strategy on Ray Yang, Ph.D.

Play the Thinking Game -- from Seeing from Eyes to Seeing with the Mind

Wed, 02 Jun 2021 00:00:00 +0000

The ontological and epistemological underpinning of research methodology.

Ontology: The truth lies in the things that we can’t see from our eyes. The invisible generates the visible under natural laws and processes. Thus, the “observational” data (what we see from our eyes) stems from the underlying mechanism (what we can’t see from our eyes). Then, our mind comes to help (to develop theories), with reasoning and inference, see what is behind the data.

Epistemology: We need to be suspicious about what we see from our eyes because data can be misguiding, especially when we shut off our reasoning mind and stop making the inference. In other words, the frontend phenomenon (e.g., the data) can be illusional when we stop seeking to understand the backend processes (e.g., the processes that generate the data). Researchers need to be self-reflective and self-critical about HOW we know what we know.

Inference: We can use what we see from our eyes (observational data) to recover the underlying truth with our mind (reasoning techniques). There are two elements: first, we know that what we see from eyes (e.g., data) comes from the underlying truth (e.g., probability); second, we know some properties about the truth (e.g., distribution) so that we generate estimates from the what our eyes see (e.g., sample).

Counterfactuals: The reality (i.e., a data point), events that have already occurred, is a probabilistic ‘realization’ of the underlying mechanism (i.e., probability distribution). To recover the truth, we need to construct the alternatives to the reality just like looking for the missing pieces to complete a puzzle. Fact (what happens) does not equate to the truth (which determines what happens). Fact itself does not predict fact. Truth, recovered from the fact and its alternative, will be able to predict fact.

the Positioning of Stock Fundamentals and Abnormal Stock Returns

Tue, 19 May 2020 00:00:00 +0000

1 Motivation

According to Warren Buffet, buying a stock is like “acquiring an ownership interest in the business of a company.” Buffet tends to only care about the fundamentals of the stocks he buys.

Here the question is: do companies have a “fundamental positioning” – a relative standing to peer firms in terms of the financial fundamentals — to determine the differences in stock returns?

As a strategist, I consider a stock as a winner only when it beats the market. In other words, I only care about the “winner premium” — the stock returns above the expected level (a.k.a. above-normal rate of returns). I will explore utilizing the “fundamental positionings” to pick (predict) winner stocks.

2 Pipeline

To implement this idea, I used XGBoost (an implementation of gradient boosted decision trees), which requires minimal feature engineering/selection, to predict the “buy-and-hold” abnormal returns using the fundamental positionings prior to the holding period (90 days). To examine the predictive power of fundamental positionings, I left the base financial ratio variables along with the fundamental positionings (the relative percentile rank within an industry based on these ratios) in the feature space. After finding the best model from bayesian hyperparameter tuning, we can then evaluate the model performance and see the relative importance of fundamental positioning features and the financial ratios.

The data is streamed from “ Tushare,” which provides free access to the SH/SZ stock exchange.

3 Result

In the above graph, the points in yellow are winners that beat the market, whereas the points in purple are “losers” that fail to beat the market. If we use the algorithm to pick the top three winners, I will indeed generate positive abnormal returns for us. The mean squared error of the model is 0.019.

This graph shows the relative importance of the features. I added a prefix “R” (relative standing) to the variable names to denote the “fundamental positioning” features. Around half of these important features are fundamental positionings. This shows the positioning (which is based on the percentile ranking of a focal company relative to industry peers) does contribute to the prediction of stock market returns, in addition to the financial ratios (which does not involve firm-to-firm comparisons).

An Ongoing Collection of Mission Statements and Vision Statements

Sun, 03 May 2020 00:00:00 +0000

Here is a collection of mission statements and vision statements.

Mission statements should clarify a company’s core ideology. Vision statements should indicate a company’s long-term goals.

Both mission and vision are the things that won’t change in the short-term, which serve the purpose of guiding behavior, inspiring stakeholders, and stimulating progress.

Mission Statements

3M: 3M is committed to actively contributing to sustainable development through environmental protection, social responsibility, and economic progress
Adidas: The Adidas Group strives to be the global leader in the sporting goods industry with brands built on a passion for sports and a sporting lifestyle. We are committed to continuously strengthening our brands and products to improve our competitive position.
Amazon: To offer our customers the lowest possible prices, the best available selection, and the utmost convenience.
Apple: To bringing the best user experience to its customers through its innovative hardware, software, and services.
Cisco: Shape the future of the Internet by creating unprecedented value and opportunity for our customers, employees, investors, and ecosystem partners.
Coca Cola: To refresh the world in mind, body, and spirit, to inspire moments of optimism and happiness through our brands and actions, and to create value and make a difference.
Costco: To continually provide our members with quality goods and services at the lowest possible prices.
Disney: To entertain, inform and inspire people around the globe through the power of unparalleled storytelling, reflecting the iconic brands, creative minds and innovative technologies that make ours the world’s premier entertainment company.
Facebook: To give people the power to build community and bring the world closer together.
Google: To organize the world’s information and make it universally accessible and useful.
Ikea: Offer a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them.
Intel: Utilize the power of Moore’s Law to bring smart, connected devices to every person on earth.
Microsoft: To empower every person and every organization on the planet to achieve more.
Netflix: We promise our customers stellar service, our suppliers a valuable partner, our investors the prospects of sustained profitable growth, and our employees the allure of huge impact.
Nike: Do everything possible to expand human potential
Southwest Airlines: Dedication to the highest quality of customer service delivered with a sense of warmth, friendliness, individual pride, and company spirit.
Starbucks: To inspire and nurture the human spirit – one person, one cup and one neighborhood at a time.
Tesla: To accelerate the world’s transition to sustainable energy.
Uber: To bring transportation — for everyone, everywhere.
Walmart: To save people money so they can live better.

Vision Statements

3M: 3M Technology Advancing Every Company; 3M products enhancing every home; 3M innovation improving every life.
Adidas: To be the design leaders with a focus on getting the best out of the athletes with performance guaranteed products in the sports market globally.
Amazon: To be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online.
Apple: We believe that we are on the face of the earth to make great products and that’s not changing.
Cisco: Changing the way we work, live, play, and learn.
Coca Cola: Inspiring each other to be the best we can be by providing a great place to work.
Costco: To provide a wide selection of merchandise, plus the convenience and exclusive member services, all designed to make the shopping experience pleasurable.
Disney: To be one of the world’s leading producers and providers of entertainment and information.”
Facebook: People use Facebook to stay connected with friends and family, to discover what’s going on in the world, and to share and express what matters to them.
Google: To provide access to the world’s information in one click.
Ikea: To create a better everyday life for the many people.
Intel: If it is smart and connected, it is best with Intel.
Microsoft: to help people and businesses throughout the world realize their full potential.
Netflix: Becoming the best global entertainment distribution service.
Nike: To bring inspiration and innovation to every athlete in the world.
Southwest Airlines: To become the world’s most loved, most flown, and most profitable airline.
Starbucks: To establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles while we grow.
Tesla: To create the most compelling car company of the 21st century by driving the world’s transition to electric vehicles.
Uber: Smarter transportation with fewer cars and greater access. Transportation that’s safer, cheaper, and more reliable; transportation that creates more job opportunities and higher incomes for drivers.
Walmart: Be the destination for customers to save money, no matter how they want to shop.

Want to Add to the List?

Tracking the Change of Industry Positioning Caused by an Acquisition

Sun, 19 Apr 2020 00:00:00 +0000

1. Motivation

Due to enduring resource heterogeneity, firms tend to hold persistent positionings within an established industry (like commercial banking). However, transformative corporate actions may alter a firm’s asset structure and create a new industry for the acquirer. Thus, we can map out the industry positions and track the position change caused by an acquisition.

2. Mapping the Positioning and Tracking the Movement

2.1 the Biplot

Consider commercial banks as an example. Different banks may hold differently structured financial asset portfolios and occupy different positions. We can assess a bank’s position based on the proportion of cash, commercial loans, mortgage loans, etc., as a percentage in the total asset (i.e., multiple dimensions). A biplot can provide us a quick intuition about how those dimensions relate to one another. However, the relative positions shown on biplot would not be accurate due to the loss of information in dimension reduction.

2.2 the 3-D and 2-D Scatterplots based on MDS

In an alternative approach, we can build distance-based features by exploring the inter-firm distance using multi-dimensional scaling (MDS). On Feb. 12th, 2018, Pacific Premier Bancorp launched an acquisition of Grandpoint Capital. Using this acquisition event as an example, we can first calculate the interfirm distance using MDS and then track how the acquisition shifts a bank’s position (in both a 3-D and 2-D scatter plots).

the Positionings of Big Tech Firms on Industry Presence and Competition Description

Thu, 16 Apr 2020 00:00:00 +0000

In this post, I calculated the positioning of big tech firms based on two metrics, the multiple-industry presence (based on 3-digit SIC codes) versus the competition description (in 10-K filings), and compared the difference between the two approaches.

1 the positioning by industry presence across SIC categories

Scholars have used SIC codes to understand interfirm differences ¹ Big public firms typically straddle across multiple SIC industry categories. So it is straightforward and easy to see their positionings by multiple-industry participation. Accordingly, a firm’s position can be calculated as the sales distribution across multiple SIC industry categories ².

2 the positioning by competition description in 10-K filing

The SIC-code might be “backward-looking,” as firms tend to quite if particular combinations of multiple-industry business lines create economic inefficiencies. Only efficient multi-industry presence survives.

In contrast, the SEC filings may reflect managers’ current understanding of what they do. Especially when they characterize their competition, managers tend to draw their forward-looking expectations on the various forms of competitive threats. Some scholars³ and companies⁴ have used the text-based approach to calculate inter-industry distance.

2.1 calculating positioning based on the competition description

I collected the competition description texts of the largest 17 tech companies. Below are some frequently used words in those statements.

I ran an LDA topic modeling with 11 latent topics, which yields a low perplexity score.

The figure below shows how the 11 topics distribute across terms.

This is the topic loading on the 11 firms’ competition description, which is used to calculate the pairwise distance.

2.2 the final result: positioning by competition description

Here is the positioning map based on the competition description. The graph on the right shows the positioning of American companies. Looking at the results, we can see some interesting differences. The competition description moves some firms closer or further away from one another as compared to the SIC-presence positioning map.

for example:
Teece, D. J., Rumelt, R., Dosi, G., & Winter, S. (1994). Understanding corporate coherence: Theory and evidence. Journal of economic behavior & organization, 23(1), 1-30.

Lien, L. B., & Klein, P. G. (2013). Can the survivor principle survive diversification?. Organization Science, 24(5), 1478-1494.
↩
Litov, L. P., Moreton, P., & Zenger, T. R. (2012). Corporate strategy, analyst coverage, and the uniqueness paradox. Management Science, 58(10), 1797-1815.Lien, L. B., & Klein, P. G. (2013).↩
https://hobergphillips.tuck.dartmouth.edu ↩
Morningstart’s Company Comparables System ↩

Mapping Twitter Topics and Sentiment about FAAMG Companies since Covid-19 Outbreak

Wed, 15 Apr 2020 00:00:00 +0000

1 Motivation

On a whim, I mapped out what people say (the text) and feel (the sentiment) about the top tech companies (FAAMG) on twitter since the Covid-19 outbreak. The keywords and sentiment that are associated with the main topics should differ across these companies.

By no means I am drawing any causal association here. But the story starts with checking the recent price movements of the FAAMG stocks. Obviously, Covid-19 has impacted these companies quite differently.

2 Procedures

2.1 Data Source

For each company, I downloaded 1,000 tweets containing the company name as the hashtag (e.g. “#amazon” for Amazon). I used Python module “tweepy” to stream the data and set the “since” parameter to ‘2020-03-01’, which collects a sample of 1,000 tweets since March 1st.

2.2 Topic Modeling

Using Python module “gensim”, I detected three most significant topics (including Covid-19, business, and daily life), which are named by the associated keywords (most relevant terms).

Using Python module “vaderSentiment”, I computed sentiment scores for each tweet and aggregated the scores by company. The topic-based sentiment scores are used to construct the perceptual map, in which each company takes a different position. Using Python module “nltk”, I find the most frequent topic-based co-occurring words for each company.

3 Results

3.1 Perceptual Map of FAAMG Based on Topic Sentiment

It looks Amazon does well on all topics, especially on Covid-19-related topic. Microsoft and Apple do well on “Business”.

3.2 Keywords Co-occurrence Network on Each Topic

Here are the work keywords co-occurrence patterns for each topic of these companies.

An Ongoing Collection of Strategy Matrices

Tue, 31 Mar 2020 00:00:00 +0000

Here is a collection of analytical matrices in strategic management and entrepreneurship. As a tool for strategic decision making, each matrix is made of two analytical dimensions.

1 General-purpose Matrices

SWOT Analysis [analytical dimensions: external/internal × harmful/helpful]
TOWS Analysis [analytical dimensions: (strength vs. weakness) × (opportunities vs. threats)]
Eisenhower Priority Matrix [analytical dimensions: urgency × importance]
Risk Reward Matrix [analytical dimensions: risk × reward]
Skill-Will Matrix for Managing & Leading People [analytical dimensions: people’s will × people’s skill]

2 Strategic Management

2.1 Business Strategy

Generic Strategies [analytical dimensions: market scope × profit driver]
Miles & Snow’s Strategic Type [analytical dimensions: environment × action]
BCG Matrix [analytical dimensions: market growth × market share]
Blue Ocean Strategy: Four-Action Matrix [analytical dimensions: relative performance × perceived value]
Competitor Identification Matrix [analytical dimensions: market overlap × resource similarity]

2.2 Corporate Strategy

Ansoff Growth Matrix [analytical dimensions: product (old vs. new) × market (old vs. new)]
M&A Integration Matrix [analytical dimensions: interdependence (acquirer v. target) × autonomy (target)]
Outsourcing Matrix [analytical dimensions: strategic impact × cost benefit]
Kraljic Purchase Control Matrix [analytical dimensions: strategic impact × cost benefit]
Bartlett & Ghoshal Globalization Matrix [analytical dimensions: global standardization (↓cost) × local customization (↑value)]
Stakeholder Interest Influence Matrix [analytical dimensions: stakeholder power × stakeholder interest]

3 Innovation Strategy

Types of Innovation [analytical dimensions: problem maturity × solution maturity]
Perrow’s Technology Typology Matrix [analytical dimensions: task analyzability × task variability]
Perrow’s Coupling-Interaction Diagram [analytical dimensions: system coupling (tight vs. loose) × system interaction (linear vs. complex)]
Product-Process Change Matrix [analytical dimensions: product change × process change]
Abernathy & Clark Innovation Matrix [analytical dimensions: market creation (low vs. high) × technological change (low vs. high)]
How-Wow-Now Matrix [analytical dimensions: novelty × feasibility]
Verganti’s Innovation Matrix [analytical dimensions: new technology × new meaning]
Standford Human-Systems Design-thinking Matrix [analytical dimensions: creation (understand vs. create) × abstraction (concrete vs. abstract)]

Didn’t See the Matrix You Use? TELL ME to add it!

Citation Analysis of Recent Acquisition Research

Mon, 15 Apr 2019 00:00:00 +0000

1 Sample and Data

The sample used in this analysis contains 160 articles on “mergers and acquisitions” published on top management and finance journals since 2008.

2 Central Themes

2.1 Network of Co-occurrence Keywords

This graph shows the most common themes (top 30 co-occuring keywords) of these papers.

2.2 MDS Mapping of the Conceptual Structure

We can use MDS (Multi-dimentional Scaling) and Dendrogram to map the distance/dissimilarity among the themes.

3 Central Papers

3.1 the “Main Stream” Papers

## [1] "most central papers (top 20) in bibliographic coupling network"

##   BARKEMA HG, 2008       KIM JY, 2009   NADOLSKA A, 2014 
##          1.0000000          0.8682856          0.8598660 
##       KIM JY, 2011 HALEBLIAN JJ, 2017   GORANOVA M, 2010 
##          0.8555986          0.8210859          0.7714827 
##    DEVERS CE, 2013 STEINBACH AL, 2017      KROLL M, 2008 
##          0.7253757          0.7121932          0.7104844 
##  MUEHLFELD K, 2012  EL-KHATIB R, 2015     ELLIS KM, 2011 
##          0.6669592          0.6612580          0.6551406 
##  MCDONALD ML, 2008      SHI W, 2017-1 HEIMERIKS KH, 2012 
##          0.6185902          0.5899796          0.5799630 
##  GRAEBNER ME, 2009      ZOLLO M, 2009     ELLIS KM, 2009 
##          0.5753946          0.5740604          0.5715228 
##        YIM S, 2013      ZOLLO M, 2010 
##          0.5578773          0.5558791

To identify the “main stream” papers, we can construct a “bibliographic coupling” (BC) network to see which papers co-cited the same prior research with other papers. The top 20 “main stream” (by eigenvector centrality in the BC network) papers.

3.2 the “Classic” Papers

## [1] "most central papers (top 20) in co-citation network"

##    MOELLER SB 2004   HALEBLIAN J 1999     JENSEN MC 1986 
##          1.0000000          0.9891969          0.9313744 
##       MORCK R 1990   HAYWARD MLA 2002 HASPESLAGH P. 1991 
##          0.8737119          0.8477468          0.7896179 
##   HAYWARD MLA 1997       KING DR 2004        ROLL R 1986 
##          0.7119846          0.7104482          0.6958790 
##       ZOLLO M 2004    MASULIS RW 2007  MOELLER SB 2005-1 
##          0.6931354          0.6809497          0.6665792 
##     ASQUITH P 1983     ANDRADE G 2001     JENSEN MC 1976 
##          0.6269530          0.6209498          0.5782434 
##  MALMENDIER U 2008  HALEBLIAN JJ 2006      FULLER K 2002 
##          0.5702609          0.5595749          0.5314969 
##  HECKMAN JJ 1979-1     GOMPERS P 2003 
##          0.5272799          0.5248858

To identify the “classic” papers, we can construct a “co-citation” (CC) network to see which papers are cited together with other papers by later researchers. The top 20 “classic” (by eigenvector centrality in the CC network) papers.

A.I./Blockchain Adoption and Technology Substitution

Tue, 02 Apr 2019 00:00:00 +0000

Artificial intelligence (A.I.) and blockchain are the hottest new technologies right now. It would be fun to think about the future of them (see the patterns, draw the inference, and make predictions). Would A.I. and blockchain be the next “internet,” which has disrupted many traditional business models and creates many new giants across the globe? Or, since businesses have learned a lesson from the internet disruption, A.I. and blockchain will be merely incorporated into the existing technology terrain as an expansion of opportunities by the incumbents? Do A.I. and blockchain have the same fate?

I’ve been leaving an eye on the adoption/acquisition of new technology in the banking sector (since one of my dissertation chapters was on banking acquisitions). Here is some latest news.

The banking sector has a bright prospect incorporating the A.I. in its six core functions.

JP Morgan has adopted cryptocurrency in the payment businesses.

Wells Fargo and Mastercard CEOs express doubt about blockchain.

PayPal made a major investment on the blockchain.

Could there be a unified explanation for what is happening right now? Well, one may associate the topic of technology development with Clayton Christensen’s ‘innovator’s dilemma’ assertion, which predicts emerging new technology will quickly take over declining old ones (often depicted as the double-S curves). It’s the good management–trying best to hear about customer needs, play with competition carefully, and align resource allocation with calculated risk/benefit profiles–who prevent the incumbents from adopting new technologies. Then shouldn’t managers try their best? According to Clayton Christensen, it is difficult for good management not to do good–it is difficult for the incumbents to utilize new technologies even they tend to spot them earlier than startups. At the initiation stage of new technology, incumbents can’t risk their existing market share and customer relationships with unproven models, whereas startups have little to lose. The prediction is: startups disrupt incumbents.

However, things are different right now. The boundary between new tech. and old tech. are melting down; they are intertwined ecosystems rather than isolated communities. Incumbents right now have taken deliberate effort and allocate resource for emerging technology. They are agiler and more determined to disrupt themselves before being disrupted by others. If important pre-existing conditions are different, it might be necessary to modify the predictions from Clayton Christensen’s double-S curves .

First, the compatibility between incumbents’ existing technology and emerging technology should lower the likelihood and rate of disruption. Let’s consider two cases here. One is about different incumbent technologies: as compared to traditional banking, the higher level of digitization of PayPal allows a higher compatibility potential with blockchain (consider internet and blockchain don’t rely on a central authority/agency as traditional banking does). The other is about different emerging technologies: as compared to the blockchain, A.I. allows a higher level of compatibility with traditional banking (both banking and A.I. are aimed at decision/prediction accuracy and efficiency.)

Second, the intensity of the incumbent technology expansion should also lower the likelihood of disruption. This factor is not only related to incumbents’ existing resource base but also has something to do with management. A recent paper in SMJ ¹ has updated the “double-S” framework by incorporating the “incumbent technology expansion” in predicting the rate of substitution and found empirical support for the model’s prediction efficacy.

Conclusion: since A.I. tends to have a higher level of compatibility with, and also face a stronger expansion threat from, the incumbent technology than blockchain, it’s predicted to have a lower likelihood/rate of disruption. However, contingencies should also exist due to the significant variance in incumbents’ technology, resource, and management conditions.

Adner, R., & Kapoor, R. (2016). Innovation ecosystems and the pace of substitution: Re‐examining technology S‐curves. Strategic management journal, 37(4), 625-648.↩

A Summary of Recent 'Social Evaluation' Research

Mon, 25 Mar 2019 00:00:00 +0000

1 Motivation

The goal of this post is to analyze and review the “social evaluation” research tracing back to Zuckerman (1999)¹. The analysis/review is based on hand-collected papers that directly and indirectly cite Zuckerman (1999). The review is not intended to be comprehensive but to understand the central ideas on the topic developed by management/sociology scholars in the past 20 years.

Let’s continue on the “positioning” topic from one of my previous posts (firms are social actors being evaluated by social audiences), but shift our focus of discussion from “what actors do” to “what audience think.” That is, instead of an “actor” standpoint, let’s take an “audience” perspective to consider how firms as market participants are evaluated by market audiences. Reality doesn’t directly translate into human decisions; human beings can only understand reality from their brain, which is subjected to social construction. As a result, the evaluations on market participants do not come from complete rationality in a social vacuum. Rather, audiences’ cognition is shaped by the market’s categorical structure and/or the socially accepted categorical beliefs.

2. Biblio-Analysis

2.1 Selection Criteria

## Warning: The curvature argument has been deprecated in favour of strength

The raw data is based on 29 hand-collected papers directed and indirectly citing Zukerman (1999) and extracted from Web of Science. The papers that not on the topic of “social evaluation” are excluded from the sample, based on the author’s judgment. We can get a general idea of the citation relationship among those papers from the direct citation network graph.

2.2 Central Sources and Keywords

By quickly checking the origins (papers being cited) of the sampled papers, we can see that a big portion (the blue-colored cluster) is the classic institution work. It makes sense, as the discussion of the underlying mechanism of social evaluation should be related to how the evaluating standards are formed in the institutionalization processes. The summary in 3.2 will be based on the top-cited “social evaluation” papers in the red-colored cluster.

The inter-connected keyword clusters present the relationship among the main topics covered by this stream of research. It seems to have a quite strong “strategy” flavor². The most frequently used keywords include “industry”, “market”, and “performance.”

3 Classic Papers

3.1 Top Citations

by frequency:

## [1] "ZUCKERMAN EW, 1999, AM J SOCIOL, V104, P1398, DOI 10.1086/210178"          
## [2] "HSU G, 2006, ADMIN SCI QUART, V51, P420, DOI 10.2189/ASQU.51.3.420"        
## [3] "HSU G, 2009, AM SOCIOL REV, V74, P150, DOI 10.1177/000312240907400108"     
## [4] "PONTIKES EG, 2012, ADMIN SCI QUART, V57, P81, DOI 10.1177/0001839212446689"
## [5] "RAO H, 2005, AM SOCIOL REV, V70, P968, DOI 10.1177/000312240507000605"

by co-citation centrality:

## [1] "most central sources (top 5)"

## ZUCKERMAN EW 1999        HSU G 2009      HSU G 2006-1  PONTIKES EG 2012 
##         1.0000000         0.7142248         0.6970316         0.6754593 
##        RAO H 2005 
##         0.6150981

The most frequent (by frequency count) citations are also the most central (by eigenvector centrality) citations.

3.2 Summary of Top-cited Papers

Hsu et al. (2009) provide an integrative explanation for the multi-category disadvantage. The paper combines the actor- and audience-centered explantions and argues that category spanning is both difficult for the actor to manage and hard for the audience to understand. Hsu (2006) explicitly analyzes the underlying cognition mechanism in which film audiences encounter difficulties in making sense of multi-genre films. Pontikes (2012) analyzes the different segments of market audiences with distinct preferences for ambiguous classification–the difficulty of classifying startups into established categories. According to her, consumers and corporate venture capitalists are more passive market-takers who prefer startups that are easy to classify; in contrast, individual venture capitalists are market-makers who have the power to redefine the market structure and see ambiguous classification as opportunities. Rao et al. (2005) argue that the market boundaries are melting when high-status market participants’ cross the market categories–French chefs with starts in the Guide Michelin make hybrid cuisines. Typically, there are cost and risk associated with “cross-category borrowings.” But they tend to attenuate when borrowings prevail. Overall, it seems to be risky to cross the categorical boundaries. But contextual contingencies for the benefit/risk profile of category-straddling exists.

References:

Zuckerman, E. W. (1999). The categorical imperative: Securities analysts and the illegitimacy discount. American Journal of Sociology, 104(5), 1398-1438.

Hsu, G., Hannan, M. T., & Koçak, Ö. (2009). Multiple category memberships in markets: An integrative theory and two empirical tests. American Sociological Review, 74(1), 150-169.

Hsu, G. (2006). Jacks of all trades and masters of none: Audiences’ reactions to spanning genres in feature film production. Administrative Science Quarterly, 51(3), 420-450.

Pontikes, E. G. (2012). Two sides of the same coin: How ambiguous classification affects multiple audiences’ evaluations. Administrative Science Quarterly, 57(1), 81-118.

Rao, H., Monin, P., & Durand, R. (2005). Border crossing: Bricolage and the erosion of categorical boundaries in French gastronomy. American Sociological Review, 70(6), 968-991.

The central idea of this paper is that firms’ stock price is affected by the categorical pattern of financial analysts’ industry coverage, which reflects the institionalized expectations for firms’ product mix straddling across various market categories.↩
For the central topics in strategy research, refer to “the intellectual structure of the strategic management field…” by Nerur et al. (2008) and “what is strategic management…” by Nag el al. (2007)↩

Optimal Positioning for Firms and Individuals

Mon, 25 Feb 2019 00:00:00 +0000

Imagine you are invited to a party. You want to get noticed by other partygoers. Or you want to be recognized as a “cool” person by those who you are interested in. The “coolness” will result in some social benefits you desire. This is a scene of “social evaluation,” in which you want to stand out of the crowd of peer actors (competitors) to impress the audiences (customers and suppliers). If you succeed, the peer actors will admire you, the audiences will adore you, and of course, the esteems and profitable relationships will follow. Now the question is, “how to position yourself to be ‘cool’ so that you can win the game?”

Practically, the first question coming to your mind might be “to what extent should I be similar to or different from others?” You want to be different so that you can stand out. However, you don’t want to be too different so that people think you are wired. Your goal is to “impress” but not to “surprise.” It is a bad idea to violate the audience’s expectations on your appearances and behaviors – the commonly accepted “norms.” Violations typically lead to penalties.

Excessive differentiation is risky. It jeopardizes your “legitimacy,” the potential for being accepted by the audience, who controls the resources and opportunities. Now the headache you get is — being similar places you under competitive pressures (so you can’t stand out) but being different gives you the risk of losing legitimacy. Then, you may find a simple solution: find a middle ground between the two extremes — “to be different as ‘legitimately’ possible.” Good. You got a “holistic” approach, in which you consider all the audiences, attributes, and evaluation processes as a “whole.” And you have a clear goal—maximizing the total audience perceptions. It is implementable. It is the wisdom of Confucius’ as well as Aristotle’s “Golden Mean.”

If you don’t want to stop here, let’s think further. We can do some analysis¹, by moving away from the “holistic” approach to an “analytical” one. For example, we can anatomize the positioning problem in three ways: (1) separating the evaluating audiences, (2) separating the actor attributes, and (3) separating the evaluation processes.

First, different audience groups (government, customers, investors, etc.) may demand different levels of conformity vs. differentiation, so you can deploy specific positioning strategy to target specific audiences (e.g. horizontal websites tend to give different people different things while vertical websites tend to meet specific people’s specific needs). Second, as audiences allocate their decision weights among multiple dimensions of difference, you can conform on most of them to maintain legitimacy and then differentiate on a couple of others to look cool (e.g. in a party, people always care about dress code while worrying about outfit clash). Third, as the audiences typically engage in a categorization process before making the final selection, you can strategize for “entering the game” and “winning the game” separately (e.g. audiences tend to make a short list first, select the winner from it. No matter you want to design a website or find a job, to make it to the shortlist, you need to first figure out the similarities that help you stay relevant; and in the selection stage, find the differences that help you win).

The positioning problem shouldn’t stop here. As audiences evaluate actor attributes with their subjective minds, numerous factors (cognitive, sociological, cultural ones) determine how individual opinions aggregate and emerge as market behavior. Researchers have been studying the patterns, drawing inferences and making predictions. Importantly, there could exist positive and negative feedback loops for the mutual influence between actor behavior (strategic action) and audience perception (performance evaluation). This is what I’m interested in.

References:

Deephouse, D. L. 1999. To be different, or to be the same? It’s a question (and theory) of strategic balance. Strategic Management Journal, 20(2): 147–166.

Zuckerman, E. W. 2016. Optimal distinctiveness revisited: An integrative framework for understanding the balance between differentiation and conformity in individual and organizational identities. Handbook of Organizational Identity.

Zhao, E. Y., Fisher, G., Lounsbury, M., & Miller, D. 2017. Optimal distinctiveness: Broadening the interface between institutional theory and strategic management. Strategic Management Journal, 38(1): 93–113.

Merriam-Webster has a definition of “analysis” — “separation of a whole into its component parts.”↩︎