Functional Knowledge versus Strategic Knowledge: What Type of Knowledge Matters Most for the Long-Term Performance of Startups

Hong Jiang, Johann Peter Murmann

Past studies have shown that the flow of knowledge from incumbent firms is associated with the creation of startups and their subsequent performance. While much research has focused on the mechanisms of how incumbent-to-startup knowledge transfer takes place, such as entrepreneurs pursuing opportunities that their previous employers do not want to pursue, we explore with detailed qualitative analysis of six private startups in the Chinese synthetic-dye industry what type of knowledge actually flows and what type is more important for the long-term success of startups. We discover eight types of knowledge that flow from incumbents to new firms during the foundation of startups. Abstracting these eight types of knowledge into two general categories of functional knowledge and strategic knowledge, we find the reception of strategic (not functional) knowledge shapes the long-term competitiveness of surviving startups. Receiving technical knowledge – one type of functional knowledge – during the founding period is necessary for startups’ short-term survival but insufficient for long-term success. Our findings show that the performance implications of initial knowledge flows from incumbents hinge on the type of knowledge, contributing to a more explicit explanation of how incumbent-to-startup knowledge flows affect entrepreneurial performance.

The Tradeoff Between Private Equity Sponsorship, Board Centrality, and Experience as Credible Signals for IPO Performance

Charles Kirschbaum, Luciano Rossoni, Andrea Minardi, Emília Borges da Silva

Private equity funds implement various management and governance practices in firms they endorse, signaling higher quality of sponsored IPOs (Initial Public Offer). However, the participation of such PE funds comes at a cost for newcomer firms, as they may lose both autonomy and future post-IPO earnings. If they do not choose to signal quality through PE funds, the IPO literature points to the validity of other mechanisms, such as the experience and centrality of the board of directors. We theorize and test the effect of the tradeoff between private equity sponsorship and board centrality and experience on IPO performance. We analyzed the effects of signaling on long-term performance through the one-year cumulative abnormal return in Brazilian IPOs issued between 2004 and 2013. Our results indicate that private equity sponsorship is the most effective signal, completely overtaking the relevance of board centrality and experience to explain IPO performance. However, these latter board characteristics significantly affected the performance of non-private equity-backed IPOs. Between PE-backed companies, there is a reverse effect of the board centrality on the IPO’s performance and a substitution effect of the board’s previous experience with IPO processes.

Exploration–Exploitation Duality with Both Tradeoff and Synergy: The Curvilinear Interaction Effects of Learning Modes on Innovation Types

Peter Ping Li, Heng Liu, Yuan Li, Haifeng Wang

How can a firm apply the appropriate interaction between exploration and exploitation with the goal of either radical or incremental innovation? In this study, we seek to answer this puzzling question by reframing exploitation and exploration as a duality of learning (i.e., two modes that are partial complementary for synergy as well as partial conflicting for tradeoff). Specifically, rather than assuming either a positive or negative interaction between exploration and exploitation as prior literature has done, our study highlights a novel pattern of inverted U-shaped interactionbetween exploration and exploitation for both radical and incremental innovations. With a Chinese sample of 508 firms, our empirical evidence supports our prediction of two patterns of inverted U-shaped interaction of exploration and exploitation. Such unique findings showcase the unique value of reframing paradox into duality from the meta-perspective of yin-yang balancing to shed new light on organizational ambidexterity and innovation management.

Open Innovation in Ecuadorian SMEs: The Importance of Strategy and the Moderating Effect of Control

Antonia Madrid-Guijarro, Ana Carolina Garcés-Torres

Open innovation (OI) has been appointed as a key factor to promote innovative performance, but some research gaps remain especially when it comes to SMEs in developing countries. This article deals with (1) the effect of formalization of innovation strategy on OI activities in SMEs, (2) the impact of OI activities on SMEs’ innovative performance, and (3) the moderating role played by control on the relationship between inbound and outbound activities and the innovative performance. OI encompasses a range of innovative methods and procedures in firms to stimulate internal innovation and widen the external use of innovation (inbound and outbound). In this work, an empirical study is carried out on 543 Ecuadorian SMEs. The results show that the formalization of the innovation strategy promotes OI activities, both inbound and outbound. While outbound activities carried out by SMEs enhance innovative performance, this positive effect is only identified for inbound open innovation activities when control exists and increases, acting this variable as a moderating factor. These results have important implications both for the management of companies and the development of public policies aimed at promoting OI in SMEs in developing countries. This research contributes to the literature as it deals with a developing country context and considers a wide range of OI activities.

Why and When Narcissistic Employees Are More Creative in the Workplace? A Social Cognitive Perspective

Yi-Xuan Zhao, Kong Zhou, Wen-Xing Liu

The question of whether narcissists are more creative than peers has attracted much scholarly attention in both psychology and organizational management sciences. Drawing from social cognitive theory, we theorized that the relationship between narcissism and creativity could be explained by individual creative self-efficacy, which depends on one’s direct and vicarious experiences of creativity. Drawing from trait activation theory, we further proposed organizational valuing of creativity as a key contextual moderator that determines whether narcissism facilitates or inhibits creative self-efficacy and, in turn, creativity. We suggest that high organizational valuing of creativity will energize narcissists to put their attention and effort into both direct and vicarious experiences of creativity, enhancing their creative self-efficacy and creativity. We tested our conceptual model through a field study with data collected from 269 full-time employees working in 86 work teams. The empirical results provided support for the social cognitive explanation for the positive relationship between narcissism and creativity in the context of high organizational valuing of creativity. Our study not only resolved prior debates on the relationship between narcissism and creativity but also provided direct empirical support for social cognitive theory and the person-in-context interactionist perspective of creativity research.

Choosing Beyond Compliance Over Dormancy: Corporate Response to India’s Mandatory CSR Expenditure Law

Shalini Jain, Naman Desai, Viswanath Pingali, Arindam Tripathy

This article examines whether firms engaged in high levels of voluntary CSR (corporate social responsibility) alter their strategic choices in response to detrimental public policy – specifically India’s Companies Act (2013) that mandates qualifying firms to spend 2% of their three-year average net profits on CSR. Drawing on the concept of organizational dormancy, we argue that firm capabilities, political awareness, exposure to political pluralism, and ownership identity may explain choice heterogeneity among these firms. Our key and non-intuitive finding is that even in the absence of discretionary choice in determining optimal CSR expenditure, firms are less likely to choose dormancy and instead embrace and even surpass the stipulations of the law in their CSR contributions. Also, politically aware firms are more likely to opt for dormancy over compliance. Managerial and policy implications are discussed.