NOTE. This is a pre-print, conditionally accepted version of an article that was later accepted to be published in Journal of Business Research. Please refer to the paper as: Aspara, Jaakko & Tikkanen, Henrikki (forthcoming). ”Creating novel consumer value vs. capturing value: Strategic emphases and financial performance implications”. Journal of Business Research, forthcoming.
Creating Novel Consumer Value vs. Capturing Value: Strategic Emphases and Financial Performance Implications Jaakko Aspara Aalto University School of Economics (formerly Helsinki School of Economics) Henrikki Tikkanen Aalto University School of Economics (formerly Helsinki School of Economics)
May 2010
Send correspondence to Jaakko Aspara, Aalto University School of Economics, Department of Marketing and Management, P.O. Box 21230, FI-00076 Aalto/Helsinki, Finland (Email:
[email protected]). Henrikki Tikkanen, Aalto University School of Economics, Department of Marketing and Management, P.O. Box 21230, FI-00076 Aalto/Helsinki, Finland (Email:
[email protected]). Acknowledgement note: The authors wish to thank Juha-Antti Lamberg and Peter Golder for their valuable comments. The authors are also grateful to Jenny and Antti Wihuri Foundation and Foundation for Economic Education for obtaining a research grants for studies related to the topic.
Electronic copy available at: http://ssrn.com/abstract=1678153
2 ABSTRACT
Business researchers have a growing interest in value creation perspectives to firm strategy. The present article provides a novel examination of the financial performance implications of strategic emphases on (i) creating novel consumer value vs. (ii) capturing value. The empirical study examines the strategic orientations and financial performances of a sample of firms, from a survey of over 500 companies. The results indicate that neither strategic emphasis on novel consumer value creation nor value capture have independent linear influence on profitable firm growth. Yet, the results also reveal that certain strategic configurations are more feasible than others, in terms of average profitable growth. For both large and small firms, firms with high emphasis on novel consumer value creation and low on value capture are found to have above-average profitable growth. A high emphasis on both novel consumer value creation and value capture, in turn, is found to be a feasible configuration for large firms but less feasible for small firms. The moderating effects of environmental turbulence are also examined.
Key words: value creation, value capture, strategy, innovation, consumer value, financial performance, profitable growth
Electronic copy available at: http://ssrn.com/abstract=1678153
3
Creating Novel Consumer Value vs. Capturing Value: Strategic Emphases and Financial Performance Implications
INTRODUCTION
One might argue that much of strategic management literature has traditionally stressed the importance of value creation for a firm’s profitability – whether urging managers to extract value from the firm’s resources (e.g., Barney, 1986; Collis and Montgomery, 1995; Makadok and Coff, 2002) or to engage in optimal value-adding activities in the value chain (Porter, 1985). Nevertheless, in contemporary terminology, what this traditional strategy literature has primarily studied and advocated is actually value capture: Strategies that make sure that a maximal portion of value is captured or appropriated by the firm itself, in the form of profits, rather than by other chain members or competitors (e.g., Bowman and Ambrosini, 2000; Makadok and Coff, 2002; Priem, 2007). At the same time, the term value creation has in contemporary terminology been increasingly used to refer to the use value (or benefits) that the firm’s products and other offerings create to customers or consumers (e.g., Adner and Zemsky, 2006; Bowman and Ambrosini, 2000; Mol et al., 2005; Priem, 2007). According to this newer consumer or demand perspective of strategic management, the primary strategic challenge for a firm is whether and how to create maximal use value to consumers in the first place (of which the firm may then capture some portion for itself in the form of profits). Notably, this strategic challenge has already for quite some time been commonly recognized in marketing literature (e.g., Anderson and Narus; 1999; Kotler, 2000; Wagner et al. 2010), as well. In the light of this recent literature, there is one particularly interesting form of use value creation – namely, the creation of value that is novel to target markets, from a consumer
4 perspective. This novel consumer value creation is a special case of consumer value creation, distinct from the basic use value that a firm’s products always need to provide (whether old or new) so as to be demanded by customers (cf. Kotler, 2000, Adner and Zemsky, 2006, Gans et al., 2008). It is also distinct from the use value provided by a firm’s new offerings that are “merely” new-to-firm but not new-to-market (cf. Booz et al., 1982, Garcia and Calantone, 2002). In other words, the creation of novel consumer value refers to the introduction of such offerings to the market that provide (or participate in the provision of) new or superior value to consumers, relative to existing market offerings. In Priem’s (2007, p. 220) terms, the question is about “innovation that establishes or increases the consumer’s valuation of the benefits of consumption (i.e., use value)”. In the looser terms of recent popular strategy books, such as Blue Ocean Strategy (Kim and Mauborgne, 2005b), the question is about “value innovation”, destined to create new and superior buyer value and, hence, to expand or to create entirely new end demand. In any case, this recent literature has centrally advocated novel consumer value creation as a potentially viable strategy, especially from the firm’s profitability perspective. In effect, novel value creation is supposed to lead to favorable profit outcomes, since it allows extending the boundaries of end demand and tapping into high consumer demand in areas where the firm faces relatively little competition (Kim and Mauborgne, 2005a, 2005b) – akin to increasing the total size of industry pie rather than competing for a bigger share of an existing pie (cf. Aghion and Tirole, 1994; Gulati and Wang, 2003; Jap, 2001). Thus, there certainly exists a wide traditional strategic management literature, on one hand, that rather unilaterally emphasizes the profitability of value capture (VCapt) strategies, and a newer demand-based literature, on the other, that advocates the profitability of novel consumer value creation strategies (NVCrea). However, quite surprisingly, no research has been conducted
5 so far, wherein firms’ relative strategic emphases on VCapt and NVCrea would be studied jointly. In other words, what implications will different configurations or combinations of strategic emphases on NVCrea and VCapt have on a firm’s financial performance? In this article, we address the research gap in the existing literature by focusing our theoretical development and empirical investigation on this question. Indeed, while the earlier research has mostly dealt with only one of the two factors – VCapt or NVCrea – at a time or dealt with the independent effects of the two factors, the purpose of this article is to examine the joint, configurational effects of VCapt and NVCrea on firm financial performance. In practical terms, such an examination is highly relevant, since in the reality of any firm, managers need to choose the configuration of strategic emphases on both dimensions (e.g., Would high emphasis on NVCrea but low emphasis on VCapt be better than high emphasis on both NVCrea and VCapt?) – not just consider the dimensions independently of each other. In theoretical terms, our study takes the configurational approach (e.g., De Clercq et al., 2007; Miller, 1986, 1988, 1996; Miller and Friesen, 1984; Meyer et al., 1993; Dess et al., 1993; Fiss, 2007, Reeves et al. 2003), meaning that we focus on examining constellations of multiple strategy dimensions (VCapt, NVCrea), firm structure, and environment, and the performance outcomes of such constellations. According to the configurational approach, the specific objectives of the article are as follows. First, our basic objective is to hypothesize and examine the relationships between different configurations of strategic emphases on NVCrea and VCapt (e.g., low-low, high-low, low-high, high-high), and financial performance. Second, besides the configuration of strategic emphases on NVCrea and VCapt, our aim is to explore whether the link between different NVCrea-VCapt combinations and financial performance is contingent on structural attributes such as firm size and on environmental attributes such as environmental
6 turbulence. As in configurational research commonly (Fiss, 2007; De Clercq et al., 2007), we examine these questions by two approaches: (a) by examining the interaction effects between the dimensions in regression analysis, and (b) by further studying the links between the configurations and performance by examining the differences in average performance of firms, grouped on the basis of strategic configurations that they manifest (along dimensions of NVCrea, VCapt, size, and environment). In sum, the present article contributes to strategic management literature especially with its new configurational approach to studying strategic emphases on NVCrea and VCapt and their financial performance implications. Moreover, with the novel configurational approach and empirical evidence, our research also contributes to marketing literature, which has shared strategic management’s recent interest in novel value creation and strategic innovation (e.g., Berghman et al., 2006, Mizik and Jacobson, 2003, Schlegelmilch et al., 2003, Simpson et al., 2006). As a matter of fact, an earlier study that is closest to ours is the one conducted by marketing researchers Mizik and Jacobson (2003): These authors examined stock market reactions to shifts in firms’ strategic emphasis on value creation vs. value appropriation. However, Mizik and Jacobson’s study was somewhat ambiguous due to the proxies that the authors use for (1) value creation and (2) value appropriation: accounting figures for (1) R&D expenditure and (2) advertising expenditure, respectively. Namely, these measures do not necessarily reflect novel value creation vs. value appropriation/capture. For instance, R&D can be used for creating products or technologies that do not actually introduce novel consumer value to the value system, but rather are “only” new to the firm in question1. In order to avoid similar ambiguity, our research uses survey items that are more unequivocally matched with the
1
Likewise, rather than pertaining only to value capture, advertising is often an essential component of novel value creation: communicating to users about a new value innovation of the firm.
7 theoretical notions of novel value creation vs. value capture. Moreover, whereas Mizik and Jacobson examine stock market reactions as an outcome measure, we rely on a more traditional performance measure, i.e., profitable growth of the firm.
NOVEL CONSUMER VALUE CREATION VS. VALUE CAPTURE Novel Consumer Value Creation Creating, or innovating novel customer value to markets has been increasingly emphasized as a viable strategic orientation for firms, both in academic research and in managerial practice (e.g., Kim and Mauborgne, 1997, 1999, 2005a, 2005b, Hamel, 1998, Berghman et al., 2006, Dillon et al., 2005, Tucker, 2001). In this article, the focus is particularly on the strategy of creating novel value to consumers, a strategic option recently specified by Priem (2007). Underlying Priem’s view, what he calls the Consumer Benefit Experienced (CBE) perspective to strategic management, is the notion that the initial and sole source of all payments to the firms in a value system is the individual consumer (or household). These payments, in turn, are induced by offering subjectively valued consumption benefits (i.e., experienced use value) to consumers. In this perspective, even pure business-to-business firms must ultimately contribute to some consumer benefit along the value chain/system. Consistent with Priem’s (2007) perspective, this article refers with novel consumer value creation (NVCrea) to a firm’s intentional participation in the creation of new kind of value to certain consumers, relative to what the existing offerings in the market provide. This notion involves the idea that the firm pursues to increase the value that the end users in the firm’s value system will experience and, hence, the payments that they are willing to make. In practice, such a pursuit often calls for investments in gathering knowledge and developing understanding about
8 the whole supply chain towards the end-consumer – and eventually, about what benefits the endconsumers will value (Berghman et al., 2006, Flint, 2004). Even a business-to-business firm can pursue the creation of novel consumer value, in collaboration with its value system partners. For instance, a paper manufacturer that sells its paper products primarily to publishing companies can come up with a revolutionary new magazine paper product that enhances end-consumers’ magazine reading experience and, hence, value. In any case, taking part in innovating (consumer) value in the system will often require a proactive, “market-driving” thrust – to shape the existing roles of market players and existing market structures (Berghman et al., 2006, Schlegelmilch et al., 2003, Jaworski et al., 2000, Narver et al., 2004) – and/or cooperation in developing and introducing the innovation in collaboration with different actors across the supply chain (Roy et al., 2004). In effect, NVCrea can be considered to be an optional dimension of strategic emphasis for a firm. That is, a firm may choose, on a continuum, the extent to which to allocate and apply limited firm resources and attention to novel consumer value creation (see Mizik and Jacobson, 2003). At the “zero level”, a firm that totally refrains from NVCrea will concentrate exclusively on producing and selling such products or offerings that already exist in markets. In such a strategy, the offerings will be imitations of (or, at most, slight improvements to) existing offerings in the market – and the firm’s resources are allocated and applied to the production and selling of these. Also, firm resources may be applied to the development of efficiency and the reduction of transaction costs in the firm’s business and its value network (Zott and Amit, 2008). With increasing emphasis on NVCrea, firms will then exhibit more “novelty-centered” models of developing and doing business (Zott and Amit, 2008) and use increasing resources to innovation and innovative activities (Mizik and Jacobson, 2003). As mentioned, our research
9 focuses on the innovation of new kind of value to certain consumers, relative to the value that existing offerings in the market provide. Hence, process innovations internal to the firm (cf. Mansfield et al., 1977, Schumpeter, 1942), which leave the end-product itself – and, hence, consumers’ use value – unaffected (Makadok and Coff, 2002) do not qualify as creation of novel consumer value in our terms. In any case, the innovations that implicate the creation of novel consumer use value may still be fairly diverse. Addressing the firm’s opportunities to increase overall payments that the collection of companies receive that make up the firm’s value system, Priem (2007, p. 220) identifies new offerings whereby a consumer “either (1) will be willing to pay for a novel benefit, (2) will be willing to pay more for something perceived to be better, or (3) will… receive a previously available benefit at a lower unit cost” (which means superior value than before, relative to price). Another, partly overlapping strategy is to attract people who have not previously used or consumed a certain product (category) to start to use it with a novel combination of benefits offered (Kim and Mauborgne, 2005a) – that is, to start to serve the “unserved audience” (Christensen et al., 2002).
Value Capture Analogously to NVCrea, VCapt can also be considered an important, yet optional dimension of strategic emphasis for a firm: as elaborated below, a firm may choose the extent to which to allocate and apply limited resources and attention to the appropriation of value for itself. Of course, whether the value that the firm attempts to create to customers or consumers is novel or not, it is always necessary for a firm – in order to achieve profitability – to exercise some value capture, in the general sense of appropriating to itself some of the payments that the consumers make to the value system in which the firm participates (Priem, 2007, Lepak et al.,
10 2007). Intuitively, this means that in exchange of the value that a firm contributes to a value system that serves consumers, the firm generally needs to receive, at the minimum, such a portion of consumer payments that exceeds the costs of producing the value in question (Bowman and Ambrosini, 2000). In broad terms, such value capturing in general calls for the firm to be a reasonably competitive actor within the value system – in the face of competing firms’ rivalry to appropriate part of the same, total economic value (i.e., consumer payments) available in the value system, on one hand, and rivalry to attract partners (e.g., suppliers, customers) for value-producing transactions, on the other (Mol et al., 2005, Gans et al., 2008). Over and beyond value capture in the above, general sense, we focus particularly on value capturing strategies that involve active strategic attempts at installing and securing so called “isolating mechanisms” (Lepak et al., 2007, Mizik and Jacobson, 2003, Rumelt, 1984, 1987; see also Hooley et al., 2005). Isolating mechanisms can be installed in order (i) to receive maximal part of the consumers’ payments to the value system by overcoming competitors’ attempts to appropriate those payments (through similar offers or imitation) and (ii) to retain those payments by resisting claims to the payments from upstream or downstream members of the same value system (Priem, 2007). Specifically, an isolating mechanism can be “any knowledge, physical, or legal barrier that may prevent replication of the value-creating new task, product, or service by a competitor” (Lepak et al., 2007, p. 188). As a matter of fact, the focus of strategic management literature has traditionally been quite exclusively on such isolating mechanisms, rather than on value capture in general or any other sense (let alone on how consumer value is created in the first place; see Makadok and Coff, 2002). In the traditional “strategic positioning” literature (e.g., Porter, 1985), for example, the core strategic problem that a firm faces is how to create an isolated or “defensible“ positioning
11 “against competition’s relentless push toward the eradication of economic profit” (Gans et al., 2008, p. 3)2. In a similar vein, the wide strategy literature on “resource-based view” to strategy (e.g., Barney, 1991) also tends to concentrate on “resources [that] may serve as isolating mechanisms and [that may] limit competition in cases where they are rare, inimitable, nonsubstitutable, and valuable” (Lepak et al., 2007, p. 189). In any case – despite the literature’s quite unilateral advocacy of VCapt strategies – the stance of the present article is that a firm eventually has significant latitude in choosing the extent to which to strategically emphasize VCapt activities so as to set up or forge isolating mechanisms, specifically. At one extreme, a firm can allocate almost all the limited firm resources to forging isolating mechanisms in the form of, for example, patents, customer switching costs, entry barriers, channel power, and brand inertia. At the other extreme, the firm may refrain from all active attempts at introducing and maintaining such mechanisms. ”Open-source” or “open innovation” strategies could be examples of such a strategy (see Chesbrough, 2003).
Configurational approach and hypotheses Concerning the financial performance implications of strategic emphases on NVCreat vs. VCapt, the objective of the present article is to consider both of these factors – and moreover, both as independent factors (linear influence) and as being combined to one another (interactional/configurational influence). This logic is consistent with the configurational approach to strategy (e.g., Miller, 1986, 1988, 1996; see Fiss, 2007 for a review), which emphasizes that various dimensions or components of firm strategy, or their effects on performance, cannot be fully understood by examining them merely as isolated components. In
2
This is a problem to which e.g., the choice of one (generic) strategy from among (i) cost leadership, (ii) differentiation, or (iii) focus (Porter, 1980) presumably brings at least some relief.
12 Miller’s (1996) terms, the configuration of strategy dimensions (rather than the dimensions in isolation) is the very essence of strategy. As independent factors. Due to the prominence of claims advocating value capturing mechanisms in strategic management literature, let’s start by hypothesizing the effect of strategic emphasis on VCapt on firm performance. A very basic assumption of both main schools of strategic management – the strategic positioning school (e.g., Porter, 1979, 1980) and the resource-based school (e.g., Barney, 1991; Wernerfelt, 1984; Mahoney, 1994) – is that a firm can only enjoy a stable flow of profits by erecting “barriers” to the essentially corrosive force of competition (Gans et al., 2008; Barnett and Hansen, 1996), by having value capture (or isolating) mechanisms in place. This logic can be linked to the classical economic thought, which assumes that monopolies (i.e., total lack of competition) achieve greatest profits, while in perfect competition, the profit rate falls to a level that merely covers firms’ costs of capital (Grant, 2002), if even that. In simple terms, then, we may expect that strategic emphasis on VCapt has positive influence on firm performance. Thus: Hypothesis H1a: Strategic emphasis on value capture has a positive effect on firm financial performance.
However, while some value appropriation or capture is probably needed for profitability, it is not certain whether a special strategic emphasis on VCapt – or isolating mechanisms – results in superior performance. At the extreme, it may be that excessive emphasis on VCapt distracts managerial attention and firm resources away from the effective and efficient production of current value and/or the creation of novel value. The effects of such excessive emphasis on VCapt on firm performance might be negative. Such a negative performance effect – of attempts
13 to excessively isolate oneself from competition – has been proposed by evolutionary scholars Barnett and Hansen (1996), for example, on the basis of “Red Queen” effect of competition (see also Derfus et al., 2008). These scholars show that firms’ exposure to competition leads to enhanced learning and adaptation by firms – and argue that because of this, isolating oneself too much from competition actually leads to disadvantage for a firm that isolates itself. “There appears to be a fundamental contradiction between the benefits of [isolated] strategic position and [the competitive learning effects] of Red Queen, so that organizations that aspire for the former do so at the expense of the latter” (Barnett and Hansen, 1996: 154). Thus, our alternative hypothesis about strategic emphasis on VCapt is: Hypothesis H1b: Strategic emphasis on value capture has a negative effect on firm financial performance.
Moving to NVCrea, recent popular strategy books, such as that on Blue Ocean Strategy (Kim and Mauborgne, 2005b), have come to imply that even NVCrea might have rather uniform positive influence on the firm’s financial performance. Here, the positive effect of emphasis on NVCrea is expected to be due to the capacity of new value innovations to create new (or expand existing) end demand and “make competition irrelevant” (Kim and Mauborgne, 2005a, 2005b), at least for a while. In the theoretical terms of more general innovation literature, such performance implications might stem from “first-mover advantages” that firms emphasizing NVCrea can enjoy in bringing new value offerings to the market. These advantages may include the preemption of superior resource positions in geographic space (e.g., best physical locations), technology space (e.g, patents), and/or buyers’ perceptual space (e.g., user’s special brand affect/trust in the pioneers’ products) – and the creation of buyer switching barriers/costs or
14 network externalities (e.g., lock-in to the pioneer’s technology standard) (Lieberman and Montgomery, 1988, 1998). Should such first-mover advantages prevail for firms emphasizing NVCrea, we should find that strategic emphasis on NVCrea has a positive effect on firm financial performance. Consistently, there exists marketing research (e.g., Srinivasan et al., 2009, Sorescu and Spanjol, 2008, Pauwels et al., 2004) and entrepreneurship literature (e.g., Siguaw et al., 2006) that implies that continuous rate of innovative new product introductions has a positive effect on firm profitability and/or shareholder value. Thus: Hypothesis H2a: Strategic emphasis on novel consumer value creation has a positive effect on firm financial performance.
Yet again, while the strategy of innovating and being the “first-mover” may be fruitful in principle, there are also contrary theoretical predictions (e.g., Simpson et al., 2006, Hoppe, 2000) as well as empirical evidence (e.g., Golder and Tellis, 1993, Markides and Geroski, 2005), suggesting that innovative projects often fail and pioneers or first-movers often do not succeed. This is due to, for instance, the fact that first-movers engage in costly investments in technologies and resources in conditions of technological/market uncertainty, which often prove to be “wrong” ones as the market evolves (Lieberman and Montgomery, 1998, Hoppe, 2000). Another fact is that second-movers and later entrants may “free-ride” on the pioneer’s investments in R&D, buyer education, or infrastructure development, as well as imitate, learn from, and avoid the mistakes of the pioneer’s strategies, so as to take over the pioneer’s market (Lieberman and Montgomery, 1988). Thus, an alternative hypothesis to the preceding one can again be stated:
15 Hypothesis H2b: Strategic emphasis on novel consumer value creation has a negative effect on firm financial performance.
Configurations of NVCrea and VCapt. In the above hypotheses, the assumption is that strategic emphases on VCapt and NVCrea are essentially independent factors and may, hence, have independent linear influence on firm performance. However, a given firm needs to choose or configure its emphases on both of the dimensions – and it may be that it is the configuration that matters for firm performance rather than the emphasis on one or another dimension separately. We elaborate on this possibility in the following. In order to recognize the importance of addressing emphases on NVCrea and VCapt not only as independent factors but also as potential parts of different strategic configurations, consider the following aspects noted in Fiss’s review (2007) on configurational approaches to strategy research. Essentially, Fiss notes that configurational approaches “are based on the fundamental premise that patterns of attributes will exhibit different features and lead to different outcomes depending on how they are arranged” (p. 1181). In essence, then, a configurational approach takes explicitly into account the fact that “more of” (or “less of”) one factor or variable (e.g., emphasis on NVCrea) may not universally be better for firm performance – but it may be better in certain circumstances, providing that it is combined with a certain level of another variable (e.g., emphasis on VCapt) and with certain contextual factors. One reason for why the configuration of the factors may matter lies in potential synergies (e.g., Fiss, 2007, Delery and Doty, 1996) between the factors. In the present case, notably, synergistic effects would be present if the positive effect of NVCrea on firm performance is the greater, the greater the firm’s strategic emphasis on VCapt – or vice versa. In effect, such a
16 synergy can be a manifestation of the existence of “strategic complementarities” between the two strategic factors: Doing more of one increases the returns of doing more of the other (Fiss, 2007, Milgrom and Roberts, 1995). Moreover, the synergistic effect might be the case if the activities that lead to best profitability results in fact manifest both NVCrea and VCapt – and if firms emphasizing both of these dimensions strategically are able to best identify and implement such “two-in-one” activities (e.g., branding that both creates novel consumer-perceived value and create switching barriers to competition). However, NVCrea and VCapt may also be “strategic substitutes”, whereby doing more of one of them decreases the returns of doing more of the other. This would be the case especially if aspired high emphasis on both dimensions tends, in reality, to lead to a situation in which neither dimension is awarded adequate resources or attention – a sort of “stuck in the middle” situation – or in which the efficient implementation of one of the dimensions reduces the achievable efficiency of the other. Since one way to detect the potential synergistic effects between the factors is the examination of interaction effects in e.g., regression analysis (Fiss, 2007), the above discussion leads to the following two, alternative hypothesis: Hypothesis H3a: The interaction of strategic emphasis on novel consumer value creation and strategic emphasis on value capture has a positive effect on firm financial performance. Hypothesis H3b: The interaction of strategic emphasis on novel consumer value creation and strategic emphasis on value capture has a negative effect on firm financial performance.
Finally, a configurational approach is, at best, used to examine not only the performance implications of configurations of various strategic dimensions within the firm (such as NVCrea
17 and VCapt), but also how the performance implications of the within-firm strategic configurations differ depending on contextual or environmental circumstances. Indeed, in the configurational approach to strategy, strategy configurations or constellations are not seen to be constituted of combinations of strategic activities (or emphases) only, but of the match among combinations of strategic activities, firm structure, and environmental dimensions (Miller, 1996). In the present research, we will especially examine how the structural dimension of firm size and the environmental dimensions of industry type (B2C vs. B2B; product vs. service) and environmental turbulence combine to the strategy configurations on NVCrea–VCapt, to yield effects on firm performance. Notably, firm size, industry type, and environmental turbulence are probably the most commonly-cited contingency dimensions in configurational research (Fiss, 2007; Miller, 1988; Reeves et al., 2003) as well as in general strategy, business, and marketing research (e.g., Dess et al., 1990; Miller and Cardinal, 1994; Slater & Narver, 1994, Pelham, 1999). However, we choose not to pose specific hypotheses concerning the interactional effects of these contextual and environmental dimensions because of the possible number and complexity of the alternative interactions. Instead, we approach interactions exploratively in the empirical analysis, and then interpret the found interactions in the light of theory.
METHOD Sample and Data This research examines how two dimensions of strategy, as emphasized by firm managers, are related to possible performance differentials across firms. To this end, survey data was collected from a sample of firms based in Finland. To draw a sample, we utilized a list of approximately 5,000 firms, which was procured from a commercial list broker and included the email address
18 of the “CEO” or the “general manager” of each firm. Utilizing this kind of list as a sampling frame amounts to convenience sampling – yet, according to the broker, the list comprised firms representing country’s firm population fairly well, including all industry sectors, firm sizes etc. The main representativeness limitation was the fact that the very smallest firms (with one to five employees) were somewhat underrepresented in the list. This is manifested in the fact that 97% of the country's firm population are firms with less than 20 employees, while for our final sample, the figure was 55%. Nevertheless, the relative underrepresentation of the smallest firms (especially those of 1-5 employees) is a factor that can actually be considered to enhance the external validity of our results – in the sense that our sample is likely to mostly include "real" business enterprises, thus excluding most “sleeping” firms and lifestyle firms of one person or household. When it comes to the size of the initial sampling list, we considered 5,000 firms a reasonable number to contact, since we anticipated a response rate of approximately 10 percent and still wanted to have at least 500 firms in our final sample – an n that would still allow proper statistical analyses to be conducted. An invitation to respond to the survey was sent by email to the managers of the firms in 2007. A re-request to respond was sent to those that had not responded within 10 days. In total, 545 responses were received back. Thus, the response rate was, as anticipated, 10 %. According to an often-used practice (e.g., Armstrong and Overton, 1977), non-response bias was controlled for by comparing the responses received after the first email request with those received after the second one. No statistically significant differences were found in this comparison, which suggests that non-response bias is not a serious concern. The characteristics of the firms in the final sample are described in Table 1, in terms of number of personnel, sales, and primary industry. The position of the respondent is also
19 indicated. As seen from the Table, firms differing in their size and industry were widely represented in the sample, and nearly all the respondents represented CEOs, general managers, or entrepreneur-managers of the firms. Table 1 here.
Study Design and Measures Overall, our study approach involved two stages. First, we employed hierarchical regression analyses to examine the effects of NVCrea and VCapt emphases on firm performance. In the regressions, we examined both the independent, linear effects of NVCrea and VCapt emphases (hypotheses H1-H2) and their interaction effects on performance (hypotheses H3a-b). However, the interaction terms in linear regression become increasingly difficult to interpret for higherorder interactions (Fiss, 2007). Therefore, in a second stage of analysis, we categorized the sample firms into distinct groups, on the basis of their strategic configurations and contextual factors – and examined the performance differentials across the groups. This procedure corresponds to one of the analysis procedures often suggested for configurational approaches (Fiss, 2007; De Clercq et al., 2007).
Measures. To the best of our knowledge, firms’ strategic emphases on dimensions such as creation of novel consumer value (NVCrea) or capturing of value (VCapt) have not been measured with survey instruments before in strategic management or elsewhere. Therefore, we employed a panel of four business professors (ourselves as well as two outsiders) with expertise on survey instruments, to develop new items for NVCrea and VCapt. In developing the items, we carefully paid attention to our theoretical review (as presented in the first parts of this article) of
20 aspects related to a firm’s potential strategic emphasis on the two dimensions, respectively. The aim was to develop measures of 3-5 items for both dimensions. Thus, we first developed 6-10 items for both dimensions, and then had discussions and consensual votes to select the 3-5 best ones for both dimensions. These items were subsequently tested with a set of managers and management consultants, who provided feedback concerning the understandability of the questions and items. Based on the feedback, the wording of the items was still slightly improved. As to the final developed items, the firm’s strategic emphasis on NVCrea was measured by asking the respondent-manager to rate the following statements on a Likert scale anchored by 0=”strongly disagree” and 6=”strongly agree”3: 1. “In our strategy, it has been central to take part in the pursuit to create novel benefits/value/well-being to people/consumers in certain geographical areas.” 2. “In our strategy, it has been central to take part in the pursuit to increase the benefits/value/well-being experienced by people/consumers in certain geographical areas”. 3. “In our strategy, it has been central to take part in the pursuit to increase the number of people/consumers to whom our (value) network produces benefits/value/well-being in certain geographical areas.” 4. ”In our strategy, it has been central to make initiatives to provide entirely new value to certain people and/or organizations (customers).” 5. “In our strategy, it has been central to make initiatives to create novel value by challenging existing industry-specific business models, roles, and relations.”
While the first three items reflected primarily the aspect of “increasing the size of the pie” by participating in creation of novel consumer value, the last two items were more attuned to ensure that the measures pertained indeed to new-to-market value or innovation. Yet, the five measures were assumed to be reflective of one latent factor of NVCrea – statistical verification of this latent factor is reported below. 3
The original questions/items related to this as well as the other measures were in Finnish.
21 The firm’s strategic emphasis on VCapt was measured by asking the respondents to rate the following statements on a Likert scale (0=strongly disagree, 6=strongly agree): 6. “In our strategy, it has been central to pursue to adopt or capture as large proportion of the income/value generated by our (value) network to ourselves as possible.” 7. “In our strategy, it has been central to pursue such a powerful position relative to our customers and suppliers that will maximize our proportion of the income/value generated by our (value) network relative to them.” 8. “In our strategy, it has been central to pursue such barriers (to competition), efficiency, and dominance that would maximize our own income/value in our (value) network”.
Similarly as the five indicators for NVCrea, the above three items were assumed to be reflective of a single latent factor of VCapt. To obtain factor scores for the firms on the two latent factors (corresponding to NVCrea and VCapt), we performed a common-factor analysis with alpha factoring, designed to maximize the alpha internal consistency coefficient of the resulting latent factors. The analysis on the eight items (i.e., the eight questions above) produced a two-factor solution, with factor loadings following Varimax rotation listed in Table 2. The items loaded (with loadings above .5) on two distinct factors, corresponding to NVCrea and VCapt, as expected: Items 1-5 loaded on the first factor, while items 6-8 loaded on the second factor. The reliability of factors was good, as both achieved alpha scores above .8. In effect, this solution verified that our question items reflected two distinct factors, which the items were designed to measure. Consequently, in subsequent analyses, we used factors scores calculated for the firms on the two factors.
Table 2 here.
22 When it comes to the potential moderating factors, environmental turbulence was measured with five question items related to market turbulence and technological turbulence. The items were selected and adapted from earlier survey studies (Jaworski and Kohli, 1993, Hooley et al., 2003, Fahy et al., 2005) and are listed in Appendix 1. The reliability of the measure was satisfactory, as it achieved an alpha score of .71. As the final variable of environmental turbulence, we used the sum (index) of the manager’s responses on the five items. The other moderating factor – firm size – was measured as the firm’s sales, as reported by the managerrespondents. Industry type variables, in turn, were derived from a question that asked the respondents to report the type of the “primary industry or market in which their firm operates” (see Table 1 for the types). For B2C dummy, firms reporting durable consumer goods, fastmoving consumer goods, or consumer services as their primary industry received value 1 and others received value 0. For Service dummy, firms reporting consumer services or business services as their primary industry received value 1, and others received value 0. Finally, the measure used for firm performance was a measure of the “profitable growth” of the firm during the past year. With this measure, we sought to incorporate two often-used performance measures – sales growth and profitability percentage development – into a single product measure. Being a product measure (i.e., multiplication of the two measures), this performance measure will receive highest performance values insofar as both sales growth and profitability percentage development are positive and high – and is lowered insofar as either sales growth or profitability development is diminished. Thus, notably, the measure takes into account that firm performance cannot be considered very high if only sales growth is high whilst profitability percentage development is poor, or vice versa. Essentially, this product measure also measures business performance development in dynamic terms and yields a measurement that
23 fairly similarly reflects firm performance independent of firm type and context (and at the same time, avoids measuring absolute, static levels of sales or profits, which would likely be explained simply by firm size)4. The specific product measure utilized as the single measure of profitable growth was a product of responses on “quasi-objective self-report measures” (see Devinney et al., 2005) of sales growth and profitability percentage development. For the sales growth, the respondent was first asked to report the development of sales (i.e., sales growth) of his/her firm last year, with the question: “How, approximately, did your company’s sales develop last year from the year before? decreased more than 50 % decreased 50-31% decreased 30-16 % decreased 15-6% decreased 5-0 % increased 0-5 % increased 6-15% increased 16-30% increased 31-50% increased more than 50%”
For the profitability development, the respondent was secondly asked to subjectively assess the development of the operating income percentage of his/her firm last year, relative to the year before, with the question: “Compared to the year before last year, how did your firm succeed last year with regard to operating income %? much worse [last year than the year before] worse somewhat worse equally somewhat better 4
Notably, our a measure also avoids the problem associated with measuring absolute profit/return percentages instead of percentage development – i.e., the problem that industries and sub-industries often differ significantly on their typical profit/return percentages (so that a profit/return percentage that is good for a company in one industry may be rather poor for a company in another industry; see e.g., Dess et al., 1990) Even the inclusion of an industry control variable that identifies a firm’s industry at a broad level is unlikely to remove this problem. This is because sub-industries may exhibit different, typical profit/return percentages, depending on e.g. capital-intensity. For instance, within the media industry, magazine/book publishers often have quite high ROI percentages, while companies that own broadcasting networks will have much lower ROI due to greater capital-intensity.
24 better much better
Before the product term of sales growth and profitability were calculated, both scales were standardized by dividing each firm’s value on a scale by double the standard deviation of all firms’ values on the scale. Standardization of scale values by dividing them with double standard deviation is a recommended procedure in statistics, before product terms are calculated by multiplication (Gelman, 2008).5 The two standardized values per firm, on the two scales, were then multiplied with each other to obtain a product value for profitable growth of the firm. In inspection, the distribution of the product measure accorded approximately to normal distribution – hence satisfying the basic regression condition for regression analysis. All the independent predictor variables also satisfied approximately the normality conditions.
RESULTS Linear Regressions Table 3 presents the descriptive statistics for the variables: means, standard deviations, and correlations6. The generally low level of correlations between the variables ( .05). Table 4 here.
After the control variables had been entered, the two strategic emphases variables, NVCrea and VCapt, were independently entered into the equation. The resulting model (II) explained a significant increment of variance in profitable growth ( R2 = .03, p < .01). Specifically, of the two factors of strategic emphasis, NVCrea achieved statistical significance ( = +.17, p < .001), with a positive relationship between NVCrea and profitable growth, while VCapt did not achieve statistical significance. The former finding gives some preliminary support to hypothesis H2a, suggesting that strategic emphasis on novel consumer value creation has a positive, independent linear effect on firm financial performance, while calling for rejection of hypotheses H2b (which expected a negative effect). The latter finding, in turn, calls for rejection of both hypotheses H1a and H1b, which expected a positive and negative effect, respectively. Next, we entered the interaction term of NVCrea and VCapt into the model, so as to start examining the configurational effects of the two strategic factors – not only their independent effects. The resulting model (III), with the inclusion of the interaction term, explained a
26 significant increment of variance in profitable growth ( R2 = .02, p < .01). The beta coefficient of the interaction term resulted significantly negative ( = –.13, p < .01). This finding supports hypothesis H3b, proposing that the interaction of strategic emphasis on novel consumer value creation and strategic emphasis on value capture has a negative effect on firm financial performance. At the same time, the finding calls for rejection of hypotheses H3a, which expected a positive effect. Theoretically, the found support for H3b suggests that NVCrea and VCapt may in fact be strategic substitutes. Next, we calculated an intermediate model, by entering interaction terms of the control variables pertaining to the firm’s industry – B2C firm and service firm – and NVCrea and VCapt. Checking for the moderating effect of B2C was especially important because NVCrea concerned strategic emphasis on creation of novel consumer value (or participation in such creation) and the performance effects of such emphasis might depend on whether the firm’s primary business was B2C or B2B. Both industry variable checks were also important because the effects of strategies often depend on industry (see e.g., Dess et al., 1990). The resulting model, however, did not explain any significant increment of the variance of profitable growth ( R2 = .00, F = .91, p > .4). None of the interaction terms achieved significance, either. This finding indicates that the effects of strategic emphases on novel consumer value creation and value capture are not contingent on the firm’s business being B2C (vs. B2B) or service (vs. products). Due to the insignificance of this intermediate model, we do not report it in Table 4. As the firm’s business being B2C or service did not have notable moderating effects on the relationship between NVCrea and VCapt and profitable growth, we dropped these interaction terms from further analyses. In the subsequent model (IV), we then entered interaction terms between firm size and NVCrea and VCapt. This model yielded a significant increment in
27 variance of profitable growth explained ( R2 = .02, p .5), the overall variance explained of the full model resulted in a significant overall R2 of .10 (R2 = .10, F = 2.92, p >.001). Nevertheless, an interesting marginally significant interaction effect was revealed in the final model: the interaction of environmental turbulence, firm size, and VCapt ( = –.27, p < .10). This implies that for larger firms in turbulent environments, strategic emphasis on value capture tends to lead to lower financial performance. In sum, however, the several significant interaction effects revealed in the regression models III, IV, and V indicate that there are likely to be complex configurational effects, on profitable
28 growth, by way in which NVCrea and VCapt are combined with each other, as well as by way in which these combinations further combine to contextual and environmental factors. To interpret these configurational effects merely based on regression interaction terms is highly difficult, especially when the two- and three-way interactions result significant (Fiss, 2007), as they do here. This is why we employed, as a second stage of analysis, the approach of dividing the studied firms into distinct groups based on their strategic emphases on NVCrea and VCapt as well as based on their firm size and environmental turbulence7. The performance differentials of the different strategic groups could then be analyzed, as follows.
Comparisons of Configurational Groups In order to divide the firms into configurational, strategic groups, we employed median splits on the NVCrea and VCapt factors, and based on these median splits, divided the firms into four distinct groups of strategic emphases: A. Low NVCrea AND Low VCapt B. High NVCrea AND Low VCapt C. Low NVCrea AND High VCapt D. High NVCrea AND High VCapt In other words, we used “median cut-off” criterion (e.g., He and Wong, 2004) to define different groups of firms, by ranking firms in descending order of NVCrea and VCapt factor scores. Firms that fell in upper half of NVCrea were classified as “high NVCrea” and firms that fell in lower half as “low NVCrea”. For VCapt, the procedure was the same. Thus, each firm
7
The firm’s industry variables – B2C and service – were not included in the group analysis because the interactions of these variables with the other variables were non-significant in each case of the regression analyses.
29 obtained two classifications (high or low NVCrea, and high or low VCapt). Taken together, the four types or groups of firms above (A, B, C, D) followed from this classification. Furthermore, we similarly divided the firms into further groups through median-splits on firm size (larger vs. smaller) and environmental turbulence (high vs. low) variables. Combined with the classification above (A, B, C, D), this resulted in eight and sixteen groups of firms. As the analytical procedure, we performed two-way analyses of variance (ANOVA) with profitable growth as the dependent variable and with strategic emphasis (A, B, C, or D) and environmental turbulence (high or low) as independent variables. We decided to calculate separate ANOVAs for small and large firms, rather than include firm size as an independent variable to one and same ANOVA, so as to avoid having to interpret complex three-way interaction effects from a (single) ANOVA. The ANOVA revealed a marginally significant main effect of strategic emphasis for both small firms (F(3, 217) = 2.47, p .3) and large firms (F(3, 207) = .15, p >.5). This leads us to conclude that the environmental turbulence will not generally have significant moderating influence on the effect of the strategic configuration of NVCrea and VCapt on profitable growth. However, looking further into small firms, especially, it is revealed that the feasibility of strategies emphasizing VCapt (configurations C and D) might be slightly less feasible for small firms in conditions of high turbulence than in conditions of low turbulence. While these differences are only marginally significant, if assuming one-sided tests (MHighTurbC= 2.23, MLowTurbC= 2.73, p < .10; MHighTurbD= 1.98, MLowTurbD= 2.45, p < .10), they may explain why in regression model V, the interaction of firm size, environmental turbulence, and VCapt was marginally negative. Thus:
33 Finding 5: For large firms, environmental turbulence does not significantly influence the likely feasibility of strategic configurations of emphasizing novel consumer value creation vs. emphasizing value capture. Finding 6: For small firms, environmental turbulence will influence the likely feasibility of strategic configurations, so that strategies with high emphasis on value capture are less feasible under conditions of high turbulence than under conditions of low turbulence.
Finally, we conducted one more analysis, which was to test whether firms having a certain strategic configuration would more likely fail than others. Especially, since firms (B) with high emphasis on NVCrea but low on VCapt seemed to have higher average profitable growth than others, it should be analyzed whether that strategic configuration also involves above-average probability of failing. To perform the analysis, we cross-tabulated the firms by their strategic emphases (A, B, C, D), on one hand, and by the fact whether they had been unprofitable in the past year8, on the other. The analyses were, again, performed separately for small and large firms. Specifically, to test for difference in the proportions of unprofitable firms across the strategic configuration groups, Fisher’s Exact Test was used, which is suitable when the expected counts of certain values may be low (five or less). The result of this analysis was that the proportions of unprofitable firms did not significantly differ across the strategic configurations (see Table 5), for neither the small firms (Fisher’s exact test, p > .2) or the large firms ( p > .05). Table 5 here.
8
Indication of the unprofitability was obtained from a question that asked the managers: “What was the level of earnings (before taxes) at your firm last year?” The first response category was “negative/loss” (indicative of unprofitability), while the others were “0–50 000 euros”, “50 000–200 000 euros”, “500 000–1 million euros”, …, “2–10 billion euros”.
34
DISCUSSION AND CONCLUSION Contributions to research Both strategic management (e.g., Bowman and Ambrosini, 2000, Mol et al., 2005; Priem, 2007) and marketing scholars (e.g., Berghman et al., 2006, Mizik and Jacobson, 2003, Schlegelmilch et al., 2003, Simpson et al., 2006) have been reframing their perspectives to firm strategy in terms of value creation, especially from users’ or consumers’ perspective. However, while earlier research has tended to juxtapose novel value creation and value capture and/or deal with their effects as independent linear dimensions, the literature has lacked examinations of how firm strategies may combine these two dimensions at different levels of respective emphases – and what the firm performance outcomes of the different combinations, or configurations, are. Addressing this research gap, the present article makes a contribution by examining the financial performance differentials across firms that have different strategic emphases on the two dimensions of novel consumer value creation and value capture. Our configurational examination of the strategic emphases proved insightful. First of all, it allowed us to conclude that neither strategic emphasis on novel consumer value creation nor strategic emphasis on value capture has any independent (linear) effects on firm performance. Indeed, any initial linear effect suggested by a simple regression was found to be non-existent in interactional and configurational group analyses. With regard to the former, the fact that we did not find a strategic emphasis on novel consumer value creation to have any universal linear effect on firm performance is quite consistent with the innovation literature that has not reached any agreement on who benefits from (value) innovation and whether innovators or pioneers generally outperform second- or late-movers or imitators or vice versa (e.g., Jacobides et al.,
35 2006; Lieberman and Montgomery, 1998; López and Roberts, 2002; Teece 1986). With regard to value capture, in turn, our results are more novel: To our knowledge, value capture has not been explicitly studied as a dimension of strategic emphasis (that can vary in degree) before, even if traditional strategic management literature rather unilaterally advocated the importance of value capture from the profitability perspective. And most interestingly, in contrast to the traditional prescriptions, we found no positive effect on profitable growth by higher emphasis on value capture – in some models, we even found a negative effect. This is certainly a new and interesting empirical result for strategic management, and yields support to the argument that evolutionary scholars have sometimes made, proposing that attempts to isolate oneself too much from competition may actually lead to disadvantage for a firm by preventing (Red Queen) learning from competition (Barnett and Hansen 1996; Derfus et al., 2008). In any case, our configurational approach allowed us not only to refute linear performance effects of novel value creation and value capture as isolated strategic dimensions but, in essence, also to examine the performance implications of combinations of strategic emphases on the two dimensions. An especially interesting and novel finding was that a high emphasis on novel consumer value creation but low on value capture is likely to be a relatively feasible strategic configuration, in terms of profitable growth for both small and large firms. Indeed, whereas traditional strategic management literature has stressed, most of all, the importance of value capture, our finding was that firms with high emphasis on novel value creation and low on value capture had the highest average profitable growth. Characteristically, such a strategy seems analogous to an “open innovation” strategy (Chesbrough, 2003, Jacobides et al., 2006), with high emphasis on the creation of new value but sparse with respect to the forging of isolating mechanisms to appropriate all the new value to oneself. Hence, the present findings might be
36 interpreted as preliminary evidence of the fairly lucrative nature of a strategy of “open-source consumer novelty creation”, on average. Another – albeit not necessarily contradictory – interpretation of this finding is that firms with high emphasis on novel consumer value creation but low on value capture are just enjoying above-average profitable growth as long as it lasts, but will then (need to) shift emphasis more on value capture when certain degree of growth has been exhausted. Moreover, the findings of the present research reveal certain important moderating effects by firm size and environmental turbulence. Concerning firm size, our results indicate that simultaneous emphasis on novel consumer value creation and value capture is likely to be a relatively feasible strategic configuration, in terms of profitable growth for large firms, but a relatively non-feasible strategic configuration for small firms. This finding is consistent with the notion that small firms may have, in general, difficulties in following contradicting strategies simultaneously (e.g., Ebben and Johnson, 2005, Hughes et al., 2007). Nevertheless, our finding is new in the sense that it reveals such an effect for the strategies of novel consumer value creation and value capture, in particular. At the same time, the finding indicates that the general flexibility that small firms are often claimed to have (Chen and Hambrick, 1995, Dean et al., 1998, Porter, 1980) seems not to extend to yield them the flexibility to effectively combine high emphases on novel value creation and value capture, in particular. When it comes to environmental turbulence, in turn, we found that for large firms, environmental turbulence does not significantly influence the likely feasibility of strategic configurations of emphasizing novel consumer value creation vs. emphasizing value capture, but for small firms it may. Especially, among small firms, strategies with high emphasis on value capture are less feasible under conditions of high turbulence than under conditions of low
37 turbulence. This new finding suggests that in highly turbulent environments small firms’ ability to set up isolating mechanisms for competition is undermined, while their general ability to create market niches (e.g., Dean et al., 1998, Gibb, 2000, Siu and Kirby, 1998) for novel value creation might not be similarly undermined. Theoretically, small firms’ relative ineffectiveness in instilling isolating mechanisms of value capture in turbulent environments may reflect the fact that such instilment is inherently complex – even more complex than novel value creation –, whereas the most effective strategic routines in the context of turbulent markets have been suggested to be simple rather than complex (Eisenhardt and Martin, 2000). For small firms, the relative ineffectiveness to deal with the complexity of value capture may be emphasized, as they have relatively fewer resources and more ad hoc structures than large firms. Finally, our research also included preliminary checks for whether some configurations of novel value creation vs. value capture would exhibit higher probability of poor performance. Nevertheless, examining the proportions of unprofitable firms across the different strategy configurations, we did not find any significant differences. What is especially notable is that the firms with the strategy configuration of high novel value creation and low value capture – the one with highest average profitable growth – did not have, correspondingly, a higher proportion of failing firms. Thus, the higher average performance seemed not to be necessarily accompanied by any higher proportion (risk) of failure, as implied by some innovation literature that highlights the risks that innovating, pioneering, or first-mover firms face (Golder and Tellis, 1993, Hoppe, 2000, Markides and Geroski, 2005, Simpson et al., 2006,).
Implications to Managers
38 To managers, the implications of the present research are rather straightforward. First of all, it is to be noted that there is no universal “best” configuration of how much a firm should strategically emphasize the creation or innovation of novel value to consumers vs. capturing value by way of installing isolating mechanisms (such as patents, barriers to competition, customer switching costs, etc.). Many configurations may be feasible in terms of financial performance (especially profitable growth), depending on the firm and its context. Nevertheless, it is also worth noting that high strategic emphasis on novel value creation but low on value capture was found to be a surprisingly feasible strategy – surprisingly so, considering the strategic management literature’s usual, unilateral advocacy of value capturing. In a sense, our finding might be interpreted as an indication of the fact that various open innovation approaches can be rendered lucrative in terms of firm performance. Moreover, our findings also warn about certain strategic configurations’ compromised feasibility. Especially, for large firms, our results indicate that low emphasis on both novel value creation and value capture is associated with below-average profitable growth. For small firms – especially for those operating in turbulent environments – high strategic emphasis on both novel value creation and value capture is, additionally, likely to lead to deteriorated performance.
Limitations and Future Research Methodologically, the main, potential limitation of the present study relates to the approach of inquiring of one and same respondent about a firm’s strategic emphases and about the firm’s performance. Thus, there is a possible common method bias. Yet, one way to examine the seriousness of such bias is to use a single-common-method-factor method approach (Podsakoff et al., 2003). The basic assumption in such a test is that if a single factor emerges from the factor
39 analysis that explains a significant amount of the variance in the data, there is strong evidence of common method bias. Specifically, we conducted Harman’s one factor test in which all the variables in our study were simultaneously entered into an exploratory factor analysis. Since a single factor did not emerge and one general factor did not account for most of the variance, we can conclude that common method bias is not a serious problem with the data. Another limitation is that based on the data utilized, one cannot know how long and how consistently the firm has exhibited the reported emphases in the firm’s strategy (e.g., a month, a year, two years, or ten years). Thus, the study does not take into account the potentially important influence of the temporal perseverance or consistency of a chosen strategy on the financial outcomes (cf. Lamberg et al., 2009) – nor the potential delay between adopting a certain strategy and the financial performance outcomes of the strategy. Also, lacking longitudinal data, the study cannot definitively establish the causal directions: whether the reported strategic emphases have lead to certain financial performance outcomes in the firms or whether certain financial performances have led to certain strategic emphases. It is also worth noting that while our findings pertain to the strategic emphasis on novel value creation vs. value capture, the findings should not be interpreted to tell so much about value creation in general (including value that is not novel to the market) vis-à-vis value capture. For instance, there are some recent demand-oriented perspectives in strategic management (e.g., Adner and Zemsky, 2006, Gans et al., 2008, Foss, 2003) and marketing (e.g., Jap, 2001; Wagner et al., 2010) that focus on the total value that market transactions and relationships generate to the counterparties, and how that total value gets allocated or appropriated by the parties. These perspectives do not explicitly focus on novel value creation like the present research, but could potentially be integrated to the present theoretical points in future. Furthermore, note that the
40 present research was short of examining certain potentially important moderating factors (beyond firm size and environmental turbulence). These include, e.g.,: whether and to what extent the firm emphasizes radically vs. incrementally innovative novel value creation (as orientation towards radical vs. incremental innovations may have different implications, see e.g. Sorescu and Spanjol, 2008, Srinivasan et al., 2009); whether the firm pursues opportunities for novel value creation or capture through ideas from and collaboration with end-users, or more independently (as open innovation approaches often advocate the former, see e.g., Chesbrough, 2003, Faulkner and Runde, 2009, Sawhney et al., 2005, Shah and Tripsas, 2007) the width and breadth of a firm’s existing product lines or value networks or the strength of a firm’s reputation or brand (as the incumbent market-based resource base and consumer heterogeneity may have influence on potential pioneer advantages, see e.g., Adner and Zemsky, 2006, Lieberman, 1988; on marginal use value creation, see e.g. Obloj and Capron, 2008; and on exploration-exploitation opportunities in general, see e.g. Aspara et al., forthcoming)
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45 Table 1. Sample statistics % of final sample Personnel below 20 20–99 100–299 300–499 500–999 1000–4999 more than 5000
54.9% 31.2% 7.2% 1.6% 2.2% 2.2% 0.7%
Sales/turnover 0–200,000 € 200,000–500,000 € 500,000–1 million € 1–2 million € 2–5 million € 5–10 million € 10–20 million € 20–50million 50–100 million € 100–200 million € 200–500 million € 500 million–2 billion € over 2 billion
8.9% 13.5% 12.8% 15.5% 13.0% 13.7% 9.2% 4.9% 3.8% 2.5% 1.1% 0.9% 0.2%
Primary industry durable consumer goods fast moving consumer goods consumer services materials/components constructions (factory) installations other industrial production equipment business services
10.8% 6.7% 8.5% 11.4% 4.5% 5.2% 14.8% 38.1%
Position of the respondent-manager CEO / General manager Entrepreneur-manager Marketing director / manger Sales director / manager Commercial director Other
71.0% 19.4% 3.4% 1.6% 1.8% 2.9%
46 Table 2 Factor loadings of the items reflecting NVCrea (Factor 1) and VCapt (Factor 2) Factor 1
Factor 2
Item 1
.76
.22
Item 2
.79
.21
Item 3
.81
.23
Item 4
.57
.25
Item 5
.57
.26
Item 6
.31
.68
Item 7
.20
.89
Item 8
.22
.64
47 Table 3 Means, standard deviations, and correlations between variables Variables
Mean
s.d.
1
2
1. NVCrea (Factor 1)
–0.0025
0.91
(0.82)
2. VCapt (Factor 2)
0.00056
0.92
0.09
(0.83)
3. Firm size
0.98
2.03
0.09*
0.13**
(N/A)
4. Env. turbulence
15.7
5.29
0.13**
–0.01
–0.13**
(0.71)
5. Profitable growth
2.49
1.26
0.17**
0.05
0.10
–0.09
Note. Cronbach’s alphas appear on the diagonal for multiple-item measures. p < .10 * p < .05 ** p < .01
3
4
5
(N/A)
48 Table 4 Results of Hierarchical Regression Analysesa Variables Control variables B2C firm Service firm Environmental turbulence Firm size Independent main effects NVCrea VCapt Interaction effect: Strategic emphases NVCrea X VCapt Interaction effects: Firm size and Strategic emphases Firm size X NVCrea Firm size X VCapt Firm size X NVCrea X VCapt Interaction effects: Environmental turbulence, Firm size, and Strategic emphases Environmental turbulence X NVCrea Environmental turbulence X VCapt Environmental turbulence X NVCrea X VCapt Environmental turbulence X Firm Size X NVCrea Environmental turbulence X Firm Size X VCapt
Model I
Model II
Model III
Model IV
Model V
-.05 .04 -.08 .04*
-.05 .02 -.10* .08
-.05 .02 -.09 .08
-.05 -.01 -.08 .06
-.06 .01 -.09 .05
.17*** .02
.16*** .00
.12* -.02
.20 -.18
-.13**
-.18***
-.19
.10 .01 .14**
-.09 .28 .14**
-.08 .17 .00 .20 -27
R2 2
R F a
Standardized coefficients are reported. p < .10; * p < .05; ** p < .01; *** p < .001
.02 2.04
.03** .05 3.64**
.02** .07 4.26***
.02* .09 3.95***
.01 .10 2.92***
2
Table 5 Proportions of Unprofitable Firms across the Strategic Configurations A: Low NVCrea, Low VCapt
B: High NVCrea, Low VCapt
C: Low NVCrea, High VCapt
D: High NVCrea, High VCapt
Small Firms Unprofitable
No
82.9 %
85.7%
73.3%
72.7%
Yes
17.1 %
14.3%
26.7%
27.3%
Large Firms Unprofitable
No
93.5%
94.1%
83.6%
97.0%
Yes
6.5%
5.9%
16.4%
3.0%
3
Figure 1 Mean Profitable Growth for Large Firms (upper figure) and Small Firms (lower figure)
4 Appendix 1 Measurement Items for the Moderator Variables Variable name
Measurement type
Measurement items a :
Environmental turbulence
Sum index of 5 items (each on 7point scale)
“Concerning the industry and markets of your firm, to what extent do you agree with the following statements? 1. Customer wants, needs and expectations are changing rapidly. 2. Technological change in the industry is rapid. 3. New products are constantly coming to the market. 4. The life cycles of products in the market are long.b 5. The time spent in product development is long compared to the life cycle of products in the market.”
Firm size
Single item; Logarithm transformation on the response category midpoint
“What was, approximately, the turnover of your firm last year?”
B2C, Service
Dummy
“Which of the following best describes the primary industry in which your firm operates? 1. durable consumer goods 2. fast moving consumer goods 3. consumer services 4. materials/components 5. constructions 6. (factory) installations 7. other industrial production equipment 8. business services”
a b
-
The original questions/items were in Finnish. The item was reverse coded.
Scale for recording/recoding responses 7-point Likert scale: “0=strongly disagree …
0-200 000 euros 200 000 - 500 000 euros 500 000 - 1 milj. euros 1 -2 milj. euros 2-5 milj. euros 5-10 milj. euros 10-20 milj. euros
1 2 3 4 5 6 7 8
B2C = 1; Service = 0 B2C = 1; Service = 0 B2C = 1; Service = 1 B2C = 0; Service = 0 B2C = 0; Service = 0 B2C = 0; Service = 0 B2C = 0; Service = 0 B2C = 0; Service = 1
Scale reliability
Cronb.alpha: .71 6=strongly agree”
20-50 milj. euros 50-100 milj. euros 100-200 milj. euros 200-500 milj. euros 500 milj - 2 bn euros 2mrd - 10 bn euros 10 - 20 bn euros 20-50 bn euros
