Research

This book delves into the intriguing phenomenon of supplier-induced demand (SID), where service providers influence buyers to purchase unnecessary—or even counterproductive—services. It focuses on professional fields like consulting, law, and finance, examining the conditions that enable SID. Key among these are uncertainties about problems, solutions, and outcomes in professionals’ work; professionals' power advantages over buyers arising from the professionals’ expertise and networks; and conflicts of interest when professionals both advise on needs and sell the services to address them.

The book argues that SID is rarely driven by malice. Instead, it stems from a shift toward a commercial institutional logic that equates selling with value creation. This mindset, combined with professionals' strong identification with their work, fosters cognitive biases—such as an "action bias," where taking action, even unnecessary action, is preferred over doing nothing. The book provides evidence of SID in legal services, showing how external legal counsel often drives higher litigation rates, even with lower odds of success.

Importantly, SID is not universal. It appears most prominently in situations of high uncertainty regarding the outcomes of actions and with geographically close external service providers. These providers have easier access to buyers, are approached by buyers more frequently, and proactively offer opportunities to act—further fueling SID. The book also highlights a significant challenge: both buyers and suppliers struggle to learn from SID experiences. The difficulty in measuring outcomes and the tendency to rationalize past decisions compound the problem.

It is critical to realize that SID is nearly impossible to detect in individual transactions. Thus, to combat SID, the book proposes process-intervention strategies: selective insourcing, developing internal expertise by buyers, separating the roles of diagnosis and implementation, and fostering cultures within professional service firms that prioritize client value over sales.

Using a series of computational experiments, we study what makes supply chain networks robust to shocks that simultaneously disable multiple participating organizations. In doing so, we adopt a complex systems perspective in which there is no central network architect, and thousands of organizations make individual decisions regarding their suppliers without considering or even observing the robustness of the global network. Our results reveal that even when a small fraction (5%) of companies in a globally dispersed supply chain network replace one supplier per year based on geographical proximity (to the buyer or to the buyer’s current suppliers), the emergent supply chain network can become significantly more robust. Such regionalizing supplier-selection strategies largely outperform globalizing supplier-selection practices (selecting geographically distant suppliers) for shocks that diffuse through land borders (e.g., social or political unrest) or via air travel (e.g., pandemics).

In this study, we explore how companies leverage social structures to gain an advantage in litigation. Using 24 years of data on patent infringement litigation, we find that companies strategically file cases in district courts where their lawyers share educational or professional affiliations with the judges (e.g., a lawyer attended the same law school as the judge or clerked for the judge). When the assigned judge shares such affiliations with a company’s lawyers, the company is significantly more likely to win the litigation. Our text analysis of legal documents produced by lawyers and judges reveals that this advantage arises, in part, because connected lawyers subtly influence judges by tailoring their messages to align with the judges' linguistic styles. However, this strategic approach has its risks: if a company assembles a legal team with strong affiliations to a court’s judges but fails to secure any of the preferred judges, the company becomes significantly less likely to win than companies with no such affiliations. This is because prioritizing social capital in selecting legal teams often comes at the expense of required human capital.

We explored a counterintuitive insight: how a history of collaboration between rivals—rather than facilitating future cooperation—can become a liability and escalate conflict. In such situations, past collaboration with a rival may raise loyalty concerns among new clients, prompting individuals to exhibit uncooperative behaviors to demonstrate loyalty to the client. Using data on 21,000 lawyers involved in 4,900 patent infringement lawsuits over 15 years, we found that past collaborative relationships among lawyers often led to aggressive courtroom behaviors when these lawyers later represented opposing sides. These compensatory behaviors served to distance lawyers from their prior affiliations and signal unwavering loyalty to their current clients. Ironically, such actions prolonged lawsuits, increased the likelihood of escalation to trial, and ultimately resulted in lost value for clients.

We hypothesized that matrix organizations, due to their managers' superior ability to navigate knowledge-sharing, coordination, and power/conflict challenges, would be more likely to engage in complex interorganizational partnerships that reflect similar challenges externally (e.g., multilateral, multifunctional partnerships involving diverse countries and industries). Our findings confirmed that matrix organizations are indeed more likely to pursue such complex partnerships. However, the stock market penalizes these efforts, leading us to introduce the concept of the "double complexity discount. This negative perception, reflected in stock market penalties, suggests that investors are concerned about the amplified challenges of managing the combined complexities of internal matrix structures and complex external collaborations.

This chapter highlights the importance of examining global and meso-level network structures to understand how companies access resources. While prior research has primarily focused on ego networks and how they provide access to resources, understanding the global network architecture is crucial because it sheds light on the distribution and availability of these resources within and across different systems. For instance, two companies with identical ego-network structures may experience varying levels of innovation depending on the turnover and dynamics within their network community. Similarly, a company embedded in a community network, like the telecommunications industry, is likely to have access to more diverse resources compared to a company in a fragmented clan network, like the automotive industry. This multilevel perspective on networks, considering ego, community, and global levels, offers a more complete understanding of how social structures shape resource access and, consequently, influence organizational outcomes. This perspective highlights that global and meso-level network properties and dynamics can significantly influence the quality of local resources accessible to firms through their ego-networks.

This study finds that companies in dynamic industries (e.g., biotechnology and pharmaceuticals, microelectronics) are more likely to pursue open networks, which provide access to new and diverse resources that support continuous innovation. This tendency is more likely to give rise to community networks at the global level, characterized by high network connectedness and medium-to-strong community structures. In contrast, firms in technologically stable industries (e.g., chemicals, automotive) tend to pursue more closed ego networks, which foster reliable collaboration and help preserve existing resources. These behaviors result in clan networks, characterized by relatively low network connectedness and strong community structures. Among the networks we analyzed, we did not identify convention networks, which are defined by high network connectedness and weak community structures. The developed typology of clan, community, and convention networks offers a more effective framework for explaining diffusion outcomes compared to alternative global topologies (e.g., small-world networks).

This paper examines the evolutionary dynamics of a dual social structure that encompasses collaboration (partnerships) and conflict (litigation) among corporate actors. We apply and extend structural balance theory to investigate the formation—rather than the stability—of balanced and unbalanced dyadic and triadic structures, and analyze how these dynamics aggregate to shape the properties of a dual global network. Our findings are threefold. First, existing collaborative or conflictual relationships between two companies tend to foster future relationships of the same type while suppressing the formation of relationships of the opposite type. Second, network formation is driven not by a pull toward balanced triads but by a push away from unbalanced triads. Third, these micro-level dynamics at the dyadic and triadic levels contribute to the structural segregation of the global network into two distinct segments: one collaborative and the other conflictual.

This paper introduces the network-community perspective and its associated dynamics into network analysis. Network communities are defined as dense, non-overlapping structural groups of actors within a social system. The network-community perspective enables the analysis of networks at the meso level, bridging the gap between the ego-network level (e.g., actor centrality) and the global-network level (e.g., small-world quotient). Our findings are twofold. First, a firm derives the greatest invention benefits when its network community experiences moderate levels of membership turnover. Second, a firm achieves the highest invention productivity when its own rate of movement across different network communities is moderate.

In this article, we examine the determinants of bridging ties, which are partnerships formed between firms in different network communities. We find that firms are more likely to form these partnerships when they are incentivized to do so for value creation and value distribution, and when there are structural opportunities in the global network. Value-creation incentives stem from a firm’s ability to recombine insights from a new bridging tie with insights from existing bridging and local ties. Value-distribution incentives, on the other hand, emerge when a firm’s partners form bridging ties, creating pressure on the focal firm to re-establish a favorable dependence status quo. Finally, structural opportunities for bridging are shaped by the overall distribution of firms in the global network. We test our theory by analyzing a network of partnerships formed between 1991 and 2005 in the global computer industry, an industry in which bridging ties can be particularly beneficial for firms. After controlling for other factors, such as firm size, financial performance, and industry trends, results show that incentives and opportunities have a significant, positive effect on the formation of bridging ties.

This study challenges the assumption that small-world networks are stable and develops a theory of their dynamics. The pursuit of bridging relationships by firms seeking heterogeneous knowledge inputs fosters the emergence of a small-world system while simultaneously sowing the seeds of its eventual decline. Specifically, the excessive formation of bridging relationships by firms, aimed at accessing diverse knowledge, increases connectivity among network communities. This heightened connectivity diminishes the diversity that these bridging ties were initially intended to leverage. As a result, the reduced diversity leads to a decline in the formation of new bridging ties and a subsequent decrease in the system's average path length, ultimately eroding the small-world architecture.

This study challenges the long-held belief of intellectual property (IP) exceptionalism—the notion that IP cases are immune to the influence of judges' ideologies. Analyzing the full population of IP rulings by the U.S. Supreme Court, we find that conservative justices are more likely to favor IP owners, while liberal justices are more inclined to side with challengers of IP.

This article argues that, contrary to conventional wisdom, dependence in buyer-supplier relationships can be beneficial if managed effectively. The key lies in understanding two dimensions of dependence: dependence asymmetry, which reflects the power imbalance between partners, and joint dependence, which measures the extent to which companies rely on each other. While dependence asymmetry can grant a company more bargaining power, the sources demonstrate that focusing solely on maximizing this power can be detrimental in the long run. Instead, fostering joint dependence through high involvement and quality information exchange leads to superior value creation for both partners, ultimately boosting performance. Interviews and survey data from the automotive industry reveal that companies with higher joint dependence experience better performance despite potential power imbalances. This finding suggests that cultivating mutually beneficial relationships, even with some level of dependence, is more advantageous than seeking to dominate through power asymmetry.

The sources emphasize the importance of planning for exit in strategic alliances, a critical aspect often overlooked by managers. While alliances offer potential benefits, they are inherently complex and can dissolve due to various factors. Neglecting exit planning can lead to disastrous consequences, as exemplified by the Sames case. The sources propose a contingency-based framework to systematically plan for exit, considering factors like partner dependence, contract breaches, and strategic shifts. They advocate for incorporating both symmetric and asymmetric exit provisions, tailored to specific contingencies. For instance, when an alliance progresses successfully or relies heavily on unique contributions from both partners, symmetrically hard exit provisions are recommended. Conversely, asymmetric exit provisions, making exit harder for one partner, are suggested in situations of unequal dependence or contract violations. The sources also highlight the dynamic nature of alliances and the need to adapt exit provisions as the partnership evolves through different stages. They caution against common blind spots, such as neglecting exit planning altogether or assuming static business relationships. Overall, the sources provide a comprehensive framework for strategic alliance exit planning, enabling managers to mitigate risks and enhance the likelihood of successful collaborations.

This chapter provides a comprehensive overview of the role and implications of strategic alliances in the biotechnology industry, highlighting both their benefits and potential downsides. It emphasizes that biotech firms often form alliances to access knowledge, complementary resources, and legitimacy—factors critical for their survival and success. These alliances can drive innovation, product development, commercialization, growth, and even IPO success by leveraging partner resources and reducing uncertainty about a firm's capabilities. However, we caution that alliances can also pose significant risks, particularly when partners have conflicting motivations or when firms become locked into suboptimal relationships. The chapter also underscores the importance of a firm's position within the broader network structure of the industry, as this positioning influences access to knowledge spillovers, opportunities, and competitive dynamics. We advocate for future research to explore the dual cooperative and competitive dimensions of alliances, the power dynamics between partners, and the interplay between individual relationships, alliance portfolios, and network structures. Such an approach is essential for developing a nuanced understanding of how alliances impact firm performance in the biotechnology industry.

Contrary to our theory and commonly held assumptions, we found that the length of interaction does not have a straightforward impact on trust formation between organizations. Instead, our findings reveal that the relationship between interaction history and trust formation is complex and non-linear. Specifically, we identified a "period of ambivalence," lasting approximately 25 months in our data, during which the history of interaction does not significantly influence trust formation. During this period, partners are hesitant to make themselves vulnerable in the relationship—a critical factor for building trust. However, after this period of ambivalence, the history of interaction begins to positively influence trust formation.

In this article, we challenge the traditional focus on power dynamics in interorganizational relationships by exploring the concept of joint dependence and its implications for performance. While past research emphasized dependence asymmetry and the benefits of power advantages, we argue that joint dependence, characterized by high levels of mutual reliance between firms, fosters a logic of embeddedness that leads to superior outcomes. This logic of embeddedness manifests through increased joint action and improved quality of information exchange between partners, which in turn contribute to enhanced performance. The study, based on data from procurement relationships in the U.S. automotive industry, reveals that a manufacturer's dependence advantage actually diminishes its performance, while a supplier's dependence advantage has no significant effect. These findings suggest that companies may experience better results by fostering collaborative, mutually beneficial relationships with their suppliers rather than seeking to exploit power imbalances. The sources advocate for a shift in perspective, urging scholars and practitioners to consider the value-creation potential of joint dependence alongside the value-appropriation dynamics associated with dependence asymmetry.