Competitive Strategy

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VideoArticle Title/ Author(s)/Managerial Abstract
Fainshmidt, Smith and Judge |GSJ Video AbstractNational Competitiveness and Porter's Diamond Model: The Role of MNE Penetration and Governance Quality
Stav Fainshmidt; Adam Smith, William Q. Judge
This study examines how national competitiveness, measured as productivity per worker, is fostered within an economy using a sample of 90 developed and developing economies. We build upon Porter's popular Diamond Model, but extend it by adding the quality of public governance and extent of multinational enterprise penetration as two additional elements. Our study shows that not all four elements of the original Diamond Model are required for an economy to be competitive. Instead, we find that there are four distinct paths to high levels of national competitiveness. Context for intense rivalry among firms appears in all four paths. Results also suggest that public governance quality is key to national competitiveness. The extent of multinational enterprise penetration, however, is not.
Health insurance benefits as a labor market friction | SMJ Video Abstract| SMJ Video AbstractHealth insurance benefits as a labor marketfriction: Evidence from a quasi-experiment
Ulya Tsolmon;Dan Ariely
This study examines whethersmall firms that offer health insurance to theiremployees have better performance outcomes. Eventhough health insurance is a costly investment for smallfirms, there has been scant strategy- and evidence-basedguidance for managers regarding the conditions that canrender investments in employee health ultimately worthwhile. The study analyzes data from 15,000 smallfirms in the United States and finds that offering healthinsurance when retaining and replacing workers byfirms is more difficult. Firms that offer health insurancealso have better worker retention, productivity, and profitability compared to firms that do not offer health insur-ance. The results suggest that investments in employee health and well-being may provide a competitive edge to firms, especially when labor market competition forworkers is high.
On Top of The Game When Freemium Products Succeed| SMJ Video AbstractOn top of the game? The double-edged sword of incorporating social features into freemium products
Joost Rietveld;Joe N. Ploog
Freemium products requirewidespread diffusion for their success. One way to dothis is by incorporating social features (e.g., multiplayerfunctionality, virtual collaboration, ridesharing), whichcan generate network effects and result in a productbecoming asuperstar. However, social features can be adouble-edged sword: When demand potential forfreemium products is large, social features can signifi-cantly boost a product's appeal resulting in more adop-tion, more usage, and more in-app purchases; butwhen demand potential is constrained, network effectsmight fall short and users may feel they are missing outon key aspects of the product. We test this dynamic ona sample of 9,700 digital games on Steam. Findingscontribute to our understanding of network effects,freemium strategies, and superstar products in platformmarkets.
Hyperspecialization and Hyperscaling: A Resource-Based Theory of the Digital Firm| SMJ Video AbstractHyperspecialization and hyperscaling:A resource-based theory of the digital firm
Brian Wu;Gianluigi Giustiziero, Tobias Kretschmer, Deepak Somaya
Digital firms tend to be both narrow in their vertical scope and large in their scale. We explain this phenomenon through a theory about how attributes of firms' resource bundles impact their scale and specialization. We posit that highly scalable resource bundles entail significant opportunity costs of integration(vs. outsourcing), which simultaneously drive “hyperspecialization” and “hyperscaling” in digital firms. Using descriptive theory and a formal model, we develop several propositions that align with observed features of digital businesses. We offer a parsimonious modeling framework for resource-based theorizing about highly scalable digital firms, shed light on the phenomenon of digital scaling, and provide insights into the far-reaching ways that technology-enabled resources are reshaping firms in the digital economy.
In Vogue: How mere proximity to high-status neighbors affects aspirational pricing in US fashion| SMJ Video AbstractTo be in Vogue: How mere proximity to high-status neighbors affects aspirational pricing inthe U.S. fashion industry
Heeyon Kim;Bo Kyung Kim
Bennett, Seamans, & Zhu - Cannibalization & option values in secondary markets | SMJ Video AbstractCannibalization and option value effects of secondary markets: Evidence from the US concert industry
Victor M. Bennett; Robert Seamans, Feng Zhu
We examine how reducing search frictions in secondary markets affects the value appropriated by firms in primary markets. We characterize two effects on primary-market firms caused by intermediaries entering secondary markets: the “cannibalization” and “option value” effects. Separation between primary and secondary markets can drive which of the two effects dominates. Firms selling valuable and scarce products are more likely to have separate primary and secondary markets, and will therefore appropriate more value when secondary markets thicken. Firms selling products that are not valuable and scarce will be hurt. Further, we hypothesize that firms have incentives to engineer scarcity by limiting supply when secondary markets thicken to separate primary and secondary markets. We find support for these hypotheses in the U.S. concert ticket industry.
Value creation in innovation ecosystems | 2020 SMJ Best Paper PrizeInnovation Ecosystems and the Pace of Substitution:
Re-examining Technology S-curves
Kapoor,Rahul; Ron Adner
Why do some new technologies emerge and quickly supplant incumbent technologies while others take years or decades to take off? We explore this question by presenting a framework that considers both the focal competing technologies as well as the ecosystems in which they are embedded. Within our framework, each episode of technology transition is characterized by the ecosystem emergence challenge that confronts the new technology and the ecosystem extension opportunity that is available to the old technology. We identify four qualitatively distinct regimes with clear predictions for the pace of substitution. Evidence from 10 episodes of technology transitions in the semiconductor lithography equipment industry from 1972 to 2009 offers strong support for our framework. We discuss the implication of our approach for firm strategy.
Toward a dynamic notion of value creation and appropriation in firms | SMJ Video AbstractToward a dynamic notion of value creation and appropriation in firms: The concept and measurement of economic gain
Lieberman,Marvin B.; Natarajan Balasubramanian, Roberto Garcia-Castro
Most managers and the business press regard “value creation” as the increase in shareholder wealth represented by a rise in corporate profit or stock price. A broader conception of value creation goes beyond shareholders to include the value that is distributed to additional stakeholders of the firm, including employees, suppliers, and customers. We develop a mathematical framework that allows this broader notion of value creation and distribution to be assessed and quantified in many cases. We illustrate the framework using historical data on Southwest Airlines and American Airlines over 3 decades.
A universe of stories: Mobilising narrative practises during transformative change | SMJ Video AbstractA UNIVERSE OF STORIES: MOBILIZING NARRATIVE PRACTICES DURING TRANSFORMATIVE CHANGE
Di Stefano,Giada; Elena Dalpiaz
How can storytelling be used to influence acceptance of an ongoing organizational transformation? In this article, we try to answer this question by examining how, over three decades, Italian company Alessi documented its transformation from a manufacturer of kitchen steel utensils to a producer of a variety of household objects purchased also for their symbolic value. The leader behind Alessi's transformation, Alberto Alessi, orchestrated such storytelling effort, targeting employees, customers, retailers, and visitors to Alessi exhibitions. Our findings uncover how stories can be used to win audiences’ endorsement of change through narrative practices aimed at: (a) constructing a collective memory of change, (b) depicting change as a novel but coherent departure from the past, and (c) portraying change as a transcendent endeavor.
Caroline Flammer - Product market competition & CSR | SMJ Video AbstractDoes product market competition foster corporate social responsibility? Evidence from trade liberalization
This study examines whether product market competition affects corporate social responsibility (CSR). To obtain exogenous variation in product market competition, I exploit a quasi-natural experiment provided by large import tariff reductions that occurred between 1992 and 2005 in the U.S. manufacturing sector. Using a difference-in-differences methodology, I find that domestic companies respond to tariff reductions by increasing their engagement in CSR. This finding supports the view of “CSR as a competitive strategy” that allows companies to differentiate themselves from their foreign rivals. Overall, my results highlight that trade liberalization is an important factor that shapes CSR practices. 
Threat of platformowner entry and complementor responses: Evidence from the mobile app market | SMJ Video AbstractThreat of Platform-Owner Entry and Complementor Responses: Evidence from the Mobile App Market
Zhu,Feng; Wen Wen
We examine one prevalent source of conflict: platform owners' entry into complementary product spaces. We show that app developers on Google's Android system are strategic and nimble actors. They respond to the threat of Google's entry by adjusting both value‐creation and value‐capture strategies. We also show that platform owners could use direct entry to shape innovation directions and encourage variety of complements. Overall, on the one hand, Google's entry may have pushed complementors into other areas (which might be less lucrative) and strengthened its position in the mobile market. On the other hand, the entry may have reduced wasteful production efforts in the development of redundant applications. The overall welfare implication is thus ambiguous.
Measuring value creation and appropriation in firms: The VCA model | SMJ Video AbstractMeasuring Value Creation and Appropriation in Firms: The VCA Model
García-Castro,Roberto; Marvin B. Lieberman, Roberto Garcia-Castro
Firms create value not only for shareholders, but also for other stakeholders, including employees, customers and suppliers. This article applies a method to quantify the “new” economic value created by a firm over an interval of time; the method also reveals the distribution of that value among the stakeholders. The proposed method gives managers some means to assess changes in the economic value created and distributed. We find that the creation and distribution of value has varied greatly among major U.S. airlines and global automakers in recent decades. Moreover, returns to shareholders typically accounted for only a small proportion of firms' total value creation and often had little relation to broader changes in the magnitude and distribution of value .
Do Investors Actually Value Sustainability? | SMJ Video AbstractDo investors actually value sustainability? New evidence from investor reactions to the Dow Jones Sustainability Index (DJSI)
Hawn,Olga; Aaron K. Chatterji, Will Mitchell
The debate about how investors perceive corporate social responsibility (CSR) predates Milton Friedman's famous statement that the only social responsibility of business is to increase profits. Although extensive research has studied whether sustainability contributes to financial performance, we have yet to understand whether investors believe it pays off. This financial event study of reactions to the addition, continuation, and deletion from DJSI World, the first global sustainability index, shows that investors care little about DJSI announcements. Nonetheless, there is some evidence that global assessments of sustainability are converging and that investors may increasingly be valuing continuation on the DJSI, suggesting that firms may gain at least limited benefits from reliable sustainability activities.
When the weak are mighty: A twosided matching approach to alliance performance | SMJ Video AbstractWhen the weak are mighty: A two-sided matching approach to alliance performance
Darcy K. Fudge Kamal; Florence Honoré, Cristina Nistor
Alliance partners often struggle with identifying what their contributions and their partner's contribution are to the alliance performance. We use a new method to identify each side's contribution to their alliance. Our findings offer a few recommendations to firms forming similar alliances. First, we find that the less central partner in the business network has greater impact on the alliance performance due to their ability to diffuse more valuable information to the market. Second, our results suggest that product input quality that is relatively unknown impacts alliance performance more than low and average quality. Alliance partners may benefit more from experimenting with unknown inputs. Third, more central actors may reduce spending on mass communications if valuable information comes to the market through their less central partners.
Performance Persistence in the Presence of Higher Order Resources | SMJ Video AbstractPerformance persistence in the presence of higher-order resources
Wibbens,Phebo Derk
If firms want to make more profit than their competitors for prolonged periods of time, they must have access to resources that competitors cannot effectively obtain, such as brands, patents, captive customers, or specialized plants. This paper shows that not only these “operating resources” drive long‐term profit differences across firms, but also “higher‐order resources,” such as strategic planning, M&A capabilities, and superior forecasts. Such higher‐order resources do not affect profits directly, but allow firms to obtain superior operating resources over time. A mathematical model incorporating higher‐order resources suggests an average duration of competitive advantage of about 18 years, almost four times as long as implied by traditionally used models.
Victor Bennett & Lamar Pierce on competition in complementary product markets | SMJ Video AbstractMotivation Matters: Corporate Scope and Competition in Complementary Product Markets
Bennett,Victor Manuel; Lamar Pierce
Firms that compete with business units owned by larger corporate parents face additional considerations. Such subsidiary competitors can be motivated by broader corporate considerations, shifting their objectives, and consequently, their strategic actions. Expecting subsidiary competitors to pursue business unit profitability can mislead managers toward pricing, product mix, or market entry errors. We present an important example from consumer finance, where independent auto lessors, such as B ank of A merica (BoA ), compete with captive leasing subsidiaries like F ord M otor C redit (FMC ). Since FMC is motivated to subsidize and support vehicle sales for its manufacturer parent, a cost advantage is not enough for BoA to dominate the market. Understanding broader corporate motivations of competitors helps managers anticipate competition levels in potential markets, thereby improving decision‐making and performance .
Platform Ecosystems as Metaorganizations | SMJ Video AbstractPlatform ecosystems as meta‐organizations: Implications for platform strategies
Tobias Kretschmer; Aija Leiponen, Melissa Schilling, Gurneeta Vasudeva
Platform ecosystems have spurred new products and services, sparked innovation, and improved economic efficiency in various industries and technology sectors. A distinctive feature of the platform architecture is its modular and interdependent system of core and complementary components bound together by design rules and an overarching value proposition. This makes platform ecosystems an organizational form on its own (a “meta-organization”), neither possessing the hierarchical instruments of a firm, nor the largely uncoordinated decisionmaking of markets. Successful platform ecosystems require coordination among multiple participants with possibly conflicting interests. We discuss some of the most salient features of platform ecosystems as meta-organizations, specifically in terms of the sources of authority or power in the ecosystem, the motivation and incentives a platform creates to attract participants, and its governance and coordination structures. These features affect how platform ecosystems compete: i) with a traditional incumbent, ii) with other platform ecosystems, and iii) between different participants of the same platform ecosystem. The articles published in this special issue speak to different aspects of platform competition from the perspective of organization design.
The Nanoeconomics of FirmLevel DecisionMaking and Industry Evolution | SMJ Video AbstractThe Nanoeconomics of Firm-Level Decision-Making and Industry Evolution: Evidence from 200 Years of Paper and Pulp Making
Lamberg,Juha-Antti; Mirva Peltoniemi
What determines firm outcomes in terms of acquisition, dissolution, and survival? This article answers this crucial question of strategy and elaborates on the extent to which the outcome is under top management control. Our findings highlight the importance of technology investments and we identify factors that make such investments possible and profitable. Our results emphasize that firms weighing options must assess the economic meaningfulness of generational technology investments which result in narrowing profit margins and intensifying competition. Another insight concerns the management of political risks. Long‐term fluctuations in regulation and foreign trade policy make it hazardous to optimize to the contemporary political regime. Skillful strategists invest in geographical and technological complexity, which in combination increase the chances of survival in rapidly changing political regimes.
Shane Greenstein on the Decline of Encyclopedia Britannica | SMJ Video AbstractThe Reference Wars: Encyclopædia Britannica’s Decline and Encarta’s Emergence
Greenstein,Shane Mitchell
An established and leading firm, such as Encyclopædia Britannica, would seem to have enormous advantages over its competitors in a new market. Why would a successful firm come to have severe difficulties organizing for a new market? Of particular importance for explaining Britannica's decline are theories that stress its inherited capabilities, especially inherited technological (in)abilities and inherited (mis)perceptions about the potential for new market opportunities. This article argues that Britannica's management did not misperceive the opportunities and threats, and Britannica did not lack technical prowess. This narrative stresses that Britannica's management faced organizational diseconomies of scope between supporting lines of business in the old and new markets, which generated internal conflicts. The narrative directs attention at managing commercialization activity around new products using new technologies .
Uriel Stettner & Dovev Lavie on ambidexterity | SMJ Video AbstractThe Interplay of Competition and Cooperation
#rowspan#Lavie,Dovev; Werner Hoffmann, Jeffrey J. Reuer, Andrew Shipilov
Research streams on competition and cooperation are central to the field of strategic management but have evolved independently. The emerging literature on coopetition has brought attention to the phenomenon of simultaneous competition and cooperation, yet the interplay between the two has remained under‐researched. We offer a roadmap for studying this interplay, which identifies some of its antecedents and consequences, highlights debates concerning the nature of competition and cooperation and the association between the two, and directs attention to the tension between competition and cooperation and the alternative approaches for managing this tension. We discuss the broader implications of the interplay, note some intriguing open questions, offer directions for future research, and present an organizing framework for the interplay of competition and cooperation.
#rowspan#Karna,Amit; Ansgar Richter, Eberhard Riesenkampff
Within the capabilities‐based view of the firm, there is debate about the relative importance of ordinary and dynamic capabilities for firm performance and about the extent to which their performance effects are contingent on environmental conditions. We meta‐analyze 115 studies to investigate the relationship between both ordinary and dynamic capabilities and the financial performance of firms in relatively stable versus changing environments. The results suggest that the performance effects of both types of capabilities are positive and similar in magnitude. Environmental dynamism reinforces the effects of both ordinary and dynamic capabilities. Furthermore, the two types of capabilities are closely associated. Our findings provide support for a moderate capabilities‐based view of the firm, rather than one that considers dynamic capabilities as superior to ordinary ones.
Quantum leaps or baby steps? | SMJ Video AbstractQuantum leaps or baby steps? Expertise distance, construal level, and the propensity to invest in novel technological ideas
#rowspan#Matthew P. Mount; Markus Baer, Matthew J. Lupoli
While the pursuit of novel technological ideas is the driving force of sustained competitive advantage, managers often reject novel ideas in favor of more familiar ones. How then can managers who are out of their depth with a novel technology make sense of it without rejecting it outright? Some suggest that managers should mentally extrapolate from prior experiences with similar ideas. Yet, such extrapolation is impossible when ideas are truly novel and no previous experience with related ideas can be called upon. We resolve this issue by showing that the level at which managers who are unfamiliar with a novel technological idea mentally process it (abstract versus concrete) influences their perceptions of the idea's novelty and usefulness, which, in turn, influences their propensity to invest.
When your problem becomes my problem | SMJ Video AbstractWhen Your Problem Becomes My Problem: The Impact of Airline IT Disruptions on On-Time Performance of Competing Airlines
#rowspan#Tae,C Jennifer; Min-Seok Pang, Brad N. Greenwood
What happens to my operations when a competitor's operations are disrupted? While research has examined how a disrupted firm can recover, little attention has been paid to competitors, except their ability to exploit the disruption for economic gain. This is problematic, as firms increasingly leverage interconnected resources and infrastructure. We show that an airline's IT outages affect on‐time performance of competitors' flights to and from its hub airports. However, the effects depend on both who is disrupted, and who is reacting to that disruption. The disruptions of full‐service carriers (FSCs) delay competitors' flights, but that of a low‐cost carrier (LCC) leads to early arrivals and departures. Further, LCCs are significantly more nimble reacting to disruptions compared to FSCs.