IEMS - Thought Leadership Brief #72

4 SPRING 2023 NO.72 / THOUGHT LEADERSHIP BRIEF Read all HKUST IEMS Thought Leadership Briefs at T: (852) 3469 2215 E: W: A: Lo Ka Chung Building, The Hong Kong University of Science and Technology, Clear Water Bay, Kowloon With Support from Yong Kim is an Assistant Professor of Management at Mays Business School, Texas A&M University. He is a Faculty Associate of HKUST Institute for Emerging Market Studies. Prior to joining Mays, he was on the faculty at the Hong Kong University of Science and Technology. He received his Ph.D. in Business Administration (Management and Organizations Area) from the Stephen M. Ross School of Business at the University of Michigan, and earned a B.A. and M.A. in Sociology from Yonsei University. His research interests include nonmarket strategies, corporate social responsibility, and international business. Ziyi Chen is a Ph.D. candidate in Strategic Management at the Hong Kong University of Science and Technology. Upon graduation, he will join the University of Melbourne’s Faculty of Business and Economics as an Assistant Professor. His research examines how firms innovate in a global context, as well as how formal and informal institutions influence firm strategy and performance. Prior to his doctoral studies, he has obtained a B.A. in Economics from Tsinghua University in China. RECOMMENDATION / IMPLICATION The optimal business strategy between maintaining flexibility or commitment has been a subject of debate for a long time. Scholars typically examine the fit between the selected strategy and organizational structure, but they often overlook the heterogeneity within an organization's structure in executing each strategy. Our research shows that by looking at subsidiaries specializing in different technologies and coordinating those subsidiaries at a higher level, the benefits of both strategies can be obtained. For managers to maintain flexibility in uncertain technological environments, they can consider establishing subunits through greenfield investments or acquisitions, each pursuing a particular technological trajectory. This approach has implications for the debate on whether corporate groups enhance or hinder innovation, as it highlights the importance of a structural perspective in examining innovation efforts and the division of attention at the corporate group and subsidiary levels. Managers must also consider the external technological environment and entry timing when implementing a flexibility strategy. In situations where uncertainties persist and old technologies can re-emerge, maintaining flexibility can still be valuable, even if a technology appears to have a dominant position. Our findings indicate that early entrants benefit from staying focused and securing early market shares, while late entrants benefit from maintaining breadth and responding to emerging customer preferences. Finally, managers should carefully consider both the organizational structure and the external technological environment when determining the best strategy to pursue. They should also keep in mind that the benefits and unintended negative consequences of external collaboration for innovation depend on the type of technology pursuit of the corporate group and its subsidiaries.