Cog in the wheel: Resource release and the scope of interdependencies in corporate adjustment activities

Abstract

Research Summary: This study characterizes and tests interdependencies in corporate activities used to adjust resources and implement change. Because each activity contributes only a partial result and depends on others to complete an intended change, constraining one can create a bottleneck that traps multiple other activities. For my empirical analysis, I leverage the staggered adoptions of employment protection laws intended to constrain one specific adjustment to one specific resource: dismissing employees. The constraint, however, not only affects the contraction but also the expansion in labor as well as capital investments, acquisition, divestiture, CEO turnover, and other adjustments, and increases (shortens) the persistence of negative (positive) performance. The expansive interdependencies are critical to understanding firm rigidity and resilience, implementation failures, and the persistence of firm performance.Managerial Summary: This study shows how executing even a seemingly straightforward improvement requires piecing together a series of interdependent corporate strategic activities. As a result, a constraint on just one is sufficient to foil a successful firm response. Using changes in employment laws, I show that a firm's ability to dismiss employees not only affects firing, but also hiring, capital investments, acquisition, divestiture, and CEO turnover, and increases (shortens) the persistence of negative (positive) performance. Underestimating the complex and interdependent nature of these activities can lead to biasfor-action and contribute to implementation failures, such

A database of CEO turnover and dismissal in S&P 1500 firms, 2000–2018

“…As shown in Table 1, of 85 empirical papers, we identified from these two journals that had to do with CEO succession, 27 (or about 32%) directly measured dismissal. Importantly, many of the other 58 papers considered CEO succession amidst situations that would implicitly be associated with dismissal (e.g., poor performance, financial misconduct, governance failures) (e.g., Arthaud‐Day et al, 2006; Dalton & Kesner, 1985; Ndofor et al, 2013; Wiersema & Zhang, 2013) or dealt with succession outcomes where dismissal may have different implications than more general turnover (e.g., inside versus outside succession, postsuccession performance, postsuccession TMT composition) (e.g., Ballinger & Marcel, 2010; Boeker & Goodstein, 1993; Keck & Tushman, 1993; Keum, 2020; Miller, 1993; Osborn, Jauch, Martin, & Glueck, 1981). Thus, these numbers provide one indication of the potential value—in terms of the amount of research activity in this area—of our open access database for increasing the precision of future succession studies.…”

“…As we went through this initial set, we removed theory papers and reviews, as well as papers that did not directly have to do with CEO succession or dismissal. Dalton & Kesner, 1985;Ndofor et al, 2013;Wiersema & Zhang, 2013) or dealt with succession outcomes where dismissal may have different implications than more general turnover (e.g., inside versus outside succession, postsuccession performance, postsuccession TMT composition) (e.g., Ballinger & Marcel, 2010;Boeker & Goodstein, 1993;Keck & Tushman, 1993;Keum, 2020;Miller, 1993;Osborn, Jauch, Martin, & Glueck, 1981). Thus, these numbers provide one indication of the potential value-in terms of the amount of research activity in this area-of our open access database for increasing the precision of future succession studies.…”

Bottleneck Resources, Market Relatedness, and the Dynamics of Organizational Growth

“…In this study, we argue that bottleneck resources determine the direction of new product market entry. We develop our theory based on a core tenet of the RBV; firms and products are a bundle of resources and activities (Teece, 1986;Henderson and Clark, 1990;Helfat and Raubitschek, 2000;Keum, 2020;Chang 2020). Because missing a single resource can foil the entire entry effort, the process of assembling the resource bundle necessary to enter a new product market centers on bottleneck market resources that are difficult to obtain and sell, as opposed to technological resources which may be easier to obtain through markets for technology.…”

“…We expect that new technological resources may be gained through external sources, consistent with our argument about the importance of markets for technology. Incumbents often use various collaborative arrangements to access new technologies, spanning acquisitions, alliances, licensing, and contract R&D (Arora et al, 2001;Serrano, 2010;Bernstein, 2015;Keum, 2020). In particular, comparisons across entry modes suggest that alliances are typically the fastest way to gain access to new resources (Capron and Mitchell, 2012), and Rothaermel (2001) discusses how incumbents facing radical technological change leverage their complementary assets to negotiate alliance deals with new, technologically sophisticated entrants.…”

The effect of temporary workers and works councils on process innovation

“…Similarly, unionization may lead to a reduction in wage inequality (Frandsen, 2012), which reduces workers' incentives to innovate. It has also been argued that a securely employed workforce has lower employee dynamics and knowledge flow (Eriksson et al, 2014;Keum, 2020), a situation that hinders the communication of innovative ideas and their implementation. Finally, it is argued that unions will start appropriating innovation rents by demanding higher wages once the innovation process has begun and costs have fallen/sales have increased, which hampers firms' incentives to innovate.…”