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Underperformance duration and innovative search: Evidence from the high‐tech manufacturing industry

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  • Wei Yu
  • Maria Minniti
  • Robert Nason

Abstract

Research Summary Behavioral theory examines how the intensity of underperformance influences firms' strategic decisions; yet, it largely fails to consider the effect of underperformance duration. Drawing on behavioral theory and organizational learning, we argue that the length of time that a firm has been underperforming contributes to shaping firms' innovative search patterns. We test our theory merging COMPUSTAT and NBER patent data for 1,610 high‐tech manufacturing companies between 1986 and 2006. Our results largely support our predicted curvilinear relationships. We find that innovative search magnitude and scope each first decreases and then increases with underperformance duration. In addition, we find marginal evidence that innovative search depth first increases and then decreases with underperformance duration. The statistical and practical significance of the results is also discussed. Managerial Summary Innovation is vital for a firm's survival and competitive advantage and requires a search for knowledge. Previous research suggests that the gap between current performance and desired performance is an important trigger for firms' innovative action. We suggest that how long the firm has been underperforming also plays an important role in firm innovation. Using financial and patent data on public high technology manufacturing firms, we show that there are nonlinear relationships between the duration of a firm's underperformance and its innovative activities. We find that underperforming firms first decrease and then increase R&D spending and the use of new knowledge as underperformance prolongs. Our results imply that underperforming firms face competing short‐ and long‐term pressures that influence the nature of its innovative activities.

Suggested Citation

  • Wei Yu & Maria Minniti & Robert Nason, 2019. "Underperformance duration and innovative search: Evidence from the high‐tech manufacturing industry," Strategic Management Journal, Wiley Blackwell, vol. 40(5), pages 836-861, May.
    • Handle: RePEc:bla:stratm:v:40:y:2019:i:5:p:836-861
    DOI: 10.1002/smj.2988
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    Citations

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    Cited by:

    1. Zhang, Feng & Zhu, Lei & Xu, Zhi & Wu, Yingying, 2023. "Moving from reverse engineering to disruptive innovation in emerging markets: The importance of knowledge creation," Technovation, Elsevier, vol. 125(C).
    2. Abhijith Anand & Rajeev Sharma & Rajiv Kohli, 2020. "The Effects of Operational and Financial Performance Failure on BI&A-Enabled Search Behaviors: A Theory of Performance-Driven Search," Information Systems Research, INFORMS, vol. 31(4), pages 1144-1163, December.
    3. Su, Taoyong & Yu, Yuzhu & Chen, Yongheng & Hou, Wanrong, 2023. "On or off: The triggering effect of underperformance duration on cooperative innovation," Technovation, Elsevier, vol. 126(C).
    4. Ploeg, Matthias & Knoben, Joris & Vermeulen, Patrick, 2022. "We are in it together: Communitarianism and the performance-innovation relationship✰," Research Policy, Elsevier, vol. 51(5).
    5. Xi Zhong & Liuyang Ren & Tiebo Song, 2022. "Beyond Market Strategies: How Multiple Decision-Maker Groups Jointly Influence Underperforming Firms’ Corporate Social (Ir)responsibility," Journal of Business Ethics, Springer, vol. 178(2), pages 481-499, June.
    6. Lakshmi Goyal, 2023. "Investments during institutional transitions: Driven by problems or opportunities?," Asia Pacific Journal of Management, Springer, vol. 40(4), pages 1733-1768, December.
    7. Tang, Linjia & Guo, Yingying & Zha, Jianfeng & Zheng, Weiwei, 2024. "Acquiescence or Redemption: CEO’s early-life experience of environmental pollution and corporate green innovation," Journal of Business Research, Elsevier, vol. 173(C).
    8. Liying Huang & Lerong He & Guangqing Yang, 2021. "Performance Shortfalls and R&D Investment Change: Aspirations, Actions, and Expectations," Sustainability, MDPI, vol. 13(6), pages 1-21, March.
    9. Erk P. Piening & Ferdinand Thies & Michael Wessel & Alexander Benlian, 2021. "Searching for Success—Entrepreneurs’ Responses to Crowdfunding Failure," Entrepreneurship Theory and Practice, , vol. 45(3), pages 626-657, May.
    10. Qingwen Bo & Mengxiao Cao & Yan Wang & Yuhuan Xia & Wei Liu, 2024. "Organizational slack, ambidextrous search and high-tech SMEs’ performance: do strategic orientations matter?," Palgrave Communications, Palgrave Macmillan, vol. 11(1), pages 1-11, December.
    11. Jing Xiao & Yan Zhou & Ping Zeng, 2024. "How does green strategy orientation promote substantive green innovation? Evidence from Chinese manufacturing enterprises," Economic Change and Restructuring, Springer, vol. 57(6), pages 1-31, December.
    12. Songsong Cheng & Qunpeng Fan & Yang Song, 2023. "Performance Gap and Innovation Ambidexterity: A Moderated Mediation Model," Sustainability, MDPI, vol. 15(5), pages 1-22, February.
    13. Argiolas, Alessia & Rawhouser, Hans & Sydow, Alisa, 2024. "Social entrepreneurs concerned about Impact Drift. Evidence from contexts of persistent and pervasive need," Journal of Business Venturing, Elsevier, vol. 39(1).
    14. Yongbo Sun & Zichen Qiu, 2022. "Positive Performance Feedback and Innovation Search: New Ideas for Sustainable Business Development," Sustainability, MDPI, vol. 14(4), pages 1-18, February.
    15. Papazoglou, Michalis E. & Spanos, Yiannis E., 2021. "“Influential knowledge and financial performance: The role of time and rivals’ absorptive capacity”," Technovation, Elsevier, vol. 102(C).

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