Specialization in the marketplace for ideas

Organizations that compete for attention in the marketplace face a strategic decision: whether to target a specialized niche or diversify to reach a broader market. Previous research has extensively analyzed the specialization dilemma faced by for-profit firms. We extend the analysis to knowledge-sharing groups in the marketplace of ideas. Using data on over 1,500 technology groups collected from an online event-organizing platform over a fifteen-year period, we measure the effect of topical focus, rarity, novelty, and technical exclusivity on audience growth, retention, and sustained engagement. We find that knowledge-sharing groups benefit marginally by specializing in rare topics but not in new topics. The strongest predictor of growth and survival is whether the group is associated with technically sophisticated topics, regardless of the breadth of focus, even though technical topics are less widely accessible. We conclude that what matters is not how specialized the organization, but how the organization is specialized.

CEO Power and Nonconforming Reference Group Selection

Research shows that reference group selection underpins critical organizational processes, but less is known about publicly disclosed choices of reference groups, such as those for the evaluation of firm performance. Because audiences, such as investors and analysts, prefer reference groups created by independent entities they can trust, they disapprove of choices of custom peer groups created by reporting firms. Nevertheless, firms frequently choose reference groups that do not conform to audiences’ expectations. We seek to explain why firms deviate from these externally held standards even when incurring penalties by developing theory and formulating hypotheses about the influence of chief executive officer (CEO) power. Using data from 10-K filings, we find that firms led by high-power CEOs are more likely to use nonconforming, custom peer groups despite incurring penalties. However, the relationship between CEO power and the use of custom peer groups is weaker when CEOs face greater scrutiny from shareholders and analysts. We also find that low firm performance increases the use of custom peer groups among high-power CEOs. Contrary to our expectations, high CEO compensation attenuates the effect of CEO power on the choice of custom peer groups, arguably because high levels of CEO pay increase scrutiny. Although firms incur costs for using nonconforming reference groups, supplemental analyses reveal that CEOs benefit by receiving higher compensation, especially when performance is low. We conclude by discussing implications for research on publicly disclosed reference groups, the consequences of power, and information disclosure.

Evaluating Ambiguous Offerings

This paper studies how audience members categorize and evaluate ambiguous offerings. Depending on whether audience members categorize ambiguous offerings based on prototypes or goals, they activate two distinct cognitive mechanisms and evaluate differently ambiguous offerings. We expect that when audiences engage in goal- versus prototype-based categorization, their evaluation of ambiguous products increases. We theorize that, under goal-based categorization, the perceived utility of unclear attributes increases for audiences, which leads them to evaluate more positively ambiguous product offerings. We test and find support for these direct and mediated relationships through a series of laboratory, online, and field experiments. Overall, this study offers important implications for research on product and market categories, optimal distinctiveness, and market agents’ cognitive ascription of value.

Problem-Solving or Self-Enhancing? Influences of Diversification and Bright Spot on Corporate Resource Allocation Responses to Performance Shortfalls

How corporate decision makers respond to firm performance shortfalls has key implications for strategic change in corporate resource allocations. Performance feedback theory assumes problem-solving decision makers faced with performance below aspirations pursue problemistic search and greater strategic change to improve performance. Research on self-enhancement, however, assumes decision makers respond by engaging in lower levels of search and change to portray a favorable self-image. We contribute to advancing this dialogue by investigating contextual features of decision making that prompt self-enhancing behaviors. Specifically, we examine the moderating effects of product and geographic diversification, which reflect indicators of task complexity, and bright spots (defined as the greatest increases in percentage sales of product and geographic segments within a diversified firm’s respective portfolios) on the linkage between performance below aspirations and strategic change. We argue that diversification and bright spots create greater opportunities for corporate decision makers to make self-enhancing interpretations, thereby weakening the relationship between performance below aspirations and strategic change. Empirical tests on Standard & Poor’s 1,500 firms from 1998 to 2006 largely supported the hypotheses.

Stay True to Your Roots? Category Distance, Hierarchy, and the Performance of New Entrants in the Music Industry

New entrants in established markets face competing recommendations over whether it is better to establish their legitimacy by conforming to type or to differentiate themselves from incumbents by proposing novel contributions. This dilemma is particularly acute in cultural markets in which demand for novelty and attention to legitimacy are both high. We draw upon research in organizational theory and entrepreneurship to hypothesize the effects of pursuing narrow or broad appeals on the performance of new entrants in the music industry. We propose that the sales of novel products vary with the distance perceived between the classes being combined and that this happens, in part, because combinations that appear to span great distances encourage consumers to adopt superordinate rather than subordinate classes (e.g., to classify and evaluate something as a “song” rather than a “country song”). Using a sample of 144 artists introduced to the public via the U.S. television program The Voice, we find evidence of a U-shaped relationship between category distance and consumer response. Specifically, consumers reward new entrants who pursue either familiarity (i.e., nonspanning) or distinctive combinations (i.e., combine distant genres) but reject efforts that try to balance both goals. An experimental test validates that manipulating the perceived distance an artist spans influences individual evaluations of product quality and the hierarchy of categorization. Together these results provide initial evidence that distant combinations are more likely to be classified using a superordinate category, mitigating the potential confusion and legitimacy-based penalties that affect middle-distance combinations.