Strategy and Entrepreneurship Abstracts

"Coworking spaces: An overview and research agenda"

Professor(s): Professor Travis Howell
Accepted at: Research Policy (Journal on Financial Times Top 50 list)

In the past decade, coworking spaces have emerged as a new and promising phenomenon within entrepreneurship. Due to its prevalence, popularity, and potential for disruptive change, coworking is increasingly relevant to theory, practice, and policy in entrepreneurship, yet its implications are largely unstudied given the rapid rise of the phenomenon. Overall, more research is needed to inform owners, policy makers, and entrepreneurs regarding the effects of this new organizational form. This study takes an exploratory empirical approach with the goal of shedding light on the current landscape of coworking. By so doing, I provide an initial foundation for research on the coworking movement in entrepreneurship and the various research streams it can enrich.

"The Interplay of CEO Affect, Ambiguous Performance Feedback, and Firm Risk Taking"

Professor(s): John Joseph
Co-author(s): Doctoral Candidates Lily Yuxuan Zhu and Cheon Mok (John) Kim
Accepted at: 2021 Academy of Management Annual Meeting Proceedings

One frequent assumption in the behavioral theory of the firm is that managers react in similar manners to a given type of performance feedback. However, ambiguous feedback leaves ample room for key decision makers’ psychological factors to shape decisions. Augmenting the behavioral theory of the firm with psychological research on affect and cognition, we examine how CEO affective dispositions—a largely underexamined domain of CEO characteristics—alter firm risk taking under ambiguous performance feedback. We theorize that (1) feedback ambiguity dampens firm risk taking in general; (2) CEO positive affectivity attenuates this effect, while CEO negative affectivity strengthens this effect. We use a sample of Fortune 500 companies over the period of 2001-2019 and assess CEOs’ affective dispositions using content analysis of their speeches in the Q&A sections of earnings conference calls. Results provide general support for our theory.

"Competitive Intelligence 2.0 Competing in a Digital World"

Continuing Lecturer Leonard Lane
Co-author(s): K. Michael Ratcliffe
Accepted at: Lexingford Publishing LLC (available on Amazon in the US)

Competitive Intelligence (CI) has emerged as a “must-have” for successful companies across industries. Equally valuable to the competitive intelligence professional and the general business reader, this book tells the compelling and arresting story of major disruptions in technology and commerce. With particular focus on Artificial Intelligence (AI), authors Leonard D. Lane and K Michael Ratcliffe write from a rich background as practitioners, researchers, and teachers of competitive intelligence in all its forms.

"Making Theoretically Informed Choices in Specifying Panel-Data Models"

Professor(s): Professor Philip Bromiley
Co-author(s): Mikko Ketokivi and Amrou Awaysheh
Accepted at: Production and Operations Management (Journal on Financial Times Top 50 list)

We argue that in analyzing panel-data econometric models, researchers rely excessively on statistical criteria to determine model specification, treating it primarily as a matter of statistical inference. This inferential emphasis is most obvious in the common practice of using statistical tests (e.g., the Hausman test) to choose between fixed- and random-effects specifications, often ignoring the assumptions underpinning these tests. For instance, the Hausman test depends on the true withinpanel (longitudinal) and between-panel (cross-sectional) parameters being equal. This assumption is often not justified, because longitudinal and cross-sectional variances and covariances may manifest different underpinning mechanisms. In addition to different mechanisms often resulting in different variables determining within and between effects, within and between variables may also have different meanings. To help researchers make theoretically informed choices, we formulate five questions that can help researchers think of model specification in a theoretically rigorous way. We examine these issues with examples from both the general management and operations management research. Importantly, we argue that addressing the questions regarding model specification must involve primarily theoretical and contextual judgement, not statistical tests.

"Can Brands Claim Ignorance? Unauthorized Subcontracting in Apparel Supply Chains"

Professor(s): Continuing Lecturer Leonard Lane
Co-authors: Felipe Caro and Anna Saez de Tejada Cuenca
Accepted at: Management Science (Journal on Financial Times Top 50 list)

Unauthorized subcontracting—when suppliers outsource part of their production to a third party without the retailer’s consent—has been common practice in the apparel industry and is often tied to non-compliant working conditions. Because retailers are unaware of the third party, the production process becomes obscure and cannot be tracked. In this paper we present an empirical study of the factors that can lead suppliers to engage in unauthorized subcontracting. We use data provided by a global supply chain manager with over 30,000 orders, of which 36% were subcontracted without authorization. We find that the frequency of unauthorized subcontracting across factories has a pronounced bimodal distribution. Moreover, the degree of unauthorized subcontracting in the past is highly related to the probability of engaging in unauthorized subcontracting in the future, which suggests that factories behave as if they choose a strategic level of unauthorized subcontracting. At the order level, we find that state dependence (i.e., the status of an order carrying over to the next one) and price pressure are the key drivers of unauthorized subcontracting. Buyer reputation and lead time also play a role. Finally, we show that unauthorized subcontracting can be predicted correctly for more than 80% of the orders in out-of-sample tests, and for about 70% of suppliers. This indicates that retailers can use business analytics to predict unauthorized subcontracting and help prevent it.

"Activist Hedge Fund Success: The Role of Reputation"

Professor(s): Professor Margarethe Wiersema
Co-author: Yu Zhang
Accepted at: Strategic Management Journal

Given that hedge fund activism is having a major impact on firm’s strategic and financial decision-making, it is important to understand how these activist investors influence companies. An activist campaign is a highly disruptive event leading to considerable ambiguity and uncertainty as to what is likely to transpire. Given this information void, our study finds that the board and management respond based on the reputation of the activist investor that has taken a stake in the company. That activist investors with a reputation for being hostile are more successful may be a defensive response on the part of management in order to avoid the potential adverse consequences of a hostile campaign. This has implications for corporate governance and the fiduciary duty of the board.

"A Behavioral Perspective of Search in Nonprofit Organizations: How Programmatic Performance Drives Fundraising Efforts"

Professor(s): Professor Philip Bromiley
Co-authors: Horacio E. Rousseau and Pascual Berrone
Accepted at: Academy of Management Annual Meeting Proceedings

In this paper, we extend the BTOF to nonprofit organizations. Nonprofits hold both financial and higher-priority nonfinancial programmatic performance goals that relate to program spending directed to fulfill a social mission. We hypothesize that, while financial performance above aspirations decreases fundraising, programmatic performance above aspirations increases fundraising efforts. We also theorize that board size, environmental munificence, and program-generated revenue influence the extent of fundraising as a response to attainment discrepancies. We test our hypotheses using a panel dataset of 12,382 U.S. nonprofits and find support for several of our predictions.

"Organizational Structure, Information Processing, and Decision Making: A Retrospective and Roadmap for Research"

Professor(s): John Joseph
Co-author: Vibha Gaba
Accepted at: Academy of Management Annals

Beginning with Simon (1947)—and motivated by an interest in the effect of formal organizational structure on decision making—a large body of research has examined how organizations process information. Yet, research in this area is extremely diverse and fragmented. We offer a retrospective of past research to summarize our collective knowledge, as well as identify and advance new concerns and questions. In doing so, we identify three critical issues: a division between an aggregation perspective and a constraint perspective of structure; little focus on informational sources of conflict; and uneven treatment of the various stages of decision making. We then offer a roadmap for future research that elaborates the role of organizational structure in decision making. In this endeavor, we offer an ecological perspective of information processing that addresses the issues and provides opportunities to expand research in new directions.

"The Behavioral Theory of the (Community Oriented) Firm: The Differing Response of Community Oriented Firms to Performance Relative to Aspirations"

Professor(s): Philip Bromiley
Co-author(s): Stephen J. Smulowitz and Horacio E. Rousseau
Accepted at: Strategic Management Journal

Combining insights from the behavioral theory of the firm (BTOF) with sociological research on local embeddedness, we propose that community oriented firms respond differently to performance relative to aspirations than noncommunity oriented firms. Community oriented firms develop long-term relations with local constituents and emphasize community goals. This orientation should buffer them from the risk-inducing effects of falling below financial aspirations, and encourage them to pursue community goals more intensely when exceeding financial aspirations. Using U.S. bank data from 2005-2013, we find that community orientation – exemplified by community-banks – attenuates the influence of performance below aspirations on risk taking, but amplifies the influence of performance above aspirations on community investments such as small business loans. We discuss implications for a sociologically-informed view of performance feedback processes.

"Some Problems in Using Prospect Theory to Explain Strategic Management Issues"

Professor(s): Philip Bromiley
Co-author(s): Devaki Rau
Accepted at: Academy of Management Perspectives

Prospect theory has had an immense impact on strategic management scholarship, stemming from an apparent belief that the theory leads to relatively straightforward general hypotheses relating performance and risk taking. We argue that the theory does not justify such general hypotheses. Specifically, we identify two sets of issues related to the application of prospect theory to strategic decisions. The first stems from an incomplete application of the core ideas in the theory – the value and weighting functions, reference points, and frame of reference – to firm decisions. The second set of issues arises from empirical and practical considerations. These include the availability of risk information in firms in a form that corresponds to the information used to develop prospect theory, the application of the theory to a level of analysis different from the one it was developed for, and the distinction managers make between risk and uncertainty. Prospect theory only leads to the predictions many claim it makes under restrictive assumptions that those deriving the predictions seldom if ever postulate. Furthermore, these restrictive conditions may not be plausible in the contexts examined. We conclude with some suggestions for when scholars might fruitfully apply prospect theory to explaining strategic issues.

"The Challenges of March and Simon’s Organizations: Introduction to the Special Issue"

Professor(s): Philip Bromiley
Co-author(s): Rouslan Koumakhov, Denise M. Rousseau, and William H. Starbuck
Accepted at: Journal of Management Studies

March and Simon pushed the study of organizations into the mainstream of academic writing about business. We outline central ideas discussed by the book and its pioneering role in studying cognitive processes underlying boundedly rational human beings. Through their representational approach, March and Simon defined and explicated key mechanisms of individual and organizational decision-making. Organizations provided an empirically-based understanding of human behavior and coordination, and set up core scientific criteria for creating the cumulative body of management and organization research. We summarize the papers presented in this special issue and point out contributions by Organizations that have been understated, forgotten or ignored in management studies.

“Behavioral Strategy and Strategy Prescription”

Professor(s): Philip Bromiley
Co-author(s): Devaki Rau (Merage PhD alum)
Accepted at: Advances in Strategic Management

Research based on theories of how organizations do behave do not obviously connect to prescription (how organizations should behave). This article considers how to apply behavioral results to prescription in strategy and the potential pitfalls inherent in that effort.

“Extending the Behavioral Theory of the Firm to Entrepreneurial Firms”

Professor(s): Philip Bromiley
Co-author(s): Devaki Rau
Accepted at: Strategic Management Review

While the Behavioral Theory of the Firm (BTOF) is one of the most popular theories of organizational change in the strategic management literature, the empirical work used to develop the theory used established firms; most empirical tests of the theory do likewise. Over the past decade or so, however, a number of studies have attempted to extend the BTOF to entrepreneurial firms. This paper examines the extent to which the BTOF applies to entrepreneurial firms. We propose that while some constructs and mechanisms specified in the BTOF (such as aspirations, routines, search, and learning) have limited relevance for entrepreneurial firms and need modifications to be relevant, other constructs and mechanisms (such as dominant coalitions and biases) have greater visibility and relevance in entrepreneurial firms than in larger firms. We conclude with a discussion of how we can most fruitfully apply the BTOF to explaining decision making by entrepreneurial firms.

“Regulatory Uncertainty, Corporate Structure, and Strategic Agendas: Evidence from the U.S. Renewable Electricity Industry”

Professor(s): John Joseph
Co-author(s): Nilanjana Dutt
Accepted at: Academy of Management Journal

Prior research has demonstrated that although organizations generally avoid uncertainties, this behavior is not universally true. To understand better the contingencies around organizations’ responses to regulatory uncertainty, we consider the influence of corporate structure on attentional processing. Our theory and findings suggest that because corporate structure differentiates their problem-solving and learning activities, headquarters and subsidiaries differ in attention allocation on their strategic agendas. Our results show that headquarters display lower levels of uncertainty aversion than subsidiaries, but all organizations generally make greater shifts in attention toward alternative courses of action if they possess complementary experience and access shared experience. We test these ideas using a sample of U.S. electric utility companies attending to renewable technologies from 2000 to 2010: a market greatly affected by regulatory uncertainty. By linking models of decision making under uncertainty and learning with the attention-based view, we develop a more comprehensive understanding of the ways uncertainty influences organizational attention.

“The Attention-based View of Great Strategies”

Professor(s): John Joseph
Co-author(s): W. Ocasio
Accepted at: Strategy Science

For the attention-based view, the origins of the ideas behind a great strategy are less important than the ability of the organization to sustain focused attention in developing, implementing, and elaborating good ideas into a distinctive strategic agenda for value creation. We propose that the transformation of ideas into a great strategy is shaped by the firm’s identity and corresponding patterns of organizational attention. Furthermore, great strategies focus attention on creating value for the customer—through the firm’s value proposition and business model—relative to capturing value for the shareholders. Finally, we propose that great strategies emerge from a focused, strategic agenda communicated and distributed throughout the organization. We illustrate our propositions by comparing Apple and Motorola, which began with similar ideas for developing a strategy for seamless integration and seamless mobility, with smartphones as the digital hub. Apple sustained focused attention on transforming the ideas into the great strategy and business model behind the iPhone, while Motorola did not focus or sustain attention throughout the organization on developing its original ideas, leading to strategic failure.

“The Limits of Relational Governance: Sales Force Strategies in the Medical Device Industry”

Professor(s): John Joseph
Co-author(s): Aaron K. Chatterji and Colleen M. Cunningham
Accepted at: Strategic Management Journal

We explore how interorganizational relationships shape firm boundary decisions. Using data on 545 U.S. medical device manufacturers' product portfolios and sales-governance choices (i.e., internal or external sales forces) from 1983 to 1996, we find relational capital between manufacturers and external sales forces influences future firm boundary decisions. Relational capital lowers the likelihood of integrating the sales function, but only when firms remain focused on the same product market. Further, launching an innovative product has a nuanced effect. For firms lacking relational capital, innovation increases the likelihood of sales integration. This pattern reverses as relational capital accumulates, but only when innovations are in the firm's existing focal product market. Our findings suggest important limits on the effect of relational governance on firm strategy.

“Reviewing, Revisiting, and Renewing The Foundations of Organization Design”

Professor(s): John Joseph
Co-author(s): Oliver Baumann, Richard Burton, Kannan Srikanth
Accepted at: Advances in Strategic Management

In this paper, we briefly review the evolution of organization design research. We then revisit the key themes in organization design and use text analysis to uncover changes in the design-related themes that typify management research over the last half century. Next, we consider what might have driven these changes. We posit that research has shifted because of decreasing decomposability of organizations, rising importance of alternative units of analysis, and a corresponding greater interest in dynamics as embodied by adaptation and learning. Finally, we discuss the papers in this volume and show how they contribute to its theme and the renewal of organization design research.

“March and the Pursuit of Organizational Intelligence: The Interplay between Bounded Rationality and Sensible Foolishness”

Professor(s): Luke Rhee
Co-author(s): Dylan Boynton and William Ocasio
Accepted at: Industrial and Corporate Change

March’s long and varied career in organization theory encompasses a variety of seemingly disparate themes from bounded rationality, to ambiguity and the garbage can model, to exploration and exploitation in organizations. We examine March’s diverse research trajectory and conclude that his different insights can be brought together under one common theme for his career: that both bounded rationality and sensible foolishness are necessary for the pursuit of organizational intelligence. Models of procedural rationality are insufficient because goals are unstable and inconsistent, and causal ambiguity, leads to myopic learning or worse. To explain the interplay of bounded rationality and sensible foolishness in organizations: we explore their role in the interrelated processes of programming, monitoring, sensemaking, search, and decision making.

“Performance Feedback in Hierarchical Business Groups: The Cross-Level Effects of Cognitive Accessibility on R&D Search Behavior”

Professor(s): Luke Rhee
Co-author(s): William Ocasio and Tae-Hyun Kim
Accepted at: Organization Science (forthcoming)

This study examines the cross-level effect of group-level managers on member firms’ problemistic search in hierarchical business groups. Using multi-level data from Korean business groups, we propose that the effects of failure to meet an aspiration level on R&D search intensity increase when member firm performance and R&D investments are more cognitively accessible to group-level managers. Specifically, we find, first, that when underperforming firms are widespread in a business group, a focal member firm intensifies R&D search in response performance below an aspiration level because member firm performance, as a group-level problem, becomes cognitively accessible to group-level managers. Second, as member firms operating in R&D intensive industries are more prevalent in a business group, R&D investments, as a search solution, become more cognitively accessible to group-level managers. Thus, a focal member firm reinforces R&D search in response to the performance shortfall. We discuss the implications of these findings for research on the behavioral theory of the firm and performance feedback.

“Activist Hedge Funds: Beware the New Titans”

Professor(s): Margarethe Wiersema
Co-author(s): Albert Ahn (Merage School Doctoral Candidate)
Accepted at: Academy of Management Perspectives

Deploying more than $65 billion in capital globally and with more than 900 campaigns in 2018, activist hedge funds represent “the activist” in the capital market and are having a significant influence on corporate governance and strategy and even the ownership of companies. While finance scholars have focused on understanding what firms they target and the performance repercussions of their campaigns, management scholars have largely ignored this important constituent. Based on our extensive research on the context of hedge fund activism we provide a research agenda that articulates the opportunities for management scholars to conduct research on this important phenomenon. By shedding light on the dynamics of hedge fund activism, management scholars have the opportunity to provide greater clarity as to whether these activists are shareholder champions or whether they undermine the long-term strategic health of companies.

"The Impact of Earnings Expectations on Corporate Downsizing"

Professor(s): Margarethe Wiersema
Co-author(s): Ann-Christine Schulz
Accepted at: Strategic Management Journal

We propose that due to financial market pressures, managers are forward-looking in their search and decision processes and focus on meeting performance targets set by the financial community. When the firm’s future performance is likely to fall short of the investment analyst consensus earnings estimate, managers will utilize corporate downsizing in order to meet this target. Using panel data on S&P 100 companies, we find that pressure felt by management to meet the analyst consensus earnings estimate influences the extent of corporate downsizing. Moreover, our results show that high levels of institutional investor stock ownership and CEO power attenuate managers' sensitivity to financial market pressures, while high levels of analyst coverage increase their sensitivity. Our study highlights the importance of future focused and externally determined performance targets as aspirational levels of performance.

"The Role of Cognition and Motivation in Understanding Internal Governance and Hierarchical Failure: A Discriminating Alignment Analysis "

Professor(s): Professor Libby Weber
Co-Author(s): Nicolai J. Foss and Siegwart Lindenberg
Accepted at: Academy of Management Review (Journal on Financial Times Top 50 list)

Transaction cost economics (TCE) carefully analyzes market failure while remaining largely silent about hierarchical failure. We argue this omission occurs because TCE’s opportunism assumption does not consider organizational member motivations under different hierarchical forms. Thus, TCE does not fully examine opportunistic behavior under hierarchy, resulting in an incomplete governance analysis. To fill this gap, we build a discriminating alignment theory of hierarchical choice that incorporates explicit motivations under each hierarchical form. We make three contributions to TCE with this theory. First, using the counterproductive work behavior and goal framing literatures, we predict specific motivations (effort, visceral, financial or status opportunism, or collaboration) across hierarchical forms. Second, we predict when “efficient” hierarchical forms (mapped from Williamson’s internal governance analysis) do not effectively mitigate opportunistic behavior, creating hierarchical failure. In these cases, we augment the hierarchical forms with supplemental governance mechanisms necessary to efficiently govern the exchange. Finally, we investigate how different motivations across hierarchical forms lead to excess misalignment costs to enhance our understanding of hierarchical failures. Examining how both transaction hazards and specific motivations drive particular behaviors allows for a more nuanced understanding of specific “costs and competencies” of hierarchy and in turn hierarchical failure in TCE.

"Four Myths About Unauthorized Subcontracting Organizations"

Professor(s): Professor Leonard Lane
Co-Author(s): Felipe Caro, Anna Sáez de Tejada Cuenca
Accepted at: MIT Sloan Management Review

The authors set out to investigate the factors that can lead suppliers to engage in unauthorized subcontracting, using data (provided by a global supply chain manager) on 32,000 orders, of which 36% were subcontracted without authorization. They identified the key drivers of unauthorized subcontracting and found that it could be predicted correctly for 82% of the orders in out-of-sample tests and for 75% of suppliers.