Papers and Slides
Sungyong Chang with Hyunseob Kim
Abstract: We observe a growing number of software development kits (SDKs) are externally available. We explore how using externally available SDKs affects the product innovation process. We characterize (1) product development by using externally available SDKs as solving nearly modular problems and (2) product development by building inhouse SDKs as solving an integral problem (i.e., relatively non-modular). We explore the video game industry, in which software development kits are called game engines, and game developers explore theme innovations (i.e., non-technological dimension) as well as technological innovations. Findings suggest that on average, using commercial game engines facilitates module-level innovations but less likely to introduce system-level innovations which require a cross-module coordination. Also, the number of commercial game engine users is an important predictor of product innovation. If when the number of users is not sufficiently large, its weakness in system-level innovations exacerbated, and the strength in module innovation is also weaker, showing that harnessing the power of positive feedback (i.e., ecosystem effect) between the number of users and the quality of engines matters.
Abstract: We examine how policy uncertainty affects innovation and industry dynamism. Drawing from research on R&D races, we propose that policy uncertainty shifts the dynamics of technological competition from a deterministic race where leading firms innovate more to a stochastic race where lagging firms innovate more. We find that economic policy uncertainty indeed increases the relative rate of innovation by laggards relative to leaders, accelerates the pace of upward reversion in laggards’ performance, and decreases industry concentration. The positive effect on laggards’ investment is unique to innovation, absent for capital investment, and stronger in technologically deterministic, fast-changing, R&D intensive, and concentrated industries that closely approximate the features of R&D races. Our findings point to the potential positive aspects of policy uncertainty and characterize high policy uncertainty as a period of intensifying technological competition.
Tobias Kretschmer with Johannes Jaspersen
Abstract: A key feature in the organization design of firms is who makes decisions in an organization, and how. Most decisions are part of a larger portfolio of choices, and each decision comes with uncertain payoffs. Hence, firms strive to balance errors of omission and errors of commission through the design of “screening functions”, i.e. rules that convert a (noisy) signal a decisionmaker receives into a (binary) recommendation. Prior work has shown that the relative weight on both types of errors determines whether a firm should implement a centralized or decentralized decisionmaking process. We develop a formal model to show that mixed organizational forms (showing elements of hierarchy and polyarchy simultaneously) can dominate both centralization and decentralization, depending on i) the discriminatory power of the screening function, ii) the precision of the signal received about each individual project and iii) the population of available projects. In cases where the available projects and the firm’s screening rule go are inconsistent with each other (e.g. in highly turbulent environments or after an acquisition), mixed organizational forms tend to perform best. We also show that mixed organizational forms can benefit from endogenously chosen screening functions.
Mahka Moeen with Anavir Shermon
Abstract: Faced with demand uncertainty in a nascent industry, entrants need to strategically consider which customer segments to serve, and what specialized product features can address customers’ preferences. While high product usage breadth implies addressing preferences of a wide range of customers, low product usage breadth indicates inclusion of market-specific features that are specialized to particular customers. We suggest that when entrants have experience in contexts that are potential users of a new product, their products are likely to exhibit low usage breadth. The relationship is moderated by whether they are startups or diversifying entrants, and the cumulative number of customers that adopted the industry’s product before the time of each entrant’s product introduction. The empirical context is the U.S. commercial drone industry.