This paper describes an empirical study that examines the relationship between the type of external environment in which a firm operates and the repertoire of strategic responses the firm develops to cope with crises. The findings suggest that an executive's propensiry to adopt a particular strategic posture depends on his perceptions of how well his firm can control its environment and onthe costs of introducing change into the organization.
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This study examines how Chinese firms began responding to worsening environmental concerns in the late 1990s. Combining predictions from control theory, escalation of commitment, and goal theory, we seek to explain how leaders' cognitions shape the formation of novel responses to the value-laden issue of corporate greening. We propose an iterative model that links leaders' principles with corporate actions and test it using survey data gathered from 360 firms. The model views strategy organically, as a set of adaptive goals and behaviors, and highlights the role of systemic and local feedback loops in strategy formation. We find that top executives who champion new strategic initiatives monitor early success or failure, and adjust their efforts to match early performance feedback. Perceptions of satisfactory performance strengthen leaders' efforts towards their initial target, while perceptions of unsatisfactory performance diminish them. This feedback relationship is invariant throughout favorable or unfavorable expectancies of success, contrary to the contingent prediction of control theory. The model also examines how top-down and bottom-up strategic initiatives combine to help firms maintain a positive momentum of change when champions' efforts decline in the face of premature failure signals.
Research Summary: This study contributes to the literature on strategic alliances by examining the impact of collaboration on competition between partners in product markets. We integrate the alliance learning and social network perspectives to examine how different combinations of exploratory and exploitative alliances between a firm and its partner influence the firm’s competition against its partner in product markets. Using a longitudinal dataset collected in the U.S. pharmaceutical industry (1984–2003), we find an inverted U‐shaped relationship between relative exploration (i.e., the proportion of exploratory alliances in the collaborative portfolio between a firm and its partner) and the firm’s competition against its partner. This relationship is negatively moderated by firms’ relational and structural embeddedness, but positively moderated by their positional embeddedness.
Managerial Summary: This study examines how different combinations of exploratory and exploitative alliances between two firms affect their competition in the product market. Using a 20‐year dataset collected in the U.S. pharmaceutical industry, we find that the proportion of exploratory alliances (i.e., joint development of critical innovations) in the alliance portfolio between a firm and its partner increases the firm’s competition against its partner, up to a tipping point at which such competition starts to decline. Given a certain combination of the two types of alliances, such competition is stronger if the firm has more alternative allies than its partner but weaker if the firm and its partner have previously collaborated or share common allies in their networks.
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