Research Articles

 

Leiblein, M.J.  2011.  “What do resource and capability based theories propose?” Journal of Management. Vol. 37(4): 909-932.  DOI 10.1177/0149206311408321.

This paper reviews 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 distinction insights offered by each of these arguments.  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.

 

Gray, J., A. Roth, and MJ Leiblein.  2011. “Quality Risk in Offshore Manufacturing.” Journal of Operations Management. Vol. 29(7-8): 737-752.

This paper examines whether and to what extent offshore production poses a quality risk relative to domestic production in the pharmaceutical industry.  It notes the difficulties in controlling for a wide range of factors that may potentially affect quality risk in offshore manufacturing and the lack of available measures that are consistent across geographic regions. The paper aims to contribute by empirically assessing differences in quality risk across domestic and offshore plants in a setting that naturally controls for many confounding factors. Specifically, the study examines 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, the 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 factor. 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.

 

 

Leiblein, M.J., and T. Madsen.  2009.  “Unbundling Competitive Heterogeneity: Incentive Structures and Capability Influences on Technological Innovation,”  Strategic Management Journal, Vol. 30.

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 study proposes three reasons for the empirical inconsistencies in the literature: that small and large firms differ in their: (1) stock of technological experiences, (2) use of own- and partner-firm experiences, and (3) abilities to translate own- and partner-firm experiences into innovation activity. Results from a 10-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, resource flows, in the form of operating experience developed internally and accessed through codevelopment partners, positively affect innovation activity; but these benefits 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 paper was awarded a 2005 Distinguished paper award by the Business Policy & Strategy division of the Academy of Management. 

 

Leiblein, M.J.  2007.  “Environment, Organization, and Innovation: How Entrepreneurial Decisions Affect Innovative Success,”  Strategic Entrepreneurship Journal, Vol. 1(1), pp. 141-144.

Although a large body of research on innovation exists in industrial organization, organization theory, sociology, and strategic management, we still know relatively little about how innovative opportunities are identified or created.  This commentary presents a simple conceptual model through which strategic entrepreneurship research may address this gap in the literature.  This model links recent work that emphasizes the different processes used to recognize, discover, or create innovative opportunities with a simple stimulus—response—consequence framework.  The resulting outline may be used to tackle questions such as: How are innovative opportunities recognized, discovered, and created? What approaches are helpful in implementing and diffusing innovation?  Once identified or created, how do organizations capture value by implementing or commercializing their innovations? Are particular types of organization more successful at managing particular stages of the innovation process?  Responses to these and similar questions promise to help us to understand why some entrepreneurial firms seem to be more innovative than others and how entrepreneurial managers can enhance the probability that their firms create competitive advantage and economic value through innovation.

 

Leiblein, M. J.  2003.  “The choice of organizational governance form and firm performance: Predictions from transaction cost, resource-based, and real options theories,” Journal of Management, Vol. 29(6), pp. 937-962. 

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.

Leiblein, M. J. and D. J. Miller.  2003.  “An empirical examination of transaction- and firm-level influences on the vertical boundaries of the firm,” Strategic Management Journal, Vol. 24, pp.  839-859. 

This paper examines the influence of bargaining conditions, product demand uncertainty, firm capabilities, and product-market strategy on the vertical boundaries of firms. Drawing on theory from both the transaction cost economic and real option literature streams, the paper examines the extent to which uncertainty in product demand affects the decision to vertically integrate. Using logic derived from resource-based and real options theory, the paper examines the extent to which firm-specific resources and product market diversification strategy influence firms’ vertical boundary choices. Empirical evidence is presented from an analysis of 475 make-or-buy decisions involving 119 firms in the global semiconductor industry. The results confirm that small numbers bargaining situations are associated with a greater likelihood of integration even after controlling for firm effects. Nevertheless, firms’ capabilities and diversification strategy are directly related to vertical integration. Finally, as suggested by real option theory, our results indicate that high demand uncertainty is associated with a preference for outsourcing.

Leiblein, M. J. and J. Reuer.  2004.  “An analysis of the effects of firm capabilities and international collaboration on the foreign sales of semiconductor firms,” Journal of Business Venturing, Vol. 19(1), pp. 285-307.   

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 differ across entrepreneurial and non-entrepreneurial firms.  The paper argues that these differences are due to the dissimilar strategies and resource characteristics associated with entrepreneurial and established firms. 

· This research has been discussed in Red Herring magazine (April 9, 2001).  

 

Leiblein, M. J., J. J. Reuer, and F. Dalsace.  2002.  “Do make or buy decisions matter?  The influence of governance on technological performance,” Strategic Management Journal, Vol. 23, pp. 817-833.

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.

This research has been discussed in In-Tech (June 5, 2002), E4Engineering (June 10, 2002), and the German magazine e-sourcing (June 4, 2002).

Cabral, R. and M. J. Leiblein.  2001.  “Adoption of capital embodied process innovations in industries with learning by doing,” Journal of Industrial Economics, Vol. 49 No. 3, pp. 269-280.

This article considers why firms differ in the timing of adoption of capital embodied process innovations by analyzing the adoption of process innovations by semiconductor manufacturers. The study introduces a model that integrates factors associated with the diffusion and learning curve theories of firm behavior. The results suggest that larger firms, memories manufacturing firms, and firms with greater information assets have higher likelihood of adoption. The results further indicate that these information assets become rapidly obsolete. In addition, the study provides mixed evidence on strategic models of adoption, finding no ‘stock’ effects, but suggesting ‘order’ effects. Finally, the results emphasize the role of learning-by-doing in this industry, both as an information asset and as a strategic asset.

Reuer, J. J. and M. J. Leiblein.  2000.  “Downside risk implications of international investments in subsidiary networks and joint ventures,” Academy of Management Journal, Vol. 43 No. 2, pp. 203-214.

Investments in dispersed foreign subsidiaries and international joint ventures (IJVs) are often thought to enhance corporate flexibility and thereby reduce risk. This paper empirically tests these predictions from real options theory and the international strategy literature, using a set of recently-developed downside risk measures. The evidence reveals that U.S. manufacturing firms with greater multinationality or investment in IJVs do not generally obtain lower levels of downside risk. Implications for theory and future empirical research are offered.

This research has been discussed in the Mastering Strategy series published by the Financial Times (10/4/99), Les Echos, Business Finance (October, 2000), as well as the industry newsletter, Chemical Matters (issues 367 & 368).

 

Leiblein, M. J. & C. Y. Woo, 1996.  The impact of technological experiences and collaborative manufacturing arrangements on the likelihood and timing of process technology adoption.  Academy of Management Best Paper Proceedings.* 

Why do firms differ in their propensity to adopt new process technologies? This paper argues that investment in prior generations of technology and inter-organizational linkages critically affect a firm’s knowledge base and, therefore, its propensity to adopt a new technology. Our results indicate that both fabrication experience with prior generations of technology and the use of inter-firm collaborative ventures increase the likelihood of adoption. However, important differences exist in the timing of adoption associated with these two knowledge accumulation mechanisms. Specifically, the relationship between internal experience and new technology adoption is highest just after the new technology is first introduced and decreases with time. In contrast, the relationship between collaborative linkages and technological adoption is initially insignificant but increases with time.

* This paper was honored as a semifinalist for the 1996 Best Paper Award by the Technology & Innovation Management division of the Academy of Management. 

Miller, K. D. and M. J. Leiblein. 1996.  “Corporate risk-return relations: Returns variability versus downside risk,” Academy of Management Journal, Vol. 39 No. 1, 91-122.

This study tests a model of firm risk-return relations in which risk is conceptualized in terms of downside outcomes. The behavioral theory of the firm motivates a set of hypotheses involving downside risk, return, and organizational slack. The hypothesized risk and return relations are tested using both downside risk and the conventional standard deviation of returns measures of risk. The results indicate downside risk results in improved subsequent performance. Performance shows a negative relation with subsequent downside risk.

Folta, T. B. & M. J. Leiblein, 1994.  “Technology acquisition and the choice of governance by established firms: Insights from option theory in a multinomial logit model,”  Academy of Management Best Paper Proceedings.* 

Traditionally, academic studies have relied on insights from transaction cost economics to explain which governance mode a firm will choose to access new technology.  This paper examines how the governance decisions of established firms seeking technological know-how are affected by real options embedded in non-equity forms of collaboration such as licensing agreements or non-equity joint ventures and equity forms of collaboration such as joint ventures or minority equity investments.  Specifically, the paper examines whether established firms are more likely to utilize non-equity or equity forms of collaboration under high uncertainty when such linkages provide a claim for the established firm to subsequently extend its position through acquisition.  Empirical results obtained from an analysis of 947 transactions in the biotechnology industry suggest that transaction costs and option value jointly determine the choice of governance among established firms.

* This paper was awarded the 1994 William H. Glueck Best Paper Award by the Business Policy & Strategy division of the Academy of Management. 

Working Papers

Leiblein, M. J.  Comparing capability acquisition mechanisms: Experience, Organizational Form and the development of new semiconductor capabilities

Does it matter whether new capabilities are developed within the firm, are co-developed through collaborative alliances, or are accessed through production sourcing contracts?  While prior research indicates that capabilities may be developed through each of these mechanisms, little research exists which describes the relative effectiveness of these different approaches.  This paper comparatively assesses the relationship between organizational form and the development of new experientially derived capabilities in the semiconductor industry.  The primary propositions state that production experience managed within the firm will have a more positive influence on the adoption of systemic technologies than experiences accessed through co-development alliances or production sourcing contracts and that the magnitude of this comparative advantage will diminish over time as a technology matures.  Findings from a ten-year study of 216 semiconductor firms provide support for the model. 

Please contact me if you would like a copy of this paper.

Madsen, T. & M.J. Leiblein .  “Resource Stocks, Innovation & Persistent Heterogeneity,” 

Many strategy scholars believe that variance in competitors’ resources and capabilities largely determine differences in firm performance. It also is widely accepted that when conditions exist to isolate a firm’s resources and capabilities from imitation, advantages associated with these factors may translate into sustained differences in performance. Yet, the existing longitudinal empirical work often investigates how resources and/or capabilities increase or decrease performance or survival chances rather than how these factors contribute to enduring performance differences among close rivals. This paper offers empirical evidence regarding the association between capability-enabling resource stocks and persistent differences in the superior performance and innovation activity of firms competing in the global semiconductor industry between 1990 and 1999. We find that innovation activity is associated with persistent above average firm profits. We also compare the durability of different resource stocks to understand which stocks might assist a firm in sustaining its lead in innovation activity relative to industry competitors. The results demonstrate that advantages associated with a firm’s patent stock and with the experience held by a firm’s partners erode at a faster rate than advantages associated with a firm’s cumulative production experience.

* This paper was awarded a 2007 Distinguished paper award by the Business Policy & Strategy division of the Academy of Management. 

Please contact me if you would like a copy of this paper.

Leiblein, M. J. and J. T. Macher.  Collaborative alliance organization and technological performance. 

This paper investigates whether and how the organization of production sourcing alliances affects technological performance. The paper describes why firms utilize different production sourcing arrangements via collaborative alliances and how these decisions relate to technological performance. Building on concepts from transaction cost economics (TCE) and the knowledge-based view (KBV), the paper conceptualizes alliance form along two dimensions that summarize its underlying coordination and control features. More specifically, we associate four different forms of organization commonly used in production sourcing alliances—arms’ length (cash- & license-based) production sourcing, codevelopment production sourcing, equity partnership, and parent-child joint venture—with distinct positions in this two dimensional space. We then develop a series of propositions regarding the firm- and exchange-level factors that favor the use of these four types of alliances and their performance consequences, which are tested on a sample of 621 semiconductor production sourcing alliances using a polychotomous two-stage analysis. The first stage examines the factors affecting the propensity to choose each of the four alliance organization arrangements. The second stage examines alliance performance, measured as the level of “technological advancement” of the focal alliance versus the sample average within each type of alliance arrangement.  Overall, our results support the notion that firms select the specific alliance arrangement that best meets the problem-solving requirements and objectives of technological development project undertaken by the focal firm.  

Please contact me if you would like a copy of this paper.

Leiblein, M. J. and J. T. Macher.  Why Do Small Firms Systematically Benefit Less from Collaborative Activity than Large Firms?

A great deal of academic and practitioner research argues that small (young, private) firms are disadvantaged in their ability to utilize strategic alliances.  Despite this attention, little careful empirical work documents the specific organizational factors that make collaboration difficult for small (young, private) firms, whether decisions regarding the organization of collaborative alliances may mitigate these problems, and whether these considerations significantly affect firm performance.  Building on concepts from the resource-based view (RBV) and transaction cost economics (TCE), this paper examines the extent to which exchange- and firm-level characteristics affect decisions regarding the organization and performance consequences of collaborative.  Using a sample of 603 semiconductor production sourcing alliances and polychotomous two-stage analysis, our empirical results indicate that partner and firm capabilities, the relative “distance” between these capabilities, and the coordination requirements of technological development have distinct effects on alliances’ technological performance.

Please contact me if you would like a copy of this paper.

Leiblein, M. J. and A. Ziedonis.  An option pricing approach to technological adoption in environments characterized by a sequence of innovations

This paper develops a conceptual model that explains technological adoption as a sequence of embedded options.  Upon the introduction of each generation of a technology, a firm must decide whether to exchange its old technology for the current generation, minus the cost of upgrading.  Unlike previous studies, as firms choose whether or not to adopt the current technological generation, they must also consider the implications of their ability to respond to future technological generations of uncertain value and arrival time. That is, the firm must also consider its expectations regarding the value of subsequent generations of the technology.  The paper considers four potential technology migration strategies; compulsive, buy-and-hold, leapfrogging, and laggard.  The model proposes that these four technology migration strategies are dependent on the magnitude of cross-generational technological change, the frequency of cross-generational technological change, and the uncertainty of cross-generational technological change.  Propositions are offered for future research.

A related version of this paper is published as:

·         Leiblein, M.J. and A. Ziedonis.  2007.  Distinguishing between Deferral and Growth Options.  Chapter in J. Reuer and T. Tong (eds.) Real Options Theory Greenwich, CT: Elsevier  Vol. 24. 

Please contact me if you would like a copy of this paper.

Leiblein, M. J..  How Industry, Firm, and Exchange Factors Lead to Changes in Vertical Scope

Drawing on theory from industrial organization, transaction cost economics, and the resource based view, this paper examines the factors which underlie the shifting use of governance mechanisms over time.  Specifically, the paper addresses (1) whether and how changing industry-, firm-, and exchange-characteristics affect the choice or organizational governance form, (2) whether and how the influence of industry-, firm-, and exchange-characteristics on organizational governance form varies over time, and (3) whether these changes are systematic.  Preliminary evidence is presented from 4015 make or buy decisions involving 125 firms in the global semiconductor industry between 1990 and 1999.

 

Practitioner Papers

Reuer, J. J. and M. J. Leiblein.  "Real Options: Caveat Emptor" In Financial Times (London). May 9, 2000.

Executives keen to manage organizational risks are often well-acquainted with financial options and other hedging instruments. Financial options, for instance, exist for foreign currencies, commodities, and corporate securities. But real options? What makes an option real, and how might firms use real options to manage risk?  This article describes the promise and limitation of applying a real option approach to corporate strategy investment. 

Please contact me if you would like a copy of this paper.

Galbraith, C., Merrill, G., and Leiblein, M.  1992.  "Matching Executive Compensation to Competitive Strategy." In Handbook of business strategy.   Warren-Gorham-Lamont, Boston, Mass

· (reprinted in John B. Miner and Donald P. Crane (eds.) Advances in the practice, theory, and research of strategic human resource management Harper Collins, New York, NY. pp. 340-353).

An appropriately designed executive compensation program is one of the primary tools to reconcile the wishes of a firm's owners and the strategic behavior of that firm's management. While much has been written on executive compensation in the popular business press, in actuality, most firms still have a relatively crude understanding of the power of such programs to influence strategic behavior. Academic understanding is equally weak; most theoretical development and empirical analysis to date, for example, has simply focused on the effect various compensation programs have upon "corporate-level" or diversification strategy. Little work has been accomplished with respect to the effect executive compensation has upon "business-level," or the competitive strategy of a division or strategic business unit (SBU). Just as the form of executive compensation affects diversification strategy, so should the form of executive compensation affect issues of cashflow generation, marketing, research and development, innovation, capital investment, employee training, and product quality. For most corporations the management of these strategic elements are ultimately under the jurisdiction of the relevant SBU manager. In addition, each SBU in a firm will likely have a different mix of strategic objectives; and it is at this SBU level that the real corporate competitive successes or failures are realized. The purpose of this paper is to therefore examine the extent to which compensation programs for divisional and SBU managers impact their strategic thinking and behavior, and to suggest some approaches in compensation programs appropriate to the strategy of a given SBU.

Please contact me if you would like a copy of this paper.

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