Monthly Archives: July 2024

Recent Research Identifies Startups’ Susceptibility to Innovation Copying

There is a paradox in business inventions: endorsements enhance credibility and expand market share for innovations, yet this very attention exposes even patented products to imitation. While it’s widely acknowledged that smaller companies face more significant risks of intellectual property theft, a recent study published in the Strategic Management Journal reveals that competitors target startups’ technologies more than established companies, shedding light on the reasons behind this phenomenon.

Francisco Polidoro Jr. from the McCombs School of Business and Charlotte Jacobs from Louisiana State University conducted a comprehensive study spanning forty years in the solar panel industry. They analysed patent citations to track technological evolution. Their dataset encompassed over 15,000 citations referencing 6,116 patents.

“We measured the impact of patents based on how often they are cited in subsequent patents by other companies, illustrating how one company’s invention influences others’ innovations,” explained Polidoro. “Although startups represent 12.6% of our sample patents, their patents account for 22.3% of the citations.”

The study directly compared startups and established companies by focusing solely on patents filed in the same year. These patents are rooted in similar underlying technologies and attributes and consistently yield similar outcomes. It posits that startups facilitate more knowledge transfer, exploring two primary sources: intentional information exchange through acquisitions, partnerships, etc., and unintentional knowledge disclosure to the market.

Interestingly, the findings did not reveal a significant vulnerability stemming from reciprocal knowledge exchange with other companies. Citations did not surge when startups engaged in alliances or acquisitions, nor did startups introduce patented innovations to the market more frequently than established firms. Instead, the study highlighted ‘knowledge spillovers’ as the predominant vulnerability, where the market appropriates a startup’s intellectual property, with university endorsements amplifying these spillovers significantly.

“Universities play a critical role in endorsing the underlying knowledge of corporate inventions, particularly in nascent industries like solar panels, potentially drawing more attention to startup innovations compared to similar innovations from established firms,” noted Jacobs.

Another notable source of knowledge spillover arises when startups need to leverage their patents effectively. Competitors are quick to exploit underutilised startup patents, contrasting sharply with the cautious approach towards technologies from established companies. The authors hypothesised that competitors assume established firms would seize promising opportunities, whereas startups might struggle.

Furthermore, while past litigation dissuades competitors from infringing on patents held by established companies, startups face challenges in establishing a reputation for defending their inventions.

“Startups often lack bargaining power and financial resources for protracted legal battles, making cases of patent infringement public spectacles that attract competitors’ attention to their technologies,” Polidoro remarked.

Ultimately, the study offers a cautionary narrative for entrepreneurs: patents alone provide limited protection without a robust business strategy and sufficient funding to pursue technological opportunities. However, gaining substantial influence over technological advancements in their industry could offer startups a competitive edge. In growing sectors like solar panels, startup innovations possess the potential to dominate the market, provided entrepreneurs can effectively build upon their initial ideas.

More information: Francisco Polidoro Jr et al, Knowledge diffusion in nascent industries: Asymmetries between startups and established firms in spurring inventions by other firms, Strategic Management Journal. DOI: 10.1002/smj.3568

Journal information: Strategic Management Journal Provided by Strategic Management Society

Ensuring Worker Involvement for Public-Interest Industrial Policies

A recent study underscores the critical role of involving workers and broader societal stakeholders in shaping Brazilian industrial policies to meet national development goals and serve the public interest. Researchers highlight that sectors like animal protein often prioritise corporate welfare over societal benefits due to limited involvement from civil society and labour unions in policy formulation and execution.

Analysis of industrial policy initiatives dating back to the mid-1990s reveals a direct correlation: policies that integrated input from labour unions and civil society demonstrated greater effectiveness. Government initiatives that imposed stricter conditions on private sector involvement demanding reciprocal societal contributions, yielded more favourable outcomes.

For instance, agreements within the meat industry, where labour unions held less influence and government funding primarily bolstered corporate growth, resulted in global competitiveness but limited gains for the public good. Conversely, sectors like automotive, where labour unions exerted more influence, saw policies align more closely with national development objectives, including targets for technological innovation and employment stability.

Published in the journal Development and Change, the study by Renato H. de Gaspi of Central European University and Pedro Perfeito da Silva of the University of Exeter underscores the significance of stakeholder engagement in shaping industrial policies across various sectors. It reveals substantial differences in policy outcomes influenced by the strength of labour unions and societal pressures.

Dr Perfeito da Silva emphasises the risk of industrial policies devolving into corporate welfare, advocating for inclusive policy discussions to ensure alignment with broader societal goals. He asserts that amidst global economic shifts, effective industrial planning must avoid business capture of state resources and instead leverage diverse stakeholder input.

Reflecting on historical shifts, the study notes that during Luis Inácio Lula da Silva’s presidency, increased influence from union leaders countered business dominance in policy negotiations, advocating for improved working conditions and greater nationalisation of production chains. This period highlighted the transformative potential of incorporating non-business stakeholders in policy deliberations.

Looking ahead, the study observes a resurgence of stakeholder-driven policymaking under Lula’s new administration, evidenced by mission-oriented industrial policy initiatives with specified conditions and metrics. However, these initiatives still require further specification and rigorous implementation to translate past lessons into current developmental efforts effectively.

More information: Renato H. de Gaspi et al, The Sectoral Politics of Industrial Policy Making in Brazil: A Polanyian Interpretation, Development and Change. DOI: 10.1111/dech.12835

Journal information: Development and Change Provided by University of Exeter

Enhancing Product Sustainability from Initial Design Stages in Companies

An interdisciplinary team from Lithuanian and Italian universities has developed a tool to assess the circularity of future products, encouraging early integration of circular design in product development. This self-assessment tool aims to enhance collaboration among entrepreneurs and designers by involving stakeholders. Professor Lina Dagilienė of the Kaunas University of Technology (KTU) underscores the tool’s uniqueness in fostering sustainable new products, addressing a gap where existing tools primarily focus on measuring the environmental impacts of products already on the market.

The Circular Product Design Framework (CD-Framework) and its accompanying self-assessment tool (CD-Tool) were co-created with researchers and businesses. They target product developers, designers, and entrepreneurs. Comprising ten categories, the CD Framework includes tailored questions to facilitate interactive engagement and specific product enhancements.

Feedback from companies involved in the research highlighted the tool’s effectiveness in integrating circularity into product strategies, such as adjusting packaging and materials to adopt circular business models. This success story underscores the tool’s positive impact, leaving the audience optimistic. Professor Dagilienė emphasises that such tools can catalyse a shift towards circular economy principles, mitigating environmental harm and promoting systemic approaches to product development.

Unlike linear models, circular economy principles align business activities with environmental sustainability, offering mutual benefits to businesses and society. Professor Dagilienė advocates for these principles to differentiate businesses through sustainable innovation amidst increasingly stringent environmental regulations and greenwashing concerns.

The study at KTU School of Economics and Business aimed to bridge the gap between research and business practice. Through a four-month circular design pre-accelerator programme involving workshops and expert evaluations, the initiative supported ten novel circular or sustainable product concepts from small companies. This approach facilitated knowledge exchange and addressed practical challenges businesses face in implementing circular practices.

Furthermore, user acceptance of circular products, influenced by storytelling and visual representation, emerged as a critical factor. The study observed that engaging end-users in the design process enhances product attractiveness and customer value perception. This validation of user acceptance is crucial in ensuring the success of circular economy solutions. Understanding consumer needs from the outset ensures that circular economy solutions are economically viable and socially equitable.

This research underscores the importance of integrating circular design early in product development to foster sustainable innovation and effectively address environmental challenges.

More information: Lina Dagilienė et al, Developing a circular design framework: Co-creation and validation of a circular product and service design tool, Journal of Industrial Ecology. DOI: 10.1111/jiec.13494

Journal information: Journal of Industrial Ecology Provided by Kaunas University of Technology

Hybrid work: Maximising Benefits for Companies and Workers

The debate surrounding remote work has reached a fever pitch in today’s workplace: Is enabling employees to work from home a few days a week beneficial for their productivity, career growth, and overall job satisfaction? Nicholas Bloom, a prominent economist from Stanford University, has delved into this issue with groundbreaking research highlighting the advantages of hybrid work schedules for employees and employers alike. In a recently published study in Nature, Bloom presents compelling findings from an experiment conducted at Trip.com, one of the world’s largest online travel agencies based in China. The study involved over 1,600 employees and revealed that those who worked from home for two days a week exhibited levels of productivity and career progression comparable to their counterparts who worked exclusively from the office.

Under the hybrid model, Trip.com saw a significant reduction in employee turnover, with resignations dropping by 33 per cent. This reduction in turnover, particularly among groups such as women, non-managers, and employees with long commutes, translated into substantial cost savings, amounting to millions of dollars for the company.

“The evidence is clear: Hybrid work represents a triple win for enhancing employee productivity, performance, and retention,” asserts Bloom, who holds the William D. Eberle Professorship of Economics at Stanford’s School of Humanities and Sciences and is a senior fellow at the Stanford Institute for Economic Policy Research (SIEPR).

These findings carry significant weight, considering that approximately 100 million workers worldwide now engage in some form of hybrid work arrangement, a trend accelerated by the COVID-19 pandemic. This diverse group includes professionals like lawyers, accountants, marketers, and software engineers, many of whom hold college degrees or higher qualifications. However, despite the evident benefits, hybrid work faces criticism from influential business leaders such as Elon Musk of Tesla and Jamie Dimon of JPMorgan Chase. These critics argue that remote work diminishes employee training, stifles innovation, and erodes corporate culture when employees are not physically present five days a week.

Bloom contends that these critiques often conflate hybrid work with fully remote arrangements, neglecting nuances crucial to understanding its impact. Most research on remote work has focused on roles like customer support or data entry, yielding mixed results that tend towards the negative. Bloom suggests that the challenges of fully remote work stem largely from inadequate management practices. As one of the few randomised control trials analysing hybrid work configurations—where employees work offsite for two or three days a week and onsite for the remainder—Bloom’s study provides valuable insights for multinational corporations, many of which share similarities with Trip.com.

“This study provides compelling evidence supporting why 80 percent of US companies now offer some form of remote work, and why the remaining 20 percent may be paying a price,” Bloom asserts. The research represents the most extensive study on hybrid work involving university-educated professionals, employing the gold standard of research methods—the randomised controlled trial. This approach allowed Bloom and his co-authors, Ruobing Han of The Chinese University of Hong Kong and James Liang of Peking University, to attribute the observed benefits to Trip.com’s hybrid experiment directly. During the six-month trial in 2021, Trip.com implemented a policy where employees with odd-numbered birthdays worked from home two days a week, contrasting with those with even-numbered birthdays who attended the office daily. The study participants included 395 managers and 1,217 non-managers with undergraduate degrees, predominantly in engineering, marketing, accounting, and finance roles at the company’s Shanghai office. About 32 per cent of the participants held postgraduate degrees, primarily in computer science, accounting, or finance. Most were in their mid-30s, half had children, and 65 per cent were male.

The study’s findings underscore that hybrid work benefits employees and enhances organisational outcomes. Data from performance reviews, promotion rates, and comparative analyses of software code output by Trip.com’s engineers revealed no decline in productivity or career advancement under the hybrid model. Instead, the model substantially boosted employee retention rates, particularly among non-managers. Managers, however, exhibited similar resignation rates regardless of their work arrangement. Bloom and his colleagues also identified misconceptions among employees and managers regarding hybrid work. Many employees, especially women, hesitated to volunteer for Trip.com’s hybrid trial due to concerns about potential negative perceptions of needing to be present in the office full-time. Additionally, managers initially anticipated a decline in productivity with remote work, only to revise their views by the trial’s conclusion.

In conclusion, Bloom’s study provides a compelling case for the benefits of hybrid work. It dispels fears of negative impacts when managed effectively and highlights the potential for maintaining mentorship, fostering a vibrant company culture, and stimulating innovation. From an economic policymaking standpoint, hybrid work emerges as a strategy with overwhelmingly positive outcomes, benefiting almost all stakeholders involved.

More information: Nicholas Bloom et al, Hybrid working from home improves retention without damaging performance, Nature. DOI: 10.1038/s41586-024-07500-2

Journal information: Nature Provided by Stanford University

Research reveals higher propensity of foreign-born CEOs to acquire international targets, including in their country of origin

Recent research indicates that CEOs who have relocated from their origin display a notably heightened inclination towards acquiring international targets, particularly those in their birth country or nations with historical ties, such as former colonial powers.

Foreign-born CEOs, as highlighted by Professor Ron Shalev, an associate professor of accounting at the University of Toronto Scarborough and a joint appointment at U of T’s Rotman School of Management, are now playing a significant role in the global corporate landscape. Their influence is underscored by a study that examined nearly 1300 corporate acquisitions over a 14-year period, correlating acquisition data with comprehensive biographical details of the CEOs at the time of purchase.

The findings underscored that foreign-born CEOs exhibit a 43% greater propensity than their domestically-born counterparts to engage in cross-border acquisitions, driven significantly by their preference for targets within their country of birth. This preference translated into a staggering 17-fold increase in the likelihood of pursuing acquisitions in their native country over other international targets.

The research elucidates that an intimate knowledge of the country established local connections, and a solid motivation to contribute positively to their country of origin underpin this preference. This charitable drive extends beyond direct acquisitions in the birth country to encompass targets in countries that previously colonized their place of origin. For instance, an Indian-born CEO based abroad might consider acquiring a company in the United Kingdom, while a CEO from Greece might seek opportunities in Turkey.

Professor Shalev elaborates on the implications for the companies involved, noting that shareholders of acquiring firms tend to see a modest 1.3% increase in excess returns when acquisitions are made in the CEO’s birth country. Conversely, shareholders of the target companies enjoy a more substantial 2.9% excess premium following the acquisition.

Professor Shalev, despite the findings, advises companies not to view these tendencies as a deterrent to hiring foreign-born CEOs. Instead, he suggests that boards of directors should be aware of these inclinations and carefully evaluate proposals, particularly when the CEO targets acquisitions in their birth country. While such acquisitions often prove beneficial for the acquiring firm, Professor Shalev underscores that this may not always be the case, necessitating thorough consideration of each proposal on its own merits.

More information: Antonio Marra et al, Home Sweet Home: CEOs Acquiring Firms in Their Birth Countries, Journal of Accounting Research. DOI: 10.1111/1475-679X.12533

Journal information: Journal of Accounting Research Provided by University of Toronto Rotman School of Management

New Study Urges Anti-Trust Regulators to Carefully Evaluate Start-Up Acquisitions

Regulators have long focused on preventing “killer acquisitions,” where large corporations absorb small startups to eliminate potential competition and consolidate market power. This approach aims to safeguard competition in the marketplace. However, critics argue that such regulations might inadvertently stifle innovation, as startups often innovate with the hope of being acquired by larger firms that can provide substantial rewards without requiring them to bring products to market independently.

Regina Seibel, an assistant professor at the University of Toronto’s Rotman School of Management, highlights that banning these acquisitions could deter startups from entering the market. She argues that startups may choose not to innovate if the potential for lucrative acquisitions is diminished. This perspective challenges the conventional wisdom that blocking acquisitions is always beneficial for fostering competition.

To explore the implications of these regulatory measures on innovation, Prof. Seibel and her colleagues employed mathematical models based on game theory. Their findings suggest that outright bans on acquisitions dampen innovation. This outcome arises because startups may pursue fewer innovative projects without the prospect of acquisition. Additionally, larger companies, unable to acquire innovations, might duplicate efforts rather than develop new ideas independently.

However, the impact on innovation varies across different scenarios. In cases where startups need more bargaining power or stand to gain little from being acquired, banning acquisitions might enhance competition with minimal effect on innovation. Conversely, if a startup possesses a groundbreaking invention, prohibiting its acquisition may have a negligible impact on innovation, as the startup can still profit significantly by commercialising its product independently.

While “killer acquisitions” receive significant attention, allowing what is termed “genuine” acquisitions to proceed unchecked poses its risks. Allowing large companies to expand freely through acquisitions can exacerbate market concentration, potentially stifling future startup competition. This dynamic underscores regulators’ complexity in balancing competition concerns with innovation incentives in the marketplace.

In practice, regulating acquisitions effectively is challenging. Prof. Seibel and her colleagues propose nuanced approaches beyond outright bans. One alternative is taxing acquisitions, which reduces the financial gains for both parties involved while avoiding the complete prohibition of acquisitions. This approach aims to moderate the impact on competition while allowing some acquisitions to proceed under more controlled conditions.

Another strategy involves subsidising startups that choose to go public instead of seeking acquisition. By enhancing the profitability of going public, these subsidies can incentivise startups to remain independent and continue innovating without relying on acquisition as their primary exit strategy. Prof. Seibel views this as a promising avenue for fostering innovation while curbing the frequency of acquisitions that might harm competition.

While the regulation of acquisitions is intended to promote competition and prevent monopolistic practices, its impact on innovation is a critical consideration. The debate surrounding “killer acquisitions” highlights the delicate balance regulators must strike between preserving market dynamics and encouraging entrepreneurial innovation. By exploring alternative regulatory tools such as taxation and subsidies, regulators can mitigate the negative consequences of acquisitions on competition while preserving incentives for startups to innovate and thrive in competitive markets.

More information: Igor Letina et al, Killer acquisitions and beyond: policy effects on innovation strategies, International Economic Review. DOI: 10.1111/iere.12689

Journal information: International Economic Review Provided by University of Toronto Rotman School of Management

Research Reveals: Visual Appeal Enhances Scent’s Selling Power

New research underscores the effectiveness of pairing scented products with relevant imagery on their packaging and branding, such as flowers or fruit. This significantly enhances their appeal to potential customers and boosts ratings in consumer evaluations. This study, featured in the International Journal of Research in Marketing, provides manufacturers and marketers with a practical and cost-effective strategy to promote a wide range of scented products, expanding beyond traditional items like perfumes and candles to include unconventional products like bottled water and greeting cards.

Despite the growing recognition of scent’s marketing power, the research reveals a notable oversight in product branding: many products need images that evoke pleasant smells. Sometimes, marketers even opt for visuals associated with unpleasant odours that the product aims to mask, such as old trainers or ashtrays. As the study confirms, these choices can significantly diminish consumer appeal and undermine product perception in the marketplace.

The study analysed nearly 957 scented laundry detergents and all-purpose cleaners available in the US, finding that only a modest 27% included a relevant image of the scent source on their packaging. Consumer feedback further reinforced the impact of these visuals: products featuring scent-evoking images received higher ratings, averaging 4.66 out of 5 stars compared to 4.46 stars for those without such imagery.

In an online experiment involving 200 participants, respondents consistently preferred fruit-scented handwash products that featured relevant fruit images on their packaging or advertising over those without. This preference remained irrespective of whether the scent was described as clementine or pear.

Similarly, products labelled with a floral scent were better received with images of yellow roses rather than sunflowers, likely due to the former’s stronger olfactory association. The study also suggests that marketers can amplify olfactory impact by incorporating additional cues into packaging and branding, such as opting for images of cut lemons rather than whole ones.

Zachary Estes, Professor of Marketing at Bayes Business School, City, University of London, emphasised, “Marketers have long sought to infuse packaging and advertisements with appealing fragrances. While there’s evidence that these scents can boost in-store sales, our research points to a more economical approach—one where consumers’ imaginations play a crucial role. Images of flowers or fruit with pleasant scents naturally attract customers, but selecting specific images that intensify olfactory stimulation can enhance this impact.”

Co-author Varun Sharma, Assistant Teaching Professor at Carnegie Mellon University (Qatar), added, “As the market for scented products expands, so does the need for effective advertising and packaging. Our findings underscore the broader marketing potential of scent, which extends far beyond traditional perceptions. Marketers must grasp why these images are effective and recognise their multisensory impact to avoid costly missteps.”

This study illuminates a pragmatic path for marketers to harness the sensory allure of scents through judicious image selection. By leveraging visuals that resonate with consumers’ olfactory senses, brands can cost-efficiently enhance product attractiveness and consumer engagement. This approach improves the sensory appeal of products and underscores the importance of strategic visual communication in modern marketing strategies.

More information: Varun Sharma et al, Seeing is smelling: Pictures improve product evaluations by evoking olfactory imagery, International Journal of Research in Marketing. DOI: 10.1016/j.ijresmar.2024.02.001

Journal information: International Journal of Research in Marketing Provided by City, University of London