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Olav Sorenson and David M. Waguespack

This study uses data on the U.S. film industry from 1982 to 2001 to analyze the effects on box office performance of prior relationships between film producers and distributors. In contrast to prior studies, which have appeared to find performance benefits to both buyers and sellers when exchange occurs embedded within existing social relations, we propose that the apparent mutual advantages of embedded exchange can also emerge from endogenous behavior that benefits one party at the expense of the other: actors offer better terms of trade and allocate more resources to transactions embedded within existing social relations, thereby contributing to the ostensible advantages of such exchange patterns. Findings show that not only do distributors exhibit a preference for carrying films involving key personnel with whom they had prior exchange relations, but also they tend to favor these films when allocating scarce resources (opening dates and promotion effort). After controlling for the effects of these decisions, films with deeper prior relations to the distributor perform worse at the box office. The results suggest that, rather than benefiting from repeated exchange, distributors overallocate scarce resources to these prior exchange partners, enacting a self-confirming dynamic.

Administrative Science Quarterly, 51 (2006), 560-589

Olav Sorenson, Susan McEvily, Charlotte Rongrong Ren, and Raja Roy

Although strategy research typically regards firm scope as a positional characteristic associated with performance differences, we propose that broad contemporary scope also provides insight into the routines that govern firm behavior. To attain broad scope, firms must repeatedly explore outside the boundaries of their current niche. Firms with broad niches therefore operate under a set of routines that repeatedly propel them into new market segments, expanding their niche. These niche expansions, however, involve risky organizational changes, behavior that disadvantages generalists relative to specialists, despite the positional value of broad scope. Empirical analyses of machine tool manufacturers and computer workstation manufacturers support this conjecture: (i) generalists introduce new products at a higher than optimal rate, thereby increasing their exit rates; and (ii) generalists also more frequently launch new models with novel features or targeted at new consumer segments rather than improving only incrementally on existing products, further accelerating their odds of failure. After adjusting for these behavioral differences, broad niche widths reduce exit rates, suggesting that they provide positional advantages. The paper discusses how this phenomenon may help to explain the diversification and multi-nationality discounts.

Strategic Management Journal, 27 (2006): 915-936

Link to workstation data at FIVE Project

Complexity, networks and knowledge flow

August 7th, 2009 | Posted by admin in 2006 - (0 Comments)

Olav Sorenson, Jan W. Rivkin, and Lee Fleming

Because knowledge plays an important role in the creation of wealth, economic actors often wish to skew the flow of knowledge in their favor. We ask, when will an actor socially close to the source of some knowledge have the greatest advantage over distant actors in receiving and building on the knowledge? Marrying a social network perspective with a view of knowledge transfer as a search process, we argue that the value of social proximity to the knowledge source depends crucially on the nature of the knowledge at hand. Simple knowledge diffuses equally to close and distant actors because distant recipients with poor connections to the source of the knowledge can compensate for their limited access by means of unaided local search. Complex knowledge resists diffusion even within the social circles in which it originated. With knowledge of moderate complexity, however, high-fidelity transmission along social networks combined with local search allows socially proximate recipients to receive and extend knowledge generated elsewhere, while interdependencies stymie more distant recipients who rely heavily on unaided search. To test this hypothesis, we examine patent data and compare citation rates across proximate and distant actors on three dimensions: (1) the inventor collaboration network; (2) firm membership; and (3) geography. We find robust support for the proposition that socially proximate actors have the greatest advantage over distant actors for knowledge of moderate complexity. We discuss the implications of our findings for the distribution of intra-industry profits, the geographic agglomeration of industries, the design of social networks within firms, and the modularization of technologies.

Research Policy, 35 (2006): 994-1017

Giacomo Negro and Olav Sorenson

We investigate the competitive consequence of vertical integration on organizational performance using a comprehensive dataset of U.S. motion picture production companies, which includes information on their vertical scope and competitive overlaps. Vertical integration appears to change the dynamics of competition in two ways: (i) it buffers the vertically integrated firms from environmental dependence and (ii) it intensifies competition among non-integrated organizations. In contrast to the existing literature, our results suggest that vertical integration has implications well beyond both the level of the individual transaction and even the internal efficiency of the integrated firm.

Advances in Strategic Management, 23 (2006): 367-403