Essays on firm similarity

Guide(s)

Yayavaram, Sai

Department

Strategy

Area

Strategy

University

Indian Institute of Management Bangalore

Place

Bangalore

Publication Date

3-31-2025

Year Awarded

March 2025

Year Completed

March 2025

Year Registered

June 2019

Abstract

Firms must decide whether to align themselves closely with competitors or differentiate themselves when determining their strategic positioning (Deephouse, 1999; Durand and Calori, 2006; Miller and Chen, 1996). Being different offers the advantages of uniqueness and differentiation, while being similar offers the benefits of legitimacy (DiMaggio and Powell, 1983; Barney, 1991; Helfat et al., 2007; Porter, 1996). The strategic balance theory states that organizations should aim for an intermediate level of differentiation in order to create a balance between legitimacy and competition (Deephouse, 1999). Optimal distinctiveness (OD) literature has adopted the strategic balance theory and encompasses various theoretical lenses such as strategic management, social evaluations, institutionalism, organizational identity, and entrepreneurship (Zuckerman, 2016; Zhao et al., 2017). This concept has been widely adopted in research on resource acquisition, corporate governance, stakeholder attention, stock market reactions, firm reputation, organizational survival growth, and category emergence decline. However, mixed findings exist regarding the balancing between distinctiveness and similarity. Recent reviews challenge the narrow interpretation of strategic management and institutional theory, arguing for a synthesis of similarity and distinctiveness. This approach challenges the assumption that these concepts are polarized and takes an alternative view that firms can affect a synergy between the two pressures. To attain synergy, firms can orchestrate multiple strategic dimensions across space and time (Zuckerman, 2016). Strategic balance theory underlines “intermediate levels of strategic similarity where firms balance the pressures of legitimation” (Pg. 147, Deephouse, 1999). Strategic balance theory is instrumental in operationalising the idea of optimal positioning in management literature. We extend this understanding beyond an intermediate positioning by adding the aspects of multidimensionality and temporality to this definition. Optimal distinctiveness can be understood as “a dynamic strategy of balancing similarity and distinctiveness across multiple dimensions for securing a competitive advantage across time." This definition of optimal distinctiveness departs from the assumption that firms need to choose a static convergence position, either conformity or differentiation, between two opposing ends of a continuum. My thesis builds on extant optimal distinctiveness literature and explores the role of strategic similarity on a firm's knowledge base, technological ideas, and products. It uses a multi-dimensional, temporal, and product-market perspective to analyze optimal distinctiveness literature. In my first essay, I examine optimal distinctiveness in the context of technological positioning and contend that the optimal level of distinctiveness for a firm depends on whether it is located in the core or the periphery of the industry. Further, I argue that similarity with the nearest rivals is more relevant than similarity with all the rivals in the industry or with the industry as a whole. Maintaining an intermediate level of similarity is not the only way that firms can achieve the optimal level of distinctiveness. Specifically, I hypothesize that core firms that are similar to their immediate rivals in domain knowledge but dissimilar in architectural knowledge achieve high levels of invention performance. I also hypothesize that firms that have a high level of technological complementarity with their immediate rivals also achieve high levels of invention performance, especially when they are in the core. I tested these hypotheses with patent data from the medical devices industry and found support for them. While the optimal distinctiveness literature largely pertains to the positioning of firms, the idea of optimal distinctiveness can be applied to technologies and to ideas as well. Prior studies have tested the performance implications of an optimally balanced position for firms in static settings. My second essay studies the change in optimally distinctive position of a technological idea with the evolution of the idea over time. I examine the effect of strategic similarity of follow-on ideas on their invention performance over the different phases of an original idea’s evolution. I first study the effects for all novel ideas that can be identified using all patents in the patent database. To understand the role of firm-level factors, I then focus on the medical device industry and calculate the within and between firm similarity and analyze their role. The results show that while strategic similarity matters for ideas in their first and last stages of adoption, being similar or distinctive does not influence invention performance in the second stage. The results also show that the effect of within-firm similarity changes over stages, becoming positive in the second and third stages after initially having a negative effect in the first stage. In all three stages, the effect of between firm similarity remains negative. The study also demonstrates that the role of similarity on invention performance is more pronounced for ideas that have steeper evolutionary trajectories. The third essay of my study analyses optimal distinctiveness in product market settings. While previous research has identified product market overlap as a cause of competitive conflict, there have been few studies that shed light on the optimal level of this overlap and its impact on market performance. Furthermore, the role of technological position in a firm's product market performance has not been thoroughly explored. In my third essay, I argue that since the technological knowledge of a firm serves as the foundational knowledge base that shapes its product portfolio, a firm can foster synergy between the two by achieving optimal distinctiveness in both knowledge and product aspects. Market overlap, conceptualized as a measure of product relatedness, is assessed using the Hoberg Philips (2010) cosine measure. My analysis reveals a significant curvilinear relationship between product similarity and firm performance. I further examine the moderating effect of technological knowledge similarity, revealing a pronounced linear association. The results lend support to my argument that firms can harness and leverage synergies between their technological knowledge and product market position by aligning similarity in both domains. The timeframe of the dataset used in the thesis differs for individual essays. Chapters 2, 3, and 4, in their respective subsection 3.1, discuss the dataset for each study. For the first study (Chapter 2), we utilise a dataset for patents granted in the U.S. during the time period 1980 to 2020. Since we needed five previous years of data and the DISCERN database has data from 1981 onwards, the first year in our sample is 1986. The second study (Chapter 3) identifies novel ideas from utility patents granted in the U.S. during the period 1976 to 2020. The third study (Chapter 4) studies patents granted by the USPTO during 1976 to 2020. Overall, my thesis contributes to the optimal distinctiveness literature and advances it in three ways. Firstly, it demonstrates that firms do not need to be optimally distinctive in each aspect. Firms can achieve overall optimal distinctiveness by being similar in one dimension and dissimilar in another. The choice of a firm to be similar or dissimilar is also dependent on its position in the industry and should be benchmarked relative to its nearest neighbors. Secondly, the idea of strategic similarity can be applied to understand the evolution of ideas and their varying relevance over time. An idea has to balance similarity within a firm, within an industry, and all ideas across industries. Thirdly, strategic similarity in the knowledge base of a firm has implications for its optimal position in the product market.

Pagination

xvii, 168p.

Copyright

Indian Institute of Management Bangalore

Document Type

Dissertation

DAC Chairperson

Yayavaram, Sai

DAC Members

Krishnan, Rishikesha T; Venkataraman, Vijay

Type of Degree

Ph.D.

Relation

DIS-IIMB-FPM-P25-16

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