Visiting Professor of Business Administration
Gautam Ahuja is a Visiting Professor of Business Administration at HBS. He also serves as the Harvey C. Fruehauf Professor of Business Administration and Professor of Strategy at the Ross School of Business at the University of Michigan, and served as the Co-Chairperson (2001-04) and Chairperson (2004-2013) of the Strategy Area at Ross. His research interests focus on competitive analysis, innovation, globalization and the use of inter-organizational arrangements such as mergers, acquisitions and alliances in these contexts. His research on these issues has received several international awards including the Free Press Award for outstanding research in Strategic Management (1997), the Sage-Pondy and West Publishing Awards for outstanding research in Organization Theory (1998), the TIM Best Paper Award for Technology and Innovation Management (2003), all from The Academy of Management, and the College on Organization Science Best Dissertation Award (1995) from The Institute for Operations Research and the Management Sciences (INFORMS). His paper on generative appropriability recently received the SIEE-EBS Best Paper Award for the best paper on innovation management in 2013. In 2011 Bloomberg BusinessWeek ranked Professor Ahuja as #2 on its first-ever list of Most Popular Professors in the United States of America. He has also been selected by student vote as the “Best Professor” several times across the MBA, EMBA, Ph.D, and Evening MBA programs at Ross. In 2011, at the invitation of the Indian Government he delivered the Pravasi Bharatiya Divas Oration, the formal speech sponsored by the Indian Government on the occasion of Pravasi Divas – the festival to celebrate the achievements of the Indian diaspora (non-resident Indians). The Ross School honored him with the Distinguished Alumnus Award in 2008, and with the Senior Faculty Research Award (for lifetime achievement) for sustained “path-breaking research as a thought-leader in the field of Strategy” in 2010. Other honors include the Il Sigillum Magnum Medal from the University of Bologna in Italy.
He has also worked with many of the leading companies and business groups across the world and served as an invited panelist, keynote speaker and discussant in a variety of forums, conferences and academic and executive gatherings. He serves or has served as an Associate Editor for Management Science, as a Senior Editor for Organization Science and Strategy Science, and as a member of the Editorial Board for Academy of Management Review, Academy of Management Journal, Administrative Science Quarterly, Strategic Management Journal and Strategic Organization. He has also served as the Division Chair for the Technology and Innovation Management Division of the Academy of Management. As a doctoral advisor he has trained many students who are now faculty at some of the best institutions across the world.
Professor Ahuja obtained his MA, MBA, and PhD from The University of Michigan; his PGDM from the Indian Institute of Management, Ahmedabad, (IIMA); and his B.A. (Econ. Hons) from St. Stephen’s College, Delhi University. His work experience includes several years in various managerial positions with Pond’s/Unilever, a global consumer products company. He has also designed educational board games.
When the Social Structure Overshadows Competitive Incentives: The Effects of Network Embeddedness on Joint Venture Dissolution
The embeddedness of interfirm relationships in a social structure can engender order in new tie formation, but competitive incentives may undermine the order that firms seek to achieve and lead to tie dissolution. We examine how relational embeddedness (history of interactions), positional embeddedness (network centrality), and structural embeddedness (common partners) influence tie stability, focusing on unplanned joint venture dissolution. Prior work suggests that relational embeddedness facilitates alliance stability. This study shows that positional embeddedness does not promote stability, but structural embeddedness does help sustain alliances, particularly when partners have strong incentives to pursue self-interest at the expense of joint benefits.
Keywords: joint ventures;
strategic alliances (business);
business networks (research);
Social and Collaborative Networks;
Does it Pay to be Green? An Empirical Examination of the Relationship Between Emission Reduction and Firm Performance
Evidence can be marshalled to support either the view that pollution abatement is a cost burden on firms and is detrimental to competitiveness, or that reducing emissions increases efficiency and saves money, giving firms a cost advantage. In an effort to resolve this seeming paradox, the relationship between emissions reduction and firm performance is examined empirically for a sample of S&P 500 firms using data drawn from the Investor Responsibility Research Center's Corporate Environmental Profile and Compustat. The results indicate that efforts to prevent pollution and reduce emissions drop to the 'bottom line' within one to two years of initiation and that those firms with the highest emission levels stand the most to gain.
Keywords: Competitive Advantage;
An Assessment of the Performance of Indian State-Owned Enterprises
We examine the determinants of performance of 68 Indian state-owned enterprises in the manufacturing sector for a five-year period: 1987 to 1991. Relative performance is determined using data envelopment analysis, with variations in performance patterns subsequently explained using regression analysis. We note that the performance of firms in the Indian state-owned sector is characterized by both, low performance, as well as significant and systematic variations in the performance parameters. Size is positively associated and age negatively associated with efficiency. Further, economic liberalization and reforms aimed at improving the performance of state-owned firms induces efficiency gains over time. This heterogeneity within the state-owned sector has policy implications, which we discuss. In countries which have privatized large numbers of their state-owned firms, it is often the larger establishments which have been sold to the public. The state-owned firms in the manufacturing sector that can be candidates for privatization are the smaller and older manufacturing firms. These firms may also be easier to dispose of to private investors. This finding reinforces our central thesis that firm-level analysis within the state-owned sector is useful and important for generating pragmatic policy guidelines.
Keywords: state-owned enterprises;
On the Sequencing of Privatization in Transition Economies
This paper presents an empirical criterion for establishing privatization priorities for state-owned enteiprises. The approach uses firm performance, defined as productive efficiency, as the basis for deciding the sequence in which firms are privatized. Sequencing is relevant because the order in which state enterprises are taken up for privatization has efficiency implications, and an appropriate sequence based on such efficiency considerations can be beneficial. Privatizing inefficient enterprises before efficient ones is a superior first-best sequence as compared to one which reverses this order, and the size of the firms to be privatized is an important contingency. An improvement index is constructed for individual firms, and the index makes possible a comparison of multiple firms, thus facilitating the construction of a priority schedule. This approach is demonstrated using a sample of Indian service sector firms, and the approach can aid policy-makers in transition economies as they undertake the privatization of state-owned enterprises. There are, however, several practical considerations, such as the political fall-out from privatizing large enterprises, which need to be taken into account, and these are also discussed in detail.
Developing Countries and Economies;
The Duality of Collaboration: Inducements and Opportunities in the Formation of Interfirm Linkages
I argue that the linkage-formation propensity of firms is explained by simultaneously examining both inducement and opportunity factors. Drawing upon resource-based and social network theory literatures I identify three forms of accumulated capital—technical, commercial, and social—that can affect a firm's inducements and opportunities to form linkages. Firms possessing these capital stocks enjoy advantages in linkages formation. However, firms lacking these accumulated resources can still form linkages if they generate a radical technological breakthrough. Thus, I identify paths to linkage formation for leading as well as peripheral firms. I test these arguments with longitudinal data on technical collaborative linkages in the global chemicals industry.
Social and Collaborative Networks;
Innovation and Invention;
Collaboration Networks, Structural Holes, and Innovation: A Longitudinal Study
To assess the effects of a firm's network of relations on innovation, this paper elaborates a theoretical framework that relates three aspects of a firm's ego network-direct ties, indirect ties, and structural holes (disconnections between a firm's partners)—to the firm's subsequent innovation output. It posits that direct and indirect ties both have a positive impact on innovation but that the impact of indirect ties is moderated by the number of a firm's direct ties. Structural holes are proposed to have both positive and negative influences on subsequent innovation. Results from a longitudinal study of firms in the international chemicals industry indicate support for the predictions on direct and indirect ties, but in the interfirm collaboration network, increasing structural holes has a negative effect on innovation. Among the implications for interorganizational network theory is that the optimal structure of interfirm networks depends on the objectives of the network members.
Social and Collaborative Networks;
Innovation and Invention;
Technological Acquisitions and the Innovation Performance of Acquiring Firms: A Longitudinal Study
This paper examines the impact of acquisitions on the subsequent innovation performance of acquiring firms in the chemicals industry. We distinguish between technological acquisitions, acquisitions in which technology is a component of the acquired firm's assets, and nontechnological acquisitions: acquisitions that do not involve a technological component. We develop a framework relating acquisitions to firm innovation performance and develop a set of measures for quantifying the technological inputs a firm obtains through acquisitions. We find that within technological acquisitions absolute size of the acquired knowledge base enhances innovation performance, while relative size of the acquired knowledge base reduces innovation output. The relatedness of acquired and acquiring knowledge bases has a nonlinear impact on innovation output. Nontechnological acquisitions do not have a significant effect on subsequent innovation output.
Innovation and Invention;
Entrepreneurship in the Large Corporation: A Longitudinal Study of How Established Firms Create Breakthrough Inventions
We present a model that explains how established firms create breakthrough inventions. We identify three organizational pathologies that inhibit breakthrough inventions: the familiarity trap—favoring the familiar; the maturity trap—favoring the mature; and the propinquity trap—favoring search for solutions near to existing solutions. We argue that by experimenting with novel (i.e., technologies in which the firm lacks prior experience), emerging (technologies that are recent or newly developed in the industry), and pioneering (technologies that do not build on any existing technologies) technologies firms can overcome these traps and create breakthrough inventions. Empirical evidence from the chemicals industry supports our model.
Keywords: radical innovation;
Innovation and Invention;
Something Old, Something New: A Longitudinal Study of Search Behavior and New Product Introduction
We examine how firms search, or solve problems, to create new products. According to organizational learning research, firms position themselves in a unidimensional search space that spans a spectrum from local to distant search. Our findings in the global robotics industry suggest that firms' search efforts actually vary across two distinct dimensions: search depth, or how frequently the firm reuses its existing knowledge, and search scope, or how widely the firm explores new knowledge.
Keywords: problem solving;
Book Review of 'Cooperative Strategy: Economic, Business, and Organizational Issues,' edited by David Faulkner and Mark de Rond
Where Do Resources Come from? The Role of Idiosyncratic Situations
In this paper, we examine the emergence of resources. Our analysis of technological capability acquisition by global U.S.-based chemical firms shows that the emergence of resources is inherently evolutionary. We find that path-creating search that generates resource heterogeneity is a response to idiosyncratic situations faced by firms in their local searches. Two such idiosyncratic situations—technology exhaustion and expansion beyond national markets—trigger firms in our sample to create unique innovation search paths. We also find that along a given path firms experiment in order to find the correct investment—in fact, some organizations seem to take a step backward for two steps forward—further demonstrating the evolutionary nature of the resource creation process.
Managerial Foresight and Attempted Rent Appropriation: Insider Trading on Knowledge of Imminent Breakthroughs
In order to establish a competitive advantage, firms must acquire or create resources at a price below their value in use. Absent pure luck, this requires managers to exercise foresight about a resource's future value and/or complementarities with pre-existing capabilities. This foresight grants managers the opportunity to exploit information asymmetries for personal gain as well as building organizational capabilities. Nevertheless, there is limited research on the extent of foresight or how managers use it. In our study of insider trading, we found that managers purchase stock well before breakthrough patents are field. We argue for further research on the extent of managerial foresight and how it affects rent generation and appropriation.
Knowledge Use and Leverage;
Book Review of 'Managing Network Resources: Alliances, Affiliation, and Other Relational Assets,' by Ranjay Gulati
Moving Beyond Schumpeter: Management Research on the Determinants of Technological Innovation
Schumpeter's conjecture that large monopolistic firms were the key source of innovation in modern industrial economies has been the underpinning for much work on the topic of innovation. In this review paper we consciously move beyond the Schumpeterian tradition of focusing on firm size and market structure as the primary determinants of innovation to identify a broader set of innovation determinants that have been investigated by the management literature. We make a distinction between innovative efforts and innovative output and for each of these outcomes we group the determinants of innovation into four broad headings—industry structure, firm characteristics, intra-organizational attributes, and institutional influences. We examine four aspects of the industrial structure and how they influence innovation: the horizontal market structure which reflects the influence of competition and collaboration, as well as the role of buyers, suppliers and complementors. Under the rubric of firm characteristics, we consider the many externally observable attributes of a firm such as its size, scope, access to external sources of knowledge such as through alliances, and performance. Under the heading of intra‐organizational attributes we look at the inside of the firm, the firm's organizational structure and processes, corporate governance arrangements including compensation and incentive structures, the backgrounds of managers, and organizational search processes. Finally, we consider two significant sets of institutional influences, the supply of science (wherein we also examine the nature and degree of science–industry relationships), and the appropriability regime. In each setting we try to structure the existing literature to identify the core theoretical mechanisms as well as empirical support for those mechanisms. We explicitly focus on the management literature in this area recognizing that the work of economists is being summarized in other such reviews. However, we have consciously tried to use terminology and organizing structures that should be familiar to both economists and management scholars and hope to encourage greater conversation and cross‐fertilization between these two groups. To facilitate this outcome we especially emphasize some areas where management literature has developed the most (e.g., alliances and networks) but then integrate the literature in these areas within the broader rubric of work in the economics tradition.
Keywords: Technological Innovation;
Decomposability in Knowledge Structures and Its Impact on the Usefulness of Inventions and Knowledge-base Malleability
We use patent data from the worldwide semiconductor industry from 1984 to 1994 to study the effect of the structure of organizational knowledge bases, or the patterns of coupling between their elements of technical knowledge, on the usefulness of inventions and knowledge-base malleability. We argue that organizational variations in coupling patterns between knowledge elements can be reflected in a spectrum of knowledge-base structures—varying from fully decomposable (the knowledge base is composed of distinct clusters of knowledge elements coupled together with no significant ties between clusters) through nearly decomposable (knowledge clusters are discernable but are connected through cross-cluster couplings) to non-decomposable (no knowledge clusters emerge, as the couplings are pervasively distributed)—and that organizations may differ in the way they use their knowledge because of variations in their knowledge-base structure, rather than because of differences in the knowledge elements themselves. Results show that a nearly decomposable knowledge base increases the usefulness of the inventions generated from it, as measured by patent citations, and also the knowledge base's malleability or capacity for change.
Knowledge Use and Leverage;
Structural Homophily or Social Asymmetry? The Formation of Alliances by Poorly Embedded Firms
Recent research shows that preexisting network structure constrains the formation of new interorganizational alliances. Firms that are poorly embedded in a network structure are less likely than richly embedded firms to form alliances, because they lack informational and reputational benefits. This study examines the types of ties that poorly embedded firms can form to overcome the constraints that their structural positions impose, in turn helping to explain how firms' actions can transform existing network structures. We argue that poorly embedded firms are more likely to participate in ties characterized by social asymmetry than in ties characterized by structural homophily. We analyze the terms of trade that socially asymmetric partners negotiate for alliance governance and discuss how such alliances influence network dynamics. To test our arguments, we use longitudinal data on the alliance activities of 97 global chemical firms from 1979 to 1991.
Keywords: interorganizational networks;
Explaining Influence Rents: The Case for an Institutions-Based View of Strategy
Research in strategy has identified and tried to explain four types of rents: monopolistic rents, efficiency rents, quasi rents, and Schumpeterian rents. Building on previous work on political and institutional strategies, we add a fifth type of rent: influence rents. Influence rents are the extra profits earned by a firm because the rules of the game (laws, regulations, and informal rules) are designed or changed to suit it. To aid the analysis of the relationship between institutional context and firm performance and to provide a structure to guide research, we develop a framework with five key components: (a) an identification of the five fundamental problems of a market economy, (b) a typology that describes the five different types of institutions that emerge to solve these problems, (c) the market-ordering mechanisms used by institutions to solve these problems, (d) the common causes of weak institutional performance, and (e) generic strategies used by firms to exploit these weaknesses of an institutional context to enhance firm performance. We highlight potential applications of the framework as well as an illustrative research agenda that can advance the development of theory to explain the emergence and persistence of influence rents.
Renting or Rental;
The Genesis and Dynamics of Organizational Networks
An extensive body of knowledge exists on network outcomes and on how network structures may contribute to the creation of outcomes at different levels of analysis, but less attention has been paid to understanding how and why organizational networks emerge, evolve, and change. Improved understanding of network dynamics is important for several reasons, perhaps the most critical being that the understanding of network outcomes is only partial without an appreciation of the genesis of the network structures that resulted in such outcomes. To provide a context for the papers in this special issue, and with the broader goal of furthering network dynamics research, we present a framework that begins by discussing the meaning and role of network dynamics and goes on to identify the drivers and key dimensions of network change as well as the role of time in this process. We conclude with theoretical and methodological issues that researchers need to address in this domain.
Keywords: economic sociology;
economics and organization;
organization and management theory;
The Second Face of Appropriability: Generative Appropriability and Its Determinants
We distinguish between two forms of appropriability: primary appropriability—effectiveness in exploiting inventions as problem-solving mechanisms and capturing a share of their profits—and generative appropriability—effectiveness in exploiting inventions as concepts and capturing a share of the future inventions they spawn. Recognizing that generative appropriability has two components—cumulative invention and preclusion of others—we identify its key managerially manipulable determinants and discuss the implications of the construct for the literature on the resource-based view and the literature on organizational learning.
Keywords: innovation management;
strategic alliances (business);
Innovation and Management;
Paradigm-Changing vs. Paradigm-Deepening Innovation: How Firm Scope Influences Firm Technological Response to Shocks
We examine the direction of firms' research efforts as they respond to the shock of a sharp increase in the price of a key input. In terms of direction, firms can respond to this shock with paradigm-changing investments that develop technologies to use substitute inputs or with paradigm-deepening investments that develop technologies to improve the utilization efficiency of the existing input. We develop a framework that suggests that firms' emphasis on paradigm-changing versus paradigm-deepening investments depends on the degree of input-relatedness across their businesses. We test our hypotheses by examining the responses of large manufacturing firms in the United States to the oil shock of the early 1980s. Our framework predicts and our results show that the more related a firm's businesses are, the larger its investments into paradigm-changing technologies are and the smaller its investments into paradigm-deepening technologies in response to the oil shock are. We identify the implications of these findings for technological evolution and diversification literatures.
Keywords: technological change;
Knowledge Structures and Innovation: Useful Abstractions and Unanswered Questions
We examine the received research on organizational knowledge structures with a special focus on their link to innovation. We note that the literature has used the term knowledge structure to represent three quite distinct components of organizational knowledge: the cognitive templates used by management, the content knowledge of the organization as well as the transactive systems used by an organization to organize its knowledge. We use the term organizational knowledge-base as an abstraction to capture the aggregative entity that includes these three components. We then examine the research to identify six primary dimensions along which organizational knowledge-bases differ: size, content, veridicality, degree of differentiation, degree of integration, and embeddedness. We identify the three common mechanisms by which organizations search for innovations, recombinant, cognitive, and experiential search and examine the implications of the knowledge-base dimensions in the context of these mechanisms. This discussion also helps to locate derived dimensions of organizational knowledge-bases such as relatedness, decomposability and malleability. We then review the organizational antecedents that shape organizational knowledge-bases and conclude with some thoughts on key areas of future research in this literature.
A firm's INNOVATION strategy can be described as a vector of firm choices spanning the domains of technology development and commercialization. Within this area, we review the main research contributions concerning key choices such as the decision to conduct research, research intensity, the allocation of research dollars between BASIC RESEARCH, applied RESEARCH AND DEVELOPMENT, the organizational locus of research activities, the geographical locus of research activities, the nature of technologies targeted, the breadth of technologies worked on, the knowledge management strategy employed, the value appropriation strategy pursued by the firm and the mode of technology commercialization.
Keywords: innovation and strategy;
intellectual capital and property issues;
knowledge aspects of strategy;
basic and applied research;
Research and Development;
Research and Development;
Mergers and Acquisitions and Innovation
This article (a) identifies the different theoretical perspectives and abstractions used to conceptualize the M&A–Innovation relationship; (b) reviews the literature on antecedents, consequences, and integration of M&A in the context of innovation; and (c) identifies potential directions of further research on this topic that have both theoretical and practical implications. Among the important research directions identified are (a) "strategic" mergers that are potentially used as mechanisms for competitor pre-emption, (b) systems effects of mergers including the impact of mergers on sector-wide diffusion of technologies, (c) "consequential" effects of mergers on more "final" measures of innovation performance such as firm productivity and profitability, (d) mergers, and (e) divestments as providing context or "shocks" to an activity system and their value as an empirical source of exogenous variation.
Mergers and Acquisitions;
Innovation and Invention;