Identifying Generalizable Effects of Strategic Actions on Firm Performance: The Case of Demand-Side Returns to R&D Spending

This paper provides an approach for assessing generalizable effects of strategic actions on firm performance. We identify five key issues that need to be addressed before one can have confidence in the obtained strategic generalization. In addition, we suggest a methodology for attacking each of these five issues. We then illustrate this framework using the example of demand-side returns to R&D spending. We document two empirical generalizations in this research. First and foremost, we show that demand returns to R&D spending depend on whether the firm has ability and motivation to take advantage of the R&D investment. Thus, only firms with high ability and motivation leverage the R&D investment into monopoly rents in the form of subsequent price increases. Second, we show that the concept of a firm needing both ability and motivation to sustain returns from a strategic action generalizes across strategic actions. We make two other conclusions about empirical approaches to strategy research. First, to produce valid empirical generalizations about the effects of strategic actions on firm performance requires a study to address adequately the five issues we establish herein. Second, one readily available strategy database, PIMS, enables the researcher to address each of these issues.