We develop a theoretical perspective on how the increasing data availability in the digital age affects firms’ strategic decisions. Specifically, we explore whether, and under which conditions, ...external experts’ collective assessment of product‐technology domains impacts firms’ allocation of capital to their strategic business units engaged in these domains. Drawing on decision comprehensiveness theory, we propose that such expert sentiment has informational value for capital allocation decisions, and that this value is contingent on the available information’s determinacy and quantity. We find evidence for our propositions by studying 669 capital allocation decisions made by 85 pharmaceutical firms from 2005 to 2016, and by using supervised machine learning classifiers to analyse expert sentiment in almost 250,000 articles. Our study contributes to the behavioural theory of the firm by showing that, contrary to what scholars traditionally assume, decision makers broaden, rather than narrow, their information processing in comprehensive information environments.
How do paradoxical tensions become salient in organizations over time? Ambidexterity and paradox studies have, thus far, primarily focused on how tensions inside organizations are managed after they ...have been rendered salient for actors. Using a longitudinal, embedded case study of four strategic business units within a media organization, we theorize the role of the top management team leader’s practices in enabling tensions to become salient for their respective lower-level managers when there are initial differences in how tensions are interpreted across levels. Our findings extend a dynamic equilibrium model of organizing by adding interpretive context as an enabling condition that shapes the emergence of salience through the provision of a constellation of cues that guide sensemaking. Informed by a practice-based perspective on paradox, we also contribute a conceptual model of leadership as practice, and outline the implications for ambidexterity studies.
Research Summary
We examine to what extent and when multiunit firms internally redeploy managers between units. While theory has emphasized how changes in demand conditions affect redeployment, we ...argue that optimal internal resource allocation involves consideration of both demand and each unit's resource supply. We formalize this argument, showing how redeployment arises from “supply‐side inducements”—return advantages in new over existing resource uses resulting from changes in resource supply. Empirical tests using manager deaths as an exogenous, supply‐side shock to firms' resource stocks support our arguments, showing that firms frequently redeploy resources away from better‐endowed and toward negatively affected units. Incorporating supply‐side inducements into redeployment theory implies additional value‐creation opportunities from redeployment and carries novel predictions for the direction of intra‐firm resource flows.
Managerial Summary
Firms continuously decide how to allocate valuable resources—such as their most productive workers, unique inputs, or machinery—among different units. We argue that to optimally allocate such resources, managers must respond to changes in both the demand environment and in the resource stock of different units. When some units successfully accumulate resources while others suffer adverse shocks, opportunity exists to improve efficiency by internally redeploying resources. Counterintuitively, optimal redeployment frequently involves shifting resources away from successful, well‐endowed units. New business units, being resource‐poor, are often the most important recipients of resources. Empirical analyses studying how firms allocate managers in a large sample of Brazilian firms offer support for these arguments.
Research Summary
Multi‐business firms redeploy human capital to strengthen individual business units. However, we know little about the antecedents of such redeployments and their effects on unit ...outcomes. Contributing to the resource redeployment and strategic human capital literatures, we test the relationships between parent–unit industry relatedness, the direction of redeployment (parent‐to‐unit and unit‐to‐parent), the type of human capital, the likelihood of redeployment, and post‐redeployment unit closure. Using Norwegian population‐level microdata of spinouts, we find that parent–unit industry relatedness increases the likelihood of human capital redeployment and that this effect is stronger for generalists than for specialists. Further, we find that parent‐to‐unit and unit‐to‐parent redeployment of generalists and specialists have distinct effects on unit closure, largely because of differences in post‐redeployment unit performance.
Managerial Summary
Firms with multiple business units often transfer employees between units to strengthen them. However, we do not know which employees are more likely to be sent and which employees, if any, affect the receiving unit's survival and performance. Analyzing over 9000 spinouts in Norway between 2004 and 2015, we find that employees are more likely to be sent when the parent and the unit are in related industries. We further show that employees with specialized professional knowledge are sent regardless of relatedness, while generalists are sent when industries are related. Regarding post‐transfer unit survival, we find that parent‐to‐unit and unit‐to‐parent redeployment of generalists and specialists have distinct effects on survival, largely because of differences in the impact on post‐transfer unit performance.
Organizations increasingly depend on information technology (IT) applications (apps) for competitive positioning. Governance of IT apps presents a unique set of challenges, particularly as ...organizations turn to shared IT apps across business units (IT apps relatedness). Shared IT apps can foment IT misalignment within business units, while also creating opportunities for learning-related synergies. This study develops the idea that an organization's efforts to increase IT apps relatedness influence business unit agility and that this relationship is U-shaped. Analysis of data from 120 organizations provides support for a convex, U-shaped, relationship. Furthermore, the U-shaped curve flattens under conditions of increased market uncertainty. This relationship highlights the need for IT governance to balance tension between business unit interests that seek autonomy over certain IT app choices and corporate interests that push for synergies based on shared IT apps. Failure to create this balance could impede business unit agility and hurt the broader organization.
Investigating the ambidextrous effects of its proactive and responsive dimension offers a fresh perspective on market orientation. Drawing upon the ambidexterity literature, the author derives ...hypotheses on the joint effects of combining and balancing proactive and responsive market orientation. He examines his hypotheses with two-wave panel survey data from 167 strategic business units. Using time-lagged performance data and polynomial regression with response surface analysis to overcome limitations of previous studies of ambidexterity, the author finds that the balance between proactive and responsive market orientation has an incremental positive effect on performance beyond their combined effect; that performance will decline less sharply when proactive is higher than responsive market orientation; and that as the level of balance increases, performance will first decrease and then increase. Given resource scarcity, an important and counterintuitive implication of the present study is that balancing proactive and responsive market orientation is as important as their combination.
Research summary: This study employs longitudinal multilevel modeling to re-examine the relative importance of business unit, corporation, industry, and year effects on business unit performance. ...Total variance in performance is partitioned into stable variance and dynamic variance. Sources of these two parts of variance are explored. Empirical results indicate that (1) stable effects of corporation-industry interaction are substantially important, but were unequally confounded with stable effects of business unit, corporation, and industry in results of previous studies; (2) stable effects of corporation, industry, and corporation-industry interaction, taken together, are of similar relative magnitude to stable effects of business unit; and (3) random and nonlinear year effects are very important in explaining dynamic variance. These findings extend our theoretical and empirical understanding of performance variability. Managerial summary: Whether stable or changing, business units themselves, corporate-parents, and industries influence business unit operations. This article investigates the relative effects of these factors on business unit performance. Although the traditional wisdom is that business unit is critical, this research finds that corporate-parent, industry, and interactions between these, taken together, are as influential as business unit. Specifically, interactions between corporate-parent and industry are important for over-time average business unit performance, indicating that a given corporate-parent unevenly influences its business units in different industries and that a particular industry unevenly influences business units within itself from different corporate-parents. This study also demonstrates that changes in business unit, corporate-parent, and industry are important drivers of over-time volatility of business unit performance and that effects of these changes differ.
Research summary
We examine the correlations between financial resource allocation flow between business segments and two measures of overall firm financial performance using a sample of Compustat ...firms. Our analysis finds a consistent inverted U‐shape (or alternatively, V‐shape) relationship between those measures and firm profitability. Interestingly, nearly all the data lie on the upward sloping part of the curve. Taken together, these results support the notion that flows of financial capital are most often positively correlated with financial performance.
Managerial summary
A key question for any organization is how reallocating capital across business units is related to overall firm performance. We examine the correlations of firm profitability with a measure of change in year‐to‐year allocations across business units in a data set of several thousand firms spanning 18 years. Except in cases of the most extreme reallocations, our measure of firm reallocation is positively correlated with firm performance. Because we cannot prove causality, we cautiously conclude that our findings are consistent with a story that, in most cases, firms would benefit from greater internal reallocation of capital. The managerial question then becomes “what dynamic capabilities are necessary to increase the flow of resources across business segments?” Policies aimed at increasing allocation flow are likely to be beneficial.
Some researchers have proposed that practices facilitating learning and knowledge transfer are particularly important to innovation. Some of the practices that researchers have studied include how ...organizations collaborate with other organizations, how organizations promote learning, and how an organization's culture facilitates knowledge transfer and learning. And while some have proposed the importance of combining practices, there has been a distinct lack of empirical studies that have explored how these practices work together to facilitate learning and knowledge transfer that leads to the simultaneous achievement of incremental and radical innovation, what we refer to as innovation ambidexterity (IA). Yet, a firm's ability to combine these practices into a learning capability is an important means of enabling them to foster innovation ambidexterity.
In this study, learning capability is defined as the combination of practices that promote intraorganizational learning among employees, partnerships with other organizations that enable the spread of learning, and an open culture within the organization that promotes and maintains sharing of knowledge. This paper examines the impact of this learning capability on innovation ambidexterity and innovation ambidexterity's effect on business performance. The resource‐based view (RBV) of the firm is used to develop a conceptual foundation for combining these practices. This study empirically examines whether these practices constitute a learning capability by analyzing primary data gathered from 214 Taiwanese owned strategic business unit (SBUs) drawn from several industries where innovation is important.
The results of this study make four important contributions. First, they demonstrate that the combination of these practices has a greater impact on innovation ambidexterity than any one practice individually or when only two practices are combined. Second, the results demonstrate a relationship between innovation ambidexterity and business performance in the form of revenues, profits, and productivity growth relative to competitors. Third, the results suggest that innovation ambidexterity plays a mediating role between learning capability and business performance. That is, learning capability has an indirect impact on business performance by facilitating innovation ambidexterity that in turn fosters business performance. This study also contributes to our understanding of ambidexterity literature in a non‐Western context, i.e., Taiwan.
Research Summary
What affects organizational units' propensity to learn from each other? Extending the insights of upper echelons theory to the business unit level, we examine the relationship ...between executive narcissism and inter‐unit knowledge transfer. We predict that the narcissism of executives heading business units is negatively related to a unit's receptivity to knowledge emanating from other units. We further theorize that the effect of narcissism is reduced when there is high environmental complexity or dynamism as these challenging situations provide narcissists an excuse for external learning. Conversely, the effect is amplified when high perceived inter‐unit competition enhances narcissists' distinctiveness‐seeking tendencies. Using a two‐wave, multisource survey design and collecting primary data from 118 business units of a headhunting company in China, we find strong support for hypotheses.
Managerial Summary
Knowledge transfer among business units inside a multi‐unit firm is beneficial to firm performance but is never easy. Our research suggests that narcissistic executives are likely to impede inter‐unit knowledge transfer, because their sense of superiority may lead them to overestimate the value of internal knowledge and underestimate the value of external knowledge. This tendency is dampened in complex and dynamic environment which give narcissists an excuse for external learning. Conversely, this tendency is amplified by high inter‐unit competition which motivates narcissists to seek distinctiveness with other units. Thus, when seeking to promote inter‐unit knowledge transfer, firms should be aware of the crucial impact of executive narcissism, and more importantly be careful when undertaking relative performance evaluations or other similar practices which strengthen inter‐unit competition.
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