Sustaining Cooperation and Innovation at a Time of Disintegration and Distrust
Joel Baum (University of Toronto – Rotman School of Management)
Experiential learning and brokerage in a peer-production network
Peer production, which combines technological, organizational, and institutional advances to enable diverse individuals to socialize, communicate, coordinate, and integrate otherwise fragmented knowledge resources, is one of the most noteworthy Internet-mediated organizational innovations. Among the best known instances are Open Source Software (OSS) projects in which dispersed self-organizing teams of volunteer developers work collaboratively by means of online communication. While the inferiority of such self-organizing structures to hierarchical organization as a solution to complex problems of resource allocation, coordination, and production is often noted, peer production has proven particularly adept. To contribute to an account of their success, I focus on the structural properties of emergent collaborative problem solving networks through which the ideas and resources required to solve problems travel. My specific interest is in how the resolution of software bugs is influenced by the network positions of the bug and the developers collaborating to fix it, as well as the role of developer experience in the network. While knowledge of the problem-solving network – its structure, participants, and functioning – seems essential to realizing its potential, to date, analyses of OSS projects, and problem-solving networks more broadly, have overlooked the role of participants’ experiential learning in securing network advantages. I test my ideas on the problem-solving network induced by patterns of communication and collaboration among software developers working to “debug” the Firefox web browser within the Mozilla OSS Project.
Shweta Gaonkar (Johns Hopkins University – Carey Business School)
A Strategic Model of Inter-Organizational Network Formation
(Co-authored with Angelo Mele)
This paper studies the formation of inter-organizational ties in an equilibrium framework. We model firms’ decisions to form links with other firms as a strategic game. Firms’ payoffs include costs and benefits of establishing a relationship, as well as equilibrium effects from transitivity and popularity. We characterize the equilibrium networks as exponential random graphs (ERGM) and we estimate the firms’ payoffs using a Bayesian approach. We apply the framework to a co-investment network of venture capital firms in the medical device industry. The results show how controlling for the endogenous network structure in equilibrium is crucial to provide a good fit of real-world network data. Firms’ payoffs show a preference for links to similar firms (homophily) and firms with common partners (transitivity). Our structural approach allows us to model the effects of economic shocks on the network. We show how entry of new firms or minimum capital requirements increase the density and clustering of the co-investment network, thus allowing us to quantify the equilibrium impact of these market shocks.
Isin Guler (University of North Carolina – Kenan-Flagler Business School)
Assortativity in Intraorganizational Networks: Implications for Search and Innovation
(Co-authored with Rajat Khanna)
We investigate the implications of intraorganizational network structure for firms’ innovation performance. We argue intraorganizational networks can exhibit various levels of degree assortativity, ranging from disassortative (highly central members connect with peripheral members) to assortative (highly central members connect with other highly central members and vice versa). We construct yearly intraorganizational network structures of firms in the pharmaceutical industry between 1985 and 1999 and track related invention outcomes until 2010. Using coarsened exact matching methodology and controlling for other characteristics of the intraorganizational networks, we find that assortative structures are associated with higher invention output, but the inventions generated in such structures have lower average novelty and impact. The results generate interesting insights about patterns of intraorganizational network structures and how they influence invention outcomes.
George Chondrakis (ESADE)
Information Disclosure and the Market for Acquiring Technology Companies
(Co-authored with Carlos J. Serrano & Rosemarie H. Ziedonis)
The market for acquiring technology-intensive companies is rife with information frictions and valuation challenges. Although such frictions can stifle trading activity, they also provide room for strategic gain. We investigate this dual role of information frictions in takeover markets by exploiting an institutional reform that released technological information in U.S. patent applications to the public domain. Leveraging cross-sectoral variation in the magnitude of new information disclosure, we find that greater disclosure leads to an uptick in acquisitions. In line with predictions from strategic factor market theory, however, we find that acquirers profit less, especially when target firms are private. This evidence is consistent with the view that information disclosure facilitates trade in takeover markets yet has a leveling effect on the returns to acquirers.
Alberto Galasso (University of Toronto – Rotman School of Management)
Risk-Mitigating Technologies: the Case of Radiation Diagnostic Devices
(Co-authored with Hong Luo)
We study the impact of consumers’ risk perception on firm innovation. Our analysis exploits a major surge in the perceived risk of radiation diagnostic devices, following extensive media coverage of a set of over-radiation accidents involving CT scanners in late 2009. Difference-in-differences regressions using data on patents and FDA product clearances show that the increased perception of radiation risk spurred the development of new technologies that mitigated such risk and led to a greater number of new products. We provide qualitative evidence and describe patterns of equipment usage and upgrade that are consistent with this mechanism. Our analysis suggests that changes in risk perception can be an important driver of innovation and can shape the direction of technological progress.
Rembrand Koning (Harvard University – Harvard Business School)
Female Inventors and Inventions
(Co-authored with Sampsa Samila, John-Paul Ferguson)
Does who invents matter for what gets invented? In this paper, we investigate whether female inventors are more likely to generate inventions that benefit women. We link all US biomedical patents from 1975 through 2014 to MeSH terms and disease incidence estimates. We find that patents with women inventors are 20% more likely to focus on female diseases and conditions. Consistent with the idea that women researchers choose to innovate for women, we find that this linkage holds within disease topics and is stronger when a woman is a solo inventor or the team lead. Female solo inventors are nearly 40% more likely to focus on female health outcomes than men. The female inventor-invention linkage holds across time, does not appear to crowd out research on female topics by men, and holds when we control for variation in the demand for female-focused inventions. This suggest increasing the number of women inventors might result in more inventions that benefit women. Overall, our findings highlight the possibility that biased labor-markets engender biased product-markets.
Megan Lawrence (Vanderbilt University – Owen Graduate School of Management)
Coordination Costs and the Emergence of Hierarchy
(Co-authored with Christopher Poliquin)
We have long known that organizational design choices have a significant impact on a firm’s processes and performance. However, most knowledge about organizational structure comes from settings with static or already established structures. We propose and find evidence that coordination costs influence the development of organizational structure. Using a dataset of employees in all new Brazilian firms from 2003 to 2014, we find that factors associated with a greater need for coordination and with a lesser ability to coordinate amongst the founding team are associated with a greater likelihood of adopting a formal structure. These results contribute to our understanding of the role of organizational structure in coordinating knowledge and highlight one mechanism by which founding conditions influence a young firm’s evolution and capabilities.
Sheen S. Levine (University of Texas, Dallas – Naveen Jindal School of Management)
When Advice Can Harm: The Perils of Performance Misjudgment
(Co-authored with Michael J. Prietula)
Strategic decisions can be hard, and when facing hard problems, people commonly seek others’ advice. But finding good advisors is hard because people are imperfect judges of advice quality, and struggle even more in the wicked environment that typifies strategic decisions, where data can be incomplete, outcomes ambiguous, and causality foggy. Relying on empirical data, we model when and how dyadic sharing can cause bad advice (or ideas) to spread, even without malintent or pressures for conformity. We begin by reviewing how people systematically misjudge relative performance, misestimating how their own performance compares to others’. We show that under realistic assumptions of environment and behavior, advice sharing doesn’t necessarily improve average performance, but rather reduces the range and variance of performance, risking the elimination of top performers. Surprisingly, the risk decreases with behaviors often portrayed negatively, such as inertia, in-group bias, and clustering. For scholars of organizations and knowledge, we offer a novel mechanism rooted in evidence. It is distinct from prior concerns about conformity, and thus may be resistant to the proposed remedies. For practitioners, we sound a warning against the risks of popular practices that are meant to increase interaction in firms, among entrepreneurs, and in crowds.
Christiana Weber (Gottfried Wilhelm Leibniz University Hannover)
Do Relation-Specific Investments Pay Off? Comparing the Net Value of Cross-Sector and Within-Sector Partnerships from a Relational Perspective
(Co-authored with Othmar Lehner & James Wallace)
Interorganizational partnerships are on the rise across all industries and all societal sectors. Furthermore, social enterprises (SEs) are increasingly engaging in partnerships with other organizations either within or across societal sectors to address complex social issues and to mutually maximize their joint value created. There is a tendency in the literature on partnerships as well as in politics and the wider public to portray cross-sectorial forms of collaboration as a kind of magic bullet. We challenge the dominant, albeit hitherto untested, assumption in the literature that cross-sector partnerships, because of their higher complementarity of resources, are more effective in creating joint value than are within-sector partnerships. Based on the relational view and an analysis of data from 186 SEs and 137 partners who participate in such collaborations, our results demonstrate that cross-sector partnerships do not perform more effectively than within-sector partnerships. The reason is the often underestimated and ignored additional costs that accompany exploitation of the greater potential of the cross-sector setting. With our findings we challenge current literature on cross-sector partnerships and add to the call to tackle grand societal challenges with management research by close examination of the actual outcome and impact in terms of net value.
Sarath Balachandran (London Business School)
Unlocking Value from Startups’ Ties to Established Firms: The Role of the Entrepreneurs’ Background
Evidence on whether startups benefit from corporate venture capital investment is equivocal. Research suggests that the principal impediment to value creation in these relationships for startups is the complexity of the larger organization – the varying incentive structures, layers of bureaucracy and convoluted decision-making processes that limit their access to valuable resources. I examine whether the backgrounds of the entrepreneurs may influence the ability of the startups to navigate this complexity and unlock value from these relationships. I focus in particular on experience working in an established firm in the same industry, and find that startups whose entrepreneurs have more of this type of experience are more likely to translate their CVC relationships into alliances with the established firm aimed at development or commercialization of their technologies. This effect is heightened if the established firms’ employees managing these relationships have a background in R&D, thus enabling them to connect the entrepreneurs to the critical decision makers with respect to alliance formation. However, I also find that more experience working at established firms among entrepreneurs is associated with a narrowing of the technological distance between the startup and the established firm post-investment, i.e. the startup becomes technologically more like the established firm. This effect is also heightened by the presence of investment managers from R&D backgrounds, but is alleviated if the entrepreneurs themselves have more prior founding experience. Through these findings, the study contributes to research on entrepreneurship, innovation and corporate venture capital.
Mahka Moeen (University of North Carolina – Kenan-Flagler Business School)
Zooming In or Zooming Out: Entrants’ Product Usage Breadth in the Nascent Drone Industry
(Co-authored with Anavir Shermon)
Faced with demand uncertainty in a nascent industry, entrants need to strategically consider which customer segments to serve, and what specialized product features can address customers’ preferences. While high product usage breadth implies addressing preferences of a wide range of customers, low product usage breadth indicates inclusion of market-specific features that are specialized to particular customers. We suggest that when entrants have experience in contexts that are potential users of a new product, their products are likely to exhibit low usage breadth. The relationship is moderated by whether they are startups or diversifying entrants, and the cumulative number of customers that adopted the industry’s product before the time of each entrant’s product introduction. The empirical context is the U.S. commercial drone industry.
Sheryl Winston Smith (BI Norwegian Business School)
And Then There Were Three... The Impact of Multiple Corporate Investors on Innovative Outcomes
(Co-authored with Gary Dushnitsky)
Entrepreneurial ventures are a major source of innovation, and increasingly they are funded by established firms that seek a 'window on novel technologies' (namely, driven by learning objective). The practice, also known as Corporate Venture Capital (CVC) investment, is adopted by a growing number of firms and has recently given rise to ventures being backed by multiple CVC investors. Why would an established firm co-invest with a competitor and risk sharing the learning potential? To that end, we expand on existing innovation studies, and proceed to investigate not only learning objectives but also product-market considerations. A sample of CVC investments in the medical device industry (1978-2007) affords a unique opportunity to test the expansive framework: in this industry one can systematically observe learning (i.e., patenting) and product-market (i.e., FDA's Pre-Market Approvals) outcomes. The evidence suggests that co- investment is mostly consistent with product-market considerations: co-investors introduce more innovative products compared to firms that forego investment, yet the benefits are eroded for a firm that joins the investment syndicate later. We conclude that as firms pursue greater collaborations in their open innovation strategies (and CVC investment in particular), future research should consider learning along with other theoretical considerations, and utilize settings that allow empirical discrimination among them.