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Entrepreneurial activity is facilitated by the ties that connect founders and their venture to a broader network of actors. This insight on the value of social capital has been enriched by a large body of research that builds on core concepts of network content, governance, and structure. Network content refers to the resources, information and social support that is exchanged or flows between actors. Governance encompasses the mechanisms that organize and regulate the exchange. Network structure refers to broader patterns created from the relationships between actors. With these building blocks, key findings that have emerged over 30 years of research can be organized into two domains: how networks influence entrepreneurial outcomes and how networks develop over the entrepreneurial process. Core findings regarding the performance consequences of social capital underscore its benefits while identifying limitations due to decreasing returns to growing and maintaining a large network or to contingencies tied to the stage of the venture’s growth. Our understanding of the sources of network evolution and the resulting patterns have also developed significantly. As a motor of network change, scholars have emphasized the goal-oriented behavior of the entrepreneur, but recognize social relationships also engender mutual concern, obligation, and emotional attachment. From a focus on founder and founding team ties to start-up, small firm networks, the literature now spans multiple levels and accounts for contextual variation between industries and institutional environments. Advances within each of these domains of inquiry have led to rich insights and greater conceptual complexity. Future research opportunities will arise that leverage cross-fertilization of the process and performance research streams.
Sarah A. Soule
Do the activities of social movements (e.g., public protest, shareholder activism, boycotts, and sabotage) impact businesses, and if so, how do they impact businesses? When confronted by activist demands, how do firms respond, and does this response vary depending on who the activists are and what their relationship is to the firm? Answering these questions is critical for businesses and activists alike, as we move into an era of heightened activism directed at firms. A growing area of research that is situated at the intersection of economic and political sociology, social movement studies, history, and organizational theory, tackles these questions, in an increasingly methodologically sophisticated and nuanced manner. As a result, a number of important articles and books have been published, and several high-profile, interdisciplinary conferences have been held. This body of research shows that social movements have both direct and indirect effects on businesses, and that these effects are amplified by media attention to activism. For example, we know that activism impacts the financial performance of firms, as well as their reputation. And, we know that the activities of social movements have consequences on firm policies and practices. In turn, businesses have developed a varied repertoire of ways to respond to activist demands. While some businesses ignore activists, others decide to retaliate against activists. Increasingly, businesses concede to the demands of activists in material ways by changing policies and practices that are criticized, while others devise symbolic ways to respond to activist demands, thereby preserving their reputation without necessarily changing their activities.
Jennifer E. Dannals and Dale T. Miller
Social norms are a powerful force in organizations. While different literatures across fields have developed differing definitions and categories, social norms are commonly defined as and divided into descriptive norms, i.e., the most commonly enacted behavior, and prescriptive norms, i.e., the behavior most commonly viewed as acceptable or appropriate. Different literatures have also led to differing focuses of investigation for social norms research. Economic theorists have tended to examine social norm emergence by studying how social norms evolve to reduce negative or create positive externalities in situations. Organizational theorists and sociologists have instead focused on the social pressures which maintain social norms in groups over time, and eventually can lead group members to internalize the social norm. In contrast, social psychologists have tended to focus on how to use social norms in interventions aimed at reducing negative behaviors. Integrating these divergent streams of research proves important for future research.
Alexander Bolinger and Mark Bolinger
There is currently great enthusiasm for entrepreneurship education and the economic benefits that entrepreneurial activity can generate for individuals, organizations, and communities. Beyond economic outcomes, however, there is a variety of social and emotional costs and benefits of engaging in entrepreneurship that may not be evident to students nor emphasized in entrepreneurship courses. The socioemotional costs of entrepreneurship are consequential: on the one hand, entrepreneurs who pour their time and energy into new ventures can incur costs (e.g., ruptured personal and professional relationships, decreased life satisfaction and well-being, or strong negative reactions such as grief) that can often be as or more personally disruptive and enduring than economic costs. On the other hand, the social and emotional benefits of an entrepreneurial lifestyle are often cited as intrinsically satisfying and as primary motivations for initiating and sustaining entrepreneurial activity.
The socioemotional aspects of entrepreneurship are often poorly understood by students, but highlighting these hidden dimensions of entrepreneurial activity can inform their understanding and actions as prospective entrepreneurs. For instance, entrepreneurial passion, the experience of positive emotions as a function of engaging in activities that fulfill one’s entrepreneurial identity, and social capital, whereby entrepreneurs build meaningful relationships with co-owners, customers, suppliers, and other stakeholders, are two specific socioemotional benefits of entrepreneurship. There are also several potential socioemotional costs of entrepreneurial activity. For instance, entrepreneurship can involve negative emotional responses such as grief and lost identity from failure. Even when an entrepreneur does not fail, the stress of entrepreneurial activity can lead to sleep deprivation and disruptions to both personal and professional connections. Then, entrepreneurs can identify so closely and feel so invested that they experience counterproductive forms of obsessive passion that consume their identities and impair their well-being.
Hugo Pinto and Manuel Fernández-Esquinas
This is an advance summary of a forthcoming article in the Oxford Research Encyclopedia of Business and Management. Please check back later for the full article.
In order to obtain competitive advantages, firms have to make use of knowledge as the main element of their capacities for innovation and management. Innovation is a complex and collective process, resulting from different contexts, socioeconomic aspects, and specificities of firms that create nuanced management and policy implications. Sources of knowledge are varied, as each firm interacts with multiple types of actors to pursue its mission: partners and strategic allies, suppliers, customers, competitors, specialized organizations such as knowledge intensive business services, universities, technology centers, public research organizations, innovation intermediaries, and public administration bodies.
Different kinds of knowledge are relevant for the firms, both tacit and codified knowledge. Knowledge needs to be translated into capacity to act. Knowledge generation and absorption can be understood as two sides of the same coin. It is necessary to take into account factors that shape both facets and the relationship between the production, transfer, and valorization of knowledge. Influential factors concerning knowledge characteristics are related to tacitness and to the existing knowledge base. Contextual factors, such as the economic sector, technological intensity, the local buzz, and the insertion in global value chains are essential as environmental enablers for generating and absorbing knowledge. Finally, the internal characteristics of the firm are of crucial relevance, namely the existing innovation culture, leadership, and also the size or internal R&D capacities. These factors reinforce the dynamic capacities of the firm and the decision to engage in open innovation strategies or to give more importance to strategies that protect and codify knowledge, such as industrial property rights.
Katina Sawyer and Judith A. Clair
Stereotypes are a central concern in society and in the workplace. Stereotypes are cognitions that drive what individuals know, believe, and expect from others as a result of their social identities. Stereotypes predict how individuals view and treat one another at work, often resulting in inaccurate generalizations about individuals based on their group membership. As such, it’s important to break down and combat the use of stereotypes in decision-making at work. If stereotypes can be overcome in the workplace, fairness and equity in organizations becomes more likely.
Bill Wooldridge and Birton Cowden
Scholarly interest in how managers make strategic decisions dates from the inception of the strategic management field and continues in the present. Although such decision-making was originally conceived as a completely rational, top-management process, contemporary thinking recognizes that strategies from across multiple organizational levels change within social and political contexts. Within this broad domain, multiple research streams address a wide variety of topics and issues. Prominent among these are, (1) the extent to which strategic decisions are formed through comprehensive analysis versus piecemeal decision-making, (2) how characteristics of top managers and the composition of top management teams affect strategic decision-making, (3) the role of politics, conflict, and consensus in strategy making, (4) how cognitive biases and heuristics influence the process, (5) when and how intuitive judgments can form the basis for effective decision-making, and (6) how managers at various organizational levels participate in the process. Research across these streams is both descriptive and normative, with a focus on contextual contingencies and relationships to firm performance. Taken as a whole this literature has significantly enhanced understanding of how strategies form within organizations. Contemporary work continues to provide new insights and demonstrates the continued value of this productive area of study.
Kathryn Rudie Harrigan
Concerns regarding strategic flexibility arose from companies’ need to survive excess capacity and flagging sales in the face of previously unforeseen competitive conditions. Strategic flexibility became an organizational mandate for coping with changing competitive conditions and managers learned to plan for inevitable restructurings. They learned to reposition assets and capabilities to suit their firms’ new strategic aspirations by overcoming barriers to change. Core rigidities flared up in the form of legacy costs, regulatory constraints, political animosity, and social resistance to adjusting firms’ strategic postures; managers learned that their firms’ past strategic choices could later become barriers to adapting corporate strategy.
Managerial insights concerning how to modify firms’ resources changed the way in which they were subsequently regarded. Enterprises saw assets lose their relative productivity and value as mastery of specific knowledge become less germane to success. Managers recognized that their firms’ capabilities were mismatched to market or value-chain relationships. They struggled to adapt by overcoming barriers to change.
Flexibility problems were inevitable. Even if competitive conditions were not impacted by exogenous change forces, sustaining advantage in a steady-state competitive arena became difficult; sustaining advantage in dynamic arenas became nearly impossible. Confronted with the difficulties of changing strategic postures, market orientations, and overall cost competitiveness, managers embraced the need to combat organizational rigidity in all aspects of their firms’ operations. Strategic flexibility affected enterprise assets, capabilities, and potential relationships with other parties within firms’ value-creating ecosystems; the need for strategic flexibility influenced investment choices made to escape organizational rigidity, capability traps and other forms of previously unrecognized resource inflexibility.
Where entry barriers once protected a firm’s strategic posture, flexibility issues arose when the need for endogenous changes occurred. The temporary protection afforded by imitation barriers slowed an organization’s responsiveness to changing its strategy imperatives—making the firm rigid when adaptiveness was needed instead. A firm’s own inertia to change sometimes created mobility barriers that had to be overcome when hypercompetitive conditions arose in their traditional market arenas and forced firms to change how they competed.
Where exogenous changes drove competitive conditions to become more volatile, attainment of strategic flexibility mandated the need to downsize the scope of a firm’s activities, shut down facilities, prune product lines, reduce headcount, and eliminate redundancies—as typically occurred during an organizational turnaround—while simultaneously increasing the scope of external activities performed by an enterprise’s value-adding network of suppliers, distributors, value-added resellers, complementors, and alliance partners, among others. Such structural value-chain changes typically exacerbated pressures on the firm’s internal organization to search more broadly for value-adding innovations to renew products and processes to keep up with the accelerated pace of industry change. Exploratory processes of self-renewal forced confrontations with mobility or exit barriers that were long tolerated by firms in order to avoid coping with the painful process of their ultimate elimination. The sometimes surprising efforts by firms to avoid inflexibility included changes in the nature of firms’ asset investments, value-chain relationships, and human-resource practices. Strategic flexibility concerns often trumped the traditional strengths accorded to resource-based strategies.
Briance Mascarenhas and Megan Mascarenhas
A strategic group is defined as a set of firms within an industry pursuing a similar strategy. The strategic group concept emerged with much promise over 40 years ago. Research on strategic groups over time in a broad variety of settings has sought to clarify their theoretical and empirical properties. These research findings are gradually being translated into practical managerial guidance, so that the strategic group concept can be understood, operationalized, and used productively by managers.
Two main approaches exist for identifying strategic groups—a ground-up approach, using disaggregated data, and a top-down, using cognition. Once identified, managerial insights can be derived from clarifying a strategic group’s profile. Firm membership in a group helps to uncover immediate and more distant types of competitors. Group profitability differences reveal the more rewarding and less attractive areas within an industry, as well as identify the lower-return groups from where firm exits are likely to occur. Group dynamics reflect competitive and cooperative behavior within and between groups. Several promising areas for future research on strategic groups to improve understanding and practice of strategy.
John Bryson and Lauren Hamilton Edwards
Strategic planning has become a fairly routine and common practice at all levels of government in the United States and elsewhere. It can be part of the broader practice of strategic management that links planning with implementation. Strategic planning can be applied to organizations, collaborations, functions (e.g., transportation or health), and to places ranging from local to national to transnational. Research results are somewhat mixed, but they generally show a positive relationship between strategic planning and improved organizational performance. Much has been learned about public-sector strategic planning over the past several decades but there is much that is not known.
There are a variety of approaches to strategic planning. Some are comprehensive process-oriented approaches (i.e., public-sector variants of the Harvard Policy Model, logical incrementalism, stakeholder management, and strategic management systems). Others are more narrowly focused process approaches that are in effect strategies (i.e., strategic negotiations, strategic issues management, and strategic planning as a framework for innovation). Finally, there are content-oriented approaches (i.e., portfolio analyses and competitive forces analysis).
The research on public-sector strategic planning has pursued a number of themes. The first concerns what strategic planning “is” theoretically and practically. The approaches mentioned above may be thought of as generic—their ostensive aspect—but they must be applied contingently and sensitively in practice—their performative aspect. Scholars vary in whether they conceptualize strategic planning in a generic or performative way. A second theme concerns attempts to understand whether and how strategic planning “works.” Not surprisingly, how strategic planning is conceptualized and operationalized affects the answers. A third theme focuses on outcomes of strategic planning. The outcomes studied typically have been performance-related, such as efficiency and effectiveness, but some studies focus on intermediate outcomes, such as participation and learning, and a small number focus on a broader range of public values, such as transparency or equity. A final theme looks at what contributes to strategic planning success. Factors related to success include effective leadership, organizational capacity and resources, and participation, among others.
A substantial research agenda remains. Public-sector strategic planning is not a single thing, but many things, and can be conceptualized in a variety of ways. Useful findings have come from each of these different conceptualizations through use of a variety of methodologies. This more open approach to research should continue. Given the increasing ubiquity of strategic planning across the globe, the additional insights this research approach can yield into exactly what works best, in which situations, and why, is likely to be helpful for advancing public purposes.
The Swiss watch industry has enjoyed uncontested domination of the global market for more than two decades. Despite high costs and high wages, Switzerland is the home of most of the largest companies in this industry. Scholars in business history, economics, management studies, and other social sciences focused on four major issues to explain such success.
The first is product innovation, which has been viewed as one of the key determinants of competitiveness in the watch industry. Considerable attention has been focused on the development of electronic watches during the 1970s, as well as the emergence of new players in Japan and Hong Kong. Yet the rebirth of mechanical watches during the early 1990s as luxury accessories also can be characterized as a product innovation (in this case, linked to marketing strategy rather than pure technological innovation).
Second, brand management has been a key instrument in changing the identity of Swiss watches, repositioning them as a luxury business. Various strategies have been adopted since the early 1990s to add value to brands by using culture as a marketing resource.
Third, the evolution of the industry’s structure emphasizes a deep transformation during the 1980s, characterized by a shift from classical industrial districts to multinational enterprises. Concentration in Switzerland, as well as the relocation abroad of some production units through foreign direct investment (FDI) and independent suppliers, have enabled Swiss watch companies to control manufacturing costs and regain competitiveness against Japanese firms.Fourth, studying the institutional framework of the Swiss watch industry helps to explain why this activity was not fully relocated abroad, unlike most sectors in low-tech industries. The cartel that was in force from the 1920s to the early 1960s, and then the Swiss Made law of 1971, are two major institutions that shaped the watch industry.
Tracking the Entrepreneurial Process with the Panel Study of Entrepreneurial Dynamics (PSED) Protocol
Paul D. Reynolds
In the early 1990s business creation was receiving a great deal of attention after it was clear that new firms were a major source of job creation. There was not, however, reliable data on the prevalence of persons participating in firm creation, what they would do to implement new ventures, or the proportion of start-up efforts that became profitable businesses. This hiatus led to the development of longitudinal studies of the entrepreneurial process; 14 projects have now been implemented in 12 countries.
The Panel Study of Entrepreneurial Dynamics (PSED) protocol was designed to provide estimates of the prevalence of individuals involved in business creation and the presence of pre-profit, start-up ventures; data on the major activities undertaken to implement a new firm; and track the proportion that completed the transition from start-up to profitable new firm. A number of challenges were involved in implementing the research program, including the development of efficient procedures for identifying representative samples of nascent entrepreneurs and criteria for determining the dates of entry into the start-up process, the transition to a profitable business, and disengagement from the initiative.
Data collection is a three-stage process. The initial stage is identifying nascent entrepreneurs in a representative sample of adults. The second are detailed interviews on the start-up team and activity related to creating a new venture. The third stage is follow-up interviews completed to determine the outcome of the start-up efforts. A large number of scholars have been involved in development of the interviews and the PSED data sets have considerable information on the perspectives, activities, and strategies of those involved in the start-up process.
Since the initial data sets were made available 15 years ago, there has been considerable research utilizing PSED data sets. One major finding, however, is that the firm creation process is much more diverse and complicated than had been expected. There are substantial research opportunities to be explored. A review of the major features of the PSED protocol and a summary of the existing data sets provides background that will facilitate additional analysis of the firm creation process. Four data sets (Australia, Sweden, and U.S. PSED I & II) are now in the public domain. Critical features of the start-up process have been consolidated and harmonized in a five-cohort, four country data set which is also available.
Mikko Ketokivi and Joseph T. Mahoney
Which components should a manufacturing firm make in-house, which should it co-produce, and which should it outsource? Who should sit on the firm’s board of directors? What is the right balance between debt and equity financing?
These questions may appear different on the surface, but they are all variations on the same theme: how should a complex contractual relationship be governed to avoid waste and to create transaction value? Transaction Cost Economics (TCE) is one of the most established theories to address this fundamental question.
Ronald H. Coase, in 1937, was the first to highlight the importance of understanding the costs of transacting, but TCE as a formal theory started in earnest in the late 1960s and early 1970s as an attempt to understand and to make empirical predictions about vertical integration (“the make-or-buy decision”). In its history spanning now over five decades, TCE has expanded to become one of the most influential management theories, addressing not only the scale and scope of the firm but also many aspects of its internal workings, most notably corporate governance and organization design. TCE is therefore not only a theory of the firm, but also a theory of management and of governance.
At its foundation, TCE is a theory of organizational efficiency: how should a complex transaction be structured and governed so as to minimize waste? The efficiency objective calls for identifying the comparatively better organizational arrangement, the alternative that best matches the key features of the transaction. For example, a complex, risky, and recurring transaction may be very expensive to manage through a buyer-supplier contract; internalizing the transaction through vertical integration offers an economically more efficient approach than market exchange.
TCE seeks to describe and to understand two kinds of heterogeneity. The first kind is the diversity of transactions: what are the relevant dimensions with respect to which transactions differ from one another? The second kind is the diversity of organizations: what are the relevant alternatives in which organizational responses to transaction governance differ from one another? The ultimate objective in TCE is to understand discriminating alignment: which organizational response offers the feasible least-cost solution to govern a given transaction? Understanding discriminating alignment is also the main source of prescription derived from TCE.
The key points to be made when examining the logic and applicability of TCE are:
(1) The first phenomenon TCE sought to address was vertical integration, sometimes dubbed “the canonical TCE case.” But TCE has broader applicability to the examination of complex transactions and contracts more generally.
(2) TCE could be described as a constructive stakeholder theory where the primary objective is to ensure efficient transactions and avoidance of waste. TCE shares many features with contemporary stakeholder management principles.
(3) TCE offers a useful contrast and counterpoint to other organization theories, such as competence- and power-based theories of the firm. These other theories, of course, symmetrically inform TCE.
Kathleen R. Allen
For decades researchers have studied various aspects of the technology transfer and commercialization process in universities in hopes of discovering effective methods for enabling more research to leave the university as technologies that benefit society. However, this effort has fallen short, as only a very small percentage of applied research finds its way to the marketplace through licenses to large companies or to new ventures. Furthermore, the reasons for this failure have yet to be completely explained.
In some respects, this appears to be an ontological problem. In their effort to understand the phenomenon of university commercialization, researchers tend to reduce the process into its component parts and study each part in isolation. The result is conclusions that ignore a host of variables that interact with the part being studied and frameworks that describe a linear process from invention to market rather than a complex system. To understand how individuals in the technology commercialization system make strategic choices around outcomes, studies have been successful in identifying some units of analysis (the tech transfer office, the laboratory, the investment community, the entrepreneurship community); but they have been less effective at integrating the commercialization process, contexts, behaviors, and potential outcomes to explain the forces and reciprocal interactions that might alter those outcomes.
The technology commercialization process that leads to new technology products and entrepreneurial ventures needs to be viewed as a complex adaptive system that operates under conditions of risk and uncertainty with nonlinear inputs and outputs such that the system is in a constant state of change and reorganization. There is no overall project manager managing tasks and relationships; therefore, the individuals in the system act independently and codependently. No single individual is aware of what is going on in any other part of the system at any point in time, and each individual has a different agenda with different metrics on which their performance is judged. What this means is that a small number of decision makers in the university commercialization system can have a disproportionate impact on the effectiveness and success of the entire system and its research outcomes.
Critics of reductionist research propose that understanding complex adaptive systems, such as university technology commercialization, requires a different mode of thinking—systems thinking—which looks at the interrelationships and dependencies among all the parts of the system. Combined with real options reasoning, which enables resilience in the system to mitigate uncertainty and improve decision-making, it may hold the key to better understanding the complexity of the university technology commercialization process and why it has not been as effective as it could be.
Nikolaus Franke and Christian Lüthje
Users of products and services, be they user firms or consumers, frequently develop innovations for their own benefit. Such user innovation is a long-existing phenomenon, but it has gained much momentum in the new millennium. The Internet has greatly facilitated connections between creative users, and at the same time cost-effective design and prototyping technologies are making it increasingly feasible for users to develop their own products and services.
Users have been found to innovate mainly because they want solutions that best serve their own needs. In general, their innovation activities involve no expectations of monetary profit, being motivated rather by self-rewards (such as fun, positive feelings of altruism, signaling of competence to the community of peers). This explains why users are typically willing to share their innovations without requiring payment. A problem of user innovation is that, since the benefit that others could gain is an externality for users, they lack strong incentives to invest in the active diffusion of their innovations. The consequence of this “diffusion shortfall” is social welfare losses.
There are several ways in which producers and service providers can help overcome these problems and benefit from the innovation potential of users at the same time. They can apply the lead user method to actively search for a small group of particularly highly motivated and qualified users, they can outsource product design work to their users via user design toolkits, and they can broadcast innovation challenges to an appropriate crowd of external problem solvers.
Jason Kautz, M. Audrey Korsgaard, and Sophia So Young Jeong
Organizations and their agents regularly face ethical challenges as the interests of various constituents compete and conflict. The theory of other-orientation provides a useful framework for understanding how other concerns and modes of reasoning combined to produce different mindsets for approaching ethical challenges. To optimize outcomes across parties, individuals can engage in complex rational reasoning that addresses the interests of the self as well as others, a mindset referred to as collective rationality. But collective rationality is as difficult to sustain as it is cognitively taxing. Thus, individuals are apt to simplify their approach to complex conflicts of interest. One simplifying strategy is to reduce the relevant outcome set by focusing on self-interests to the neglect of other-interest. This approach, referred to as a rational self-interest mindset, is self-serving and can lead to actions that are deemed unethical. At the other extreme, individuals can abandon rational judgment in favor of choices based on heuristics, such as moral values that specify a given mode of prosocial behavior. Because this mindset, referred to as other-oriented, obviates consideration of outcome for the self and other, it can result in choices that harm the self as well as other possible organizational stakeholders. This raises the question: how does one maintain an other-interested focus while engaging in rational reasoning? The resolution of this question rests in the arousal of moral emotions. Moral emotions signal to the individual the opportunity to express, or the need to uphold, moral values. Given that moral values direct behavior that benefits others or society, they offset the tendency to focus on self-interest. At extreme levels of arousal, however, moral emotions may overwhelm cognitive resources and thus influence individuals to engage in heuristic rather than rational reasoning. The effect of moral emotions is bounded by attendant emotions, as individuals are likely to experience multiple hedonic and moral emotions in the same situation. Deontic justice predicts that the arousal of moral emotions will lead individuals to retaliate in response to injustice, regardless of whether they experience personal benefit. However, evidence suggests that individuals may instead engage in self-protecting behavior, such as withdrawal, or self-serving behaviors, such as the contagion of unjust behavior. These alternative responses may be due to strong hedonic emotions, such as fear or schadenfreude, the pleasure derived from others’ misfortunes, overpowering one’s moral emotions. Future research regarding the arousal levels of moral emotions and the complex interplay of emotions in the decision-making process may provide beneficial insight into managing the competing interests of organizational stakeholders.
How do firms organize economic transactions? This question can be thought of as a question of firm boundaries or as a decision about a firm’s scope, encompassing the choice along a continuum of governance structures, including spot markets, short-term contracts, long-term contracts, franchising, licensing, joint ventures, and hierarchy (integration). Although there is no unified theory of vertical integration, transaction cost economics, agency theory, and more recently property rights theory have been influential not only in analyzing make-or-buy decisions but also in understanding “hybrid forms” or inter-firm alliances, such as technology licensing contracts, equity alliances, joint ventures, and the like.
Before Coase’s work became widely known, whatever theoretical underpinnings there were of vertical integration were provided by applications of neoclassical theory. Here, the firm was viewed as a production function that utilized the most technologically efficient way to convert input into output. In particular, neoclassical theory was concerned primarily with market power and the distortions that it created in markets for inputs or outputs as the main driver of vertical integration. Hence, the boundaries of the firm—that is, where to draw the line between transactions that occur within the firm and those outside the firm—were irrelevant within this framework. It was Coase’s question “Why is there any organization?” that first suggested that price mechanisms in the market and managerial coordination within firms were alternative governance mechanisms. That is, the choice between these alternative mechanisms was driven by a comparative analysis of the costs of implementing either mechanism.
Oliver Williamson built on Coase to provide the theoretical foundations for vertical integration by joining uncertainty and small numbers with opportunism in defining exchange hazards, and consequently established comparative analysis of alternative governance forms as the way to analyze vertical integration. More recently, property rights theory brought attention to ownership of key assets as a way to distinguish between the governance of internal organizations and those of market transactions, where ownership confers the authority to determine how these assets will be utilized. And lastly, agency theory also provides important building blocks for understanding contractual choice by placing the emphasis on the different incentives that vary with different contractual arrangements between a principal and its agent.
Transaction cost economics, property rights theory, and agency cost theory complement one another well in explaining vertical integration in terms of alternative governance forms in a world of asymmetric information, bounded rationality, and opportunism. These theories have also been utilized in analyzing “hybrid” organizational forms, in particular strategic alliances and joint ventures. Together, vertical integration and alliances account for a significant part of corporate strategy decisions, and more research on the theoretical foundations as well as novel ways to apply these theories in empirical analyses will be productive avenues for a better understanding of firm behavior.
Niamh M. Brennan
Whistleblowing (also called good faith reporting, anonymous reporting, protected disclosure) is growing in importance as a corporate governance mechanism. It is increasingly recognized as a key internal control mechanism. Whistleblowing is a term used to describe an act whereby wrongdoing is exposed. It gained impetus following the collapse of Enron in 2001 arising from financial reporting fraud, which culminated in the U.S. Time magazine selecting three whistleblowers (all women) as its person of the year in 2002. The term was first used in 1966. Researchers have invoked a variety of theories and models attempting to explain whistleblowing. Elements that influence the process include the whistleblowers, the type of wrongdoing, the wrongdoers, the decision to blow the whistle, whistleblowing recipients, organizational factors, and finally the consequences of whistleblowing. Organizational processes, alternative to the more extreme step of whistleblowing, include silence (the other side of the coin to whistleblowing), speaking up, and open disclosure. An organizational response resisting an employee speaking up is the trigger that creates a whistleblower. The definition of whistleblowing only includes organizational members. Should it be extended to include external parties as well as organizational members? Social media has had an impact on whistleblowing. Questions remain as to the efficacy of whistleblowing: Is it a substantive or symbolic mechanism of governance?
Donna Chrobot-Mason, Kristen Campbell, and Tyra Vason
Many whites do not identify with a racial group. They think very little about their own race and the consequences of being born into the dominant racial group. They do not think much about race because they do not have to. As a member of the dominant group, whites view their race as the norm. Furthermore, whites consciously or unconsciously typically view their experiences as race-less. In actuality whites’ experiences are far from race-less.
Many whites also fail to acknowledge the privileges their racial group provides. As long as whites continue to dominate leadership roles and positions of power in organizations, there will continue to be strong in-group bias providing unearned advantages to whites in the workplace, such as greater hiring and advancement opportunities. Additionally, as long as whites fail to acknowledge privilege, they will likely adopt a color-blind perspective, which in turn leads to a lack of recognition of microaggressions and other forms of discrimination as well as a lack of support for organizational initiatives to improve opportunities for employees of color.
In order to create a more inclusive workplace, it is imperative that both whites and white dominated organizations promote and foster white allies. For whites who wish to become allies, acknowledging white privilege is a necessary but insufficient step. Becoming a white ally also requires questioning meritocracy as well as working in collaboration with employees to implement lasting change.
Jihae You, Siri Terjesen, and Diana Bilimoria
In light of the growing number of women in the upper echelons, it is necessary to integrate and synthesize research on women at the top of corporations. The extant literature occurs in several disciplines—appearing in the fields of management, strategy, finance, economics, organizational behavior, ethics, sociology, and industrial relations—and is disparate and fragmented. A large and growing set of scholars provide various theoretical perspectives and empirical findings addressing organizational demographics, supply side factors, and outcomes. A number of theories are employed to understand the issue of women in the upper echelons, including resource dependence, tokenism and critical mass, glass cliff, social identity, human capital, social capital, and signaling theories. Most articles use U.S. data and tend to deal with the effect of female CEOs or that of female representation on corporate boards and top management teams (TMTs) on various firm-level outcomes. The majority of the studies investigate a potential relationship between gender diversity and financial performance. Research on this topic can guide policy and practice, improving the performance of organizations and the individuals who work within them.