Alliance experience and governance flexibility

Prior work has mapped the transaction at the heart of an alliance to the risks of opportunism inherent in that alliance and, ultimately, to how the alliance is structured and governed. We extend this approach by noting that the parties in an alliance do not necessarily perceive the same hazards as predominant and thus may have different preferences for how the alliance is structured. Nevertheless, it is in each party’s best interest to find a structure that protects its interests, while also allowing its partner to protect its interests sufficiently. Drawing from the alliance management capabilities literature, we argue that firms with more alliance experience are better able to protect their interests under any given alliance structure, making the choice of structure less consequential to them. The resulting governance versatility provides a competitive advantage by enabling firms to form advantageous alliances that are less available to inexperienced competitors. Our study of innovative alliances in biopharmaceutical industry lends support to the hypotheses, allowing us to advance the literature on governance choice in alliances, the literature on alliance management, and their intersection.

Lee J, Hoetker G, Qualls W. 2015. “Alliance experience and governance flexibility”. Organization Science 26(5): 1536–1551 View and download

Technological overlap, technological capabilities, and resource recombination in technological acquisitions

The performance of technological acquisitions depends on the overlap between the knowledge bases of the target and acquiring firms. We argue this overlap is best viewed as two distinct constructs: target overlap, the proportion of the target’s knowledge the acquirer possesses, and acquirer overlap, the proportion of the acquirer’s knowledge duplicated by the target. Doing so simultaneously incorporates three drivers of value creation: acquirer’s absorptive capacity, knowledge redundancy, and organizational disruption due to conflict between the firms’ knowledge workers. Target and acquirer overlap have different, inter-related, effects on value created or lost from the target’s and acquirer’s technological capabilities. We also find that the low innovation quantity in acquisitions with low target overlap conceals an offsetting increase in the novelty and quality of innovations generated.

Sears J, Hoetker G. 2014. Technological overlap, technological capabilities, and resource recombination in technological acquisitions. Strategic Management Journal 35(1): 48-67
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Leveraging Japan's "old economy"

Those predicting Japan’s decline overlook one of its greatest resources: its large, established firms and the model that produced them. With the tribulations of Panasonic, Sony, and others in the headlines, this claim may seem to be dubious and to run counter to the many efforts underway to increase the role of start-up firms and the system that created them. However, almost any country can produce start-ups. Japan lags behind many of its regional competitors at doing so and will continue to do so for years. But, few of Japan’s rivals can leverage the creative power of entrepreneurial firms with the stock of established companies and stable institutions that Japan has developed over the last several decades. The Open Innovation paradigm, popularized by Henry Chesbrough in his book of the same name, suggests how to leverage Japan’s “old economy” with the “new economy” it hopes to create.

Based on my paper, "Capturing Japan’s strengths through open innovation [Open Innovation de Nihon no tsuyomi o ikasu]”, Hitotsubashi Business Review, 2012, 60(2): 42-55. View and download

Using open innovation to leverage Japan’s strengths [Open Innovation de Nihon no tsuyomi o ikasu]

Japan’s challenges are well-known. The so-called “Lost Decade”, demographic imbalances and the rise of new competitors have lead many to write-off Japan. The triple disasters of 3/11 merely served to extenuate many people’s negative predictions for Japan’s future. This article will argue that—while Japan’s challenges are real and severe—such gloom is not necessarily warranted. In doing so, it will build on existing arguments that Japan must become more entrepreneurial. However, it will deviate from the common narrative by stressing that some of the very institutional and business factors blamed for Japan’s current difficulties can, in fact, be become sources of competitive advantage for Japan and Japanese companies if transformed by a shift to more open innovation. It does so in several steps. First, it briefly review several key challenges facing Japan. Second, it suggests that potential strengths are hidden among these challenges. Third, it suggests how open innovation can help leverage these strengths. I close by offering an example of how this might come about—the clean energy industry in the post 3/11 world.

Originally published in Japanese. English translation included. View and download

Reconceptualizing plural sourcing

Firms often procure the same input via multiple means, e.g., making and buying. Recent papers exploring such concurrent sourcing modes have yielded rich, but inconsistent, theoretical and empirical insights. We suggest that resolving these inconsistencies and setting the foundation for future work requires reconceptualizing two aspects of concurrent sourcing: what and how. “What” refers to a surprising lack of clarity of what is meant by “same” inputs. We reconceptualize “same” as a spectrum of degrees of similarity and propose how similarity might be measured. “How” refers to the governance modes combined in concurrent sourcing. Extending the literature’s predominant focus on make/buy, we reconceptualize concurrent sourcing as a set of combined governance modes—make/buy, make/ally and buy/ally—distinguished from single modes of governance by certain shared characteristics, but differing from each other in their capabilities and limitations. We demonstrate the potential of our reconceptualization with propositions predicting the use of concurrent sourcing and choice of specific concurrent sourcing modes as a function of similarity, technological volatility and performance ambiguity. Concurrently reconceptualizing “what” and “how” resolves strains between existing studies and strengthens the foundation for future work. Furthermore, enhanced understanding of the trade-offs and synergies among governance modes generates theoretical, empirical and managerial insights relevant to governance choice situations beyond concurrent sourcing itself.

Krzeminska A, Hoetker G, Mellewigt T. 2013. Reconceptualizing plural sourcing. Strategic Management Journal 34: 1614-1627
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Configuration of value chain activities: The effect of pre-entry capabilities, transactions hazard and industry evolution on the decision to internalize

We integrate insights from organizational capabilities, organizational economics, and industry evolution to examine industry entrants’ boundary choices about value chain activities, and test hypotheses in 1978–2009 data from a sample of U.S. bioethanol producers. We find support for our predictions that transaction hazards, decomposed as either enduring or transient over the stages of industry evolution, are positively associated with the choice to internalize value chain activities. Pre-entry experience in an activity increases the likelihood of its internalization and reduces the effect of enduring transaction hazards on the internalization choice. Importantly, we also distinguish between firm- and founder-level pre-entry capabilities (that is, the capabilities of firms versus those of founders). Diversifying entrants with firm-level integrative capabilities are more likely to internalize value chain activities than start-ups, and this effect persists over the industry’s life cycle. The relationship between pre-entry experience with an activity and the likelihood of internalizing it is also stronger for diversifying entrants. Findings improve understanding of the relationships among capability development, boundary choice, and industry evolution.

Qian, L., Agarwal, R., & Hoetker, G. P. 2012. Configuration of value chain activities: the effect of pre-entry capabilities, transaction hazard and industry evolution on the decision to internalize. Organization Science, 23(5): 1330-1349.
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Liberalization and litigation: Evidence from Japan

This Essay examines the under-studied relationship between liberalization and litigation. Liberalization should lead to expanded civil litigation for four reasons: (1) new market entrants are less subject to informal sanctions and may have a greater propensity to go to court; (2) privatization transfers resources away from the state, expanding the number of transactions subject to civil law regimes; (3) liberalization reduces the government’s ability to resolve disputes outside the courts; and (4) liberalization leads to economic development, which is generally litigation-enhancing. We test these propositions using a unique dataset of prefecture-level civil litigation data in Japan during the 1990s. Using panel data, we find a small but significant effect of foreign firms on litigation.

Ginsburg, T., Hoetker, G., "Liberalization and litigation: Evidence from Japan", Washington University Global Studies Law Review, Vol. 8, 2009, pp. 303-315
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NK modeling methodology in the strategy literature: Bounded search on a rugged landscape

We discuss recent methodological advances in the NK modeling in the strategy literature and analyze issues related to its current use including different implementation algorithms, relative versus absolute performance, establishing significance of simulation results and long- versus short-term performance measurements. To facilitate cross- pollination of ideas, we point to advances and extensions of the model developed in other fields that could be effectively utilized to answer Strategy-related questions. These include modeling the strength of interaction, varying the importance of decision elements, utilizing alternative functional forms, incorporating endogeneity in N and K parameters, and embedding the NK model in a broader dynamic framework.

Ganco, M, Hoetker, G., "Nk modeling methodology in the strategy literature: Bounded search on a rugged landscape." Edited by Don Bergh and Dave Ketchen Jr., Research Methodology in Strategy and Management, Emerald Group Publishing, Ltd., 2009, pp. 237-268 View and download

Choice and performance of governance mechanisms: Matching alliance governance to asset type

Formal and relational governance mechanisms are used in strategic alliances to coordinate resources and mitigate the risk of opportunistic behavior. While recent work has shown that these approaches are not mutually exclusive, we understand little about when one approach is superior to the other. Using data on the governance choices and subsequent performance of alliances in the German telecommunications industry, we find that the optimal configuration of formal and relational governance mechanisms depends on the assets involved in an alliance, with formal mechanisms best suited to property-based assets and relational governance best suited to knowledge-based assets. Furthermore, a mismatch between governance mechanisms and asset type can harm the performance of the alliance. Our findings contribute to transaction cost economics, the literature on relational governance, and recent work studying their interaction.

Hoetker, G. and T. Mellewigt (2009). "Choice and performance of governance mechanisms: matching alliance governance to asset type." Strategic Management Journal 30(10): 1025-1044. View and download

Modularity and the impact of buyer-supplier relationships on the survival of suppliers

Modularity in product design and flexible supply chains is increasingly common in buyer–supplier relationships. Although the benefits of supply chain flexibility and component modularity for end-product manufacturers are accepted, little is known about their impact on suppliers. We advance the literature on modularity by exploring how three aspects of a supplier’s relationships with its customers affect the supplier’s survival: duration of buyer–supplier relationships, autonomy from customers, and links to prominent buyers. We compared the effects of these aspects of buyer–supplier relationships for low- and high-modularity components. Using data on U.S. carburetor and clutch manufacturers from 1918 to 1942, we found that suppliers of high-modularity components benefited more from autonomy provided by potential customers, whereas suppliers of low-modularity components benefited more from ties to higher status customers. Both benefited from autonomy generated by existing customers. Thus, relationships that require trust and extensive sets of inter-firm routines, as do those for low-modularity components, led to both greater relationship benefits and greater constraints.

Hoetker, G., Swaminathan, A., Mitchell, W., "Modularity and the impact of buyer-supplier relationships on the survival of suppliers", Management Science, Vol. 53, No. 2, 2007, pp. 171-191. View and download

Death hurts, but it isn't fatal: The postexit diffusion of knowledge created by innovative companies

There is little understanding of whether a firm's innovative knowledge dies with it or if instead significant diffusion of knowledge occurs even after a firm exits an industry. Theoretical predictions about the differing effects of firm exit on private and public knowledge and implications for interfirm knowledge transfer are forwarded. We investigated main and moderating effects of a firm's exit from the disk drive industry on knowledge diffusion to other firms, finding evidence that the ability to use a firm as a template plays a critical role in successfully replicating its knowledge. Absent this template, knowledge "stickiness" reduces knowledge diffusion.

Hoetker, G., Agarwal, R, "Death hurts, but it isn't fatal: The postexit diffusion of knowledge created by innovative companies", Academy of Management Journal, Vol. 50, No. 2, April, 2007. View and download

The use of logit and probit models in strategic management research: Critical issues

The logit and probit models hove become critical parts of the management researcher's analytical arsenal, growing rapidly from almost no use in the 1980s to appearing in 15% of all articles published in Strategic Management Journal in 2005. However, a review of three top strategy journals revealed numerous areas in their use and interpretation where current practice fell short of ideal. Failure to understand how these models differ from ordinary least squares can lead researchers to misunderstand their statistical results and draw incorrect conclusions regarding the theory they are testing. Based on a review of the methodological literature and recent empirical papers in three leading strategy journals, this paper identifies four critical issues in their use: interpreting coefficients, modeling interactions between variables, comparing coefficients between groups (e.g., foreign and domestic firms), and measures of model fit. For each issue, the paper provides a background, a review of current practice, and recommendations for best practice. A concluding section presents overall implications for the conduct of research with logit and probit models, which should assist both authors and readers of strategic management research.

Hoetker, G., "The use of logit and probit models in strategic management research: Critical issues", Strategic Management Journal, Vol. 28, No. 4, 2007, pp. 331-343. View and download

A faustian bargain? The growth of management and its relationship with related disciplines

In an effort to respond to concerns regarding academic rigor expressed in the 1950s, management researchers turned to more established disciplines to help develop a stronger intellectual climate. We examine the evolution of management research over the past 25 years, with a focus on its relationship with the related disciplines of economics, psychology, and sociology. Using citation data for all Academy of Management Journal articles published between 1980 and 2005, we document the temporal changes in disciplinary interlinkages. We discuss the implications of these findings for the current and future state of our field.

Agarwal, R, Hoetker, G., "A faustian bargain? The growth of management and its relationship with related disciplines. Academy of Management Journal 50(6): 1304-1322" View and download

Governing inter-organizational relationships: Balancing formal governance mechanisms and trust

Alliances allow firms to “pool imperfectly tradable resources in order to gain greater efficiency in the use of existing resources as well as opportunities to create new re-sources” (Dussauge/Garrette/Mitchell 2000: 207). Not surprisingly, firms often engage in interorganizational relationships as a means of solving complex problems. Indeed, the formation rate of interorganizational relationships has increased dramaticallyin recent years. Accompanying the increasing number of relationships has been adramatic increase in their variety and the means by which they are governed. This special issue aims at exploring firms’ investment decisions related to alliances as well as the design and management of collaborative agreements.To be successful, a relationship must accomplish two goals, namely identifyingthe optimal combination of productive knowledge across parties and mitigating the risks of opportunistic behavior (Mitchell/Dussauge/Garrette 2002; Nickerson/Zenger 2004). The performance of the alliance thus depends critically on the selection of appropriate governing and coordinating mechanisms. Work drawing primarily on transaction cost economics has argued that increases in exchange hazards will lead to the greater use of formal governance mechanisms (Mayer/Argyres 2004; Williamson 1991). At the same time, a parallel literature has put its focus on more relational governance mechanisms based largely on trust and social identification, e.g., establishing teams, frequent direct managerial contact, shared decision making and joint problem solving (Gulati 1998; Uzzi 1997).The appropriate balance of formal and relational governance mechanisms in managing relationships is the topic of considerable ongoing research. This special is-sue contributes to this research stream by exploring a set of innovative ideas on the management of inter-organizational relationships. Each of the four articles collected in this issue puts a special focus on governance mechanisms and factors which may determine the monitoring and coordination of these relationships. They reflect the actual variety of inter-organizational relationships, because this issue includes papers on explorative R&D alliances, asymmetric alliances and relationships between industrial buyers and suppliers. The articles also illustrate the theoretical and methodological variety in this field.

Mellewigt, T., Hoetker, G., Weibel, A., "Governing inter-organizational relationships: Balancing formal governance mechanisms and trust (Guest editor's introduction to the special issue)", Management Revue, Vol. 17, No. 1, January, 2006, pp. 5-9. View and download

Do modular products lead to modular organizations?

The tacit assumption that increased product modularity is associated with advantageous increases in organizational modularity underlies much of the literature on modularity. Previous empirical investigations of this assumption, few in number, have faced numerous confounding factors and generated conflicting results. I build a causal model for the relationship between product and organizational modularity, which I test using a distinctive empirical setting that controls for confounding factors present in previous studies. I find support for only part of the assumed relationship, showing that modularity is a more multifaceted concept than previously recognized. In particular, increased product modularity enhances reconfigurability of organizations more quickly than it allows firms to move activities out of hierarchy. The paper contributes to the emerging stream of research that focuses on the previously under-appreciated costs of designing and maintaining a modular organization.

Hoetker, G., "Do modular products lead to modular organizations?", Strategic Management Journal, Vol. 27, No. 6, June, 2006, pp. 501-518. View and download

The unreluctant litigant? An empirical analysis of Japan’s turn to litigation

This paper analyzes the rapid increase in civil litigation in Japan during the 1990s in light of existing theories of Japanese litigiousness. Using a unique set of prefecture-level data, it demonstrates that the 1990s increase in litigation is best attributed to two factors: the expansion in institutional capacity for litigation traced to procedural reforms and an expansion in the bar, and structural changes in the Japanese economy related to the postbubble slowdown in growth. The paper contributes to three literatures. First, it builds on earlier institutionally oriented research on civil litigation in Japan by John Haley and Mark Ramseyer by providing new data and detail about the institutional barriers to litigation. Second, it contributes to the literature on the relationship between economic change and litigation more generally. Finally, it contributes to the empirical and comparative literature on litigation rates by providing evidence about the determinants of litigation in one country. View and download

How much you know versus how well I know you: Selecting a supplier for a technically innovative component

How do firms select a supplier for an innovative component? Three literatures speak to this question. Transaction cost economics focuses on the value of internalization, the literature on inter-firm relationships on the value of past relationships, and the firm capabilities literature on the value of superior capabilities. Choosing a supplier means choosing a bundle of these characteristics - internal vs. external, amount of prior transactions, and capabilities - but no study has integrated all three characteristics, making it impossible to understand the trade-offs involved either theoretically or managerially. I propose and test a model integrating all three factors, allowing us to understand the trade-offs involved. I find that when uncertainty is low, the decision is made primarily on the basis of differences in technical capabilities. As uncertainty increases, prior relationships and a supplier being internal take on greater positive significance relative to the importance of technical capabilities. At extreme levels of uncertainty, the value of internal supply relationships becomes very high and past relationships lose their significance. While adherents of each literature have criticized the others for what they omit, this model moves beyond this mutual recrimination by incorporating the key concerns of each literature, setting the stage for future research that draws upon the strength of each. The model provides guidance for any situation where a firm must choose a partner under uncertainty. Lastly, it addresses the strategic question of how companies should organize in the long run to access the capabilities needed for competitive success. View and download

Same rules, different games: Variation in the outcomes of "Japanese-style" supply relationships

This paper debunks the myth of a monolithic model of “Japanese-style” supply relationships and illustrates how idiosyncratic elements of an industry’s environment interact with a country’s institutional environment.Our understanding of Japanese supply relationships comes primarily from studying the automobile industry. This paper identifies three elements of the automobile industry that, although generally assumed to be widespread, are largely absent in the notebook computer industry, leading to a different pattern of supply relationships: a sizable pool of external suppliers; the feasibility of shukko and cross-shareholding to strengthen supply relationships; and the adequacy of these means to manage external supply relationships. This finding debunks the myth of a monolithic model of “Japanese-style” supply relationships and illustrates the importance of idiosyncratic elements of an industry’s environment on its supply relationships. View and download