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The existence of a learning curve in which a firm’s costs decline with cumulative experience suggests that early entry provides learning opportunities that create advantage by reducing future costs...

Bradach and Eccles (1989) identified three distinct forms of plural governance that prevail in business practice: franchising, dual distribution, and concurrent sourcing. Despite the underlying commonality of these forms—organizing an economic activity through multiple governance modes—each form has spawned its own stream of theoretical and empirical research, with relatively little cross-stream knowledge exchange. In this paper, we argue that, given the fragmented nature of these literatures, unexplored opportunities exist for scholars to pursue new research opportunities by importing theoretical predictions, causal mechanisms, and methods from the other streams in theoretically appropriate ways. To highlight what is possible, we first take stock of the distinctive characteristics, conceptual foundations, and dominant methodologies associated with the three literatures. We then identify four key governance challenges—monitoring, cooperation, learning, and competition—that were common across the streams and use these challenges to isolate theoretical and methodological blind spots that merit further research consideration. Our research agenda addresses these blind spots, proposes specific avenues for theory development within each stream of plural governance research, and helps scholars of the franchising, dual distribution, and concurrent sourcing literatures to connect and contribute to research in the intellectual core of plural governance.

The field of international business is fundamentally concerned with the implications of managerial actions that affect multinational risk and performance outcomes. While portfolio diversification and real options theory are often used to describe the outcomes of multinational investment, existing work often confuses the actions and predictions proposed by these theories. This is concerning, as the two theories emphasize different causal mechanisms, managerial actions, and conceptions of risk and performance. Whereas portfolio theory argues that passive management affects symmetric outcomes, such as variance in returns by attaining a well-diversified portfolio, real options theory posits that managers actively shift subsidiary resources to affect asymmetric outcomes, such as upside potential or downside risk by monitoring and responding to environmental changes affecting the portfolio. This paper disentangles these two theories by focusing on unique predictions from real options theory – that geographic dispersion of MNE activities is associated with asymmetric outcomes, that this association is contingent on management being aware of real options logic, and that these effects are moderated by the degree of market uncertainty. Our findings confirm these predictions and suggest differences in the types of managerial strategies and actions required to effectively implement these distinct theories of the MNE.

Research in strategic management has burgeoned in the last few decades. This growth and specialization not only reflects impressive progress but also raises questions about the boundaries and future direction of the field. In an effort to promote the accumulation and integration of insights regarding strategic management we trace research in the field through a series of four generations of scholarship. In so doing, we highlight some of the most important challenges and contributions of each of these generations and note the tensions and opportunities presented by the field's focus on fundamental issues and frontier research topics. We also note the various integration mechanisms that have been called for and discuss their merits and demerits. We conclude by discussing the role of the Strategic Management Review as a complement to existing strategy journals.

Governments have long standing interests in preventing market failures and enhancing innovation in strategic industries. Public policy regarding domestic technology is critical to both national security and economic prosperity. Governments often seek to enhance their global competitiveness by promoting private sector cooperative activity at the inter-organizational level. Research on network governance has illuminated the structure of boundary-spanning collaboration mainly for programs with immediate public or non-profit objectives. Far less research has examined how governments might accelerate private sector cooperation to prevent market failures or to enhance innovation. The theoretical contribution of this research is to suggest that government programs might catalyze cooperative activity by accelerating the preferential attachment mechanism inherent in social networks. We analyze the long-term effects of a government program on the strategic alliance network of 451 organizations in the high-tech semiconductor industry between 1987 and 1999, using stochastic network analysis methods for longitudinal social networks., Forthcoming in Journal of Public Administration Research and Theory, 45 pages, 2 figures, 6 tables

This research analyzes the effects of U.S. science and technology policy on the technological performance of organizations in a global strategic alliance network. During the mid-1980s the U.S. semiconductor industry appeared to be collapsing. Industry leaders and policymakers moved to support and protect U.S. firms by creating a program called Sematech. While many scholars regard Sematech as a success, how the program succeeded remains unclear. This study re-contextualizes Sematech as a network administrative organization which lowered cooperation costs and enhanced resource combination for innovation at the cutting edge. This study combines network analysis and longitudinal regression techniques to test the effects of public policy on organizational network position and technological performance in an unbalanced panel of semiconductor firms between 1986 and 2001. This research suggests governments might achieve policy through inter-organizational innovations aimed at the development and administration of robust governance networks., Science and Public Policy, forthcoming; 40 pages, 4 figures, 4 tables

The growth and diversity of strategic management research raise important questions about the field’s identity. In response to the increasing breadth of topics addressed in the field, scholars have suggested the need for a more topical focus, improved theoretical and empirical rigor, or additional integrative reviews. We suggest an alternative approach, one that emphasizes the distinctive contributions of strategic management. We highlight three unique characteristics of strategic decisions: interdependence across contemporaneous decisions, across the decisions of other economic actors, and across time. We suggest that this threefold characterization of strategic decisions improves on existing definitions that rely on the perceived importance of decisions or the trade-offs presented by a decision. Our definition of strategic decisions highlights patterns of interdependent choices that are complementary or superadditive to value creation. Moreover, this characterization of strategic decisions offers a ready way for scholars with multiple disciplinary or topical interests to connect with the field’s core. These characteristics of strategic decisions also relate to theories of resource allocation and strategic investment, competitive advantage, and firm boundaries that suggest opportunities to better connect these streams of research.

Research Summary We develop a behavioral theory of real options that relaxes the informational and behavioral assumptions underlying applications of financial options theory to real assets. To do so, we augment real option theory's focus on uncertain future asset values (prospective uncertainty) with feedback learning theory that considers uncertain current asset values (contemporaneous uncertainty). This enables us to incorporate behavioral bias in the feedback learning process underlying the option execution/termination decision. The resulting computational model suggests that firms that inappropriately account for contemporaneous uncertainty and are subject to learning biases may experience substantial downside risk in undertaking real options. Moreover, contrary to the standard option result, greater uncertainty may decrease option value, making commitment to an investment path more effective than remaining flexible. Managerial Summary Executives recognize the need to make uncertain investments to grow their business while mitigating downside risk. The analogy between financial options and real corporate investments provides an appealing method to consider the practical challenge of such investment decisions. Unfortunately, the “real options” analogy seems to break down in practice. We identify how a second form of uncertainty confounds real options intuition, leading managers to overestimate the value of uncertain investments. We present a behavioral real options model that accounts for both forms of uncertainty and suggest how uncertainty interacts with behavioral bias in the option execution/termination decision. Our model facilitates assessment of the conditions under which investments in uncertain opportunities are usefully considered as real options, and provides a means to evaluate their attractiveness.

Recent academic and practitioner research suggests that small firms are disadvantaged in strategic alliances. However, relatively little work explores the potential sources of these disadvantages. Using the comparative approach of transaction cost economics and the capability emphasis of the resource-based view, this chapter develops a framework that explores the extent to which differences in the partners available to small firms, the forms of governance chosen by small firms, the types of problems examined by small firms, and other firm attributes affect alliance organization decisions and subsequent performance across small and large firms.

The existence of a learning curve, in which costs decline with cumulative experience, suggests that early entry (and production) provides learning opportunities that create competitive advantage by...

Despite the critical importance and growing interest among academics, students, and practitioners of entrepreneurship, the smorgasbord of conflicting definitions and ongoing debates concerning what...

type="main"> Factors that affect a firm's ability to achieve an advantage may differ from those that affect its ability to sustain that advantage. Moreover, if advantage is a relative concept then studies that relate resource stocks to ‘absolute’ outcomes say little about how resources contribute to enduring differences among firms. We explore these issues in the global semiconductor industry by analyzing how a firm's resource stocks contribute to the persistence of an innovation advantage (a relative outcome). The findings demonstrate that a firm's own production experience and the experience held by its partners contribute to temporary innovation advantages. The results also show that a firm's own production experience yields a more durable innovation advantage as compared to the experience held by a firm's partners and that the experience held by a firm's partners provides a more enduring advantage than a firm's patent stock.

How firms govern their economic activities, including external transactions and internal allocation of resources, is key to firm performance and lies at the very foundation of market exchanges. The...

Over the past 25 years, the technology strategy literature has examined how four primary mechanisms—patents, secrecy, lead time, and complementary assets—influence whether and to what extent firms capture value generated by their innovations. Although this literature has had a profound impact on our understanding of how firms capture value from innovation, we have yet to develop a robust theory that allows us to unbundle the characteristics of institutions, industries, firms, and individual technologies that affect the selection of particular value capture mechanisms. The purpose of this article is to provide a foundation for addressing these gaps in the literature. We identify and assess relevant scholarly work regarding value capture mechanisms published in top-tier peer-reviewed management journals between 1980 and 2011. We then review the assumptions, insights, and causal mechanisms for the antecedents and consequences of the value capture mechanisms highlighted in these articles. The ultimate objective is to identify research opportunities that help to better understand the conditions under which specific bundles of value capture mechanisms are most likely to help innovating firms achieve persistent superior performance.

This paper develops a realistic real option theory of resource allocation decisions in strategic factor markets. Competitive advantage in factor markets is underpinned by market failures that allow firms to acquire assets at less than their value in use. We recognize that market failure may result from uncertainty regarding the current and/or future value of an asset, which map, respectively, to uncertainty as modeled in the feedback learning and real options literatures. The realistic real option framework we develop grafts insights from the strategic factor market, feedback learning, and real option valuation literatures. We argue that competitive advantage may emerge not only from luck, or ex ante differences in information or complementary assets, but also because firms differ in a specific type of learning ability—the ability to integrate new information to exercise a contingent claim on an asset in a factor market. We dimensionalize these differences in terms of information processing and belief updating, argue that these differences lead to different resource allocation decisions, and suggest how these decisions may generate competitive advantage.

Does offshore production pose an added quality risk relative to domestic production? If so, what factors influence the quality risk? Progress addressing these deceptively simple questions has been hindered by the challenges associated with (1) difficulties in controlling for a wide range of factors that may potentially affect quality risk in offshore manufacturing and (2) the lack of available measures that are consistent across geographic regions. This paper contributes to the academic discourse by empirically assessing differences in quality risk across domestic and offshore plants in a setting that naturally controls for many confounding factors. Specifically, we employ a sample of 30 pairs of regulated drug manufacturing plants in the U.S. mainland and Puerto Rico matched both by parent firm and by product standard industrial code (SIC). Using a plant-level measure of quality risk that is measurement invariant, our findings indicate that Puerto Rican plants operate with a significantly higher quality risk than matching plants operated by the same firm located in the mainland U.S., on average. This finding persists above and beyond potentially important factors, such as geographic distance and the local population's general and industry-specific skills. Thus, challenges related to the transfer and maintenance of the knowledge required to operate with a low quality risk across non-geographic distance are left as the most plausible explanatory factors. Practically, our research highlights the need for manufacturing firms to carefully consider increased quality risk associated with the offshoring of production, particularly with regard to process-sensitive products like drugs. From a policy standpoint, our study highlights the need for the Food and Drug Administration (FDA) to continue to intensify its inspection focus on international manufacturing.

The purpose of this editorial is to review the basic definitions, assumptions, and propositions offered by the resource-based, strategic factor market, and dynamic capability literature streams. Considering the underlying definitions and assumptions associated with these approaches leads directly to a set of refutable propositions that highlight the distinct insights offered by each of these literatures. It is hoped that accentuating these distinctions may stimulate dialogue regarding the underlying causal mechanisms associated with these approaches and foster future empirical work testing these related perspectives.

Applications of real option theory indicate that firms endowed with growth or switching options are able to enhance performance and reduce downside risk by adapting operations to changes in inputs,...

The article presents the results of research on the quality risks associated with the offshore outsourcing of manufacturing processes. An overview of related previous studies is provided, along wit...

The article presents information on the persistence of performance differences between rival corporations. The influence of intangible assets such as innovation activity on competitive heterogeneit...

Many studies argue that the continual creation of new ideas by small and young firms steadily destroys the competitive positions of their larger, more established rivals. Despite this attention, empirical results relating firm size to innovation remain exceedingly fragile. This paper proposes three reasons for the empirical inconsistencies in the literature - that small and large firms differ in their: stock of technological experiences, use of own- and partner-firm experiences, and abilities to translate own- and partner-firm experiences into innovation activity. Results from a ten-year study of 463 semiconductor firms demonstrate that the mixed findings generated from prior work are partially attributed to these three general propositions. In particular, the benefits of operating experience developed internally and accessed through co-development partners diminish as a firm increases in size. The findings broadly support the notion that differences in the incentives and abilities of small and large firms give rise to heterogeneity in the firms' innovation activity.

This study examines how technological capabilities and international collaborative linkages affect entrepreneurial firms' abilities to build a foreign sales base in a highly competitive global industry. The empirical evidence from a sample of North American semiconductor firms indicates that both technological capabilities and international collaboration potentially aid firms' development of foreign sales. Our results also provide initial evidence that the influence of technological capabilities and international alliances differs across entrepreneurial and established firms. The paper argues that these differences are due to the dissimilar strategies and resource characteristics of entrepreneurial and established firms.

This paper develops an approach to organizational governance decisions that recognizes how the choice of organizational governance form affects both the creation and appropriation of economic value. The paper begins with a detailed survey of three theoretical approaches— transaction cost economics (TCE), the resource-based view (RBV), and Real Options analysis (RoA) to the study of organizational governance. This review serves to provide background material on each theory as well as to identify the similarities and differences in the assumptions underlying these perspectives. A concluding section provides a series of propositions for future empirical research that may help to integrate these theories by incorporating notions of both value creation and value appropriation.

This article analyzes the adoption of a new process technology in the global semiconductor manufacturing industry. The paper extends research on the relationship between learning-by-doing and technology adoption by examining the stability of learning eiects across technological generations. While the results indicate that production experience with the immediately preceding technological generation is associated with a higher likelihood of adoption, we ¢nd no evidence that experience with older technologies or regional knowledge spillovers in£uence adoption. Finally, the results indicate that large ¢rms and memory manufacturers have a higher likelihood of adoption than small ¢rms and non-memory manufacturers, respectively. i. introduction Recent work has argued that inter-¢rm diierences in technological knowledge represent one of the most critical drivers of new technology adoption (e.g., Jovanovic and Lach [1989], Irwin and Klenow [1994], Parente [1994]). This paper empirically examines how the adoption of process technology used to manufacture semiconductor devices with 0.5 micron feature sizes varies with production experience derived from prior generations of process technology as well as access to geographic knowledge spillovers. Our results indicate that while a ¢rm’s cumulative production experience with the previous 0.6 to 0.75 micron generation of process technology has a statistically signi¢cant eiect on the likelihood that the 0.5 micron technology will be adopted, no signi¢cant correlation

A large literature has successfully employed transaction cost economic theory to describe how exchange conditions affect the optimal form of organization. However, this approach has historically not accounted for the influence of firm-specific attributes on the governance decision. This paper develops a model based on insights from transaction cost economics, the resource-based view, and real options theory to examine how transaction-level characteristics, firm-specific capabilities, and product-market scope influence the governance of production. Empirical evidence derived from analysis of 469 make-or-buy decisions involving 117 semiconductor firms indicates that decisions regarding the governance of production activities are strongly influenced by both transaction- and firm-level effects. Copyright © 2003 John Wiley & Sons, Ltd.

Environmental shocks constitute a sudden reorganizing of firms' important external conditions. Familiar forms of environmental shock include technological, regulatory, and economic shocks, and each...

The real options and behavioral learning literatures provide important insights into strategic investment decisions under uncertainty. Real options theory suggests a decision logic emphasizing small initial investments that provide the opportunity to take additional action after uncertainty is resolved. Behavioral learning theory suggests a logic where decision-makers are endowed with initial beliefs, receive information that updates these beliefs, and take action based on their beliefs and latent information. We develop a behavioral theory that combines these two approaches and present results from a computational model that demonstrates how behavioral bias interacts with uncertainty to reduce option value, engenders downside risk absent in the canonical option model, and alters the trade-off between commitment and flexibility that is at the heart of the real options approach.

Investments in dispersed foreign subsidiaries and international joint ventures (IJVs) are often thought to enhance corporate flexibility and thereby reduce risk. The authors tested these prediction...

This paper examines why firms differ in their adoption of new process technology. The results indicate that, after controlling for firm age and size, fabrication experience and inter-form collabora...

This study tested a model of firm risk-return relations in which risk was conceptualized in terms of downside outcomes. Drawing on the behavioral theory of the firm, we developed a set of hypothese...

This paper develops a realistic real option theory of resource allocation decisions in strategic factor markets. We build on extant financial and managerial theories, real option theories of decisi...

This paper examines the governance decisions of established firms seeking technological know-how. Option theory is used to supplement the traditional transaction cost approach. Empirical results fr...

Contents: Acknowledgements Introduction Michael J. Leiblein and Arvids A. Ziedonis PART I TYPES OF INNOVATION 1. Michael L. Tushman and Philip Anderson (1986), 'Technological Discontinuities and Organizational Environments' 2. Rebecca M. Henderson and Kim B. Clark (1990), 'Architectural Innovation: The Reconfiguration of Existing Product Technologies and the Failure of Established Firms' 3. Clayton M. Christensen and Joseph L. Bower (1996), 'Customer Power, Strategic Investment, and the Failure of Leading Firms' PART II CAPTURING VALUE FROM INNOVATION 4. David J. Teece (1986), 'Profiting from Technological Innovation: Implications for Integration, Collaboration, Licensing, and Public Policy' 5. Richard C. Levin, Alvin K. Klevorick, Richard R. Nelson and Sidney G. Winter (1987), 'Appropriating the Returns from Industrial Research and Development' 6. Sidney G. Winter (2000), 'Appropriating the Gains from Innovation' 7. Joshua S. Gans and Scott Stern (2003), 'The Product Market and the Market for IdeasA": Commercialization Strategies for Technology Entrepreneurs' 8. Ashish Arora and Marco Ceccagnoli (2006), 'Patent Protection, Complementary Assets, and Firms' Incentives for Technology Licensing' 9. Mary Tripsas (1997), 'Unraveling the Process of Creative Destruction: Complementary Assets and Incumbent Survival in the Typesetter Industry' PART III DELIVERING INNOVATIVE VALUE THROUGH RESOURCE ALLOCATION AND ORGANIZATION ACTIVITY 10. Wesley M. Cohen and Daniel A. Levinthal (1990), 'Absorptive Capacity: A New Perspective on Learning and Innovation' 11. Lee Fleming and Olav Sorenson (2004), 'Science as a Map in Technological Search' 12. Jack A. Nickerson and Todd R. Zenger (2004), 'A Knowledge-based Theory of the Firm - The Problem-Solving Perspective' 13. Iain M. Cockburn, Rebecca M. Henderson and Scott Stern (2000), 'Untangling the Origins of Competitive Advantage' PART IV DELIVERING INNOVATIVE VALUE THROUGH INTER-ORGANIZATIONAL DRIVERS 14. Gary P. Pisano (1990), 'The R&D Boundaries of the Firm: An Empirical Analysis' 15. Walter W. Powell, Kenneth W. Koput and Laurel Smith-Doerr (1996), 'Interorganizational Collaboration and the Locus of Innovation: Networks of Learning in Biotechnology' 16. David C. Mowery, Joanne E. Oxley and Brian S. Silverman (1996), 'Strategic Alliances and Interfirm Knowledge Transfer' 17. Michael J. Leiblein, Jeffrey J. Reuer and Frederic Dalsace (2002), 'Do Make or Buy Decisions Matter? The Influence of Organizational Governance on Technological Performance' 18. Joanne E. Oxley and Rachelle C. Sampson (2004), 'The Scope and Governance of International R&D Alliances' 19. Gautam Ahuja and Riitta Katilla (2001), 'Technological Acquisitions and the Innovation Performance of Acquiring Firms: A Longitudinal Study' PART V REAL OPTIONS 20. Rita Gunther McGrath (1997), 'A Real Options Logic for Initiating Technology Positioning Investments' 21. Bruce Kogut and Nalin Kulatilaka (2001), 'Capabilities as Real Options' 22. Timothy B. Folta and Jonathan P. O'Brien (2004), 'Entry in the Presence of Dueling Options' 23. Michael J. Leiblein and Arvids A. Ziedonis (2007), 'Deferral and Growth Options Under Sequential Innovation' 24. Arvids A. Ziedonis (2007), 'Real Options in Technology Licensing' 25. Ron Adner and Daniel A. Levinthal (2004), 'What Is Not A Real Option: Considering Boundaries for the Application of Real Options to Business Strategy'

An important question facing business scholars is whether and how organizations may best adapt their investments, resource profiles, and strategies to the demands of their particular environments. While a broad literature describes organizational design principles that may assist in this regard, more recent work builds on Kauffman's (1993) NK model of biological evolution to explore how selection mechanisms and adaptive principles promote firms' exploitation and exploration efforts. This research stream has made contributions regarding the importance and efficacy of various internal adaptive factors in particular environmental settings. For instance, Levinthal (1997) shows that, despite extensive adaptation efforts, the influence of imprinting persists in complex environments with many local peaks. Rivkin (2000) demonstrates that NK complexity degrades the efficacy of search, compelling imitators to rely on search heuristics rather than adaptation via local learning. Rivkin and Siggelkow (2003) explore the tradeoffs between exploration and stability, and describe how particular organizational attributes, such as vertical hierarchy and group- or firm-level incentive systems, influence the flow of information throughout the organization. These as well as other contributions have added precision to the conceptualization of environments and sharpened understanding of organization by describing precisely how interdependencies across investment choices and/or resource profiles affect adaptation efforts.

This paper examines the application of real option theory to sequential investment decision-making. In an effort to contribute to the development of criteria that discriminate between investments that confer growth options from those that confer deferral options, we introduce a conceptual model that explains technological adoption as a sequence of embedded options. Upon the introduction of each successive technological generation, a firm may either defer investment and wait for the arrival of a future generation or invest immediately to obtain experience that provides a claim on adoption of subsequent generations. We propose that deferral and growth option value is dependent on the magnitude, frequency, and uncertainty of inter-generational change, and the nature of rivalry.

A fundamental question in the field of strategic management involves the sources of competitive heterogeneity. An important debate in this literature regards the relative importance of resource-, relational-, and network-theories of advantage. Scholars have shown associations between access or control of resources and capabilities at the firm-, dyad-, and network- levels of analysis and measures of advantage. However, these views have rarely been compared. Indeed, as research on these three perspectives has largely occurred in isolation, there is disagreement as to whether these theories offer overlapping or distinct views of performance heterogeneity. This paper develops and tests a theory regarding the relative importance of resource-, relational-, and network-theories of competitive advantage. By theoretically and empirically showing that characteristics of the product market are key to interpreting the value and competitive qualities of firm resources, we illustrate the contingent value of each of the...

This paper evaluates the performance consequences of decisions regarding the organization and location of economic activity. While theory leveraging transaction cost logic suggests how the alignmen...

International audience; This paper investigates how firms' decisions to outsource or internalize production affect their technological performance. While several popular arguments and some anecdotal evidence suggest a direct association between outsourcing and technological performance, the effects of firms' governance decisions are likely to be contingent upon several specific attributes underlying a given exchange. This paper first demonstrates how standard performance models can improperly suggest a positive relationship between firms' outsourcing decisions and their technological performance. Models that account for firm- and transaction-specific features are then presented, which indicate that neither outsourcing nor internalization per se result in superior performance; rather, a firm's technological performance is contingent upon the alignment between firms' governance decisions and the degree of contractual hazards. Copyright © 2002 John Wiley & Sons, Ltd.