Demand‐side strategy, relational advantage, and partner‐driven corporate scope: The case for client‐led diversification

John Mawdsley · Deepak Somaya

69 citations0/0 files storedStrategic Management Journal

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Innovation and Knowledge Management Business Strategies and Innovation Outsourcing and Supply Chain Management

Abstract

Research Summary: We advance research on corporate diversification by joining insights from the demand‐side and relational views in strategy to offer a novel theory of client‐led diversification. We propose that client‐led diversification results from a combination of the customer‐driven opportunities emphasized in the demand‐side view and the creation of added value through relational assets that is a central tenet of the relational view. Furthermore, we hypothesize that suppliers’ client‐specific knowledge, clients’ relational commitment to suppliers, and growth opportunities in clients’ markets (relative to the suppliers’ own markets) will magnify the client‐led diversification effect. We test our hypotheses using a longitudinal dataset on patent law firms and their diversification into new domains of patent prosecution work for their corporate clients. Managerial Summary: Explanations of why firms diversify into new lines of business have largely concerned the redeployment of underutilized resources, with little regard to opportunities or influences stemming from firms’ existing customers. In our article, we show how the changing scope of business needs from a knowledge‐based supplier firm's set of existing clients is a central driver of supplier‐firm diversification, and this is especially the case when the level of relational assets shared between a supplier and its clients is higher. In a competitive landscape where suppliers compete intensively for the business of clients, our results show how managers can increase the likelihood of capturing additional business from its existing exchange relationships rather than bearing the risks of seeking new exchange relationships.

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References

1969Investigating Causal Relations by Econometric Models and Cross-spectral Methods 1978Specification Tests in Econometrics 1980Competitive Strategy: Techniques for Analyzing Industries and Competitors 1973Job Market Signaling 1986The Economic Institutions of Capitalism 1979Transaction-Cost Economics: The Governance of Contractual Relations 1998The Relational View: Cooperative Strategy and Sources of Interorganizational Competitive Advantage 1997Social Structure and Competition in Interfirm Networks: The Paradox of Embeddedness

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2019“Outside in”: Global demand heterogeneity and dynamic capabilities of multinational enterprises 2024Bricks without Straw: Overcoming Resource Limitations to Architect Ecosystem Leadership 2020Half a century of research on corporate diversification: A new comprehensive framework 2020Capability interactions and adaptation to demand‐side change 2024The inside track: Entrepreneurs' corporate experience and startups' access to incumbent partners' resources

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