Speed Capabilities and Firm Competition
Ashton Hawk
Stern School of Business
New York University
ahawk@stern.nyu.edu
Speed is an important component of firm competition. For instance, a recent cover of BusinessWeek asked, “Is your company fast enough?” (Hamm 2006) Business leaders like Bill Gates have stressed that “If the 1980s were about quality and the 1990s were about reengineering, then the 2000s will be about velocity” and “everybody must realize that if you don't meet customer demand quickly enough (…), a competitor will.” (Gates 1999) Given the managerial importance of speed in firm competition, a study is warranted to explore the value of speed to firms. My dissertation provides an in-depth examination of the role of speed capabilities in firm competition. This dissertation work and future research extensions contribute to the broad understanding of why speed capabilities are valuable, and how speed capabilities play a role in the strategic decisions that managers face in business competition.
In chapter 1 of the dissertation, I examine the fundamental link between firm speed and firm performance. I begin by making the observation that firms face a tradeoff with speed in project development: firms that are slow in the execution of investment projects often incur substantial revenue losses; however, accelerating investments generally results in higher investment costs. Chapter 1 integrates this speed tradeoff and produces a firm level optimization framework in order to develop an estimable empirical specification for the intrinsic capability of firm speed. In my analysis, I examine how deviations from industry-average speed in the execution of large investment projects in oil and gas facilities worldwide from 1996 to 2005 impact firm value, as measured by Tobin's q. I find that there is substantial variation in investment speed between firms in the oil and gas industry. I show that faster firms consistently had higher firm value during the period of analysis. My perceived contribution of chapter 1 is that it develops an estimable empirical specification for the intrinsic capability of firm speed, and it shows that this intrinsic speed capability augments firm value.
Although chapter 1 and several other studies suggest that speed gives firms a competitive advantage (Stalk 1988; Stalk and Hout 1990; Teece 2007; Teece, Pisano and Shuen 1997; Barnett and Hansen 1996; Chapter 1), less attention has been directed at understanding how speed creates value for firms. Chapter 1 establishes that intrinsic speed capabilities are value enhancing for firms in a mature market by enabling the firm to collect revenues fast. In chapter 2, I deepen our understanding of how speed enhances firm value by investigating how speed capabilities may have strategic value for firms entering a new subfield of an industry. I develop a framework to show that speed capabilities give firms a strategic advantage in entry timing decisions. Firms face opposing incentives when choosing entry timing into an emerging subfield of an industry: firms receive a marginal benefit of waiting by learning from earlier entrants, but delay also has a marginal cost from preemptive pressures. I argue that speed capabilities give firms an advantage by reducing the risk of preemption during market entry. I test two predictions. First, I expect that a firm with speed capabilities will be more likely to enter later than slower firms. Second, firms with speed capabilities will also have higher entry performance than slower competitors. To test these predictions, I use entry data of oil and gas firms in the emerging subfield of liquefied natural gas (LNG). My estimate of speed capabilities is constructed using firms' prior investments in other subfields of the oil and gas industry. LNG represents an important area of the energy industry. The rise of natural gas prices and the improvement in LNG engineering has resulted in a boom of LNG construction projects worldwide. Responses to this burgeoning market have varied. Some firms participated in the rush to start large investment projects in LNG early, while other firms have waited. This chapter explains some of the variation in entry timing and subsequent entry performance.