Selected Published Journal Articles
Posen, H., & Chen, J. (2013). An Advantage of Newness: Vicarious Learning Despite Limited Absorptive Capacity.
Entrants are often viewed as suffering from a “liability of newness”—at founding they rarely possess the knowledge and capabilities necessary to compete and survive. They can overcome this liability by learning vicariously from the knowledge of incumbent firms. But how can entrants learn from external knowledge when they lack the prior related knowledge that forms the basis of absorptive capacity? We theorize that the process of internal experiential learning facilitates learning from external knowledge, particularly for entrants. To test this theory, we examine learning using a comprehensive set of U.S. commercial banking firms, including a full census of entrants. Our estimates suggest that the share of vicarious learning realized in the process of experiential learning is twice as large for entrants as for incumbents. In this sense, entrants enjoy an “advantage of newness” in learning.
Ethiraj, S., & Posen, H. (2013). Do Product Architectures Affect Innovation Productivity in Complex Product Ecosystems?.
Advances in Strategic Management
In this paper, we seek to understand how changes in product architecture affect the innovation performance of firms in a complex product ecosystem. The canonical view in the literature is that changes in the technological dependencies between components, which define a product’s architecture, undermine the innovation efforts of incumbent firms because their product development efforts are built around existing architectures. We extend this prevailing view in arguing that component dependencies and changes in them affect firm innovation efforts via two principal mechanisms. First, component dependencies expand or constrain the choice set of firm component innovation efforts. From the perspective of any one component in a complex product (which we label the focal component), an increase in the flow of design information to the focal component from other (non-focal) components simultaneously increases the constraint on focal component firms in their choice of profitable R&D projects while decreasing the constraint on non-focal component firms.
Posen, H., Martignoni, D., & Lang, M. (2013). Rubik's dilemma: Partial knowledge and the efficacy of learning. Academy of Management Proceedings
Posen, H., Lee, J., & Yi, S. (2013). The Power of Imperfect Imitation.
Strategic Management Journal
We examine the power and limitations of imitation. Naive intuition may hold that the efficacy of imitation would be diminished by imperfections in copying high-performing firms. Employing a computational model, we find that imperfect imitation can generate unexpectedly good outcomes for follower firms – indeed, better than the outcomes achieved if they were perfect imitators. Imitation, from time to time, enables follower firms to surpass superior firms. Our model demonstrates this dynamic process increases the average performance of all firms in the industry relative to that achieved if firms were perfect imitators. This finding suggests there is an adaptive role to mechanisms, such as bounded rationality, that make perfect imitation difficult.
(34), 149-164. doi: 10.1002/smj.2007.
Posen, H., & Levinthal, D. (2012). Chasing a Moving Target: Exploitation and Exploration in Dynamic Environments.
A common justification for organizational change is that the circumstances in which the organization finds itself have changed, thereby eroding the value of utilizing existing knowledge. On the surface, the claim that organizations should adapt by generating new knowledge seems obvious and compelling. However, this standard wisdom overlooks the possibility that the reward to generating new knowledge may itself be eroded if change is an ongoing property of the environment. This observation in turn suggests that environmental change is not a self-evident call for strategies of greater exploration. Indeed, under some conditions the appropriate response to environmental change is a renewed focus on exploiting existing knowledge and opportunities. We develop a computational model based on the canonical multiarmed bandit formulation of exploration and exploitation. We endeavor to understand the mechanisms by which environmental change acts to make purposeful efforts at organizational adaptation less (or more) valuable.
Knott, A., & Posen, H. (2009). Firm R&D Behavior and Evolving Technology in Established Industries.
One of the key mechanisms of firms’ strategic renewal is R&D, and a key driver of the intensity of R&D is industry context. A number of theories develop propositions linking industry factors to firm R&D behavior, but these theories lack consensus. To date, empirical tests have been unable to resolve the competing predictions because of lack of time- varying measures of technology. We create new measures for technology and then conduct a test of the competing theories. Our results indicate that the data best match a model of innovative behavior in which firms invest in R&D principally to regain eroded advantage rather than to pursue the new frontier.
(20), 352-367. doi: 10.1287/orsc.1070.0332.
Knott, A., Posen, H., & Brian, W. (2009). Spillover Asymmetry and Why It Matters.
Although spillovers are a crucial factor in determining the optimal environment for innovation, there is no consensus regarding their impact on firm behavior. One reason for this may be that models differ in their assumptions for the functional form of the spillover pool. In industrial organization and economic geography, for example, the predominant convention is that all innovation within an industry/region contributes to a spillover pool that has a common value for all firms. An alternative convention prevalent in endogenous growth and evolutionary economics is that spillovers have directionality—the size of the relevant pool differs across firms. Knowing the correct functional form may facilitate theoretical consensus, either analytically (by modifying models’ assumptions) or empirically (by supporting a critical test of competing theories). We characterize and test the functional form of spillover pools for efficiency-enhancing innovation across 50 markets in the banking industry. Our results in that setting are consistent with expectations for asymmetric spillovers but inconsistent with expectations for pooled spillovers.
(55), 373–388. doi: 10.1287/mnsc.1080.0950.
Levinthal, D., & Posen, H. (2007). Myopia of Selection: Does Organizational Adaptation Limit the Efficacy of Population Selection?.
Administrative Science Quarterly
This paper develops and tests a model of the effective- ness of selection processes in eliminating less fit organizations from a population when organizations are under- going adaptive change. Stable organizational traits, such as a search strategy or routine, do not imply that an organization’s performance will remain stable over time or that cross-sectional differences in performance will persist. These properties create the possibility that population-level selection processes will be inefficient in that organizations with potentially superior long-run performance will be selected out. We theorize that organizational-level adaptation often results in fluctuations in current performance across time. These fluctuations may attenuate the degree to which current performance differences among organizations are indicative of future performance. As a consequence, search strategies that generate systematically different performance trajectories, even if they share a common long-run outcome, will generate differing survival rates. These ideas are explored using a formal simulation model employing the framework of NK performance landscapes. Our central finding is that selection may be systematically prone to errors and that these selection errors are endogenous to, and differ markedly across, firms’ search strategies.
(55), 586–620. doi: 10.2189/asqu.52.4.586.
Knott, A., & Posen, H. (2005). Is Failure Good?.
Strategic Management Journal
Approximately 80-90 percent of new firms ultimately fail. The tendency is to think of this failure as wasteful. We, however, examine whether there are economic benefits to offset the waste. We characterize three potential mechanisms through which excess entry affects market structure, firm behavior, and efficiency, then test them in the banking industry. Results indicate that failed firms generate externalities that significantly and substantially reduce industry cost. On average these benefits exceed the private costs of the entrants. Thus failure appears to be good for the economy.
Knott, A., Bryce, D., & Posen, H. (2003). On the Strategic Accumulation of Intangible Assets.
The Resource Based View holds that firms can earn supra-normal returns if and only if they have superior resources and those resources are protected by some form of isolating mechanism preventing their diffusion throughout industry. One isolating mechanism that has been proposed for intangible assets is their accumulation process. The hypothesis is that intangible assets are inherently inimitable because would-be imitators need to replicate the entire accumulation path to achieve the same resource position. Thus entrants can never catch up to incumbents.
An interesting challenge to this hypothesis is counterfactual evidence that entrants sometimes outperform incumbents. Such counterfactual evidence should not exist if the theory is strictly correct. This paper attempts to reconcile resource accumulation theory with the counterfactual evidence. We do so by building an intermediate good production function for a firm's intangible asset stocks. We test the contribution of the intangible asset stock to the firm's final good production function and examine the extent to which that asset stock deters rival mobility in the pharmaceutical industry.
We find that the asset accumulation process itself cannot deter rivals, because asset stocks reach steady-state rather quickly. Entrants can achieve an incumbent's intangible asset stock merely by matching its investment until steady-state. Thus we conclude that the accumulation process per se is not an isolating mechanism. While this is perhaps the most important contribution, another contribution is an empirical methodology for characterizing the accumulation function.
(14), 192-207. doi: 10.1287/orsc.220.127.116.1191.
Selected Submitted Journal Articles
Posen, H., Martignoni, D., & Lang, M. How can imitation increase inter-firm heterogeneity?. Organization Science
Submitted Working Papers
Posen, H., & Cook, S. Surprise-Driven Innovation.