A word from Deloitte

Our research agenda

The Deloitte Institute of Innovation and Entrepreneurship supports a wide research agenda – we believe that anyone in any role within an organisation can conceive and drive innovation, and that new entrepreneurial ventures can be based on an equally diverse range of opportunities. Rather than setting out any fixed research agenda we support any faculty member in any subject area approaching the topics of innovation and entrepreneurship from any direction.

All the research we support is submitted for publication in the top academic journals. However, we want all research findings to be accessible and useful to managers, leaders and entrepreneurs. The Institute supports dissemination of research findings and insights in a range of media through this website. 

Current research projects

March 2014

 

Sungtak Hong
Doctoral Student

The Impact of Commodity Taxation on Firms’ Product Portfolio and Market Structure

This project investigates empirically the link between commodity tax changes and market concentration through multi-product firms’ (dis)incentive to invest in product quality and variety. The idea for the study came from an interesting observation from the Korean alcoholic beverage industry: in 2000, the Korean government was pressured by the WTO to equate the tax rates levied on domestic and imported liquor, and following this change we observe a positive association between the tax increase and the market concentration in the industries that were affected. Further descriptive statistics indicate that firms may have responded to higher tax rates by reducing their product quality and variety. The findings from the study will have a great relevance to industrial economists and policymakers, as well as practitioners by helping them understand the impact of commodity taxation on firms' product line strategy and on consumer welfare. 

Anja Lambrecht
Assistant Professor of Marketing

Should You Target Early Trend Propagators – Evidence from Twitter

Marketing has often stressed the importance of targeting firm communications to consumers who embrace and propagate trends. However, little is known about how possible it is to use advertising to persuade them to embrace the topics a firm wants them to propagate. To explore this, we use data from a field test conducted by a charity on the micro-blogging service Twitter. In the field test, the charity targeted individuals who embraced a top Twitter trend early on in its life-cycle, and compared their behaviour to that of individuals who only embraced the trend later on. We find that targeting advertising to early trend propagators who have embraced non-commercial trends early on is not successful. One explanation is that early trend propagators aim more than others to make their own unguided choices and have little motivation to respond to commercially sponsored topics.

Xu Li
Doctoral Student

Creative Recombination or Illegitimate Category Straddling? Analysing the Impact of Hybrid Innovation on Firm Performance 

While the innovation literature acknowledges the recombination of existing ideas from different disciplines as an important source of novelty that advantages a firm, studies on market categories suggest that such hybridisation complicates the product identity of an innovation, diminishing firm performance. This paper proposes two separate mechanisms, aiming to reconcile such “conflicting” views. Firstly, I argue that customer expertise matters, since experts with sufficient technological knowledge may not be easily confused by a hybrid’s display of atypical features. Secondly, using conventional product labels also helps, as it could clarify the identity of the hybrid innovation, and attenuate customers’ confusion over its technological deviations.

Iva Rashkova
Doctoral Student

Dynamic Multiproduct Procurement for Global Health

Performance-based financing is an innovative global health financing model, in which the proper use of past funds becomes a prerequisite for future disbursements. Performance is evaluated through regular monitoring processes; but these, in turn, create uncertainty in the specific timing of future fund transfers to grant recipients. Given this uncertainty, the purpose of our work is twofold: to enable grant recipients to allocate funds to various health products more effectively; to quantify the consequences of the uncertainties associated with performance-based financing, enabling policy makers to drive process innovation in global health financing and achieve better health outcomes.

David Schoenherr
Doctoral Student

Weak Patents and Innovation in Small Firms

Patents serve an important role as a certification mechanism for entrepreneurs that need to raise external capital to pursue an idea. Granting "weak" patents without substantive examination dilutes the certification role of patents. Exploiting the abolishment of the substantive examination system for utility models in Korea, this project empirically examines the effects of "weak" patents on small firms' ability to raise external financing and its impact on innovation in small firms.

Nader Tavassoli
Professor of Marketing

Matteo Visentin
Doctoral Student

Communicating Customer Orientation: A Double-Edged Sword

Customer centricity is at the core of the innovation process, from involving customers in the design process to communicating a customer-centric – e.g., versus a product centric – design process at launch. As part of this effort, customers are typically made to feel highly valued, being told they hold private information the company requires or that the product was designed “for them.” We examine whether “putting customers first” shifts their perceived power and thereby affects their behaviour. For example, communicating customer-centricity might create an ego-centric bias in the design process or embolden customers to be more reactive in positive or negative word-of-mouth. 

Freek Vermeulen
Associate Professor of Strategic & International Management

Are Bigger Clinics Any Better?

This project aims to determine whether – as government agencies propose – increasing average clinic size by restricting new company foundings would enhance the overall success rate in the industry, to the benefit of patients. We, among others, examine the possibility that the effect of size is non-linear, and hence clinics can also become “too big”; that the effect is driven by experience (since bigger clinics gain experience quicker) rather than by size itself; and that there are “reverse causality” effects, namely that the better clinics become bigger over time, rather than that size itself leads to better outcomes. In addition, we look at the role of higher levels of specialisation within larger clinics. Thus, this study will clarify the relationship between organisational size and effectiveness.

 

September 2013

 

Michaël Bikard
Assistant Professor of Strategy and Entrepreneurship

Organisations and the Division of Innovative Labour: Refinement and Development of the “Knowledge Twins” Method

Do different types of organisations play distinct roles in the process of science-based invention? Universities, entrepreneurial firms and larger companies all play a part in the translation of scientific knowledge into new technologies. Yet the nature of this role remains unclear. Does science-based invention occur in different ways when undertaken by different types of organisations? In order to understand the impact of different types of organisations on the translation of scientific knowledge into new technologies, I have proposed a novel empirical strategy. I use simultaneous discoveries in science to conduct the first “twin studies” of new scientific knowledge. The goal of this project is to refine and develop this method using interviews and computer programming.

Alex Edmans
Professor of Finance

Equity Vesting and Managerial Myopia

This paper links the impending vesting of a CEO’s equity to reductions in innovation. Existing studies measure the manager’s short-term concerns using the sensitivity of his equity to the stock price. However, in myopia theories, the driver of short-termism is not the magnitude of incentives but their horizon: equity will not induce myopia if it has a long vesting period. We use recent changes in compensation disclosure to introduce a new empirical measure that is tightly linked to theory - the stock-price sensitivity of shares and options vesting over the upcoming year. This sensitivity is determined by equity grants made several years prior, and thus unlikely to be driven by current investment opportunities. An interquartile increase in the sensitivity of newly-vesting equity is associated with a decline of 0.11% in the growth of R&D (scaled by total assets), 37% of the average R&D growth rate. Similar results hold when including advertising and capital expenditure. In addition, CEOs with newly-vesting equity are significantly more likely to meet or beat analyst earnings forecasts by a narrow margin.

The Real Costs of Disclosure

In the recent financial crisis, there have been widespread calls to increase firms’ disclosure requirements to maximise transparency. Our paper highlights an important cost to increasing disclosure – it may reduce innovation and long-term investment. Such projects improve the firm’s value in the long-run, but reduce earnings in the short-run. Thus, mandating increased disclosure of short-term, tangible measures of performance, will reduce the manager’s incentives to engage in long-term, intangible investment. Advocates of disclosure argue that the actual act of disclosure is costless – nowadays, information can be disclosed electronically rather than being physically mailed to shareholders. Our model points out that, even if the actual act of disclosure is costless, mandating increased disclosure can still be costly as it dissuades innovation. This result has important implications for public policy.

Elias Papaioannou
Associate Professor of Economics 

The Effects of Land Mines on Development and Entrepreneurship: Evidence from Mozambique

Unexploded land mines and other explosive war remnants pose a serious on-going threat to civilians across many parts of the developing world. Besides the sizable death toll and injuries, land mines hamper entrepreneurial activity, impede trade both within and across regions, and limit human capital accumulation by lowering school attendance. The ensuing isolation of the communities circulated by minefields exacerbates poverty and underdevelopment.

In this project, Elias Papaioannou and Stelios Michalopoulos assess the effects of land-mines on development and entrepreneurial activity combining detailed maps with geo-referenced micro-level data from Mozambique, a country that has been hugely affected by land mines installed by all conflict actors during the civil war (1977-1992). The analysis assesses both the long-run effects of land mines installed during the civil war on contemporary development and the short/medium run effects of recent de-mining activities. Using tools from network analysis and spatial econometrics, and a plethora of survey and census data on health, education, trade, entrepreneurship, and output the research aims identify both the local and the nationwide impact of land mines.

Rui Silva
Assistant Professor of Finance

Personal Wealth and Entrepreneurship

Recent research on venture capital and private equity has helped shed light on the important role that finance plays in fostering entrepreneurship and innovation. However, the extent to which personal financial conditions - initial personal and family wealth - may act as catalysts for entrepreneurial activity has not received much attention. Many of today’s corporate champions such as Amazon, Apple, Disney, and Google had humble beginnings, starting out in garages, with much of the initial financing originating from personal funds as well as funds from family and friends. Without the initial support from close social connections many successful firms may not have taken off in the first place.

The main purpose of this project is to quantify the importance of initial financial conditions of individuals and their close relatives (e.g., being born into a well-off family) for entrepreneurship. Initial wealth may provide crucial earliest-stage funding for ventures that may not qualify yet for other sources of finance, or for which other sources of funding are prohibitively expensive. Further, initial wealth endowments may hasten entrepreneurial activity by providing individuals with a safety net---and perhaps a fair dose of necessary hubris---to engage in risky entrepreneurial activity rather than to pursue the relative safety of salaried employment.

Keyvan Vakili
Assistant Professor of Strategy and Entrepreneurship

Spilling Over the Berlin Wall: The Role of Mobility in Academic Knowledge Transfer

Several studies have highlighted the importance of employee mobility as a channel for knowledge transfer or knowledge spill-over. An implicit assumption behind these studies is that knowledge is sticky (or tacit) and thus acquiring it requires direct contact with the holder of such knowledge – to access the knowledge you may need to hire those who have created it or who have been in direct contact with the creators.

Taking advantage of a unique historical event, namely the fall of the Berlin Wall, I directly test this assumption. In particular I compare the amount of ‘knowledge spill-over’ (measured in terms of scientific citations) due to the movement of German scientists from West Germany to East Germany and vice versa after the fall of the Berlin Wall across two domains of knowledge: mathematics and chemistry. The idea is that, in contrast to chemistry, there is little tacit knowledge in the field of mathematics. Hence, this comparison lets me isolate the role of knowledge stickiness in explaining the knowledge spill-over due to employee mobility. It also enables me to test other mechanisms that can potentially lead to previously observed ‘citation premiums’ (an increase in the number of citations due to employee mobility). The results can make important contributions to the literatures on employee mobility, organisational learning, and knowledge spill-overs.

Freek Vermeulen
Associate Professor of Strategy and Entrepreneurship

Amandine Ody-Brasier (Yale University)
Assistant Professor of Organisational Behaviour  

Who Gets it Wrong? Explaining Erroneous Market Perceptions Among Entrepreneurs in Champagne

Entrepreneurs use information about the markets in which they operate as input for their strategic decisions. However, they often get it wrong; their beliefs about various key features of the market regularly are inaccurate. For example, interviewing grape grower entrepreneurs in the Champagne industry, we noticed that their estimates of the average price in the market varied widely, with people both overestimating and underestimating market prices. The same was true for other pivotal variables in the industry.

We hope to explain who gets it wrong, how much, and in which direction. In the first instance, we would like to focus on the market prices of Champagne grapes, because prices are a key variable and market characteristic, but also because there is a clear answer, i.e. the actual market price can – be it in hindsight – be determined.

This project is a follow-up study of an earlier project in we focused on the buyer side of the same market, i.e. Champagne houses. As a by-product from that work, 222 grape growers completed a questionnaire that we had used to validate some of the measures used in the paper on Champagne houses. We made use of the questionnaire to also collect data on several market perceptions of the grape growers; among others, of prices. Our interviews had already suggested that they often ‘get these variables wrong’. We now intend to collect objective data on (amongst others things) market prices. This data has only recently - several months after the harvest - become available. The gap between them – perception and reality – will be our dependent variable.

Naufel Vilcassim
Professor of Marketing

Co-Authors:

Stephen Anderson-Macdonald
Doctoral Student

Pradeep K. Chintagunta (Booth Business School, University of Chicago)
Professor of Marketing

Complementing Managerial Capital with Access to Information: A Field Experiment on International Consulting and Marketing versus Financial Information for Entrepreneurs in Uganda and Rwanda

This project explores a new approach to stimulating entrepreneurship in emerging markets. We use a randomised controlled-trial to measure the combined impact on firm performance of an innovation in management education – the GROW Movement “remote volunteer consulting” program – and a novel information technology tool that increases access to business information for a sample of “high-growth potential” entrepreneurs. By implementing a more intense intervention that focuses on only one aspect of business management (finance versus marketing), and combining this with improved access to business information, this research seeks to understand how innovation can unlock the growth potential of transformational micro-enterprises in developing countries.


March 2013

 

Julian Birkinshaw
Professor of Strategy and Entrepreneurship 

Organisational Responses to Technological Discontinuity in the Pharmaceutical Industry

Incumbent industry leaders, like Kodak or Nokia, struggle to respond effectively when faced with disruptive technologies. Various remedies to this ‘innovator’s dilemma’ have been proposed, including creating a separate unit in which the fledging technology can be nurtured, framing the new technology as an opportunity rather than a threat, and adopting a ‘fast second’ strategy to invest quickly once the way ahead is clear.

Birkinshaw’s research looks at the organisational response of big pharma companies to biotechnology – seen as a threat in the sense that it offers a potentially disruptive way of developing new drugs; and an opportunity in the sense that it has opened the eyes of big pharma companies to potentially superior ways of working. Companies took very different approaches when faced with these threats and opportunities. Some delayed taking decisive action; some chose to acquire what they were missing; some developed a ‘string of pearls’ (several smaller acquisitions); others took a more organic approach to ‘building’ the necessary capabilities.

The research will home in on those companies that have taken the most divergent courses of action. 

Dan Cable
Professor of Organisational Behaviour

The Role of Socialisation in Virtual Contracting: Innovating the Nature of Employment Relationships

The use of virtual contractors is a large and growing trend in the way work is completed in organisations and society more broadly. Given the combination of remote-location and temporary roles, where visibility and established trust is low, what is the best way to get virtual contractors up and running effectively? This investigation will examine how virtual contractors are welcomed to their ‘new organisation’ and how the initial factors of reputation, pay and socialisation affect their resulting work. In particular, Cable examines whether firms can use electronic socialisation to move the online relationship

Donal Crilly
Assistant Professor of Strategy and Entrepreneurship

The Psycholinguistic Foundations of Entrepreneurship: Using Natural Language Processing to Understand the Mental Models of Entrepreneurs

According to research, entrepreneurs are more likely than corporate managers to identify opportunities. Crilly asks why is this the case? Are entrepreneurs merely more optimistic? A more intriguing explanation is that entrepreneurs and managers differ fundamentally in how they access and process information. To pinpoint the key differences, this research applies natural language processing to interviews with a carefully matched sample of entrepreneurs and managers. The focus lies in identifying the distinct mental connections that entrepreneurs and managers make between apparently unrelated domains such as printing and 3D. The findings hold the potential to inform both our understanding of what it means to be entrepreneurial and our teaching of entrepreneurship.

Oded Koenigsberg
Associate Professor of Marketing

Marco Bertini
Associate Professor of Marketing Management, ESADE Business School

Managerial Biases in the Pricing of New Products

The authors look at the effect of the potential biases on managers’ pricing decisions of new products. This is a topic relevant for entrepreneurs and managers of innovative R&D departments who are emotionally invested in their products or organisations. Managerial biases can lead to poor pricing decisions and an inability to interpret early market signals – if things go badly, managers tend to blame the market for under-cutting and if things go well then they credit this to the superior performance of the product (rather than their own aggressive pricing). Bertini uses laboratory experiments and empirical (market) data analysis to capture these psychological biases. He follows this with an analytical model to learn the normative effects of such biases on the decisions in a variety of settings – and to develop testable hypotheses. Finally, these hypotheses will be tested using data collected from
market simulations and other market datasets.


September 2012

 

Jean-Pierre Benoît
Paul Geroski Term Chair Professor of Economics

Innovation in the Absence of Patents: Theory and Experiment 

Are patents really necessary to foster innovation? Benoît provides theoretical and experimental results presenting circumstances under which the absence of protection is more conducive to investment. When an innovator repeatedly faces the same parasitic imitators, Benoît first shows that any level of investment profitable under legal protection can be part of equilibrium in its absence: the parasites limit their imitation to preserve the innovator’s incentives to invest. Second, he shows that the innovator might invest more than under legal protection: he is forced to invest more to keep the parasites satisfied and thus cooperative. Experimental results confirm that subjects indeed invest more when protection does not exist and in a fashion consistent with the theory. 

Julian Birkinshaw
Professor of Strategy and Entrepreneurship

Workplace Innovation: What Makes Them Stick?

This research focuses on how management innovations – new ways of working – take shape over time. There are many well-known management innovations that have had a profound influence on how companies work, including the multidivisional organisation structure ‘Six Sigma’ and ‘Business Process Reengineering’. But equally there are examples that have been less influential, such as ‘Cellular Manufacturing Teams’, or the ‘Spaghetti’ organisational model pioneered by Danish hearing aid company Oticon. Birkinshaw will examine recent management innovations – both the successes and failures – to understand what factors allow some to take off, whilst others do not. He will consider two dimensions to this question: there is a “technical” aspect in terms of the actual techniques and methods behind the innovation, and there is a “rhetorical” aspect in terms of how the ideas get communicated to business people, consultants and academics. Prior studies have given more attention to the technical aspects; in this study, the primary focus is on the rhetorical aspects. 

Rajesh Chandy
Professor of Marketing; Tony and Maureen Wheeler Chair in Entrepreneurship; Academic Director of the Deloitte Institute of Innovation and Entrepreneurship

Co-Authors:

Magda Hassan
Doctoral Student

Om Narasimhan (London School of Economics)
Professor of Marketing

Jaideep Prabhu (Judge Business School)
Jawaharlal Nehru Professor of Indian Business & Enterprise

Pricing Latitude and the Performance of Micro-Entrepreneurs

This research examines the economic and social impact of a change in the marketing practices of micro-entrepreneurs in a large emerging market. Chandy and his co-authors ask what impact the exercise of flexibility in pricing (a feature termed “pricing latitude”) has on the entrepreneur’s profitability using a sample of micro-entrepreneurs in a large slum in Cairo, Egypt. In this field experiment, they randomise whether micro-entrepreneurs are exposed or not to information from their successful peers’ pricing approaches. The impact of the intervention on both intermediate (e.g. changes in pricing practices) and final (e.g. profitability, sales) outcomes will be measured.

Woonam Hwang
Doctoral Student 

Nitin Bakshi
Assistant Professor of Management Science and Operations

Victor DeMiguel
Class of 2008 Term Professor of Management Science and Operations

When Simple Supply-Chain Penalty Clauses Suffice

Supplier reliability is an increasingly important aspect of global supply-chain management.
Disruptions to supply can be spectacular (volcanic eruption in Iceland) or seemingly more mundane (yet consequential) when retailers pursue on-time (just in time) delivery. Firms actively seek ways of enhancing supply reliability, but due to decentralisation of global supply chains they lack direct control, instead using contractual mechanisms to generate the right incentives for suppliers.

Whether capacity is wiped out completely or partially, or if the magnitude of disruption is proportional to order, size plays an important role in determining appropriate responses. An anecdotal scan of the contracting practices in the industry reveals the surprisingly widespread popularity of simple penalty contracts and not sophisticated mechanisms to coordinate supplier effort. The authors explore when simple penalty contracts suffice and when there is an imperative for more complex solutions.


March 2012

 

Rajesh Chandy
Professor of Marketing; Tony and Maureen Wheeler Chair in Entrepreneurship; Academic Director of the Deloitte Institute of Innovation and Entrepreneurship

Anja Lambrecht
Assistant Professor of Marketing

Co-authors:
Stephen Anderson-Macdonald
Doctoral Student

Om Narasimhan (London School of Economics)
Professor of Marketing

Enhancing the Productive Assets of Micro-Entrepreneurs in Emerging Markets: A Field Experiment on the Marketing of an Innovative Financial Product in Ghana

This research examines the economic and social impact of a novel financial product for micro-entrepreneurs in emerging markets. The authors ask whether untied loans (with no restrictions on how capital is spent or invested) or tied loans (where capital has to be invested into specific purpose) lead to better productivity and growth outcomes for microenterprises, and greater profitability for the financial services company offering the loans. Empirically, they designed and implemented a field experiment with a financial services company in Ghana. In the field experiment, they randomised whether micro-entrepreneurs were offered tied or untied loans. They then measured the impact of the type of loan on their business performance as well as on their relationship with the financial services company. 

Francesca Cornelli
Professor of Finance and Director of the Coller Institute of Private Equity  

Alexander Ljungqvistn (NYU Stern School of Business)
Ira Rennert Professor of Finance

Ownership and Influence

Growth equity investors, venture capitalists, and long-term shareholders provide growing companies with expertise as well as investment funding, yet they are often content with being minority shareholders themselves. This is surprising given the scope for strategic disagreement among investors about which growth options to pursue and the potential for conflicts of interest among the parties. Why then do large outside shareholders not insist on majority? Cornelli has developed an economic model that distinguishes between formal and real authority and shows under what circumstances majority ownership is necessary and efficiency-enhancing. She tests the model using detailed deal-level data from investments involving European growth equity investors.


September 2011
 

 

Stephen Anderson-Macdonald
Doctoral Student

Rajesh Chandy
Professor of Marketing; Tony and Maureen Wheeler Chair in Entrepreneurship

Michael Hay
Professor of Management Practice in Strategic and International Management and Entrepreneurship; Co-director, Global Entrepreneurship Monitor

Developing Managerial Capital: A Field Experiment on the Impact of Access to Business Skills for Entrepreneurs in South Africa

High growth rates in emerging markets have attracted increasing interest in these countries as firms seek new investment and expansion opportunities.  This interest stems from a belief that entrepreneurship can be an engine of growth.  However, entrepreneurs face substantial challenges in these markets.  Policy-makers have tended to focus on reducing capital constraints, for example through micro-finance initiatives, but there is little evidence that these solutions are the ‘miracle pills’ that can help micro and small entrepreneurs to scale-up their operations – at least, not if administered in isolation.  Researchers are now questioning what other forms of ‘capital’ are missing in emerging markets.

We argue that managerial capital – i.e., the skills associated with the management of customers, money, people, and operations – can be a key driver for helping micro and small enterprises to transition into larger firms.  We will examine the impact of ‘mini MBA’ training programs on the managerial capital of entrepreneurs in South Africa.  To isolate the causal effects of business skills training on firm performance, we will use a randomised controlled trial research design and assign 600 entrepreneurs into one of three groups: marketing/sales training; finance/accounting training; and a control group that does not receive any training.  This research design allows us to study the extent to which managerial capital development depends on the type of training received (marketing versus finance), entrepreneur-specific factors (e.g. mind-sets, endowments, backgrounds), and firm-specific factors (e.g. size, capital, product offerings).  The findings will assist managers of multinationals to determine whether, and when, business skills training impacts an entrepreneur’s  success in building robust and scalable ventures. 

Gary Dushnitsky
Associate Professor of Strategy and Entrepreneurship

Measuring the Efficiency of Open Innovation Competitions

Established firms increasingly seek to innovate by harnessing ideas and talent that resides outside their boundaries. This trend, labelled Open Innovation (Chesbrough, 2003), takes various shapes and forms, including strategic alliances, corporate venture capital investments, and participation in innovation tournaments.  Innovation tournaments are a particularly novel form of Open Innovation strategy now receiving growing attention. Although extant work offers some insights regarding the output or winner of a tournament, we know little about tournament yield, namely the ratio of innovative inputs to outputs for a focal tournament. Second, most studies explore tournaments involving talented individuals, yet there is little evidence on the equally important company-targeted tournaments. The goal of this project is to understand the factors driving tournament efficiency.  To that end, the project will analyse proprietary data from a major tournament operating company that has led multiple tournaments across multiple sectors, including homeland security and others.

Benjamin Hallen
Assistant Professor of Strategy and Entrepreneurship

Open Tournaments vs. Social Networks: A Study of the Impact of Venture Accelerators on Entrepreneurial Fundraising

Are some entrepreneurs constrained by their social networks and backgrounds when they seek to raise venture capital? Current theory offers competing answers to this question, with some theory emphasizing the inertia of social networks and other theory emphasising their plasticity. However, empirical evidence is limited. We explore this question by examining the recent emergence of venture accelerators such as Y Combinator (Silicon Valley, CA), Techstars (Boulder, CO), and Seedcamp (Europe). In common with traditional Venture Capital (VC) firms, these accelerators offer funding, advice, and connections to entrepreneurs. They differ inasmuch as they have an open application processes - and offer less financial support. This research contrasts entrepreneurs who raise funds from accelerators with those initially funded by VCs – and thus offer insight into whether accelerators ease access to capital for less-experienced and less-connected entrepreneurs.

Ioannis Ioannou
Assistant Professor of Strategy and Entrepreneurship

George Serafeim
(Harvard Business School)
Assistant Professor of Business Administration

Robert Eccles
(Harvard Business School)
Professor of Management Practice

The Drivers of Corporate Social Innovation

In this project we explore which organisations engage in social innovation and why they do so. Social innovation refers to those product, process or business model innovations that are specifically designed to synergistically generate economic as well as environmental and social good. Social innovation is powerful because it harnesses the full power of profit-seeking businesses to invest in opportunities that tackle the world’s most acute challenges (e.g. climate change and global warming). We hope to provide a better understanding of how social and environmental issues are increasingly becoming embedded in the firms’ business models and the drivers for this trend.  We also examine whether, when and how such embeddedness creates economic, social and environmental impact. 

Michael Jacobides
Sir Donald Gordon Chair of Entrepreneurship and Innovation; Associate Professor of Strategy and Entrepreneurship

What Drove the Financial Crisis? Structuring our Historical Undestanding of a Predictable Evolutionary Disaster

Since the fall of 2008, it has become clear that innovations that transformed the financial services sector were largely responsible for its near-meltdown and ensuing contraction. Jacobides looks in detail at neglected factors such as the nature of the selection environment, the agency of actors, and the influence of structure. On the basis of that evidence, as well as the premise that feedback, rather than foresight, drives behaviour, new conclusions are reached on what drove the crisis, and open up an exciting opportunity for historical methods to inform theory. Overall, the analysis suggests that a historical, institutional and evolutionary analysis, based in theory, can add a fresh perspective.

Published in Business History: Download this paper 

Rethinking the Future of Financial Services: A Structural and Evolutionary Perspective on Regulation

The fundamental reasons why financial crises start may not have changed much over the centuries, given the immutable qualities and pathologies of human nature. However, the nature of the financial system has changed — it has become secularly more interconnected, immediate, global and complex. The regulatory climate had not adjusted to these changes, leaving us ill-prepared to prevent the recent financial crisis. For all the rhetoric to the contrary, regulators’ frameworks continue to be based on an institutionally outdated understanding, poorly suited to tackle the dynamic nature of the financial ecosystem and its changing roster of participants. Thus, the next crisis may already be brewing. The authors argue that the regulatory framework has to be reconsidered, so as to better track and respond to the changing industry architecture of financial services. Their paper provides an appreciative analysis of what happened during the recent crisis, and offers recommendations for a regulatory rethink. They illustrate this by considering the changing architecture of the financial system. They cast the recent financial crisis and regulatory responses in the context of this framework, and outline an ecosystem-based approach that looks at the dynamics of the sector’s architecture.

Published in the Journal of Financial Perspectives: Download this paper

Louise Mors
Professor of Strategic Management and Globalisation, Copenhagen Business School 

Resistance to change and the effects on innovation

In this project we look at the extent to which managers are able to utilise their networks to resist senior management’s strategy. This is important because in most organisations there is a tendency to move towards exploitation of existing certainties rather than exploring new knowledge and ideas, which in turn lead to innovation. This is true even when senior management tries to implement changes to make the organisation more innovative. While we know that individuals always resist change in organisations we know little from a theoretical perspective about how managers mobilise their networks. By shedding light on how managers utilise their networks to resist these forces for change, then perhaps we can think of ways to counter this resistance. We conduct our study using data on senior partners in a global management consultancy.

Lourdes Sosa
Associate Professor of Management, LSE

Fiona Murray (MIT Sloan)
Associate Professor of Technological Innovation, Entrepreneurship, and Strategic Management Associate Director, MIT Entrepreneurship Center Co-Head, TIES

James Utterback (MIT Sloan)
Professor of Management and Innovation

New firm formation in old technologies

As a general pattern, disruptive technologies are sources of entrepreneurial opportunity because the emergence of such technologies obsoletes incumbent firms’ capabilities.  Incumbent firms are forced to ‘milk’ old technologies while trying to ‘catch up’ with entrants populating the new technological space.  However, in some areas of the biotechnology revolution, a contrasting pattern is emerging: incumbent firms have been adapting, sometimes to competitive parity with entrants, and new firms are being founded to milk the old technology.  In this project, we look at the activity of such new firms with particular interest in their exit strategies.  If these firms consider the old technology as a stepping stone to the new, then they make an uncommon strategic choice: exposing themselves to the most common reason for incumbent firms’ demise by anchoring their core competences in the old technology. 

Vikrant Vig
London Business School Term Associate Professor of Finance

Does the source of capital affect entrepreneurial activity and innovation?

There seems to be a recent trend towards state ownership of banks. This paper attempts to investigate the implications of such a shift in financing for innovation activity and economic growth.

During the recent financial crisis, governments have been forced to take over large parts of the banking system through unprecedented bailouts of banks. Given this increase in state involvement in the banking sector there are genuine concerns in some quarters that state ownership of banks can have negative long-term implications for economic growth. The main argument is that state financing distorts the allocation of resources and prevents capital from freely flowing to most innovative projects.

In this project, we empirically examine how state ownership of banks affects entrepreneurial activity and economic growth. We then examine the inherent differences across these two types of ownership arrangements—state vs. private—and investigate what accounts for these differences (ex-ante screening, ex-post monitoring, contractual structure). I believe that a better knowledge of question is extremely important if one has to incorporate state ownership of banks into broader discussion on public policy.

Freek Vermeulen
Associate Professor of Strategic and International Management

Amandine Ody-Brasier (Yale University)
Assistant Professor of Organisational Behaviour 

Friend or foe: Who gets punished more for norm violations?

In established market categories, norms develop about roles and accepted behaviours. Prior studies have shown that organisations that violate such norms may get punished, notably through price discrimination. Vermeulen and Ody-Brasier examine who gets punished more for the same violation: central members of the category or more peripheral players. Empirically, they examine two norm violations in the market for Champagne grapes. The first is when grape buyers (i.e. houses) acquire some vineyards in Champagne; the second is when houses set up sparkling winemaking subsidiaries abroad. Their findings consistently indicate that, in response to these norm violations, central and more peripheral actors face very different levels of retaliation by grape sellers (i.e. growers): namely, central norm violators experience smaller penalties—in the form of higher prices—than their peripheral counterparts. By contrast, they find that violators’ status and board ties have little moderating effect on the punishment they incur. Their results suggest one reason why more peripheral players may find it difficult to initiate disruptive change in established market categories.

Gang Zhang
Doctoral Student

Conflict Resolution Strategies of Entrepreneurial Teams

Conflict resolution is crucial for the survival and success of start-ups. However, little research has looked at how entrepreneurial teams resolve conflict, and no research has compared the relative effects of different conflict resolution strategies that entrepreneurial teams may use.

First I will study approximately ten entrepreneurial teams to gain a qualitative understanding of the range of conflict resolution strategies. Based on this I will develop a theory which I will then test on a broader base of entrepreneurial teams sourced via one of the entrepreneurship competitions, such as China UK Entrepreneurship Competition, Venture London Business Competition, and London Entrepreneurs’ Challenge. Finally, I will conduct an experiment at the Behavioural Research Lab of London Business School to establish causality for the theory.

By using this combination of qualitative and quantitative methods, I hope to be able to gain real insights into the kinds of conflict resolution strategies that the best teams use to perform – and thus help entrepreneurs better understand how to manage conflict effectively in their start-ups.


March 2011

 

Kevin Boudreau
Assistant Professor of Strategy and Entrepreneurship 

Unpaid Crowd Complementors: The Platform Network Effect Mirage 

Partnerships and alliances are becoming increasingly important in all innovative sectors but nowhere more so than in the technology, infrastructure and creative industries. Much has been written about how these relationships should be administered once they have been entered into, but less research has gone into how to pick the most appropriate business partner in the first place. And that can be a highly problematic exercise. Apart from simply identifying possible partners who bring “compatible” skills, there is the question of who is available and willing to join and who will make the best partner once the ink has dried. In this work, Boudreau examines how partnerships come to be formed in the videogame sector and what impact the tie-ups had on the profitability and competitiveness of both parties and concludes that going for the partner which may appear most obvious at first sight may not be the best option.

Published in the Strategic Management JournalDownload this paper 

Stephen Anderson-Macdonald
Doctoral Student

Managerial Capital and Micro-Entrepreneurs

The micro-entrepreneur is a key player in the development of emerging markets both as a customer of goods and services from businesses in developed economies and as a distribution partner. Given this pivotal role, economic growth in those markets is dependent on the ability of micro-entrepreneurs to improve their businesses. And yet, many lack the managerial capital — defined as the skills associated with the management of customers, money, people and operations — to take their enterprises to the next level. In the proposed project, Anderson-Macdonald examines the business lives of micro-entrepreneurs at a more granular level and studies the impact of management training on economic outcomes in countries such as Ghana, India and South Africa.

Anja Lambrecht
Assistant Professor of Marketing

Paying with Money or With Effort: Pricing When Customers Anticipate Hassle

For many services, such as the Internet, or television, customers commit to a long-term contract with a firm spanning multiple time periods. Standard economic theory assumes that a customer evaluates payments and benefits at the contract level and is indifferent about the distribution of payments and benefits within a contract, so long as the total net discounted value of the contract remains the same. Lambrecht’s research demonstrates that hassle costs may prevent customers from entering into contracts or reduce their satisfaction with their existing provider. They will care when “hassle” (for example when setting up a service – installing a wireless network at home) occurs within a contract, and should prefer lower payments (e.g. discounts) at the time of higher hassle costs. If hassle occurs late in a contract, customers may prefer a discount at the time of hassle to an earlier discount that would otherwise be more attractive. It has important implications for firms on how to price contracts when customers anticipate hassle costs. 

Published in the Journal of Marketing ResearchDownload this paper 

Brandon Lee
Assistant Professor of Business Strategy, Melbourne Business School

Fences and gates: Standards organisations and the emergence and evolution of the U.S. organic food industry

Conventional wisdom has it that industry-level organisations, which construct and enforce various institutional rules, operate with Olympian detachment. In this paper, Lee challenges the notion that these organisations are neutral and independent, and investigates how values shape Standards-Based Certification Organisations (SBCOs). Following a multi-method study of the US organic food market, he identified a number of distinctly different types of this apparently homogenous form. He then examined the conditions under which they were formed, why they emerged in some geographical areas and not in others and the different ways in which they affected the markets they policed. He discusses the importance of these findings for the study of market emergence and transformation and the implications of these findings for entrepreneurs and stakeholders in new market contexts.

Channels of contestation: The impact of stakeholders and auditors on Clean Development Mechanism methodologies and projects

This project examines the genesis of the Clean Development Mechanism (CDM), established by the United Nations via the Kyoto Protocol to create a market in carbon credits or Certified Emission Reductions (CERS). Markets are traditionally created by actors vying not only for market share but to shape the institutional infrastructure that governs them. Studying the establishment of the CDM with reference to this model of formation can shed light on important issues regarding how regulations, norms and new product categories are established and enforced how resources are allocated, and how competition is initially structured. Two papers will result from this project. One will explore if and how stakeholders influence the approval process of a set of procedures that are core to the development of a new market, and a second will examine the determinants of project approval rates, with a particular focus on the role of third party auditor expertise.

Markus Reitzig
Professor of Strategy, University of Vienna 

Ramon Lecuona
Doctoral Student

Corporate R&D allocations in Systems Industries

The goal of this research project is to better understand how - and why - multi-technology corporations allocate resource and development (R&D) investments across technological landscapes in so-called system industries (i.e. industries in which sets of interrelated components constitute final consumer products). Shedding light on this question is desirable for two reasons. First, scholars of technology and innovation have traditionally depicted the process of creating value through R&D as one of trial and error, one of a dedicated search for solutions to a technological problem or one motivated by learning considerations — whereas basic theory on transaction cost economics and property rights, as well as casuistic empirical evidence on firms’ R&D allocations across value chains, suggest that firms stake strategic R&D positions primarily to capture value from technology. Second, by studying R&D allocation patterns of multitechnology corporations across technology landscapes, we may offer an interesting way to empirically corroborate untested transaction cost and property rights models which will be helpful for studying the more complex interaction between fully-integrated agents. We will focus on the mobile phone industry (more specifically the handset production sector) between 2000 and 2009, using patenting activity as an indicator for firms’ R&D efforts.

Freek Vermeulen
Associate Professor of Strategic and International Management

Amandine Ody-Brasier (Yale University)
Assistant Professor of Organisational Behaviour 

The price you pay: price-setting as a response to norm violations in the market for Champagne grapes 

Markets are generally viewed as shaped by economic forces, concerning supply and demand, and bargaining power. Organisational theorists have argued that market prices may also be shaped by the prior relationships between exchange partners, because embeddedness can add economic value to a transaction, generate trust, and reduce information asymmetries. In this paper, we posit that markets can sometimes also be purely socially constructed, in the sense that prices can vary irrespective of the economic value embedded in the exchange. Specifically, building on insights from the literature on categories, we argue that sellers may react to violations of local norms on the part of particular buyers by charging them higher prices. Sellers thus provide economic benefits, in the form of lower prices, to buyers who closely adhere to the category’s norms. We test these ideas using data on the market for Champagne grapes, examining the exchange between grape growers (the sellers) and houses that make the sparkling wine (the buyers). Our models provide strong support for our prediction, showing that the prices different organisations are charged for their purchases depend substantially on whether they meet local expectations for who they are and what they do. Our qualitative evidence confirms that this differential pricing by growers occurs not through collusion, but through a spontaneous, bottom-up process.

Published in the Administrative Science Quarterly: Download this paper