We examine international joint ventures in the telecommunications industry in Brazil, where pyramidal groups are ubiquitous. We explain how corporate governance differences between pyramidal groups versus widely held freestanding firms can lead to joint venture failures. Our empirical results show that joint ventures between pyramidal group-member firms and partners from countries where pyramids are rare have significantly elevated failure rates, while joint ventures with partners from countries where pyramidal groups are ubiquitous are more likely to succeed. Further, we provide clinical examples illustrating the mechanisms driving divergent partnership performance.
International alliances face a dilemma. Cross-national differences offer valuable complementarities, but they can also spark a negative spiral of dysfunctional conflict. Our study shows that task discourse is an important mechanism for achieving advantages from the different perspectives offered by international alliances. Interestingly, our results further reveal that socializing practices including interorganizational teams, social events, and joint workshops do not per se have beneficial effects for international alliances. Putting people together who are unable to perform in intercultural settings is damaging to alliance performance. Our study indicates the specific conditions under which socializing practices have negative and positive effects and, thus, provokes a discussion about the appropriate application of these practices.
Ecosystems represent a key challenge for established firms, shifting their focus from products to system-level collaboration around integrated value propositions. This longitudinal case study of a machine manufacturer reports how an established firm created an ecosystem to enhance its focal product. Drawing on an activity system lens, we develop a model how firms can achieve fit around an integrated value proposition through mutual adaptation of product and ecosystem activities. This strategic transformation is supported by a shift towards collaborative organizational design. We elaborate on how firms can create non-generic complementarities between products and the emerging eco-system through product adaptations, demonstrate the role of internal and external collaboration in developing ecosystem orchestration capabilities, and highlight data generation and processing as critical factors in realizing complementarities.
Freemium products require widespread diffusion for their success. One way to do this is by incorporating social features (e.g., multiplayer functionality, virtual collaboration, ridesharing), which can generate network effects and result in a product becoming a superstar. However, social features can be a double-edged sword: When demand potential for freemium products is large, social features can significantly boost a product's appeal resulting in more adoption, more usage, and more in-app purchases; but when demand potential is constrained, network effects might fall short and users may feel they are missing out on key aspects of the product. We test this dynamic on a sample of 9,700 digital games on Steam. Findings contribute to our understanding of network effects, freemium strategies, and superstar products in platform markets.
How does an acquisition initiated by a firm's alliance partner affect the value that the firm can create and capture from its alliance with that partner? We conjecture that the similarity between the businesses of the firm and its partner's acquisition target restricts the firm's ability to create and capture value from its alliance, whereas the complementarity between their businesses enhances the firm's gain from its alliance. We further expect relational embeddedness between the firm and its partner to mitigate the competitive tension associated with similarity while rein-forcing synergies ascribed to complementarity. Our analysis of 361 firms and their 590 alliances with91 partners that acquired 164 targets during 2000–2016supports our predictions about business similarity and complementarity but refutes those concerning relational embeddedness.
We argue that mines located near environmentally sensitive water sources are subject to nonmarket risks arising from the potential collective actions of local stakeholders and their allies. Stakeholder mobilization can impose material costs on a mine in the form of delays, regulatory hurdles, and closure. We find that stock markets recognize these nonmarket risks and apply a discount on announcements by mining companies whose mines are located near environmentally sensitive water sources, particularly rivers. However, we also find that investor reaction is stronger in countries with strong institutions that support collective action. Thus, nonmarket risk management is important even in countries that are typically characterized by low political and institutional risks. We discuss the degree to which these results can be generalized beyond mining.
West,Joel; Oliver Alexy, Helge Klapper, Markus Reitzig
Conventional wisdom holds that firms must control scarce and valuable resources to obtain competitive advantage. That being said, over the past decade, many firms—among them Computer Associates, IBM, and Nokia—embarked on open strategies and made parts of their valuable resources available for free. These decisions pose an obvious conundrum, which we solve in our article. We use a mathematical model, grounded in principles of the resource‐based view, to show why and under what conditions open strategies will succeed. Firms significantly improve their performance when (a) opening resources reduces their cost base while (b) strongly increasing demand for their still‐proprietary resource(s). We also explain how openness can reshape markets by weakening competitors, particularly in highly rivalrous environments.
Firms in innovation-driven industries cooperate to develop interoperability standards and compatible technologies. Yet, cooperative firms may disagree about what constitutes fair, reasonable, and non-discriminatory terms for licensing intellectual property. Thus, conflict and patent litigation arise even as firms cooperate to build technologies and industry standards. We find that in innovation ecosystems, firms commonly increase cooperative efforts in response to conflict. Less-connected firms or those with valuable complementary technologies will likely expand cooperation than well-connected firms or technological competitors. Well-connected firms may pursue alternative cooperative opportunities. We suggest that defendant firms' managers can adopt a dual cooperative strategy: (a) identify private and shared benefits from the joint development of complementary technologies with aggressors and (b) invest in alternative technological partnerships to influence the direction of future standards development.
Applications of signaling theory to predict reorganization outcomes are in their infancy. The dynamic integrative framework developed in this study is useful in identifying different types of signals and predicting outcomes of firms in crisis. The results of this study can be useful for various decision makers to predict the turnaround potential of bankrupt firms. Our results show that an increase in alliance partners, institutional investors, and securities analysts following a bankrupt firm predicts the firm's reorganization outcome. Moreover, firms that are able to gain positive attention from key stakeholders will also gain positive interpretations of their strategic efforts. Signals from alliance partners and institutional investors amplify the signaling effect of a firm's de‐diversification effort in predicting its reorganization outcome.
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.
As firms consider transitioning proprietary products to more open platforms to grow market share and relevance, we suggest that managers consider the concerns of external participants when designing a system to govern a platform. Opening access to a platform alone may be insufficient to stimulate external participants to contribute and make real commitments. Our research shows that open access did not stimulate external participation when platform leadership was not clear. When a structured but collectively determined development and governance process was created, external participants increased their contributions and even took on project leadership roles—distributing leadership of the platform among many firms.
Many markets have several voluntary certification programs that sellers can use to signal product or organizational quality. Although many scholars emphasize the potential for competition between labels, we argue that there can be positive spillovers in adoption of “competing” certification schemes and propose a framework for understanding how those spillovers arise through three channels: suppliers, adopters, and audience. Managers of nascent certification programs can use this framework as a roadmap for attracting various stakeholder groups. We use our framework to analyze the diffusion of Chinese green-building labels and find evidence of large positive spillovers through the supplier and audience channels. These results suggest that the risks of tipping toward a single standard may be small in practice.
Relational exchange arrangements supported by trust are commonly viewed as substitutes for complex contracts in interorganizational exchanges. Many argue that formal contracts actually undermine trust and thereby encourage the opportunistic behavior they are designed to discourage. In this paper, we develop and test an alternative perspective: that formal contracts and relational governance function as complements. Using data from a sample of information service exchanges, we find empirical support for this proposition of complementarity. Managers appear to couple their increasingly customized contracts with high levels of relational governance (and vice versa). Moreover, this interdependence underlies their ability to generate improvements in exchange performance. Our results concerning the determinants of these governance choices show their distinct origins, which further augments their complementarity in practice.
Emerging markets typically present additional obstacles for business operations because they lack the necessary underlying institutional infrastructure such as access to capital and labor markets. We introduce a new way for firms to overcome these obstacles—which we call building an OII—by investing in such infrastructure themselves and making it available to their commercial partners, local communities, and even to competitors. Firms must empower those actors to take the lead in collectively defining the rules for accessing this infrastructure, by orchestrating cross-sector partnerships. This process creates relational norms around the alignment of public and private interests, which ultimately can promote firms' competitive advantage.
Motivating human capital in knowledge-intensive activities is a serious managerial challenge because it is difficult to link rewards to actions or performance. Firms instead might motivate knowledge workers by offering them opportunities to increase personal benefits (e.g., learning, satisfaction) through autonomy in the decision-making process. Our model shows that firms can offer less autonomy in projects closer to their core business: Because firm specialization raises the value of the project's outcomes, it also increases the benefits for knowledge workers, who derive motivation even though they make fewer decisions to support their realization of personal goals. Projects farther from the core offer weaker firm contributions, so firms can motivate knowledge workers by allowing them to benefit from greater autonomy. We discuss several implications of our analysis.