A substantial body of research has documented the role of human
resource flows in the diffusion of innovation across organizations
(Almeida and Kogut, 1999; Baty et al., 1971; Boeker, 1997; Ettlie, 1980,
1985; Pfeffer and Leblebici, 1973; Rogers, 1995; Rosenkopf and Almeida,
2003; Saxonhouse, 1991; Song et al., 2003; Young et al., 2001). To the
extent they carry relevant knowledge, employees who move between firms
facilitate the adoption of an innovation or technology by a particular
organization. Although the primary focus of this research has been on
determining why and how innovations are spread across firms, from an
organizational perspective, personnel flows can also be construed as an
organizational learning mechanism. That is, hiring rivals'
employees can potentially serve as a means by which a firm both absorbs
new knowledge from its external environment and adapts to changing
contexts.
With certain exceptions (e.g., Baty et al., 1971; Boeker, 1997;
Young et al., 2001), research examining the effect of employee mobility
and the diffusion of innovation has focused on the acquisition of
technical managers, particularly scientific and engineering talent.
There has been little emphasis on the possible effect of changes to the
executive ranks of a firm on knowledge flows, rivalry, and competitive
strategy. Yet as the following quotation indicates, organizations
operating in dynamic, technology-intense environments may be under
pressure to hire senior executives from rivals in order to acquire new
technologies, or enter new markets rapidly:
In [Silicon] Valley and tech in general, employees are bought and
sold like commodities. If you have trouble with the competition,
simply raid its talent. Just last Fall, German software maker SAP
sued Siebel Systems Inc. after more than a dozen executives jumped
ship for its Silicon Valley rival (Kerstetter, 2000: 43).
Additionally, this phenomenon does not seem to be limited to
technical talent. For example,
SAP, AG, the world's largest maker of business-application
software, has hired a number of executives away from Oracle Corp
and other major rivals as competition in the industry
intensifies....
The software industry has a tradition of poaching talent from
competitors, particularly sales people. What makes the recent hires
by SAP noteworthy, however, is the number and that it includes
development and marketing executives (Bryan-Low, 2005: B2).
Widely regarded as an important organizational adaptation mechanism
(Gabarro, 1987; Vancil, 1987), the study of change to a firm's
executive ranks, or "executive succession," is perhaps one of
the most frequently investigated phenomena in management research
(Finkelstein and Hambrick, 1996; Kesner and Sebora, 1994). A rich
tradition in executive succession research bifurcates successor-type
into insider and outsider categories (Allen et al., 1979; Behn et al.,
2006; Boeker and Goodstein, 1993; Cannella and Lubatkin, 1993; Carlson,
1961; Dalton and Kesner, 1985; Grusky, 1964; Ocasio, 1999; Pfeffer,
1972; Pfeffer and Leblebici, 1973; Salancik and Pfeffer, 1980). Formal,
well-ordered transition processes and promotion from within (i.e.,
"inside succession") tend to result in the selection of new
leaders that fit well within the organizational context and perpetuate
continuity in strategic decision making. Under stable conditions, they
will also likely maintain or increase the extent to which an
organization fits its external environment. In contrast, outside
successors tend to disrupt the status quo and established
decision-making patterns. In theory, the successful implementation of
change by outside successors will help reverse economic decline by
making organizations responsive to discontinuous change in turbulent
environments. Investigations of the direct relationship between outside
succession and subsequent (i.e., post-succession) firm performance,
however, appear somewhat more equivocal. Empirical studies reveal both
positive and negative performance implications for outside succession
(Beatty and Zajac, 1987; Behn et al., 2006; Lubatkin et al., 1989;
Reinganum, 1985; Shen and Cannella, 2002). Negative organizational
performance subsequent to outside succession has been ascribed to a
variety of factors including a lack of firm-specific knowledge by the
inchoate executive (Behn et al., 2006; Gabarro, 1987; Kotter, 1982),
adverse selection problems faced by the board of directors (Zajac,
1990), and the generally disruptive effect of leadership transitions on
both the top management team and the organization as a whole (Shen and
Cannella, 2002). This suggests there may be mediating factors that
affect the relationship between outside succession and firm performance
which have yet to be acknowledged in the existing executive succession
literature.
One such factor might be the strategic changes made by a new,
external executive. While there is a significant body of research
concerning the relationship between outside succession and
post-succession organizational performance, the direct examination of
the influence of succession on strategic change has been more limited.
For example, at the corporate level, firms that appoint outside
successors appear to become more diversified (Wiersema, 1992). Several
studies have also examined the relationship between executive succession
and changes to business-level, or competitive, strategy. CEO succession
appears to be associated with increased "competitive
aggressiveness" (Miller, 1993). Executive succession exhibited a
positive association with firm performance when combined with
"strategic reorientation," including the addition or deletion
of a major product line, as well as a significant market entry (Tushman
et al., 1985; Virany et al., 1992). Boeker (1997) found that
semiconductor producers were more likely to enter a specific product
market when they hired a top manager from an organization that competes
in that same product market. This phenomenon, described as
"executive migration," can be viewed as a mechanism for the
transmission and diffusion of knowledge across firms, and affects
strategic change and competition (Boeker, 1997). Thus, changes to a
firm's executive ranks may influence its competitive strategy. In
turn, this may have implications for firm performance.
Accordingly, the paragraphs that follow draw upon recent
developments in knowledge management and competitive dynamics research
to further explore the potential relationship between executive
succession, competitive strategy, and firm performance (see Figure 1).
External succession, particularly what has been described as
"intraindustry succession" (Zhang and Rajagopalan, 2003), is
recast as a mechanism for the transfer of knowledge between
organizations, and the influence of this phenomenon on competitive
strategy and firm performance is examined. The central research question
posed is how does the knowledge transfer associated with intra-industry
succession potentially influence competitive strategy and, ultimately,
firm performance? A conceptual model is developed below that suggests
that intra-industry succession allows firms to obtain often hard to
access forms of tacit knowledge in order to remain competitive. However,
it is also recognized that the use of succession in this manner
potentially has strategic costs. That is, by promoting imitation,
intraindustry succession may cause firms to become strategically
similar. Thus, in the long-run it may actually reduce firm performance
as industry rivalry becomes more intense. It is further suggested that
this phenomenon is influenced by power dynamics, as well as the
integration process associated with the executive's new role.
[FIGURE 1 OMITTED]
EXECUTIVE SUCCESSION AND INTER-ORGANIZATIONAL KNOWLEDGE TRANSFER
A significant stream of management research suggests that existing
stocks of knowledge, as well as the capacity to absorb new knowledge
from the environment, determine an organization's ability to
achieve and sustain a competitive advantage vis-a-vis its rivals (Cohen
and Levinthal, 1990; Grant, 1996; Kogut and Zander, 1992; Liebeskind,
1996; Nonaka, 1994). One form of organizational knowledge that is
difficult for a firm to obtain is "tacit" knowledge, which is
acquired through experience or learned-by-doing (Polanyi, 1966). Tacit
knowledge has been theorized to be an important factor in obtaining and
maintaining a competitive advantage (Droege and Hoobler, 2003). Because
it is difficult to codify, or transform into symbolic language amenable
to interpersonal communication, the transfer of tacit knowledge across
individuals, groups, and organizations is likely to be slow, costly, and
uncertain (Kogut and Zander, 1992). In contrast, explicit knowledge, or
knowledge about facts and theories, is highly subject to transfer
because it can be readily codified, articulated, and communicated. In
organizations, tacit knowledge exists in a variety of forms. At the
individual level, tacit knowledge is similar to the concept of skills,
or knowing "how" to accomplish a task. Interactions among
members of a group, or routines, are also often guided by tacit
knowledge (Berman et al., 2002; Nelson and Winter, 1982).
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.
Accessing and using tacit knowledge therefore presents a problem
for organizations seeking to supplant or maintain competitive parity
with a first-mover. Potentially, this problem can be addressed through
intraindustry executive succession, especially in connection with
higher-level executives. As discussed earlier, higher-level executives
are often in charge of directing and integrating individuals and
sub-units with valuable component knowledge. Although technical managers
are certainly likely to have component knowledge, they may be less aware
of more systemic issues pertaining to the integration of this type of
knowledge. Thus, while acquiring technical talent may enable the
organization to access valuable component knowledge, actually
integrating this knowledge may still require extensive analysis and
experimentation which will delay the implementation of an effective
response. In contrast, because they possess tacit, architectural
knowledge, hiring senior-level managers, with executive decisionmaking
responsibility from a rival organization, may speed competitive
response. Additionally, tacit knowledge is often "learned by
doing" and, therefore, acquired over time. Executives who have
spent a significant part of their careers in a rival firm are more
likely to acquire the relevant architectural knowledge. Therefore,
hiring a rival's executives with greater organizational tenure is
also likely to speed potential responses. These assertions are somewhat
consistent with Gabarro's (1987) study that found intraindustry
successors made more organizational changes during the first three years
in their new roles than new executives from outside the industry.
Ostensibly, industry insiders were able to make changes more rapidly in
their new roles because they possessed more relevant knowledge as
compared to executives from outside the industry (Finkelstein and
Hambrick, 1996; Gabarro, 1987).
A distinction should perhaps be drawn between the effect of
organizational tenure in the intraindustry successor's previous
position versus their new role. Within their prior employer,
organizational tenure may reflect the executive's affinity for
their firm's existing routines and decisionmaking processes. In
this context organizational tenure might be associated with the
maintenance of the status quo. However, their affinity for their former
firm's routines may encourage them to attempt to make their new
organization's strategic responses conform more closely to those of
their previous employer. Thus, in their new role, tenure with their
former organization may induce change rather than the maintenance of the
status quo. Therefore, in their new firm, organizational tenure with
their prior employer might be associated with more rapid competitive
responses.
In addition, the same successor characteristics that enable a
speedy response may also lead to competitive responses that are highly
imitative. Tacit forms of knowledge, such as architectural knowledge,
are learned over time and embedded in routines created by repetition. As
such, they become part of an individual's behavioral repertoires,
and influence aspects of decision making. Accordingly, these routines
may be very difficult to change. The decision-making patterns of new
executives may remain similar to those pursued in their former firm.
This may result in competitive responses that are highly imitative, as
well as rapid.
Proposition 1: Executives with greater seniority and longer
organizational tenure possess more tacit, architectural knowledge.
Organizations that hire such executives from a rival will tend to
respond more quickly and more imitatively to a competitive action.
New executives also have a tendency to recruit members of their
former employer's management team (Eisenhardt, 1989; Moffett and
Youngdahl, 1999), and the extent to which a company targets the
executives of a specific rival by recruiting them in greater numbers may
have competitive implications. An important component of tacit knowledge
involves group interaction, or routines, that are often guided by
nonverbal cues (Berman et al., 2002; Nelson and Winter, 1982). This form
of tacit knowledge may not be available to the intraindustry successor
in their new role because it is context-specific and dependent upon
their social relations with their former employer. However, hiring
several executives from a rival may enable the transfer of these tacit
group routines necessary to commercialize a particular product, process,
service, or project. A study of decision making found that decision
speed was more rapid among CEOs that obtained advice from experienced
executives, referred to as "counselors," who had worked for
these CEOs in previous organizations (Eisenhardt, 1989). Additionally,
this tactic potentially surmounts the security measure of
disaggregation, and may speed the implementation of a competitive
response. Like individual decision-making patterns, group routines
develop over time and may become embedded in the group's shared
cognitive schema. This may result in competitive responses that are also
imitative.
Proposition 2: Organizations that hire a greater number of a
rival's executives will tend to respond more quickly and more
imitatively to a competitive action.
An organization's ability to access and use the knowledge of
"acquired" executives depends, in part, on the relationships
that new executives are able to foster with existing members of the
organization, particularly the top management team. Because tacit
knowledge is difficult to transfer via formal and explicit communication
channels, it is likely that more indirect methods must be used. Although
tacit knowledge cannot be explicitly articulated, newcomer executives
may enable the transfer of tacit elements of architectural knowledge by
enacting various behavioral routines formerly carried out with their
previous employer. Over time, through observation and practice, these
routines can become part of the hiring firm's behavioral
repertoires, and may ultimately shape its competitive strategy. Indeed,
interpersonal communication channels have been found to be particularly
effective for enabling firms to absorb environmental information and
respond to competitive threats (Smith et al., 1990).
It is not likely for this to occur, however, unless there is a
certain degree of social integration between the new executives and
existing members of the organization. Because they utilize common
language and cognitive schema, greater social integration often exists
within workgroups composed of individuals who are socially similar to
one another, as measured by their demographic backgrounds (Katz and
Kahn, 1978; March and Simon, 1958). For example, members of such work
groups tend to communicate more frequently and report greater work group
integration (Zenger and Lawrence, 1989; O'Reilly et al., 1989).
Intraindustry successors who are socially similar to senior executives
of their new employer, on dimensions other than organizational
experience, may therefore encounter greater ease in communication and
more frequent interaction with their new colleagues. This may promote
the transfer of tacit knowledge and speed up the implementation of
competitive responses. Additionally, executives with more social support
in their new organization, either by virtue of hiring members of their
former firm's executive cohort or by being socially similar to
member's of their new organization's management team, will
likely encounter less friction with respect to the implementation of
their competitive moves. Architectural knowledge possessed by the new
executive will probably undergo less transformation as it is transferred
to, and absorbed by, the new organization. In sum, social similarity
between an intraindustry successor and incumbent management will likely
speed competitive responses and make them more imitative, or similar to
the precipitating action.
Proposition 3: Organizations that hire a rival's executives
that are socially similar to existing members of the organization's
top management team will tend to respond more quickly and more
imitatively to a competitive action.
The power an intraindustry successor has relative to incumbent
managers may also influence their new organization's competitive
strategy. Power has been argued to be an important influence on
strategic decision making (Eisenhardt and Bourgeois, 1988; Finkelstein,
1992; Hambrick, 1981; Hinings et al., 1974). The strategies pursued by
firms are more likely to reflect the preferences of those managers or
coalitions with power. For several reasons, when firms attempt to access
a rival's knowledge through intraindustry succession, the new
executive may assume their new role with a relatively high degree of
power and legitimacy. External succession is often caused by poor prior
organizational performance (Allen et al., 1979; Boeker and Goodstein,
1993; Cannella and Lubatkin, 1993) that may serve to de-legitimate the
firm's past routines and practices and provide the new executive
with increased power and a mandate for implementing change (Gabarro,
1987; Hambrick and Fukutomi, 1991; Vancil, 1987). The need for change
might also introduce a degree of uncertainty on the part of incumbent
managers with respect to future strategies. In general, managers that
are able to cope with uncertainty have more power (Finkelstein, 1992;
Thompson, 1967). New executives brought aboard a firm because they
possess knowledge that will enable a firm to initiate a competitive
response may have a relatively high level of power because they are able
to reduce some of this uncertainty.
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.
This improved decision process might influence strategic outcomes.
Balanced power dynamics may require a compromise between the
executive's new vision for the firm and its traditional approach to
competitive strategy. In effect, this might result in the development of
a new set of routines and capabilities as the knowledge carried by the
new executive blends and combines with the knowledge base of their new
firm. Indeed, new combinations of resources and capabilities are thought
to be at the core of creativity and innovation (Nahapiet and Ghoshal,
1998). This blended knowledge base might result in more creative and
unique competitive responses that are significantly different from those
endemic to either the industry as a whole, or the specific firm. In
other words, within the context of more balanced power structures,
strategic decision making will become less associated with simply
implementing, or failing to implement, the intraindustry
successor's strategies carried from their prior role. Instead, more
balanced power structures may result in both the formulation and
implementation of substantially new competitive strategies.
Accordingly, this suggests that the power dynamics associated with
intraindustry succession have a curvilinear relationship with long-term
firm performance (see Figure 2). Low long-term performance is likely to
result when the new executive has either very high or very low power.
However, at intermediate levels of power (ba