Competitive threats, constraint, and contagion in the multiunit firm

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 (OPEN ACCESS)

Valuation, categories and attributes

Inna Galperin and Olav Sorenson

Existing research on categories has only examined indirectly the value associated with being a member of a category relative to the value of the set of attributes that determine membership in that category. This study uses survey data to analyze consumers’ preferences for the “organic” label versus for the attributes underlying that label. We found that consumers generally preferred products with the category label to those with the attributes required for the organic label but without the label. We also found that the value accorded to the organic label increased with the number of attributes that an individual associated with the category. Category membership nevertheless still had greater value than even that of the sum of the attributes associated with it.

PLoS One, 9 (2014): e103002 (OPEN ACCESS)

The who, why and how of spinoffs

Michael S. Dahl and Olav Sorenson

Studies have consistently found that entrepreneurs who enter industries in which they have prior experience as employees perform better than others. We nevertheless know relatively little about what accounts for these differences. The presumed explanation has generally been that these entrepreneurs benefit from the knowledge that they gained in their former jobs. But they might also differ from other entrepreneurs on a variety of other dimensions: Preferential access to resources or differing motivations, for example, may account for their decisions to enter known industries instead of new ones. Combining novel data from a representative survey of entrepreneurs in Denmark with a matched employer-employee database of all residents in Denmark, we examined how entrepreneurs with prior industry experience differed from those without and the extent to which these differences could account for the performance premium associated with prior industry experience. We found that those with industry experience came from younger, smaller and more profitable firms, and that they recruited more experienced employees, worked harder and placed less value on having flexible hours. The recruitment of more experienced employees and the greater effort exerted appeared to account for at least some of the performance advantage associated with prior industry experience.

Industrial and Corporate Change, 23 (2014): 661-688

Status and reputation: Synonyms or separate concepts?

Olav Sorenson

Status and reputation have often been treated as synonyms. These concepts, however, arise from disconnected literatures in which they had quite distinct connotations. This article explores the similarities and differences between these theoretical constructs, discusses the extent to which research in the management literature has captured one versus the other, and proposes a path for moving forward our understanding of these concepts.

Strategic Organization, 12 (2014): 62-69

Biases in the selection stage of bottom-up strategy formulation

Markus Reitzig and Olav Sorenson

We propose that the failure to adopt an idea or innovation can arise from an in-group bias among employees within an organizational subunit that leads the subunit’s members to undervalue systematically ideas associated with members of the organization outside their subunit. Such biases in internal selection processes can stymie organizational adaptation and therefore depress the performance of the firm. Analyzing data on innovation proposals inside a large, multinational consumer goods firm, we find that evaluators are biased in favor of ideas submitted by individuals that work in the same division and facility as they do, particularly when they belong to small or high-status subunits.

Strategic Management Journal, 34 (2013): 782-799

Resource partitioning revisited: Evidence from Italian television broadcasting

Samira Reis, Giacomo Negro, Olav Sorenson, Fabrizio Perretti, and Alessandro Lomi

The theory of resource partitioning proposes that competition among generalists in the center of a market can trigger a process of resource release that engenders a proliferation of specialist producers outside the center. Previous research has generally examined the relationship between this proliferation and market concentration – a correlate of competitive intensity in the center of the market. In this paper, we extend the theory by arguing that resource release also occurs as the degree of competitive overlap among producers in the center intensifies, even when concentration or other structural features do not vary; we expand its implications by demonstrating that increased competitive overlap in the market center should enhance the viability of producers positioned near the center more than those in the periphery; and we enrich and complete it by specifying the additional assumptions needed to extend the theory of resource partitioning to entry processes. Consistent with our expectations, an empirical examination of the Italian broadcast television industry, from 1992 to 2003, finds that the failure rates of both near-center and peripheral organizations decline in response to increasing competitive overlap in the programming of the national broadcasters, with the failure rates of the near-center organizations falling more than those of peripheral organizations. Increasing competitive overlap similarly stimulates the entry of near-center organizations more than peripheral ones.

Industrial and Corporate Change, 22 (2013): 459-487

The ratings game: Asymmetry in classification

David M. Waguespack and Olav Sorenson

Categorization processes are generally treated as consistent mappings of the underlying characteristics that they group. Yet, in many cases, the identities of actors influence these processes. When identity matters, high status actors often obtain more favorable classifications. We examine these processes in the context of the Motion Picture Association of America’s parental guidance classifications of movies (G, PG, R, NC-17). We find that, conditional on a given level of content, films distributed by MPAA members, and those that involve more central producers and directors, receive more lenient classifications than those carried by independent distributors and involving more peripheral personnel. Conversely, and again conditional on content, films involving directors with a history of producing R rated features receive more restrictive ratings. We discuss the mechanisms that might account for these effects. Regardless of the mechanism, however, since ratings influence revenue and consequently profitability, the movie certification system in the United States places independent distributors and peripheral individuals at a disadvantage relative to their larger and more central rivals.

Organization Science, 22 (2011): 541-553

Ratings data and do files