Research and teaching
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Olav Sorenson and Toby E. Stuart

Most existing theories of relationship formation imply that actors form highly cohesive ties that aggregate into homogenous clusters, but actual networks also include many “distant” ties between parties that vary on one or more social dimensions. To explain the formation of distant ties, we propose a theory of relationship formation based on the characteristics of “settings,” or the places and times in which actors meet. We posit that organizations form relations with distant partners when they participate in two types of settings: unusually faddish ones and those with limited risks to participants. In an empirical analysis of our thesis in the formation of syndicate relations between U.S. venture capital firms from 1985 to 2007, we find that the probability that geographically and industry distant ties will form between venture capital firms increases with several attributes of the target-company investment setting: (1) the recent popularity of investing in the target firm’s industry and home region, (2) the target company’s maturity, (3) the size of the investment syndicate, and (4) the density of relationships among the other members of the syndicate.

Administrative Science Quarterly, 53 (2008): 266-294

Olav Sorenson and Toby E. Stuart

This paper has two objectives. We begin by contrasting two potential paths for future research in entrepreneurship. One is the establishment of an independent field of research with a clear jurisdiction, a common theoretical canon, and autonomy from related fields. The second is a phenomena-based approach, in which scholars congregate around common interests in empirical phenomena but approach them with distinct disciplinary lenses. After discussing these alternatives and lobbying for the phenomena-based approach, we then review some of the recent, discipline-based research in economic and organizational sociology relevant to entrepreneurship, and identify significant gaps in that literature.

Academy of Management Annals, 2 (2008): 517-543

Toby E. Stuart and Olav Sorenson

Much research suggests that social networks shape the emergence and development of nascent ventures. Scholars have argued that founders’ and firms’ networks influence innovation and the identification of entrepreneurial opportunities, as well as facilitate the mobilization of resources for growth and the harvesting of value from fledgling firms. It is not an exaggeration to claim that existing empirical findings point to the centrality of networks in every aspect of the entrepreneurial process. However, with exceptions so few they may be counted on one hand, this research untenably treats network structures as exogenous—in other words, as if entrepreneurs and enterprises do not pursue valuable connections. In this article, we review the literature on networks in entrepreneurial contexts, argue that it disproportionately focuses on the consequences of networks at the expense of research on their origins, and consider the implications for the literature of the fact that most entrepreneurs and young ventures are strategic in their formation of relations. We then articulate a research agenda composed of five areas of inquiry we consider critical to a better understanding of networks and entrepreneurship.

Strategic Entrepreneurship Journal, 1 (2007): 211-227

Jesper B. Sørensen and Olav Sorenson

We examine the relationship between income inequality and corporate demography in regional labor markets and specify two mechanisms through which the number and diversity of employers in a labor market affect wage dispersion. Vertical differentiation, or variation in the ability of organizations of a particular kind to benefit from labor inputs, amplifies inequality through quality sorting, as the most productive employees in a particular domain pair with the most productive employers. Increasing horizontal differentiation—variation in the kinds of organizations—reduces inequality as individuals can more easily find firms interested in their distinctive attributes and talents. Our analysis of Danish census data provides support for each thesis. Increased numbers of organizations operating within an industry in a region, a proxy for vertical differentiation, increases wage dispersion in that industry-region. Variation in wages, however, declines with increased horizontal differentiation among employers; this is measured by the diversity of industries offering employment within a region and the variance in firm sizes in an industry-region.

American Sociological Review, 72 (2007): 766-783

Michael D. Ryall and Olav Sorenson

The broker profits by intermediating between two (or more) parties. Using a biform game, we examine whether such a position can confer a competitive advantage, as well as whether any such advantage could persist if actors formed relations strategically. Our analysis reveals that, if one considers exogenous the relations between actors, brokers can enjoy an advantage but only if (1) they do not face substitutes either for the connections they offer or the value they can create, (2) they intermediate more than two parties, and (3) interdependence does not lock them into a particular pattern of exchange. If, on the other hand, one allows actors to form relations on the basis of their expectations of the future value of those relations, then profitable positions of intermediation only arise under strict assumptions of unilateral action. We discuss the implications of our analysis for firm strategy and empirical research.

Management Science, 53 (2007): 566-583

Olav Sorenson and Jasjit Singh

Although prior empirical research has established an association between science and the widespread diffusion of knowledge, the exact mechanism(s) through which science catalyses information flow remains somewhat ambiguous. This paper investigates whether the knowledge diffusion associated with science-based innovation stems from the norm of openness and incentives for publication, or whether scientists maintain more extensive and dispersed social networks that facilitate the dissemination of tacit knowledge. Our analysis supports the first mechanism: we track the movement of knowledge with patent citations, and find that science-based innovations diffuse more rapidly and widely, even after controlling for the underlying social networks of researchers as measured using information on prior collaborations. We also find that publication and social networks act as substitutes in the diffusion of knowledge.

Industry and Innovation, 14 (2007): 219-238

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

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