Customer Concentration, Executive Attention, and Firm Search Behavior

Abstract

It is unclear why, despite the increasing emphasis on innovation in modern business, firms are still myopic in their search efforts. Although prior studies have examined the role of supply-side factors such as technologies, capabilities, and managerial cognition, they rarely explore how demand-side factors such as customers can shape managerial cognition and firm search behavior. Extending the attention-based view to the demand side, we argue that major customers channel the attention of executives to the existing competitive environment, resources and capabilities, and management practices (i.e., existing-oriented attention), resulting in firms’ increased emphasis on deep search within familiar domains and limiting their search in new fields. Through an empirical examination of the patenting behavior of U.S. publicly listed firms, we show that customer concentration increases search depth and decreases search breadth via executives’ existing-oriented orientation. We also find that both performance feedback above social aspiration levels and product market competition amplify the effects of customer concentration. Our study contributes to the organizational search literature by adding a demand-side explanation. It also extends the cognition view by foregrounding the role of customers in shaping executive attention. Moreover, it explores the interaction between supply- and demand-side factors in driving firm search behavior.