Being too good for your own good: A stakeholder perspective on the differential effect of firm‐employee relationships on innovation search

Abstract

Research Summary: A firm's stakeholder orientation toward its employees is argued to be beneficial for firm outcomes. However, this orientation may also have disparate impacts on particular behaviors and outcomes, such as local versus distant search, which impose contradictory firm requirements. We find that while a strong firm–employee relationship leads to increasingly higher levels of local search (exploitation), it also leads to increasingly lower levels of distant search (exploration). In additional supplementary analyses, we find similar disparate effects on the productivity of innovation and its market value, as well as a moderating effect of the firm's relationship with other stakeholders which exacerbates both the positive and negative impacts of firm–employee relationships. We discuss the implications of these findings for both the innovation and the instrumental stakeholder literatures. Managerial Summary: Motivating employees toward generating new ideas and innovations is an important challenge for most firms. Establishing the firm as a trustful and good partner for employees may engender in them the commitment and willingness to invest in such activities. However, questions remain as to how “well” the firm should “treat” its employees, and the potential adverse consequences from over‐investing in such relationships. This paper examines these important practical questions and finds that establishing strong relationships with employees can be simultaneously beneficial and harmful for the firm depending on the type of new ideas it seeks. We find that such strong relationships helps with motivating employees to build on and perfect existing knowledge, but is harmful with respect to bringing in new and unfamiliar knowledge.

Incumbent Stakeholder Management Performance and New Entry

“…At the aggregate level, managerial fashions with non-stakeholder centric objective functions may catch on at the level of industries or across geographies. This momentum and its inertia is likely to cause the incumbent's network information flow to become increasingly familiar and reduce the number of new combinations that can be generated (Gambeta et al 2019;Harrison et al 2010;Uzzi 1997), reversing some of the benefits of close ties.…”

Experientially diverse customers and organizational adaptation in changing demand landscapes: A study of US cannabis markets, 2014–2016

“…We find that the market information that informs firms' cognitive models of the landscape is collected partly from existing customers. This finding complements prior work on how relationships with stakeholders impact tendencies to engage in local versus distant search (Gambeta, Koka, & Hoskisson, ).…”

Stakeholders\' relationships as microfoundation of open innovation: perspective of brazilian companies

“…From a theoretical point of view, the present research is justified by providing empirical contributions on relevant aspects of Stakeholder Theory, allowing a greater understanding of characteristics and classifications of relevant stakeholders' relationships for better organizational performance (Berman et al, 1999;Harrison, Bosse & Phillips, 2010;Hillman & Keim, 2001;Parmar et al, 2010). It contributes to the perspective of the microfoundations of Stakeholder Theory, identifying which attributes present in the relationships with stakeholders motivate these actors to collaborate with the organization, helping the development of open innovation (Barney & Felin, 2013;Felin, Foss, & Ployhart, 2015;Gambeta, Koka, & Hoskisson, 2019;Garcia-Castro & Francoeur, 2016).…”

“…Microfoundations emphasize the need to comprehend the interactions between individuals (stakeholders), which assume complex forms, with unique, surprising, and challenging to predict additive effects, surprising and challenging to predict, in addition to considering the context of the organization (Barney & Felin, 2013;Gambeta, Koka, & Hoskisson, 2019;Garcia-Castro & Francoeur, 2016). This detailed and focused look on stakeholders as individuals allows to unpack collective concepts and thus understand how factors at the individual level affect organizations, how the interactions and relationships of individuals lead to emerging results and performance, collective and organizational level (Felin, Foss, & Ployhart, 2015).…”

“…Contributing to such mechanisms, the Stakeholder Theory, which considers organizations as the center of a multi-stakeholder network through which different resources are exchanged and combined to achieve particular objectives, provides a framework for analyzing influential actors within and outside the firm (Freeman, 1984;Griffin, 2016;Li, Xia, & Zajac, 2018). Specifically, the microfoundations of Stakeholder Theory allow us to focus on stakeholders' relationships and the recognition of actors' behaviors and motivations, investigating how their interactions can contribute to performance at the organizational level (Barney & Felin, 2013;Felin, Foss, & Ployhart, 2015;Gambeta, Koka, & Hoskisson, 2019;Garcia-Castro & Francoeur, 2016).…”