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

Therefore, the competitive responses of firms that acquire executives from rivals and afford them greater power are likely to be both rapid, as well as highly imitative. A new executive with high levels of legitimacy, power and influence may meet with less resistance from incumbent members of their new organization's management team. Greater power might give the new executive increased leeway to actually use knowledge that they have acquired in previous roles, as they experience less conflict, confrontation, and negotiation in implementing their agenda. Accordingly, the architectural knowledge possessed by more powerful executives might undergo less transformation as it becomes part of the new organization's routines and repertoires. Thus, because they encounter fewer obstacles and pressure to conform to existing routines and practices, the competitive responses promoted by intraindustry successors that have greater power are likely to be rapid, as well as imitative of their industry rivals. Alternatively, weaker intraindustry successors may not have much of an impact on their new firm's competitive strategy, because they lack the influence necessary to implement their agenda. Instead, newcomer executive with less power may be forced to spend time building relationships and "fitting-in" within a firm's established social order. This integration process may slow, and possibly even impede any new initiatives, as the new executive comes to accept long-established organizational practices.

Proposition 4: The power of an intraindustry successor in their new role influences the speed and character of a firm's response to a competitive action. Greater power on the part of such an executive is likely to be associated with more rapid and more imitative competitive responses.

Thus, the above paragraphs theorize that executive succession, particularly intraindustry succession, is potentially a significant influence on competitive strategy. This assertion is consistent with the generally accepted belief that external succession is associated with strategic change. However, as discussed earlier, empirical evidence regarding the relationship between external succession and subsequent firm performance has been mixed. Additionally, we know little about the long-term performance consequences of external succession for an organization, especially relative to its competitors. Accordingly, the following section reexamines this relationship given the proposed association between external succession and competitive strategy developed above.

THE PERFORMANCE IMPLICATIONS OF INTRAINDUSTRY EXECUTIVE SUCCESSION

It may be beneficial for a firm to be capable of responding rapidly to a competitor's actions. As discussed previously, research indicates that strategic decision-making speed is associated with higher firm performance (Baum and Wally, 2003; Bourgeois and Eisenhardt, 1988; Eisenhardt, 1989). However, the same may not be true for highly imitative responses. An important dimension of competitive strategy is the degree to which a firm pursues strategies that are unique or, alternatively, conform more closely to those of its rivals. A recurrent theme in the strategic management literature is that firms which differentiate themselves from competitors will face less direct price competition and will performance better (Barney, 1991; Porter, 1980, 1985). Conversely, the pursuit of strategies that more closely conform to those of rival firms may intensify price-based competition, with the ultimate effect of eroding profit margins and increasing organizational failure rates (Baum and Mezias, 1992; Baum and Singh, 1994; Gimeno and Woo, 1996).

Unlike rapid responses, which may reflect greater decision-making efficiency and adaptability under conditions of environmental change (Baum and Wally, 2003), imitative responses may signal the pursuit of a less creative, "copycat," strategy and promote strategic similarity among industry incumbents. Although firms that imitate a successful innovation or product market initiative may temporarily achieve higher levels of performance, over time the proliferation of similar, more homogeneous goods or services may tend to exacerbate the intensity of rivalry within an industry. This may result in reduced profit margins and lower rates of return on invested capital among all industry participants (Porter, 1980). By facilitating imitation, intraindustry succession may also increase the intensity of industry rivalry with negative consequences for the imitating, or responding, firm. Thus, while imitating firms may temporarily benefit from knowledge transfer, the knowledge spillover associated with intraindustry succession may promote strategic similarity, intensify rivalry and reduce profits in an industry. This suggests that over time, there will be a negative feedback associated with intraindustry succession and the tendency to implement imitative competitive responses.

Proposition 5: Intraindustry succession that facilitates imitative response tends to temporarily improve firm performance. However, it also tends to increase the intensity of rivalry within an industry and lower the level of profitability among industry incumbents. Over time, this will also tend to erode the profitability of a specific firm.

Accordingly, the competitive dynamics associated with intraindustry succession would seem to present firms with a significant challenge. On the one hand, firms in rapidly changing, technology-intensive environments may need to rapidly access state-of-the-art knowledge stocks in order to maintain some form of parity with rivals. This creates an incentive for firms to attract senior executives, from rival firms, that can rapidly implement a competitive response. However, these responses may also be highly imitative. Thus, while allowing a firm to "stay in the game," over time intraindustry succession can also lead to strategic similarity, intense rivalry, price competition, and reduced profits for both the initial actor, as well as the responding firm. Thus, firms in this situation would seem to face the challenge of both benefiting from knowledge acquired from rivals in this manner, but yet responding in ways that are innovative and unique, rather than imitative.

In this regard, the power dynamics referred to previously may have an effect on both the character of competitive response as well as organizational performance. When intraindustry successors have a high degree of power and can rapidly institute imitative initiatives, the hiring firm may initially experience performance improvements as they catch up with industry leaders. Although, over time, the performance of industry participants may deteriorate as strategic similarity diffuses and rivalry intensifies. Constrained in their ability to implement their preferred competitive strategy, less powerful industry successors may have little effect on firm performance. Thus, performance might remain low among firms that hire intraindustry successors in order to achieve a level of parity with rivals, but fail to empower them with the influence necessary to bring about any form of competitive response. In sum, long-term firm performance is likely to be lower at both ends of the power spectrum for intraindustry successors (i.e., when they either are very powerful or relatively weak).

However, there is reason to suspect that firms might benefit from intraindustry succession when new executives have intermediate levels of power. At moderate power levels the new executive will not likely be capable of "railroading" their strategic agenda, nor have their strategic agenda completely blocked or diverted by the organization's existing norms, values, practices, and bureaucratic channels. Instead, the new executive may experience greater "give-and-take" with the firm's incumbent management cohort as they negotiate for the right to implement their agenda. This process may be highly functional for the organization. The decision-making literature, for example, suggests that certain forms of conflict within groups improve the quality of decisions by synthesizing and integrating the divergent perspectives of group members (Amason, 1996; Buchholtz et al., 2005; Eisenhardt et al., 1997; Schweiger and Sandberg, 1989; Schwenk, 1990; Shook et al., 2005). Additionally, minority influence research (i.e., the influence of an individual or subset of individuals within a decision-making body) suggests that minority inputs to a group, "... contributes to the detection of novel solutions and decisions that, on balance, are qualitatively better," and "It]he implications of this are considerable for creativity, problem solving, and decision making, both at the individual and group levels" (Nemeth, 1986: 23). In other words, new executives might serve as a minority voice, providing alternate perspectives and choices for their new decision-making body. But, at the same time, the fact that power is balanced would allow for the firm's traditional "voices" to be heard in strategic decisions. "Balanced power structures" (Eisenhardt et al., 1997: 82) appear to reduce dysfunctional interpersonal conflict and contribute to more effective decision-making processes in management teams.