allows new ventures to start developing unique capabilities. We resolve this tension by proposing that the timing depends on human resource redeployability. We test our theory with the population of Finnish ventures showing that portfolio entrepreneurs hire more employees early on because of higher redeployment potential and that they hire employees with more transferable skills in order to benefit from the redeployment option. To probe our mechanisms, we examine how talent acquisition strategies in portfolio and standalone ventures vary with external conditions that reduce or amplify the benefits of redeployment. Managerial Summary This paper explores when startups begin scaling their team. Our findings suggest that the potential to redeploy employees (to another startup, for example) motivates entrepreneurs to scale earlier. At the same time, we find that the entrepreneurs who scale earlier due to redeployment potential tend to hire employees with skills that can be transferred more easily. We further show that our results are affected by the level of rigidity in the labor market. When labor markets become more flexible, the impact of easy redeployment on an entrepreneur's hiring strategy becomes less important. Our findings provide important insights into how the external environment and policy changes can affect the trajectory of startups even at their earliest stages.
Acqui‐hires: Redeployment and retention of human capital post‐acquisition
Research Summary Acqui‐hires are now a prevalent strategic mechanism by which firms obtain talented human resources. They differ from traditional acquisitions in that they are always integrated and the focus is the people, not the product or service. Thus, how firms reconfigure through the redeployment and retention of acqui‐hired human resources during post‐acquisition integration is particularly critical. We find that when the acquired start‐up has disruptive (vs. nondisruptive) know‐how, the acqui‐hired team is preserved (vs. dispersed) and integrated as a whole into an acquirer's existing business unit, and also that the founder of the acquired start‐up is assigned to a high status position. Furthermore, we show that a lack of fit between acquired know‐how type and integration mode has a positive relationship with the premature exit of acqui‐hired founders. Managerial Summary Acqui‐hires are a form of acquisitions in which the acquiring firm's goal is to obtain the talented human capital of the target firm. Our study addresses how the acqui‐hired team is integrated into the acquiring firm and what status position the acqui‐hired founder is given, post‐acquisition. Our results reveal that these depend on the type of know‐how being acquired; if the acqui‐hired know‐how is disruptive (versus not) then it is more likely that the team is preserved (versus dispersed) and the founder is given a high status position at the parent firm. Managers should be aware that a mismatch in integration—such as acqui‐hiring disruptive know‐how and not preserving the team in a business unit—can have negative implications such as the premature departure of the founder(s).
Entrepreneurial framing: How category dynamics shape the effectiveness of linguistic frames
Research Summary How do new entrepreneurial ventures effectively deploy linguistic frames to attract customer demand? Drawing on framing and categories research, we develop and test theory about how category dynamics shape the effectiveness of two commonly observed frames—social impact framing and innovativeness framing—in the context of prosocial categories. We test our predictions by tracking entrepreneurial ventures in the market category for massive open online courses over the category's first 10 years of existence (2012–2021). Our fixed‐effects models show that higher levels of category salience increase the effectiveness of a social impact framing but decrease the effectiveness of an innovativeness framing; conversely, higher levels of category crowdedness decrease the effectiveness of a social impact framing but increase the effectiveness of an innovativeness framing. Managerial Summary This research explores how startups can strategically frame themselves to attract customers. We specifically compare the effectiveness of a “social impact framing” (emphasizing the startup's benefits to society) versus an “innovativeness framing” (emphasizing innovativeness) under different market conditions. Our longitudinal study finds that startups benefit most from a social impact framing when their market attracts a lot of attention or has low competition. While an innovativeness framing can backfire under such conditions, it effectively helps to attract customers in a market that receives little attention or exhibits fierce competition. Entrepreneurs and managers can leverage our insights to more effectively tailor their framing strategies to their market environment and ultimately gain more customer traction.
Impact investing in disadvantaged urban areas
Research Summary We examine whether impact investing is more effective in fostering business venture success and social impact when investments are directed toward ventures in disadvantaged urban areas compared to similar investments directed toward ventures outside these areas. We explore this question in the context of loans made to business ventures in French “banlieues” versus “non‐banlieues.” We find that, following the loan issuance, banlieue ventures achieve greater improvements in financial performance and greater social impact in terms of the creation of local employment opportunities, quality jobs, and gender‐equitable jobs. This suggests that impact investors are able to contract with ventures of greater unrealized potential in banlieues, as banlieue ventures tend to be discriminated on the traditional loan market. The latter is corroborated in a controlled lab experiment. Managerial Summary We shed light on the unrealized potential of business ventures in economically disadvantaged urban areas, known as “banlieues” in France. Our results show that, after receiving loans from an impact investor, banlieue ventures achieve greater financial performance compared to non‐banlieue ventures. What is more, banlieue ventures achieve greater social impact by creating more jobs that benefit the local community. Why are traditional investors missing out on these opportunities? Our results point toward discrimination of banlieue ventures on the traditional loan market. This is confirmed in a controlled lab experiment, in which participants are less likely to approve loans to banlieue ventures compared to identical non‐banlieue ventures. These insights can guide managers and investors seeking sustainable, socially impactful, and financially viable investment opportunities.
Windows versus waves of opportunity: How reputation alters venture capital firms' resource mobilization
Research Summary This paper investigates how reputation affects firm responses to resource mobilization opportunities. We theorize that lower‐reputation firms are likely to be particularly responsive to resource mobilization opportunities because they are otherwise constrained. By contrast, higher‐reputation firms have access to greater resource supply and may self‐restrain demand. We test these arguments in the context of venture capital (VC) firms raising investment funds. We indeed find that lower‐reputation VCs are more responsive to opportunities presented by recent successes. Unexpectedly, we find that high‐reputation VCs are more responsive to market‐wide heat. Through multi‐method follow‐on analyses, we propose that while recent successes constitute “windows of opportunity” upon which firms act with individual discretion, hot market conditions serve as “waves of opportunity,” exerting a push on the resource mobilization of all firms and influencing their propensity toward scaling up. Managerial Summary We explore how low‐ and high‐reputation venture capital (VC) firms respond to fundraising opportunities such as recent successes or hot market conditions. We show that low‐reputation VCs are more likely to fundraise from limited partners in response to firm‐specific “windows of opportunity” (such as after a portfolio company IPO) because it is a rare chance to attract resource provider attention. By contrast, high‐reputation firms are more likely to fundraise at their own pace, regardless of short‐term successes. However, we unexpectedly find that high‐reputation firms are more likely than low‐reputation ones to take advantage of market‐wide “waves of opportunity” (i.e., hot markets), likely because they benefit from increased fundraising process efficiency. Our study illustrates how hot market periods may be unusually advantageous fundraising opportunities for high‐reputation firms and may be a key driver of when such firms scale up.
Issue Information
Behavioral agency and the efficacy of analysts as external monitors: Examining the moderating role of CEO personality
We integrate behavioral agency research and the five‐factor model of personality to re‐visit investment analysts' efficacy as a mechanism for reducing agency costs. We highlight the role of personality in shaping how CEOs respond to analyst recommendations, leading to boundary conditions for the efficacy of analysts as external monitors. We theorize that the extent to which a CEO perceives a threat from more positive analyst recommendations is contingent upon their personality, which shapes their subjective interpretation of the recommendation and their use of income‐increasing earnings management in response. Our findings suggest that personality is critical to understanding how CEOs respond to external monitors and the agency costs associated with the positive analyst recommendations.
Rating systems and increased heterogeneity in firm performance: Evidence from the New York City Restaurant Industry, 1994–2013
Research Summary We investigate the extent to which the increasing availability of ratings information has affected heterogeneity in firm performance and, if so, what market segments are responsible for these changes. A unique dataset was constructed with restricted‐access government data to examine these questions in the context of the New York City restaurant industry between 1994 and 2013. We find that firms serving tourist and expensive price point market segments experienced increasing sales discrepancies as a function of rating differentials when ratings information became more easily accessible with the advent of online rating platforms. These findings depict how the prevalence of online rating systems have shaped competition and value capture, thus providing insight into the determinants of firm performance heterogeneity. Managerial Summary We examine the extent to which increasing availability of ratings information has affected firm performance by estimating changes in comparative sales between New York City restaurants between 1994 and 2013. Analyses indicate that increased access to ratings information during this period had a considerable effect on comparative sales for firms serving the tourist and the expensive price point market segments. These results provide insights into other industries where access to evaluations and rating systems have also increased. This work suggests that online ratings have affected how firms compete and capture value, and managers have opportunities to use rating systems to their advantage.