Academic journal article Journal of Managerial Issues

Intraindustry Executive Succession, Competitive Dynamics, and Firm Performance: Through the Knowledge Transfer Lens

Academic journal article Journal of Managerial Issues

Intraindustry Executive Succession, Competitive Dynamics, and Firm Performance: Through the Knowledge Transfer Lens

Article excerpt

A substantial body of research has documented the role of human resource flows in the diffusion of innovation across organizations (Almeida and Kogut, 1999; Baty et al., 1971; Boeker, 1997; Ettlie, 1980, 1985; Pfeffer and Leblebici, 1973; Rogers, 1995; Rosenkopf and Almeida, 2003; Saxonhouse, 1991; Song et al., 2003; Young et al., 2001). To the extent they carry relevant knowledge, employees who move between firms facilitate the adoption of an innovation or technology by a particular organization. Although the primary focus of this research has been on determining why and how innovations are spread across firms, from an organizational perspective, personnel flows can also be construed as an organizational learning mechanism. That is, hiring rivals' employees can potentially serve as a means by which a firm both absorbs new knowledge from its external environment and adapts to changing contexts.

With certain exceptions (e.g., Baty et al., 1971; Boeker, 1997; Young et al., 2001), research examining the effect of employee mobility and the diffusion of innovation has focused on the acquisition of technical managers, particularly scientific and engineering talent. There has been little emphasis on the possible effect of changes to the executive ranks of a firm on knowledge flows, rivalry, and competitive strategy. Yet as the following quotation indicates, organizations operating in dynamic, technology-intense environments may be under pressure to hire senior executives from rivals in order to acquire new technologies, or enter new markets rapidly:

   In [Silicon] Valley and tech in general, employees are bought and
   sold like commodities. If you have trouble with the competition,
   simply raid its talent. Just last Fall, German software maker SAP
   sued Siebel Systems Inc. after more than a dozen executives jumped
   ship for its Silicon Valley rival (Kerstetter, 2000: 43).

Additionally, this phenomenon does not seem to be limited to technical talent. For example,

      SAP, AG, the world's largest maker of business-application
   software, has hired a number of executives away from Oracle Corp
   and other major rivals as competition in the industry

      The software industry has a tradition of poaching talent from
   competitors, particularly sales people. What makes the recent hires
   by SAP noteworthy, however, is the number and that it includes
   development and marketing executives (Bryan-Low, 2005: B2).

Widely regarded as an important organizational adaptation mechanism (Gabarro, 1987; Vancil, 1987), the study of change to a firm's executive ranks, or "executive succession," is perhaps one of the most frequently investigated phenomena in management research (Finkelstein and Hambrick, 1996; Kesner and Sebora, 1994). A rich tradition in executive succession research bifurcates successor-type into insider and outsider categories (Allen et al., 1979; Behn et al., 2006; Boeker and Goodstein, 1993; Cannella and Lubatkin, 1993; Carlson, 1961; Dalton and Kesner, 1985; Grusky, 1964; Ocasio, 1999; Pfeffer, 1972; Pfeffer and Leblebici, 1973; Salancik and Pfeffer, 1980). Formal, well-ordered transition processes and promotion from within (i.e., "inside succession") tend to result in the selection of new leaders that fit well within the organizational context and perpetuate continuity in strategic decision making. Under stable conditions, they will also likely maintain or increase the extent to which an organization fits its external environment. In contrast, outside successors tend to disrupt the status quo and established decision-making patterns. In theory, the successful implementation of change by outside successors will help reverse economic decline by making organizations responsive to discontinuous change in turbulent environments. Investigations of the direct relationship between outside succession and subsequent (i.e., post-succession) firm performance, however, appear somewhat more equivocal. …

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