Presented by Jiyoon Chung Pacheco de Almeida, Goncalo, James E. Henderson, and Karel D. Cool (2008). Resolving the commitment versus flexibility trade-off: The role of resource accumulation lags. Academy of Management Journal, 51 (3): 517-536. Presented by Jiyoon Chung

Overview Research question: How does time-consuming resource accumulation influence the classic strategy trade-off between commitment and flexibility? Resource accumulation lags favoring commitment Resource accumulation lags favoring flexibility

Theory and Hypotheses The opportunity cost of postponing investment can be substantially higher, including the profits forsaken while the firm is accumulating resources to enter the desired market. Hypothesis 1: Ceteris paribus, resource accumulation lags have a positive effect on a firm’s likelihood of investment. Longer resource accumulation lags increase the profit potential of an investment project more than its loss potential  a positive interaction effect between uncertainty and time lag Hypothesis 2: Ceteris paribus, resource accumulation lags reduce the main negative effect of uncertainty (the option value of waiting) on a firm’s likelihood of investment.

Theory and Hypotheses With very long resource accumulation lags, The risk of widespread bandwagons is high, and Managers have more incentives to make smaller-scale investments because of short-term stock market pressures. Hypothesis 3: Ceteris paribus, very long resource accumulation lags have a negative effect on a firm’s likelihood of investment.

Research Design Dependent variable: Explanatory variables: Investment Explanatory variables: Resource accumulation lag Demand uncertainty Control variables: Demand growth Excess capacity Investment lumpiness Market share Rivals’ expansion Estimation methods

Results H1 H3 H2 H1, H2, H3 are all corroborated

Conclusion In industries with lengthy resource accumulation lags, competitive advantage may be difficult to attain (but easier to sustain). The results contradict the view that uncertainty is always a strong disincentive for investment. An increase in uncertainty may encourage rather than dissuade commitment, owing to the positive moderating effect of resource accumulation lags on uncertainty. The non-linear inverted U-shaped effect of resource accumulation lags on commitment implies that flexibility is more valued in industries in which resource accumulation is either very time-consuming or virtually instantaneous.