IEMS - Thought Leadership Brief #72

3 SPRING 2023 NO.72 / THOUGHT LEADERSHIP BRIEF Factor 2: Collaborating Both Internally and Externally. Despite having a portfolio of diverse technologies, corporate groups are often criticized for having excessive control over their subsidiaries, which can lead to decreased innovation capabilities. To overcome this challenge, it is important to engage in both internal and external collaboration. External partners can provide access to new knowledge and resources, while the firm needs to have the capacity to absorb this knowledge and integrate it into their innovation activities. This capacity can be acquired through a broad understanding of emerging technologies. Our findings show that corporate groups or subsidiaries pursuing a flexibility strategy benefit more from external collaboration than those following a commitment strategy. However, a subsidiary's external collaboration may also affect other members of the corporate group. In theory, a subsidiary of a corporate group can still access external knowledge through the collaboration of other member firms within the group. Intra-group networks can facilitate knowledge sharing among members. However, our findings show that a subsidiary with a flexibility strategy is more likely to suffer from indirect ties with other members of the group than a subsidiary with a commitment strategy, particularly if they lack direct collaboration with other members of the group. The inherent competition between technologies can lead to a lack of knowledge sharing among subsidiaries and may even hinder each other's innovation efforts. Without deliberate institutional arrangements regarding internal collaboration and competition, subsidiaries may not be able to fully benefit from indirect ties within the corporate group. Factor 1: Organizational Structure. A flexibility strategy can be more effective for firms with a dominant corporate group structure, which is particularly common in emerging markets. Unlike previous research, which suggests that centralized structures limit innovation, a corporate group structure can coordinate competing technologies through a division of labor within the group. Each subsidiary focuses on a specific technology while the headquarters oversees overarching strategies. This allows the headquarters to allocate resources and manage the nonlinear technology substitution process by assigning different technologies to different subsidiaries. Furthermore, headquarters can develop routines and processes to facilitate inter-unit knowledge sharing and competition. This helps the corporate group achieve a balance between exploiting the dominant technology and exploring other options to respond to potential challenges from competing technologies. Our research shows that corporate groups pursuing a flexibility strategy (e.g. developing both LCD and PDP) have better innovation performance than those pursuing a commitment strategy (e.g. focusing on only LCD or PDP). On the other hand, subsidiaries with a commitment strategy perform better than those with a flexibility strategy. In conclusion, a corporate group structure with subsidiaries each focused on a unique technology can be an effective approach to implementing a flexibility strategy. Factor 3: Entry Timing into a Market. The flexibility strategy proves more effective for companies entering a market later rather than earlier. During the early stages of market development, a high level of uncertainty regarding the dominant technology leads to a "legitimacy vacuum," where the form and function of the new technology are not yet established. The competition at this stage mainly revolves around the potential for alternative technologies to replace the dominant one. However, as the legitimacy vacuum disappears and market demand increases, late entrants can benefit from the lessons learned by early entrants and reduce the costs of exploration. Additionally, competition between different technological ecosystems becomes more intense as technological bottlenecks are overcome. This results in a more complex and uncertain market, where unexpected outcomes, such as winning with an inferior technology, may occur. Late entrants with a wider range of initial technology choices are better equipped to respond to unexpected technological developments during market transformation.