This article analyzes the effects of diversification and brand breadth on firm performance for professional service firms (PSFs). The research aim is two-fold. First, we test whether moving into ...products may put at risk the core resources that sustain PSFs’ competitive advantage. Second, we study which branding strategies best match their diversification attempts. Broad (narrow) brands characterize a branding strategy with scarce (plentiful) associations to specific product characteristics. We analyzed trademark portfolios of 47 U.S.-based management consulting firms in the 2000 to 2009 time period. Panel regression results suggest that (1) PSFs always benefit from diversification when they remain pure-service providers; (2) performance is positively related to a strategy of specialized narrow brands.
Organization scholars have recently studied the internal challenges and opportunities faced by companies that combine business and social logics (i.e., social business hybrids). By adopting a ...demand-side perspective, this paper addresses the implications of hybridity for strategic choices with products and businesses by focusing on the role of social business hybrids’ customers. In the conceptual framework, social identity theory explains how hybridity generates both positive and negative demand-side externalities. Thus, hybridity can be a source of competitive advantage in the marketplace, but also create hurdles to firms’ ability to scale up their business. Diversification represents a potential choice that simultaneously generates growth, preserves hybridity, and avoids negative demand-side externalities. This paper analyzes the optimal type, timing, and scope of such diversification.
In the Spanish automobile market between 1990 and 2000, significant reductions in tariff and nontariff protections increased the complexity of the product space, through the penetration of new car ...brands and models. Acknowledging these environmental dynamics, this study details conditions in which across-niche (product breadth or intraindustry diversification) and withinniche (product depth or versioning) product proliferation exerts a positive relationship on firm performance, as well as how key relationships change according to the complexity of the product space in the industry.
Transaction costs strongly influence diversification dynamics, as predicted by resource theory. A mainstream view links the profitability of diversification with the existence of transaction costs ...that prevent a firm from trading in fungible, scale-free resources. This study applies a neo-Penrosian perspective to transaction costs, with the notion that diversification may be driven by the redeployment of non-scale-free resources. An empirical analysis, using tax changes in the drink sector as a measure of exogenous demand variation, offers results consistent with the prediction that redeployment is particularly relevant when retailing is concentrated and single-product competition within a focal product niche (e.g., beer) is fragmented. This study also measures redeployment across a portfolio of a multiniche firm when changes in its sales-growth rates for a particular product niche might imply contrasting changes in other product niches. The resulting evidence is consistent with predictions that demand uncertainty, and transaction costs create viable redeployment opportunities for multiniche companies.
When firms tap external knowledge sources, they risk spillovers of their own internal knowledge. If the value of this potential loss and the imitation capabilities of neighboring organizations are ...high, fear of imitation might overshadow the benefits of openness. In such situations, firms might voluntarily reduce their use of external sources, relative to knowledge available internally. Data pertaining to 4,623 European inventions and direct information about the use of knowledge sources confirm that firms reduce their use of external, relative to internal, knowledge when they conduct costly research projects in locations characterized by high levels of absorptive capacity in a specific technology. This study also reveals fear of imitation as a mediating factor of this behavior.
This article explores the pivotal role of causal identification in the domain of management research and its alignment with theory creation. It seeks to stimulate thought about how researchers can ...approach theories and their causal identification with a review of the canonical methods. The article first addresses the intricacies of identification and the principal methodologies that researchers have recently employed in their investigations. Subsequently, it delves into the inherent costs associated with identification, specifically the need for additional assumptions, and the potential constraints on generalizability. It also promotes a more thoroughly examination of the nature of endogeneity. Finally, it explores how the link between causal identification and theory legitimacy could generate superstitious trajectories.
This study investigates the effects of rewards in a research and development (R&D) setting in which employees’ inventive efforts lead to patented inventions. Pay for performance (PFP) for inventions ...is associated with two challenges: Low-quality inventions may be rewarded (false positives), and high-quality inventions may be overlooked (false negatives). Building on previous findings regarding the motivational and informational effects of rewards, we use social identity theory to predict that different types of inventors react differently to such false positive and false negative information. Specifically, we hypothesize that PFP that produces false positives has detrimental effects on corporate inventors with a taste for science, who are motivated by scientific prestige, reputation, and intellectual curiosity. The empirical results from survey data related to 3,995 inventor–patent pairs show that, for this particular group of inventors, false positives are associated with reduced effort in research activities and fewer interactions with peers in the R&D department. In addition, these effects are stronger when firms have many patents and thus provide less noisy information to corporate inventors.
Research summary
This article investigates how diversified firms reallocate internal non‐scale free resources when one of their product business units (BUs) experiences increased exposure to ...international competition driven by a sharp decrease in trade tariffs. On average, firms tend to fight, by reallocating resources toward the BU affected by the trade shock and away from other BUs within the same firm. Two variables moderate this first‐order effect with opposite signs. The level of sunk costs of the assets allocated to the BU affected by the shock is a positive moderator of resource reallocation to it. The presence of technological synergies between the BU affected and the rest of BUs instead moderates the relationship negatively. This negative moderation seems to only take place when competition increases the value of technology as a competitive resource.
Managerial summary
An important question in the strategic decision‐making process of diversified firms is how to react to competitive threats that affect one business unit but not the others. Should managers allocate more resources to the affected business or should they instead reduce their commitment and use the same resources in the remaining operating sectors? In this article, we examine firms’ reallocation decisions following increases in foreign competition due to import tariff cuts. Our results show that firms tend to allocate more resources to the business affected by the tariff cut and less to the businesses unaffected. Furthermore, we find evidence that this behavior is positively associated with performance.
•When penetrating foreign markets, firms could adopt a unique trademark (integration) or trademarks adapted to local cultures (responsiveness).•Trademark responsiveness is preferred when firms suffer ...high level of liability of newness and/or foreignness.•Liability of foreignness and newness depend on firm product diversification and the extent of specialized competition in the foreign market.
How do intellectual propriety rights (IPRs) help firms profit from their innovation? Innovation literature frequently turns to patents to measure innovative IPR, but more recent work shifts focus to the other side of IPR, namely, trademarks. This article therefore discusses the effects of trademark strategies when companies decide to introduce their product portfolios in a new foreign market. Entrants might opt for a common trademark across different country markets (integration) or use several country-specific trademarks (responsiveness). This empirical study exploits the quasi-natural experiment created by the tariff shock that affected Spain when it joined the European Union in the 1990s. Data from the automotive industry reveal how non-European companies that already operated in other European countries sought to enter Spain rapidly, using various trademark strategies. The product portfolio characteristics are fixed at entry, so this study can specify how and when trademark responsiveness versus integration affects firm performance. The results reveal that trademark responsiveness increases firm performance if the firms suffer high liabilities of foreignness or newness.
► Firms are more likely to license general technologies (with many downstream applications) when downstream product markets are fragmented. ► When potential licensees are distant in product space ...from the licensor, they do not value much a dedicated technology in the product space of the licensor. ► When they are close, the licensor is not willing to license to them because of fear of competition. ► By contrast, distant licensees can find general technologies useful, and licensors are willing to license to them because they are not direct product competitors. ► We find consistent empirical evidence.
The combination of a firm capability (i.e., ability to generate general purpose technologies) and a market structure condition (i.e., fragmentation of downstream submarkets) may encourage licensing in an industry. That is, the probability of licensing should increase when product markets are fragmented and technologies support general purposes. Evidence consistent with these predictions emerges from a 1993 to 2001 panel of 87 firms that owned at least one U.S. software security patent between 1976 and 2001. The analysis uncovers some fundamental characteristics of how external knowledge exploitation functions; in particular, technology markets thrive when product markets are fragmented and firms have the capability to produce general technologies.
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