Intraindustry executive succession, competitive dynamics, and firm performance: through the knowledge transfer lens.

Another form of tacit knowledge has been described as "architectural knowledge," which refers to knowledge about both product (Henderson and Clark, 1990) as well as organizational configurations (Henderson and Clark, 1990; Matusik and Hill, 1998). Product architectural knowledge refers to knowledge related to the way sub-components of a product are integrated. In addition to product innovations, architectural knowledge is also reflected in the structural attributes of an organization, including its communication channels, information filters, and strategies (Henderson and Clark, 1990). For example, a firm might have separate subunits each dedicated to the manufacture of a separate component of a product. Periodic meetings between representatives from each of these subunits, under the auspices of a common supervisor, are an element of the firm's architectural knowledge. Put differently, in addition to product configurations, architectural knowledge might also include knowledge about an organization's structure and relationships between subunits (Henderson and Clark, 1990). Additionally, due to the fact that the integration of component knowledge across organizational functions and subunits involves social relations, architectural knowledge has been theorized to be more tacit than explicit (Matusik and Hill, 1998).

Both the competitive significance of architectural knowledge, as well as its association with structural attributes, can be seen in the security measures that organizations often take in order to limit its transfer to rivals. For example, through job design, firms often segment duties, or "disaggregate" tasks in order to compartmentalize, and thus protect, a firm's stock of proprietary knowledge (Liebeskind, 1996). Worker access is limited exclusively to their component tasks, and the role of integrating component tasks is often limited to one or a very few individuals, often at higher (executive) levels of the organization's hierarchy. Therefore, tacit, architectural knowledge is potentially important as a source of competitive advantage, and perhaps the only or the most effective way to transfer (or imitate) such knowledge is through intraindustry executive-level succession, with some conditions. Accordingly, the following sections attempt to identify these conditions and their influence on competitive strategy as well as competitive advantage.

THE COMPETITIVE INTERACTION PROCESS

Recently, a more dynamic approach to the study of competitive strategy has been adopted by researchers. Based in part on the writings of Joseph Schumpeter (1950), the field of competitive dynamics views business strategy as part of a dynamic process of competitive interaction (Grimm and Smith, 1997; Smith et al., 1992). In this process, potential profits lure entrepreneurs to experiment with new ideas, or innovation in the marketplace, with the hope of securing a monopoly position. However, entrepreneurial profits also spur rival firms to innovate as they attempt to imitate, and possibly improve upon, previous innovations. This may result in the erosion of the competitive position of the initial innovator (Ferrier et al., 1999).

The study of competitive dynamics suggests, in part, that competitive advantage is driven by the timing of the interactions of mutually interdependent firms (Grimm and Smith, 1997; Smith et al., 1992). For example, it has been argued that, in certain contexts, the monopolistic position and the attendant entrepreneurial profits appropriated by the successful innovator provides an incentive to be a "first-mover" with respect to a particular innovation (Lieberman and Montgomery, 1988). However, these profits also provide rivals with an incentive to rapidly respond by imitating these innovations in order to supplant the first-mover, or maintain competitive parity by preventing the development of insurmountable barriers to imitation (e.g., learning curves, economies of scale, brand equity). This strategy also allows the "fast-second" mover to avoid some of the risk associated with introducing an innovation to the market, yet still participate in a "quasi-monopoly" (Baldwin and Childs, 1969). The timing of competitive response is therefore crucial to the notion of competitive advantage. To the extent a firm initiates strategic actions that are difficult, costly, or time-consuming for rivals to imitate, it will sustain a competitive advantage. From a rival's perspective, rapid response may become a strategic imperative. This idea is consistent with research findings that indicate a positive association between strategic decision-making speed and firm performance (Baum and Wally, 2003; Bourgeois and Eisenhardt, 1988; Eisenhardt, 1989).

Competitive dynamics research also examines the nature or character of a competitive response. For example, the propensity for an organization to either imitate or be imitated by its rivals has evolved as an important phenomenon in the study of competitive dynamics. Competitive dynamics research defines response imitation as the degree to which competitive responses mimic, or are similar in character to, the precipitating actions. In theory, like rapid responses, product market responses that are imitative will tend to erode any advantage appropriated by the initial actor, and enable the responding organization to maintain some form of competitive parity (Grimm and Smith, 1997; Smith et al., 1991). Although, as discussed below, imitative competitive responses may not necessarily benefit the responding firm over the long term. In sum, competitive dynamics research attempts to formally model the competitive actions and reactions of rival firms. The paragraphs below explore how knowledge transfer associated with intraindustry executive succession potentially influences competitive dynamics, and particular attention is given to both the speed and imitativeness of competitive responses.

INTRAINDUSTRY EXECUTIVE SUCCESSION AND COMPETITIVE DYNAMICS

Research findings appear to confirm that a firm's top management team plays a role in competitive dynamics. In general, top management teams that are more heterogeneous can enhance decision effectiveness. More diverse management teams tend to view a decision problem from multiple perspectives, engage in more expansive information search, and consider a broader array of decision alternatives than more homogenous teams (Bantel and Jackson, 1989). However, a study of the competitive responses of firms with more demographically heterogeneous top management teams found these were less likely to respond, and responded more slowly to competitive actions (Hambrick et al., 1996). Ostensibly, communication and coordination problems associated with heterogeneous groups make it difficult for diverse top management teams to achieve consensus and marshal the resources necessary to quickly respond. Additionally, empirical findings reveal that highly experienced top management teams were less likely to respond and responded more slowly to competitive actions than teams with less experience (Smith et al., 1991). This apparent tentativeness among more experienced top management teams is perhaps driven by risk aversion, as well as a tendency to rely on established routines, knowledge bases, and norms which tend to limit information search and constrain decision-making processes.

Changes to the top management ranks may also affect competitive dynamics. In particular, intraindustry successors may play an important role in enabling competitive response. Defined as succession from within the industry, but outside the firm (Zhang and Rajagopalan, 2003), intraindustry succession may enable firms to obtain the requisite levels of tacit, architectural knowledge necessary to respond competitively. However, the potential influence of this phenomenon on competitive advantage remains largely unexplored. According to both competitive dynamics and knowledge management theory, the issue of the timing of competitive response is highly relevant to the idea of competitive advantage. From the competitive dynamics perspective, firms competing in an industry must respond to a successful competitive action as quickly as possible in order to combat any first-mover advantage, and maintain a certain degree of competitive parity. Competitive response is likely to be slowed, however, to the extent the initial action is predicated on tacit knowledge. Less subject to inter-organizational transmission, tacit knowledge will be more difficult for potential responding firms to access and utilize. It has been established, for example, that responses to competitive actions are slower if they have relatively high implementation requirements (Chen et a., 1992). Implementation requirements generally refer to how responses are executed, and the case can be made that some of this "know-how" is tacit.