Friday, December 15, 2017

Open Innovation and Closed Minds: Why NASA Used Open Innovation Sometimes but Not Always

Open innovation is heralded as a way to advance technology and product innovation quickly and cheaply. It is modeled on the open source software movement, which is based on computer programmers donating their time to build software components, check their own work, check others’ work, and correct mistakes. Among the famous software suites made through open source, Linux is a computer operating system that is used in everything from cellular phones to web servers, and is often involved when you are retrieving and reading blog posts like this one. Open innovation extends this model to innovations outside computer programming by organizations posting problems that anyone interested can help solve.

The idea is to use volunteer efforts to get innovations for free (almost a Dire Straits lyric), which sounds like a good deal. Unfortunately, this has proven difficult for many organizations, and research in Administrative Science Quarterly by Hila Lifshitz-Assaf has found out why. Her careful study looks at an open innovation initiative in a very innovative high-tech organization: NASA. In 2009, NASA tried an open innovation experiment that led to some speedy, inexpensive, and impressive solutions. But its relationship with open innovation since then has been inconsistent, with some NASA professionals using it to great success and some not. Why the difference?

In a word, the difference is identity. Innovations are typically done by highly educated people who are trained to follow careful processes specific to their organization and to their scientific and technological specialization. These people have a professional identity built around their unique skills as problem solvers for the organization. For people with such an identity, what does it feel like to have amateurs solve problems instead of them? Open innovation draws much of its strength from individuals who may lack formal education, don’t follow the predefined process, and aren’t even employees of the organization. Naturally there is an inherent conflict between the insiders and the open innovation use of outsiders, and some insiders are tempted to seal the organization off from the outside sources of innovations.

Why did some parts of NASA embrace open innovation? Again the answer is identity. Those who could redefine their professional identity to be a solution seeker, not a problem solver, became adept users of open innovation. For a solution seeker, the existence of a solution is what matters – not who made it, and not how it was made. It is a completely different way of thinking of oneself and of solving problems.

The division between problem solvers and solution seekers resulted in NASA professionals adopting various approaches to the open innovation initiatives advocated by their leadership. Problem solvers maintained boundaries, either explicitly or through the pretense of openness but actual closure. That way they could maintain their focus on their individual efforts and internal innovations. Solution seekers looked for outside solutions, sometimes simply embracing externally developed solutions, and sometimes adapting external solutions so that the final solution became a mixture of outside and inside effort. Problem solvers may hold tight to their identity, but open innovation is sure to continue gaining ground. “Get your innovations for nothing, get your praise for free” is an appealing tune.  

Lifshitz-Assaf, Hila.2017. "Dismantling Knowledge Boundaries at NASA: The Critical Role of Professional Identity in Open Innovation." Administrative Science Quarterly, Forthcoming.

Thursday, December 7, 2017

Minimally Invasive Investment: How Ventures Interact with Investment Partners

Of the many kinds of new businesses that are created every year, researchers and policy makers have been most interested in the ones that pursue innovative technologies and market opportunities. They are the ones with the greatest impact on the world, and much effort has gone into studying what makes them innovative. But let’s take a broader view on this question. What if firms around them also affect their innovation – specifically their investment partners, firms that supply them with money and expect returns from their innovations? The answer would be especially interesting if different investment partners had different effects. And as it turns out, they do.

An article in Administrative Science Quarterly by Emily Cox Pahnke, Riitta Katila, and Kathleen Eisenhardt shows how this happens. The important difference is how each organization doing investment has people trained in specific ways, and adhering to specific norms, as a result of their recruitment and career histories. For innovative ventures, venture capital (VC) firms are special because they invest in potential – in firms that could easily fail, and usually do, but have very significant profits when they succeed. VCs are different from sources of corporate venture capital (CVC), which are investment arms of corporations. They are special because they invest in fit to the corporate strategy – firms that develop products and technologies that match so well that they can become integrated into the corporation or at least use its resources well. Then there is the third kind of special investor—government agencies. They are special because they are interested in science and technology with significant societal impact.

Pahnke, Katila, and Eisenhardt looked at what happened to ventures after receiving funding from each of these sources by examining a specific high-technology industry—medical device firms developing products for minimally invasive surgery. The results were clear. The commercially oriented VC investors were good at exactly that. Their firms launched more products after the investment but did not get more patents approved after the investment. The strategically oriented CVC partners were not good at anything that could be measured independently of their strategy. No more patents were approved, and no more products were launched. That does not mean they weren’t good investors, because they could well have selected and improved the strategic fit of their firms. The government was not good at product development, having no effect there, and appeared to harm patenting, with a reduction in patents after entering the investment. That seems bad—but it is actually unclear, because government may be interested exactly in the type of scientific development that is useful for society but hard to turn into patents that give commercial benefit.

So what is going on here? We can tell that one type of investment partner – VCs – has clear and measurable goals and is good at accomplishing them. For CVC and governments, it is harder to tell. Either they are not doing well, or their goals are not exactly what we can measure. Looks like an interesting topic for further research, because each of these investment partners places big bets on our future.

Pahnke, Emily Cox, Riitta Katila, and Kathleen M Eisenhardt.2015. "Who takes you to the dance? How partners’ institutional logics influence innovation in young firms." Administrative Science Quarterly 60(4):596-633.

Friday, December 1, 2017

When Nanotechnology Shrank: How Communities Police the Boundaries of Their Field

It is ironic that I should write a post on how communities of science police the boundaries of their field shortly after writing a blog post on how nations hurt themselves by policing their boundaries. But a paper in Administrative Science Quarterly by Stine Grodal has exactly that theme and some important conclusions. Plus, it is about nanotechnology, something we have heard about and think will shape the future of the world but don’t understand well.

In fact, what I just wrote echoes the start of the nanotechnology field. It was a term coined and advocated by futurists, it was and still is claimed to be a source of advances in science, technology, and business that will change individual lives and society, and it has been redefined many times. The redefinitions of the field are important because they are partly a consequence of these futurists and others with an interest in the term, especially the government, grappling with the question of how best to define the boundaries of the nanotechnology field so that it attracts the right kind of support from others and makes the kind of advances that are desired.

Nanotechnology became a very successful field, in part because of government intervention in the traditional way: giving out money to those engaged in research on nanotechnology. The other source of success was interest in nanotechnology companies from venture capitalists, who expressed their interest the same way: they provided money. This initiated an identity crisis because it soon became clear to the futurists that there were many in the world with little interest in their vision but significant interest in money and other resources that were becoming available, and they had the ability to fit their activities into the loosely defined field of nanotechnology. After all, entrepreneurs are well known for creativity in the pursuit of funding, and scientists are (this is less well known) extremely creative in the pursuit of funding.

The result was a backlash. The creators of the field, the futurists, looked at all the newcomers and their flexible definitions of nanotech, and thought they were changing the meaning of the term and were pursuing different futures than the one originally envisioned. Government officials saw a flood of funding applications and realized that the topics were too spread out to provide any kind of consistency unless the funding agency enforced it. Government interest in nanotechnology started with the futurists’ initiatives, so officials could ask the futurists for help in making a stricter definition of the field. The futurists were pleased to help, given that the field was losing clarity and they were losing funding as competition increased. Interestingly, even some interlopers such as scientists and entrepreneurs started rethinking the meaning of nanotech, seeing it as too trendy a term and not well enough connected to their work.

Nanotech started out as a word with a clear symbolic vision and few adherents. Money was added, and it became unclear and populated with many newcomers, members of peripheral communities. This makes sense. The next step is the surprise, because everyone in the field started looking around and seeing a need to sort things out. The founders and funders of the vision stayed, and the newcomers started leaving. That’s how nanotech shrank, and it could well be how many other fields expand and contract over time.

Monday, November 27, 2017

Improving Evidence Presentation: An Example and Some Tips

This is an unusual blog post because it is on how to do research, not on what we have learned from research that has been done. Well, there is also something on what we have learned. I think it is very important that researchers show the data in their manuscripts by making graphs that show the reader the phenomenon and their explanation of it. This is not easy to do currently because management journals like models more than they like graphs, and models don’t show the data as clearly as graphs do.

As the editor of Administrative Science Quarterly, I am encouraging authors, associate editors, and reviewers to use more graphs. I also do it as an author, and this blog post is about a paper in Advances in Strategic Management that I wrote with Seo Yeon Song. We analyzed the ebook business, and our starting point was that there is a big movement toward self-publishing and indie (independent) publishing there, with an increased market share relative to the Big 5 publishers. Here is the graph showing this change:

How did we explain the change? Big 5 publishers can pay for advertisements, unlike indies, so indies must have some other advantage. We thought it was their readers rewarding good indie books with tweets and reviews on the website. Here is a comparison of how Amazon reviews affect sales of Big 5 and indie ebooks:

See the difference? Indies don’t have advertisements to support sales, so each new review increases their sales more. This is something that can be seen from the data without any modeling. Of course we also modeled the data. I won’t show the model here, but instead show a graph comparing the effect of Amazon reviews (the count), Amazon review score, tweets (the count), and sentiment (how positive they were). It is easy to see the results, right? Amazon reviews have a much stronger effect than Twitter posts.

Finally, here is a graph that shows the review effect in a model that extracts all other effects we could control for, such as the tweets. This is called a residual graph, and it can be used to check how much of the relation between the reviews and sales is explained by other factors. The answer is… almost nothing. This graph (a residual graph) is visually nearly the same as the earlier one. It also shows how much is left to explain by other factors that are not yet in the model, which is clearly a lot.

Well, this was a short story about ebook sales, but the more important point is that researchers can show their findings well just by graphing the data. If you want to see the program that made these graphs and some sample data to use it on, click here and here.

Thursday, November 9, 2017

Going Back and Doing Good: When Foreign Workers Return Home

Here is an interesting contradiction: Some politicians say that relying less on foreign workers will make their nation more competitive, but in fact it makes the workers’ home country more competitive. Notice that I said contradiction, not paradox, because it is not a paradox at all. It is logical, and it is supported by recent research.

Here is how it works, as explained in an article by Dan Wang in Administrative Science Quarterly. Foreign workers are often used by highly advanced and competitive firms, because those firms are best positioned to take advantage of a worker’s skill wherever it is found, and to transfer it to wherever it is needed. They also have excellent production processes, advanced technologies, and knowledge on how to best operate these. Sometimes their foreign workers go back to their home countries (usually voluntarily). What happens then?

The start is quite simple. These workers may be holding knowledge of great value to firms in their home countries, so the key is whether they can make a knowledge transfer back home. The firms that hire them, or the new firms they form if they become entrepreneurs, will benefit from their knowledge. But the full story is not as simple as the start. These workers differ in how well connected they are to others, in the companies they worked with abroad, and in the companies they work with after returning. Their personal networks differ in how many people they know and how well they know them. It turns out that knowledge transfer depends greatly on these connections, because the greatest transfers happen when a worker is highly connected both abroad and after returning home.

The conclusion is clear. Playing the competitiveness card may be a good way to cater to xenophobia among voters, because those who prefer fewer foreigners around like to hear reasons for their dislike. (Even if the excuse isn’t true, it is nice to have an excuse.) But competitiveness is not a valid reason to send foreign workers home.

Wang’s research had one more important conclusion: it was not just personal networks that made knowledge transfers effective, but also an absence of xenophobia in the home country. Now the contradiction becomes even more interesting. Xenophobic policies of sending people home may be phrased as helping competitiveness, but they usually hurt it — except when the workers come from a country with xenophobic people, because then the knowledge they have won’t transfer back. Xenophobia is a lose–lose proposition.

Friday, October 13, 2017

Humility Empowers: How CEOs’ Attitudes and Actions Cascade Down the Firm

Managers are often given advice that combines research-based buzzwords with fundamental misunderstandings. Empowerment is a good example. The word contains “power,” and advice is usually given to those who feel a need to improve, so it was perhaps inevitable that empowerment should be associated with ideas of individuals becoming or feeling empowered through some action of their own, such as attending a course or a coaching session on how to become empowered. That’s not what empowerment means or how it works: people are empowered when someone else gives them power and authority to make their own decisions.

The distinction is important because if empowerment improves organizations, then we should start by looking at the person who empowers others. That’s exactly what was done in research published in Administrative Science Quarterly by Amy Ou and collaborators. They looked at how a CEO’s humility could empower others in the firm. Their central insight is simple and powerful: a CEO’s humility makes it easier for the top management team to work together, because each feels empowered and comfortable, and that effect on the top management team cascades down the organization.

They found that the humble CEO is the opposite of the showy CEO in two key ways. First, the humble CEO does not dominate but instead is understated and makes it easier for the closest executives to stand up and perform. For example, the humble CEO does not make public performances and speeches to the whole organization but instead lets the empowerment of the closest executives cascade down. Second, humble CEOs encourage communication to give shared understanding, which in turn lets subordinates feel motivated and confident about their decisions and helps their managers trust their judgment and commitment. This cascading down of shared understanding and trust can bring whole organizations together more effectively than inspirational speeches by showy CEOs.

There is much about that research that appeals to us, because most of us share the suspicion that showy, self-promoting, narcissist CEOs must be flawed in some way. Yet such CEOs are very common, and part of the reason is that it is easier to imagine people who make a big impression also having big effects on the firms they lead. Humility is such a low-key behavior and such (what else can I say?) humble thinking that it is hard to imagine it having a big effect. But it does. How?

The keyword is empowerment.  Humble CEOs empower their top management teams. Empowered top management teams create an organizational climate that empowers workers all the way down. A top management team that has been empowered and in turn empowers others creates norms that are so strong that it is hard to be an authoritarian manager. That’s how humility has big effects on organizations: it creates an expanding circle of empowerment.

Thursday, October 5, 2017

Post the Job or Slot a Person? It Depends on Whether You Want Performance

Five years ago, I posted a blog on award-winning research showing that firms pay more and get less when hiring from the external labor market. The reason is that managers know more about their current employees, and they overestimate the value of external hires because they focus on their formal qualifications. When it comes to filling jobs internally in the organization, a manager still has to choose between placing a known worker into a job or posting the job and assessing applicants, who may or may not be familiar to the manager. With internal hiring, do managers still undervalue the workers they know?

Research in Administrative Science Quarterly by JR Keller answers that question. He looked at the difference in job performance and pay between jobs that were filled through posting and applying, and jobs that were filled through the manager picking someone (slotting).  Managers could choose which way to fill each job, and naturally they used slotting when they knew someone who fit and posting when they were not so sure. This is the same as choosing between internal job mobility and the external job market, because managers pick internal candidates when they know someone who fits the job and hire externally when they are not so sure. They also have more candidates when posting, and they know less about the applicants because they are usually from other parts of the organization. In every way you can imagine, the choice between posting and slotting is similar to the choice between external and internal hiring.

So how wrong is it to fill an internal hire through posting instead of slotting? Here is the surprise: It is not worse to fill by posting, but better. Posting means higher job performance, both absolute and compared with others. It means lower chance of leaving the job, except for leaving for a promotion, which is more likely when filling through posting. Oh, and it also means higher pay for the employee filling the job. So, for the employee this looks like a good thing; more pay and better chance of a promotion. For the firm, it looks like paying more to get more, so the net effect depends on how much more the firm is getting. In this case the answer is easy because the lower turnover from the job alone shows that the firm benefits from using posting. The better job performance is icing on the cake.

But this raises the question of why markets work better inside an organization than outside it. What is it that the manager can see better when posting internally? The answer is, nearly everything. Organizations know a lot about their employees, and this knowledge is readily available when filling jobs through posting. Not only that, the posting process forces the hiring manager to think carefully about what information to use and how to weight it in the decision, giving a more systematic and higher quality choice. All the information is there, and posting gives more choices and a better choice process.

There is an important lesson in this that goes beyond filling positions. We often have beliefs about the benefit of markets relative to social arrangements like networks. We forget that there are many kinds of markets and many kinds of social arrangements, and ultimately decision making comes down to what to choose from and how to make the choice.

Posting and Slotting: How Hiring Processes Shape the Quality of Hire and Compensation in Internal Labor Markets. Administrative Science Quarterly: forthcoming.