Corporate Diversification and Risk: Portfolio Effects and Resource Redeployability

By analogy with portfolio diversification by stock market investors, managers and researchers have often expected that firms that spread operations across product or geographic markets reduce risk. However, numerous exploratory studies in corporate strategy and in international business have not been able to robustly confirm this expectation. This study develops a formal model to scrutinize implications of corporate diversification for corporate risk. The model incorporates the key distinction of corporate diversification, economies of scope, that qualifies the analogy between corporate and portfolio diversification. The presence of a particular type of economies of scope, resource redeployability, not only inherently increases risk but it can also raise risk over the level in undiversified firms. The model uses determinants of resource redeployability from previous research to derive conditions with which corporate diversification enhances risk. The developed elaborate operationalization of corporate risk should facilitate future research and help corporate managers.

Resource Reconfiguration During Technological Change

A central strategic imperative for surviving technological change requires firms to attenuate the inertia and rigidity imposed by its legacy technology orientation (defined as the relative emphasis placed on technological knowledge and products aligned to an incumbent technology) and successfully transition to a new technology. We theorize that resource reconfiguration through corporate scope decisions—alliances, acquisitions, divestitures, and different postacquisition integration approaches—enables firms to achieve the twin requirements of attenuation and transition. Initially, a legacy technology orientation exerts inertia due to legacy reinforcement—decreasing the likelihood of firms making new technology acquisitions and legacy technology divestitures. New technology alliances mitigate this inertia via legacy attenuation—increasing the likelihood of acquisitions and legacy divestitures. Finally, when firms make new technology acquisitions, we theorize that acquirers choosing partial acquisition integration approaches (partial integration and partial autonomy) are more likely to achieve a successful transition to the new technology-legacy transition and, thus, more likely to survive technological change relative to firms choosing full integration or full autonomy. Using a sample of firms from the digital camera product market over 1991–2006, we found strong empirical support for our predictions. We contribute to research on technological change by demonstrating that firms may overcome the inertia of a legacy technology orientation and adapt to an emerging new technology by employing corporate scope decisions and postacquisition integration as resource reconfiguration mechanisms. Specifically, we advance the novel finding that postacquisition integration is an important survival-enhancing mechanism that facilitates adaptation to technological change.

Evolutionary Approaches to Innovation, the Firm, and the Dynamics of Industries

We examine the progress of the evolutionary research on innovation, the firm, and the dynamics of industries in the last four decades. The paper acknowledges that the themes related to knowledge and technological regimes, the evolutionary processes leading to innovation, and the long-term dynamics of technologies have generated, and still remain, relevant research trajectories. The same can be said for the research trajectories on organizational and dynamic capabilities, evolutionary strategies, vertical integration, diversification, niche construction, and authority and power in organizations. Important progress has also been made in understanding the evolutionary trajectories of industries, the link between industry architecture and industry dynamics, the types of knowledge of entrants, the role of focal and vertical spinouts, the relevance of institutions and sectoral innovation systems in industry dynamics, and the catch-up process by firms from latecomer countries. We argue that future developments in the evolutionary camp should continue to be characterized by eclecticism and multidisciplinarity, as well as by the integration of different methodologies from cases to stylized facts, quantitative analyses, appreciative theorizing, and formal modelling. We conclude with an analysis of the main methodologies used by evolutionary scholars and a discussion of the road ahead.

A Neo-Carnegie Approach to the Agency Question: Bridging the Evolutionary and Cognitive Views of Strategy

This article discusses the role of agency in discovering strategic opportunities by comparing two perspectives: the evolutionary and the cognitive view of strategy. The conceptions put forth by evolutionary scholars and cognitivists reflect different sensibilities, make different assumptions, and end up delineating different roles for the strategist. We recognize the fact that each view focuses on relevant facets of a multifaceted phenomenon and propose a “Neo-Carnegie” path to integrate these views.

The Evolutionary Dynamics of the Artificial Intelligence Ecosystem

We analyze the sectoral and national systems of firms and institutions that collectively engage in artificial intelligence (AI). Moving beyond the analysis of AI as a general-purpose technology or its particular areas of application, we draw on the evolutionary analysis of sectoral systems and ask, “Who does what?” in AI. We provide a granular view of the complex interdependency patterns that connect developers, manufacturers, and users of AI. We distinguish between AI enablement, AI production, and AI consumption and analyze the emerging patterns of cospecialization between firms and communities. We find that AI provision is characterized by the dominance of a small number of Big Tech firms, whose downstream use of AI (e.g., search, payments, social media) has underpinned much of the recent progress in AI and who also provide the necessary upstream computing power provision (Cloud and Edge). These firms dominate top academic institutions in AI research, further strengthening their position. We find that AI is adopted by and benefits the small percentage of firms that can both digitize and access high-quality data. We consider how the AI sector has evolved differently in the three key geographies—China, the United States, and the European Union—and note that a handful of firms are building global AI ecosystems. Our contribution is to showcase the evolution of evolutionary thinking with AI as a case study: we show the shift from national/sectoral systems to triple-helix/innovation ecosystems and digital platforms. We conclude with the implications of such a broad evolutionary account for theory and practice.

Doing Well by Doing Good, Uniquely: Materiality and the Market Value of Unique CSR Strategies

Corporate social responsibility (CSR) has become a strategic decision for organizations. The capacity to invest in several distinct CSR categories at varying levels (e.g., environmental innovation, diversity, community) leaves firms with a multitude of patterns from which to choose. However, the question of whether market returns to CSR are defined by individual-level positioning choices or by industry-level conditions––particularly the materiality of distinct categories of CSR––remains unresolved. Drawing on the literature arguing that stakeholders are crucial enablers of value creation and capture, we theorize that unique CSR strategies more effectively promote stakeholder engagement by helping firms develop differentiated and unrivaled positions with key stakeholders. Thus, we argue that CSR uniqueness is positively associated with market value. Yet we also argue that uniqueness can be constrained by materiality: in industries in which a higher number of CSR categories are considered material, firms have fewer degrees of freedom to successfully differentiate from competitors; hence, the market returns to unique CSR positioning are negatively associated with the number of CSR categories deemed material to the industry. Using a novel measure of uniqueness of CSR strategies and a database containing environmental, social, and financial information of 2,093 firms between 2002 and 2017, we find strong support for our hypotheses. To shed further light on the mechanisms driving the role of materiality, we examine the 2010 BP Deepwater Horizon oil spill.

Raising the Bar: Values-Driven Niche Creation in U.S. Bean-to-Bar Chocolate

We examine how entrepreneurs might build a viable, values-driven niche. Extant templates for niche creation typically employed in moral markets depend on instrumentally rational logics that privilege economic ends such as profitability and efficiency. Entrepreneurs seeking to construct a nascent niche whose purpose and objectives include the amelioration of social ills, however, may find such templates inadequate. Using the emergence of the U.S. bean-to-bar chocolate niche, through which entrepreneurs attempt to address the social and environmental shortcomings of conventional chocolate production, we demonstrate that constructing an alternative model for niche creation is feasible. Most bean-to-bar entrepreneurs deliberately opted out of extant private regulation initiatives, developing instead alternative encompassing, values-driven sourcing and cooperative relationships, which we term collaborative governance. This is enacted throughout the niche by promoting shared values, best practices, and transparency and is supported by strategic meaning-making work to cultivate customers. Together, these three values-driven strategies form a novel template of niche creation based not on cognitive repositioning or exploiting exogenous change within existing structures and institutions, but on a reconceptualization of how markets might work to support the implementation of nonmarket goals. Based on our mixed-methods analysis, we find that, instead of hoping to accomplish nonmarket goals through established market structures, entrepreneurs built a niche centered on the achievement of specific social goals. Our findings suggest that to understand the strategies supporting emergent socially oriented markets, researchers must explore the intersections of values, entrepreneurial motivations, and operational complexities.