Research and teaching

Gabriel Natividad and Olav Sorenson

Do unexpected events experienced by one line of business adversely affect other lines of business in diversified firms? We use fine-grained data on the film industry in the United States to show that such contagion frequently occurs when a distributor opens a film in theaters and concurrently releases an older title to home video: Being exposed to a competitive threat – a period of unexpected volatility – in the theatrical market at the time of a film opening leads the distributor to suffer a loss in sales on the concurrent home video release. Further analysis revealed that managers responded to these competitive threats by intensifying the advertising and promotion of their films in theaters, suggesting that they diverted resources and attention away from home video. Our results therefore suggest that the effects of unexpected events do spread across lines of businesses within firms and consequently that resource constraints may limit the ability of firms to engage effectively in multiple markets.

Organization Science, 26 (2015): 1721-1733

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