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Pacheco de Almeida, Goncalo, James E. Henderson, and Karel D. Cool (2008). Resolving the commitment versus flexibility trade-off: The role of resource accumulation lags. Academy of Management Journal , 51 (3): 517-536. . Presented by Jiyoon Chung. Overview.

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presented by jiyoon chung

Pacheco de Almeida, Goncalo, James E. Henderson, and Karel D. Cool (2008). Resolving the commitment versus flexibility trade-off: The role of resource accumulation lags. Academy of Management Journal, 51 (3): 517-536.

Presented by Jiyoon Chung

overview
Overview
  • Research question: How does time-consuming resource accumulation influence the classic strategy trade-off between commitment and flexibility?
  • Resource accumulation lags favoring commitment
  • Resource accumulation lags favoring flexibility
theory and hypotheses
Theory and Hypotheses
  • The opportunity cost of postponing investment can be substantially higher, including the profits forsaken while the firm is accumulating resources to enter the desired market.
    • Hypothesis 1: Ceteris paribus, resource accumulation lags have a positive effect on a firm’s likelihood of investment.
  • Longer resource accumulation lags increase the profit potential of an investment project more than its loss potential  a positive interaction effect between uncertainty and time lag
    • Hypothesis 2: Ceteris paribus, resource accumulation lags reduce the main negative effect of uncertainty (the option value of waiting) on a firm’s likelihood of investment.
theory and hypotheses1
Theory and Hypotheses
  • With very long resource accumulation lags,
    • The risk of widespread bandwagons is high, and
    • Managers have more incentives to make smaller-scale investments because of short-term stock market pressures.
    • Hypothesis 3: Ceteris paribus, very long resource accumulation lags have a negative effect on a firm’s likelihood of investment.
research design
Research Design
  • Dependent variable:
    • Investment
  • Explanatory variables:
    • Resource accumulation lag
    • Demand uncertainty
  • Control variables:
    • Demand growth
    • Excess capacity
    • Investment lumpiness
    • Market share
    • Rivals’ expansion

Estimation methods

results
Results

H1

H3

H2

H1, H2, H3 are all corroborated

conclusion
Conclusion
  • In industries with lengthy resource accumulation lags, competitive advantage may be difficultto attain (but easier to sustain).
  • The results contradict the view that uncertainty is always a strong disincentive for investment.
    • An increase in uncertainty may encourage rather than dissuade commitment, owing to the positive moderating effect of resource accumulation lags on uncertainty.
  • The non-linear inverted U-shaped effect of resource accumulation lags on commitment implies that flexibility is more valued in industries in which resource accumulation is either very time-consuming or virtually instantaneous.
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