An empirical investigation of the influence of organizational capacity and environmental dynamism on first moves

Abstract

Sustained performance advantages are rare in business (Wiggins and Ruefli, 2002). Nevertheless, firm managers are constantly faced with the challenge of trying to attain this elusive goal. Thus, it is not surprising that an important aim of strategic management researchers is to better understand how firms attain superior firm performance (Hoskisson et al, 1999). Firms adopting a "first-mover" strategy may be able to secure sustainable performance advantages (Lieberman and Montgomery, 1998). The term "first moves" (or "pioneering moves") can mean organizational efforts to create new markets through the introduction of new products or services; it can also refer to entry into new markets, or the development and implementation of new work processes (Kerin et al., 1992). Firms may benefit from adopting such strategies. For instance, Lieberman and Montgomery (1988) indicate three sources of advantage available to first movers so that they can outperform the competition. First, technological leadership allows for outperformance because a first mover is able to develop expertise from their leading edge research, development, and other similar activities (Cho et al., 1998). Additionally, preemption of assets, obtaining valuable assets or positioning space before others enter the market (Kerin et al., 1992; Lieberman and Montgomery, 1988) allows a competitive edge. Third, first movers are able to influence buyer behavior in that they provide the initial learning experience about a product/service for the consumer (Dos Santos and Peffers, 1995). As such, first-mover advantages have been an important area of study for strategy scholars. This is not to say, however, that there are no risks or costs associated with first moving. Indeed, scholars have argued that there is no conclusive evidence to support the existence of a first-mover advantage (see discussions by Kerin et al., 1992; Xie, 2003). It is likely first moves can be advantageous, but these advantages are not a given. Advantages from first moving are more likely to be gained when certain firm and environmental conditions exist (e.g., Lieberman and Montgomery, 1998). Though some research does highlight the importance of specific internal characteristics and first moves (e.g., Szymanski et al., 1995) and others have also included external contingencies (e.g., Covin et al, 2000), the exact nature of the relationships among internal organizational characteristics, first moves, and firm performance remains elusive (Lieberman and Montgomery, 1998; VanderWerf and Mahon, 1997). The resource-based view (RBV) can help one to better understand these relationships (Lieberman and Montgomery, 1998). The RBV is characterized by the assertion that a firm creates value through its network of resources (Black and Boal, 1994; Conner, 1991; Madhok, 1996). Firms outperform their competitors by leveraging these resources. As such, it is important to understand how these resources are acquired or built (e.g., Dierickx and Cool, 1989). Lieberman and Montgomery (1998) contend that the aforementioned sources of advantage resulting from first moves are indeed resources of the firm. In their model, Street et al. (2010) show how elements of organizational capacity aid first movers in building these resources that lead to superior performance. Based on this model, the effect of those elements of organizational capacity on the first move-performance relationship is tested here. Additionally, the influence of environmental dynamism on this moderated relationship is tested as well. To do so, first moves in five industries are identified. Then, stock prices of firms are analyzed to see if the firms' first moves result in positive stock reactions. Next, the effect of the level of a first mover's organizational capacity on this stock price reaction, as well as how environmental dynamism influences this effect are tested. This paper contributes to strategic management literature in that the results help us learn more about the nature of the first-move performance relationship and its contingencies. Additionally, some results are found to be consistent with the resourcebased view assertions from the model. On the other hand, some data indicate a failure of RBV to explain all of the relationships among the dimensions of a first mover's organizational capacity, the dynamism of the environment in which it operates, and the firm's performance. Accordingly, a new framework to explain the empirical findings (both those supportive of and those beyond the boundaries of the RBV) is developed.