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Presented by Jiyoon Chung

Pacheco de Almeida, Goncalo, James E. Henderson, and Karel D. Cool (2008). Resolving the commitment versus flexibility trade-off: The role of resource accumulation lags. Academy of Management Journal , 51 (3): 517-536. . Presented by Jiyoon Chung. Overview.

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Presented by Jiyoon Chung

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  1. Pacheco de Almeida, Goncalo, James E. Henderson, and Karel D. Cool (2008). Resolving the commitment versus flexibility trade-off: The role of resource accumulation lags. Academy of Management Journal, 51 (3): 517-536. Presented by Jiyoon Chung

  2. Overview • Research question: How does time-consuming resource accumulation influence the classic strategy trade-off between commitment and flexibility? • Resource accumulation lags favoring commitment • Resource accumulation lags favoring flexibility

  3. Theory and Hypotheses • The opportunity cost of postponing investment can be substantially higher, including the profits forsaken while the firm is accumulating resources to enter the desired market. • Hypothesis 1: Ceteris paribus, resource accumulation lags have a positive effect on a firm’s likelihood of investment. • Longer resource accumulation lags increase the profit potential of an investment project more than its loss potential  a positive interaction effect between uncertainty and time lag • Hypothesis 2: Ceteris paribus, resource accumulation lags reduce the main negative effect of uncertainty (the option value of waiting) on a firm’s likelihood of investment.

  4. Theory and Hypotheses • With very long resource accumulation lags, • The risk of widespread bandwagons is high, and • Managers have more incentives to make smaller-scale investments because of short-term stock market pressures. • Hypothesis 3: Ceteris paribus, very long resource accumulation lags have a negative effect on a firm’s likelihood of investment.

  5. Research Design • Dependent variable: • Investment • Explanatory variables: • Resource accumulation lag • Demand uncertainty • Control variables: • Demand growth • Excess capacity • Investment lumpiness • Market share • Rivals’ expansion Estimation methods

  6. Results H1 H3 H2 H1, H2, H3 are all corroborated

  7. Conclusion • In industries with lengthy resource accumulation lags, competitive advantage may be difficultto attain (but easier to sustain). • The results contradict the view that uncertainty is always a strong disincentive for investment. • An increase in uncertainty may encourage rather than dissuade commitment, owing to the positive moderating effect of resource accumulation lags on uncertainty. • The non-linear inverted U-shaped effect of resource accumulation lags on commitment implies that flexibility is more valued in industries in which resource accumulation is either very time-consuming or virtually instantaneous.

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