Tomi Laamanen

Cognitive Dynamics of Capability Development Paths

Recent research on capability dynamics has increasingly turned its attention to the cognitive microfoundations of capability development. On the basis of a longitudinal case study of the evolution of three network security software firms, we find that the effects of managerial cognition can be detected at three distinct levels of capability development. At the level of operational capabilities, instrumental cognition affects the way in which capabilities are developed. At the level of a firms capability portfolio, shifts in managements attention regarding capability development cause different evolutionary paths to emerge. Finally, at the extended enterprise level, managerial foresight influences the way in which a firms capability constellation morphs over time. Our findings provide novel empirical evidence and contribute to an improved understanding of the role of managerial cognition in capability development.

Decision Making in Acquisitions: The Effect of Outside Directors’ Compensation on Acquisition Patterns

This article examines how the compensation paid for outside directors affects firms’ acquisition behavior. Using panel data of Standard & Poor’s 1500 firms between 1996 and 2002, the authors find that stock and stock option pay for outside directors are related in an inverted U-shaped manner to a firm’s acquisition rate and that for stock options, this relationship is moderated by board composition. Their findings suggest a dual agency model of corporate governance, according to which not only executives’ incentives but also outside directors’ incentives should be aligned with the shareholder value creation.

Valuation of venture capital investments: empirical evidence

Using the valuation data of 421 US venture capital transactions and 176 initial public offerings, we test a simple binomial valuation model in modelling the risk-return profiles of venture capital investments. We find that the model is consistent with the previous knowledge on the risk-return profile of venture capital investments. The results also confirm the hypotheses that early-stage ventures have higher implied risk and implied volatility of the returns than more established ones. Additionally, we analyse the predictive power of the binomial pricing model and compare it to corresponding ‘traditional’ models that utilize risk-adjusted rates of return. We construct one-step ex post return forecasts for the sample ventures and compare the results to the actually realized returns. The findings indicate that the fit of the binomial model is better than the fit of the corresponding ‘traditional’ models. The results imply that option-based methods have empirical relevance in the pricing analysis of privately held companies and projects. Furthermore, practitioners can benefit from using these methods when analysing the risk-return structure of private companies and R&D projects.

Stock Market Valuation, Profitability and R&D Spending of the Firm: The Effect of Technology Mergers and Acquisitions

In this paper, we investigate whether a firm can enhance the effect of its R&D spending on its current market value and future profitability through technology-oriented M&As. On the basis of an analysis of 1,879 M&As, we find that when a technology firm acquires another technology firm, the magnitude of the stock price response to the R&D spending of an acquirer increases by 107% in the year of the M&A. In contrast, we find no such increase in the stock price response to the R&D spending of a non-technology acquirer. We also find that technology acquirers are more successful in converting their R&D spending into positive future profitability than non-technology acquirers. Our results are robust for different alternative specifications of our model and when various firm differences are controlled for.

Workforce Downsizing and Firm Performance: An Organizational Routine Perspective

While there is an extensive body of work on how organizational routines emerge and evolve over time, there is a scarcity of research on what happens when routines are disrupted or disbanded through the elimination of key individuals involved in them. This study is the first to theorize and empirically examine the relationship between the magnitude of workforce downsizing and firm performance applying an organizational routine perspective. Consistent with prior research on organizational routines, we posit that small-scale downsizing leads to efficiency improvements without disrupting the existing routines. While larger routine disruptions occur in both medium- and large-scale downsizing, we further argue and find that large-scale downsizing tends to be more beneficial than medium-scale downsizing. Building on prior research on routines, we reason that in medium-scale downsizing employees try to salvage the impaired, partially functioning routines, while large-scale downsizing requires a more fundamental rethinking and re-creation of routines leading to more positive outcomes. Our study contributes to downsizing research through the application of the organizational routine perspective to explain the financial outcomes of downsizing. In doing so, we depart from the widely held assumption in the downsizing literature that the relationship between the magnitude of downsizing and firm performance is linear. Our study also extends prior research on organizational routines by highlighting the usefulness of conceiving routines as mindful accomplishments where the pressure to engage in path-breaking cognitive effort may lead to better results than path-dependent repairing of routines.

Quantitative methods in Strategy-as-Practice Research

While most of the prior work in the Strategy as Practice research has been conceptual or qualitative in nature, there would be major potential in researching strategy practices also quantitatively. There are a number of different benefits that could be gained in comparison to a solely qualitative research orientation. Expanding the use of quantitative methods in studying strategy practices would further lead to the development and validation constructs for the study of strategy practices, verification of the applicability of the results across different contexts, and, as a whole, more effective accumulation of the empirical evidence. Moreover, innovative quantitative methods could also lead to the emergence of novel insights that might not be achievable with purely qualitative research designs. Despite the scarcity of quantitative research on strategy practices, there is extensive research in closely related research streams that one can build on. In particular, prior research on top management teams, middle management, strategic decision-making, strategic consensus, and strategic issues and initiatives provide in this respect important pillars on which to build ones own research on strategy practices.

Mergers and Acquisitions as a Response to Intra-Industry Dependence

A firms behavior is constrained by its access to resources owned or controlled by different constituencies in its environment. Mergers and acquisitions are one way to proactively manage these resource dependencies. Research on resource dependence reducing merger and acquisition patterns provides an important cornerstone of resource dependency theory and a basis of our present knowledge of the aggregate industry-level merger and acquisition patterns. However, due to the predominant focus on inter-industry merger and acquisition patterns in earlier research, much less is known as to whether the same logic could also be applied to explain intra-industry merger and acquisition patterns. In this chapter, we extend the resource dependence results to an intra-industry context. In particular, we show that mergers and acquisitions among pharmaceutical firms tend to take place among firms with technological and competitive interdependencies. To distinguish our finding from the competing resource scale and scope explanations, we show that the likelihood of a resource dependence reducing acquisition is moderated by the crowding of firms’ technological positions and prior alliance ties. Consistent with the resource dependence explanation, both weaken the effect of overlapping technological positions even though both alliance ties and crowding otherwise are positively related to merger and acquisition patterns in line with the social structural explanations.