Monday, March 20, 2017

Making Stupid Phones Smarter: Will a New Strategy Be Imitated?

Qualcomm just announced products that will be used to help feature phones take advantage of 4G networks. Let me translate that sentence (for those who need it). A feature phone is what some call a stupid phone – the opposite of a smartphone, because it is missing features such as the ability to install software. The screen is also simpler, and the price is much lower – around $20 in the markets that sell feature phones. 4G networks are made for smartphones, not for feature phones. Qualcomm is aiming for smarter feature phones, which would use 4G networks for higher bandwidth material such as video transmission. The trick is that consumers would like such material and might pay more for phones that provide it, and the telecom carriers would also like consumers to move into 4G so they can start shutting down 2G and 3G networks.

Feature phones that use smartphone (4G) networks is an example of a market position, and a pretty innovative one too. Will it remain Qualcomm’s position alone, or will others follow? Well, Qualcomm’s usual market position is smartphones that use (of course) smartphone networks, and there they have seen rivals such as MediaTek move in. Market positions are not secret, and an easy way to make a strategy is to imitate what others do. In fact, these market strategy moves are a reminder of a paper I published in Administrative Science Quarterly in 1996 on the diffusion of a market position. I found that such strategic moves probably involve a lot of planning inside the firm, but from a researcher’s point of view they just look like copying. Strategic actions are taken after planning and thinking, but plans and thoughts are very much influenced by what the competition is doing. As my son (who studies data mining) might say, strategic planning is a human task that a computer can mimic.

If we think about this particular strategic move, can we use the evidence to predict the next strategic moves? I think so. Innovations like the feature phone using 4G happen for a reason. The reason is that smartphone sales are stalling, and a key reason is that some of the largest phone markets (India and Indonesia) have remained stubbornly dominated by feature phone even though the telecoms are making 4G networks and local and foreign producers are offering smartphones. The advanced market is not doing well, and the in-between market has a gap. I think we will see MediaTek and others moving to imitate this market position.

Let me add a small postscript to this post. Every now and then I look for an old ASQ paper to write about, and this time I decided to go 20 years back. Then I realized that I published my second paper in ASQ 20 years and four months before becoming the ASQ editor. Here it is:


Tuesday, March 14, 2017

La La Land Entrepreneurship: When Does the Specialist Entrepreneur Win?

In La La Land, Sebastian is such a dedicated jazz pianist that he cannot bear playing other kinds of music – and after many trials and travails, he succeeds as an entrepreneur, starting the jazz club of his dreams. A wonderful story of entrepreneurship (the movie had a love story too, I think), but is it realistic? It depends on who you ask.

A recurring theme in entrepreneurship is the trust in generalists – people who can master a wide range of tasks. This trust comes from one big-picture and one small-picture consideration.  The big-picture consideration is that successful entrepreneurship has a component of inspiration gained from combining ideas that others do not see as connected. You may be carrying the descendant of such a combination: the iPhone was put together by a company making compact MP3 players that had just exited an alliance with Motorola to make cellular phones. The small-picture consideration is that smaller entrepreneurs often end up being in charge of everything, first directly, then through having to find and recruit expertise in each function. Generalists are good at this.

But could Sebastian have become a capable founder of a jazz club if his interests and skills were all over the place? The argument against generalists is that they are superficial and don’t know enough about any specific topic to do well. A paper in the Administrative Science Quarterly by Olenka Kacperczyk and Peter Younkin has waded into this argument with important ideas and some evidence. Fittingly, the evidence is on music industry entrepreneurship: artists forming independent record labels.

The key idea emerging from their research is this: pure generalists have no particular advantage in entrepreneurship; what is needed is one area of specialization combined with general knowledge elsewhere. Specifically, specialization in the market pays off when combined with general knowledge on the tasks needed for production. This combination buys both credibility and the understanding of customers, which are more important to specialize in than the mechanics of making a product. The investigation showed big effects of market specialization, and effects that were complementary to functional breadth. Market specialists could double their odds of success by becoming more general in functional knowledge; market generalists had low odds to begin with and did not improve much when gaining more general functional knowledge.

So, Sebastian got lucky. Yes, he had market knowledge, but he knew little about different functions (I am not counting tap dancing as a useful function).  A more typical case would be Justin Timberlake, whose specialization in R&B and popular music was combined with band membership, songwriting, performing as a backup singer, and music production. So, today’s practical advice: if you want to form a music label, follow Justin’s lead.

Kacperczyk, Aleksandra (Olenka) and Younkin, Peter Y. 2017. The Paradox of Breadth: The Tension between Experience and Legitimacy in the Transition to Entrepreneurship. Administrative Science Quarterly, forthcoming.  

Monday, February 27, 2017

Why Double Standards? Investment Advice from Women

Let’s start with two facts that are not very well known. The first is that investment professionals actually share advice sometimes, although it happens in certain closed online platforms.  By investment professionals I mean people who are managing money, such as mutual fund or hedge fund managers. They are different from stock analysts, who are professional advisors, not professional investors. The second, which it bothers me even to need to write, is that some investment professionals are women. Unfortunately, women are a small minority in this field.

So when investors look at advice posted by investment professionals, do they evaluate the advice from men and women equally, or is there a double standard? This is the topic of research in Administrative Science Quarterly by Tristan Botelho and Mabel Abraham, who examined whether and when women’s advice is valued less than men’s advice. Notice how interesting this context is for examining double standards. Everyone is professional. All the advice is on securities, which means that the outcomes can be traced to see whose advice is better. (In case you wonder, there is no difference between men and women.) Oh, and this is all online, so the evaluators are reading text and thinking about the reasoning.

That does not stop double standards from appearing.  Investors could see the names of the people posting recommendations before deciding whether to open them, and they were less likely to open and look at a recommendation written by a woman. Women were about 25 percent more likely to be ignored. Female readers of this post can consider whether that sounds familiar.  Investors were especially likely to ignore female investment professionals when they had a lot of information to sift through.  This evidence matches what we already know, but it is powerful evidence from real professionals making decisions about substantial amounts of money.

Now for something we didn’t know. After seeing the advice, the investors can voluntarily rate its quality and give comments. How large was the double standard in the rating? There wasn’t any. This demonstrates an important difference in how double standards are used. They are a first-cut way of approaching someone’s value and performance, but once individuals have more time to process information and think, double standards decline and may even disappear. Whether they typically disappear in other contexts, we don’t know. Investors need to think very carefully about their decisions and may turn out to be less biased after considering a recommender’s information than people in many other roles are. Possibly they are less biased than others with significant responsibilities, such as politicians.


Monday, February 20, 2017

My Kind of Fraudster: How Social Group Affects Responses to Misconduct

We know that shared identity is a tool used to gain the confidence of people before defrauding them, and we suspect that it works especially well for an identity strengthened by current discrimination or a history of persecution. Bernard Madoff’s exploitation of the Jewish identity to recruit for his Ponzi scheme is a recent example of how this is done, and many more cases exist. An interesting follow-up question has rarely been considered, though: what happens to the identity after the fraud has been discovered?

In a very creative and solid piece of research, ChristopherYenkey explores this issue in AdministrativeScience Quarterly. His case is one of a stock brokerage in Nairobi that defrauded one-quarter of its clients (about 25,000 people). The clients were from many ethnic groups, and the brokerage was clearly identified with one of them. This is a dilemma for members of the defrauding (and also defrauded) ethnic group: who should they trust, and how much? For those not part of the defrauding group, the choice is easier: after the fraud, they trusted the group affiliated with the brokerage less, and trusted the institution of stock brokerages less, so they invested less than they had previously.  This effect was strongest for ethnic groups that were rivals of the ethnic group connected with the fraud, as opposed to neutral ethnic groups.

But what about members of the ethnic group associated with the fraudulent brokerage who had been personally defrauded? They made interesting choices. Like everyone else, they invested less following the fraud—but still more than neutrals, and definitely more than rivals. Shared ethnicity cushioned the blow of the fraud. In a very promising investment opportunity that happened soon after the fraud, those with shared ethnicity who had been defrauded invested more than the others, suggesting that they may have been most confident about trying to recover their lost money through investments.

The investors of different ethnicities also showed other reactions to the fraud, such as starting to doubt brokerages and placing more investments through banks, which could also act as stock market intermediaries. Naturally the choice between organizational forms is not as personal as the choice of ethnicity to transact with, so the movement away from brokerages was seen for all ethnic groups. Still, it was again the rival ethnic groups that moved the most, suggesting that the experience of being defrauded had the biggest impact on their future actions.

Trust is personal, which is why social groups can make it easier. Fraud is also a very personal experience, and affront, and reactions to it show very clearly how boundaries in our society affect people’s responses to each other and to organizations.

PS: I chose not to mention the name of the ethnic group controlling the fraudulent brokerage in this post. Kenya is a place where ethnic relations are sensitive because of power differences and a history that involves violent events as well as periods of peace.

Tuesday, February 14, 2017

Our Secret Environmentalism: We Don’t Say We Are Sustainable

Firms are under continued pressure to certify themselves as virtuous, good, effective, high quality, and any number of other positive things. Often they display the certification prominently. For example, if you type “General Motors ISO” or “General Electric ISO” into Google, it will fill in “9001,” because both companies display prominently on the web that they are ISO 9001 certified.

There is an interesting exception to this. Many firms are certified as environmentally responsible through the Dow Jones Sustainability Index, but four out of ten DJSI firms do not display this certification. Why would a firm with such a positive achievement not promote it? Chad Carlos and Ben Lewis have a new article in Administrative Science Quarterly that looks at the reasons for this silence, and they find that it is a strategic silence. They are silent because it is a way of avoiding attention, and attention to sustainability could be risky for the firm.

Firms don’t announce why they stay silent about an environmental certification, of course, but we can see how they behave. Carlos and Lewis found that they are more likely to invoke strategic silence if they run the risk of looking like hypocrites. The main problem for firms is to lose their reputation through being called out as less sustainable than they claim to be or should be. So, we should expect firms that have good environmental reputations to be more concerned about looking bad if their commitment to the environment is called into question. That is exactly what Carlos and Lewis found.

Shareholders can file resolutions against firm actions that go against sustainability. If they do, and if the firm has a good environmental reputation to begin with, the firm is especially likely to be strategically silent about the DJSI certification. Other stakeholders can target the firms through boycotts, demonstrations, and other protest actions. If they do, and if the firm has a good environmental reputation to begin with, the firm is likely to be strategically silent about the certification. It’s clear that those firms already seen as good on environmental issues are very careful not to have this reputation damaged by any charges of being hypocritical. That means sometimes keeping the sustainability certification out of sight, to avoid attracting attention.

The evidence is interesting because certification is usually an initiative to do three things: make firms follow a standard, make firms influence others to follow the standard, and make firms compete to beat the standard. The firms that were secret environmentalists broke this chain by only doing the first of these three steps. Through their strategic silence they did not influence other firms, and they did not compete to be the most environmental either. Many try to influence firms, for many purposes, but it is important to keep in mind that firms also want control over what they do, and they have a wide range of actions to escape the control of others.

Monday, February 6, 2017

Since the Roman Empire: Organizations Engage History to Make Changes

How to change an organization? The answer to this question is made surprisingly difficult by all those who think that change is unnecessary, change is risky, and in any case it should be change that favors their favorite option; nothing else will do. Using history to promote a change effort is an old trick that makes a lot of sense, because it is a way of claiming that change is actually a return to a golden age. And history can be edited in many ways, so it is a very flexible trick. Managers use it.

But can it be more than a managerial trick to manipulate the organization? New research by Mary Jo Hatch and Majken Schultz in Administrative Science Quarterly shows how change can be created in a more autonomous fashion by employees reaching back into the organizational history. The research follows two distinct and independent occasions that Carlsberg brewery used its old motto, the latin phrase semper ardens (always burning) to foster change. In each case the users were different and the change was different, but the old and flexible motto proved a way to successfully make changes with less controversy. In one case, a group of master brewers working on their own used it to formulate, gain acceptance for, and launch a craft beer line, in stark contrast to the industrial beer that was the core of Carlsberg. In the other, it was proposed by consultants seeking to create a unifying statement for Carlsberg, which had become large and diverse through recent mergers,and then promoted internally in the organization.

Even though these processes were unrelated, they followed a remarkably similar sequence.  The steps are described in detail in the paper, but here I want to focus on the two final ones: renewing and re-embedding. Renewing is central when history is used to motivate change, because the new activities are never exact equivalents of the historical record. Indeed, the historical record can be unclear or even contradictory, so renewal is needed. Semper ardens was a phrase favored by the second generation Carlsberg owner, but did not have any concrete brewing practices associated with it. But the master brewer team reached back into the brewing recipes from that time period, and combined these with the passion for improvement expressed through the “always burning” meaning to create beers that were distinct in taste and packaging.  

Re-embedding is actions taken to give the referral to history endurance in the organization. This is needed because the change attempts are frequent and often override previous ones, including those backed by history, so without embedding changes may become temporary. The master brewer team were able to embed semper ardens into the organization well enough that it lived on in a new craft brewery project even after the beer using it as a label was discontinued, and as a marker of distinction used when announcing extraordinary team efforts or noteworthy events. Thus the motto lived on in its renewed form of encouraging a passion for improvement at Carlsberg. And passion for improvement is, we might agree, useful both for organizations in general and for beer brewers specifically.



Monday, January 30, 2017

Fertilizing Green Chemistry: How an Occupation Renews Itself

Green chemistry is a set of principles to make chemistry healthier, safer, and more environmental. It has made significant changes in how chemistry is done, and in a way that is very different from how we usually think of reforms in organizations. Usually we think of a powerful outside actor starting reform, like the state, not individuals in an occupation. Usually we think of reforms as a series of prescribed practices, not as principles that each actor translates into practices. With no powerful actor to prescribe and no practice to prescribe, it seems like a puzzle that green chemistry could even become important. How did it happen?

The answer is connected to a set of mechanisms that describe how occupations can change themselves, and is described in a paper by Howard-Grenville, Nelson, Earle, Haack, and Young in Administrative Science Quarterly. The method behind the mechanisms is based on two ideas: change is voluntary, and the people in the occupations are highly diverse. As a result, many people with different views and professional practices need to be persuaded. This is a common problem for social movements that seek to reform occupations from inside, so it is broader than the specific case of green chemistry. And, it is a complicated problem too, as green chemistry showed.

The advocates of green chemistry used three methods: 1) portraying it as normal, 2) explaining how it was morally right, and 3) saying it was a pragmatic approach. Each of these three methods had limited success because they were tailored to specific chemist roles, but in total they were effective because they covered key roles in the occupation. Normal portrayals matched the chemistry professionals as being innovators. Moralizing worked through the teaching role that many of them had. Pragmatic matches their role is industrial problem solvers.  Any chemistry professional might spend some time in each of these roles, and some were heavily dedicated to one of them, making them open to influence through these different methods.

But using three methods has one disadvantage: they are inconsistent, and this is easy to recognize. The inconsistency of the methods also led to inconsistency in the principles – imagine how much stricter the moral approach was – and lack of clarity in how one could do green chemistry. However, the inconsistency was not enough to make green chemistry fail. Because many chemistry professionals accepted these principles, as a result of any of the three methods of persuasion, they instead turned their focus on how to make them consistent – either by finding ways to integrate them, or by finding ways of switching focus depending on circumstances.

This is interesting because it suggests that internal reform does not work the same way as a political movement. Political movements thrive on apparent consistency in messaging and principles, and will typically try to solve (or deny) inconsistency before turning to advocacy. Occupational movements do not need consistent messages, but rather that each individual occupation member is convinced. They will later find ways to solve the inconsistency, because occupational members – unlike political movements – encounter inconsistency in their daily work and are used to finding solutions. Green chemistry has succeeded through a combination of persuasion methods followed by problem solving.