Thursday, May 25, 2017

The Reaper is Sociable: Leadership of Extravert CEOs

There are two important trends in the world of business today.  The first is that traditional large corporations are gradually becoming less important, as new technologies, improved markets, and better financing allow smaller firms to be founded and operate more easily. My predecessor as editor of the journal Administrative Science Quarterly, Jerry Davis, has written a book on that. There is also another trend that seems to indicate that the opposite is happening. There is a small set of extremely large corporations in services, industry, and finance that are amassing exceptional power. Added up, these trends mean that the number of somewhat-large, but not the largest, corporations is declining.

One result of these trends is that researchers are now looking more closely at CEO personality, because in both the smallest and the largest firms any departure from rational decision making is very consequential. It can destroy a small firm, and it can wreak havoc on the world around a large firm.  A paper in Administrative Science Quarterly by Malhotra, Reus, Zhu, and Roelofsen has now examined the extraversion of CEOs and how that influences mergers and acquisitions done by their firms. Extraversion is a personality trait and is one that we understand well and like a lot, at least at parties. Extraverts liven up the world around them because they are sociable, active, and very likable. This is a good thing, but also something that is hard to connect to management.

The connection lies in the less well known side of that personality trait. Extraverts are also agentic – it is very important for them to take care of their own interest and to get ahead of others. Sociability and likability are parts of that trait, because extraversion means that they get to dominate their surroundings.  And outside of parties, the same agentic traits can be reflected in them having clear goals to benefit themselves as much as possible, possibly at the expense of others, and of being skilled at persuading others that their initiatives are good. Does the extravert sound less appealing now, but also more consequential as a manager?

Acquisitions are a great way to test the consequences of extraversion because they eliminate the acquired firm and usually harm the acquiring firm, because on average, acquiring firms lose money by over-paying for the acquisition. As a result, a CEO with the firm’s best interest at heart will be very selective about when to acquire another firm and will typically focus on smaller acquisitions that help the firm acquire important technology, market access, and other missing pieces, while being relatively inexpensive because small firms are often overlooked, or even not listed in the stock market. But small firms are also boring, and not something an extravert wants to acquire in order to grow the firm fast and look good doing it.

So what did the authors find? Indeed extravert CEOs acquire more often, and they acquire larger targets. They are especially likely to do so when they have freer hands, such as when they are in less competitive industries or when they are powerful relative to the board of directors. Turn extravert CEOs loose, and you will see firms around them get eaten up. Of course, all of this would be OK if the acquisitions turned out to be a good thing. Do we know if they did? Well, extraverts got a more positive immediate reaction from the stock market than others, but let’s not believe that this means a lot. First, keep in mind that investors are just another set of people to impress, and extravert CEOs are good at that. Second, better reaction to one acquisition than others does not say much because most acquisitions are not welcome. Third, immediate reaction is very different from the long-term benefit of an acquisition.

So we know that extravert CEOs benefit themselves by getting attention from acquisitions, and by growing the firm so that they in turn can get paid more – a larger firm means better pay. We don’t know whether that helps the firm. And somehow, I can’t help but wonder whether our not knowing is something that the extravert CEO likes a lot.

Friday, May 19, 2017

Excellence in Research and Food: What we have learnt from Cattle Ranching

Administrative Science Quarterly is a research journal that for the last few years has published roughly 20 articles per year, which is slightly more than what some other journals will publish in 1.5 months. ASQ is very selective, yet we have found a way to be even more selective by also recognizing excellence in the articles we publish. Every year an award is given to one article for its scholarly contribution over the previous 5 years. These articles are available here, and I will give one example in this blog. It is about grass-fed beef.

Those who are into gourmet or health food dining will recognize grass-fed beef as specially produced to the cleanest, most environmental, and most original standards, and as being a premium product that can be obtained in the best restaurants and stores. They are unlikely to know that grass-fed beef used to be sold at a discount because it lacked the fat marbling and tenderness of beef from cattle produced the standard way, with a finishing period where the cattle were eating corn and grain in feedlots. How did the discounted product of the past become today’s premium product?

The answer is given in an ASQ article by Klaus Weber, Kathryn Heinze, and Michaela DeSouzey. It involves a social movement that helped drive forward activists and entrepreneurs who coalesced around the ideas of authenticity in farming, sustainable nature management, and using only natural materials and processes. All of these principles were in opposition to normal farming methods, which the activists saw as industrial, non-sustainable, and relying on artificial materials and approaches. These activists were a social movement, but they did not have a company, a set of customers, a way to market what was special about grass-fed beef, or even a clear way to earn a living. Instead, they produced a language, a social grouping, and a belief system that a set of entrepreneurs could organize around.

The next steps were creation of the new market for the now-premium product of grass-fed beef. Farms switched to grass-fed methods, often helped by other farms or by publications devoted to these methods. The entrepreneurs and other parts of the industry, including the social movement, created informal standards for how to conduct grass-fed farming. They sought out customers for the growing set of producers and volume of (now-premium) beef. Throughout this process, a social movement organized around ideas of protecting nature, preventing cruelty to animals, and promoting human health rallied resources in ways that created a new niche of an industry, and an opportunity for entrepreneurs.

The key insight from this research is the sequence of events: entrepreneurs with new ideas and products can in principle build markets through individual efforts, but it is difficult to accomplish. Once a social movement has made a cultural foundation, entrepreneurial effort is much easier, so it is accelerated and more likely to succeed. The sequence leading to the grass-fed beef you may be eating soon started with an idea and a language to use in making it a reality.

Thursday, May 11, 2017

Is Women’s Liberation for Men Only?

I understand that the title of this blog post is confusing and borderline annoying, so I will come straight to the point: There is new research evidence that women’s career opportunities can be made more equal to men’s if their male bosses think they should be. Not if their female bosses do. I think this is surprising and worrying enough that I should explain what is going on.

This concern is based on research evidence from a paper in Administrative Science Quarterly by Seth Carnahan and Brad Greenwood, and it is based on law firm careers. You might think that lawyers have specialized careers, and you would be right. They are specialized in ways that are useful for testing the theory, however, because the top-class law firms in the sample recruit very similar people, so there is little of the variation among employees that could be used to explain any differences between men and women. Also, heavy-handed discrimination is not possible here because lawyers know how to, you know, file lawsuits. As you can imagine, finding any discrimination at all between men and women in this context would be surprising and interesting. It gets especially interesting because we can use politics to find out what managers want, assuming that liberal lawyers have liberal views including gender equality and that conservative lawyers don’t. Donations to the Democratic and Republican parties are good measures of ideology.

So we know whether the managers (partners) are liberal or conservative, and we know the gender of the employees (associates), and that’s all we need. Carnahan and Greenwood went ahead and analyzed the data, finding that conservative offices hired fewer female associates. Liberals practiced equality in hiring, and the difference reached levels that can be measured even for these elite lawyers. Same story for assignments to task forces and for promotions: women are better off working for liberals.

But then the surprise comes: distinguishing between male and female managers, they found that the helping of women could be shown for only liberal male partners, not liberal female partners. So women’s equality in law firms seems to be for men only to decide. How is that possible? It seems unlikely that women partners care less, especially if they are also liberal. But how much change people make depends on how much they try and how much power they have. That’s where the men have the edge. There are more of them and they are in more senior positions, so ultimately what counts is how men view women’s careers.

Earlier I wrote one blog post on the book Lean In criticizing its depiction of women’s career opportunities and another blog post on research correcting this depiction. Lean In is too optimistic about women’s opportunities to make changes for themselves. This research presents one more problem for the Lean In idea because it suggests that what women think of themselves or of other women is less consequential because they have less power. Real-life careers are not about leaning in, but pulling up.

Friday, May 5, 2017

That Super Networking Coworker Really Is a Nuisance: Hurting (or Helping) Productivity

So let us start with a person we all know from work – the networking one, who not only knows all the coworkers who are natural to know, but also knows people far away in the organization. We often refer to people like that as brokers, because their position means that they can deliver useful information for work across the organization, in addition to gossip, of course. There are at least a few of them in any given workplace, and they can be a nuisance because of the suspicion that the networking they do helps them just as much as their work does – that they get ahead by talking, not working. Of course that suspicion is correct; researchers have known it for decades.

But there is more to the story, and there is new evidence from a paper in Administrative Science Quarterly by Julien Clement, Andrew Shipilov, and Charles Galunic. They looked at how the brokers who connect to and also work in different communities affect the productivity of other workers in creative organizations – specifically, TV game show production. Now, creativity is one activity we know benefits from access to information elsewhere and from being a broker – again something we learned a decade ago, but only that the broker benefited, not whether the coworkers did. A study like this could show that the broker may seem like a nuisance but actually is a help because of the information brought in from afar.

That is almost true, but not quite. It turns out that brokers who also have commitments in the communities to which they connect help their nearby coworkers who are involved in creative tasks but not their other coworkers who need their contribution to production tasks. Most workers in any given organization are not creative workers; they do work that helps the operations of the organization. They make goods and services happen. Brokers are unlikely to be helpful for them, because they already know what they need to know, and the broker going around asking questions and sharing gossip is really not useful in any way. But maybe the broker is doing no harm, so their productivity is the same whether or not they have a broker nearby? Sorry, no such luck. It turns out the broker actually hurts the productivity of coworkers doing non-creative tasks.

Brokerage is an organizational task that helps the person doing it, helps creative people who are in touch with that person, and hurts the rest. The broker not only seems like a nuisance but is one too. This is a dilemma, of course, because organizations need ideas and action. Ultimately it is a familiar dilemma in all things organization: anything we can do to help one set of activities is likely to hurt different activities. Sounds like organizations need managers.

Friday, April 28, 2017

Putting It Together: How Organizations Handle Conflicting Goals

Airlines want to be safe, friendly, and profitable. Maybe not in that order, but all three are important.  Luxury brands in cars, clothes, bags, and watches all want to be exclusive and high-selling. Both at once, of course. These combinations involve conflict among different goals, which means that at some level there has to be a compromise. Saying that compromise is needed is not enough to understand it. How and when will United Airlines make a compromise between friendly and profitable without, for example, compromising the friendly part? And how does Rolex make a compromise between exclusivity and high sales?

The answers to these questions involve both a final outcome and a process of reaching a compromise. Now we know more about the process, thanks to a paper in Administrative Science Quarterly by Carlo Salvato and Claus Rerup. They look at product development in Alessi, the Italian company making all those household items that either you or someone you know has purchased. They make products with great designs that are inexpensive relative to the price of many comparable products, and at least in principle it is pretty easy for other makers to produce legal (or illegal) variations of them.

How does Alessi combine the goals of artistic design and effective manufacturing? We can see the results – egg holders, for example, that are wonderfully playful and well designed but obviously inexpensively produced. The process is harder to see, and that is exactly why some firms like Alessi can put these goals (and products) together very well, but most competitors cannot. The process involves three steps, which function to blend goals and routines in a way that creates a balance between them. First, splicing means connecting routines associated with different goals – like bringing a visionary designer in contact with how things are made. Second, activating means using routines that make people take each goal into account and consider how they can be balanced. Third, repressing means using routines that simplify tasks that benefit some goals while drawing people away from other goals.

Splicing, activating, and repressing are actions that can be taken any time, one by one or in combination. That is not the way to create consistency in how an organization puts things together, however, because if they are done through improvisation the results will differ every time. That is exactly why routines are involved in splicing, activating, and repressing, because routines mean that the same or similar results can be expected every time. Managers can help design and redesign the routines so that employees handle goal conflicts well. 

The results are easy to appreciate. Alessi is consistent in how they do things, which means that every new product is an artistic surprise, but we know it will be economically made too. United Airlines is inconsistent, so flights don’t always avoid dragging passengers off, nor do they always involve passenger dragging (fortunately). We all understand that conflicting goals involve compromises.  As long as the compromises are consistent, we know what we are getting and can make informed choices. In the long run, the consistency is more important than the goal resolution itself.

Thursday, April 20, 2017

Fair Play and Racial Bias in the NBA

In most National Basketball Association (NBA) games, we see a white coach on the sidelines and mostly black players on the court. We also see players being benched and put back in depending on how well they play, their foul trouble, and the matchup with the other team. Except for the oddity of having a league of mostly black players produce mostly white coaches, the NBA looks like it is ruled by performance only, because winning is so important and performance is so easy to assess. But it is ruled by more than performance. White coaches use white players more than they should, and black coaches use black players more than they should, compared with others who perform equally well.

This is not a special feature of the NBA. Favoring workers of the same race is well known and happens everywhere, for three different reasons. We now know more about it because a paper by Letian Zhang in Administrative Science Quarterly has looked at this unfair treatment and explored it in detail never before seen. The findings are important for any kind of business because they show the origin of same-race favoritism, how it can be reduced, and why there are limits to reducing it.

First consider the origins of this favoritism. Many people think that preferential treatment occurs because employers judge each person as being as good as the average person with similar characteristics. This explanation is often used for why women are treated less well (supposedly they are less stable employees than men) and can also account for racial preferences. But in this case, this explanation falls flat because black basketball players are on average better than white. A variation is that employers look at each person as being as good as they think the average is for someone with those characteristics, but they are wrong about the average. For example, managers may think that women are less stable, but their estimate is off because men, who (granted) get pregnant less often, quit more often than women. Both of these reasons for favoritism should adjust quickly once a manager gets to know an individual’s performance, which happens very fast in the NBA because of the excellent statistics on player performance.

But there is another reason for favoritism that is more insidious: racial preference. Simply put, people prefer to interact with others of the same race. Looking closely at the data, Zhang found that in NBA playoff games and close games, race no longer influenced someone’s playing time; only performance did. That’s exactly what we would expect from racial preference, because it is easier to treat workers unfairly when the stakes are low.

So how can this effect be reduced? Well, time reduces unfair treatment. In the NBA, the unfair playing time is reduced the longer a coach works with the same player, but it takes more than two years for a player to be treated almost fairly by a coach of another race. This length of time doesn’t match up with performance knowledge, but it matches something else: managers have a harder time treating someone unfairly when they get to know that person well enough to see him or her as an individual, not as a racial stereotype. This is the “good black player” effect in the NBA.

But if managers can start treating someone of another race fairly after a period of time, will they then start seeing others of another race as individuals, too, and treat them fairly sooner? The answer is no, at least in the NBA. Getting to know someone of a different race as an individual does not mean that fair treatment is extended to others; they still have to prove themselves one by one. And that should give pause to all organizations, because it says that even the NBA, with its highly integrated teams and its careful and timely objective performance measures (not to mention the high stakes), has a remaining racial component in the treatment of workers.

The conclusion is clear, and different from what many organizations do. Fair treatment is so hard that it is not possible to rely only on the immediate supervisor; there also have to be formal processes in place to make sure it happens.

Thursday, April 13, 2017

Think about Thinking: How Management Models Stay Relevant

Have you ever thought of how easy things are for physics researchers? The laws of physics have stayed pretty much the same through the entire history of the discipline of physics. The only significant change is that researchers have gained better theory for understanding them and better tools for testing the theory. Lucky them.

In contrast, management scholars face constant change in the world of organizations, because what goes into organizations changes – technology, people, and laws – and what organizations try to influence in their environment changes as well – especially markets, but also technology, people, laws, and so on. As a result of all these inside and outside changes, organizations change, and the laws of organization (yes, they exist) change over time, too. We have known this for a while but have not known how. A new paper in Administrative Science Quarterly by Zlatko Bodrožić and Paul Adler looks at how they change.

They focus on technological revolutions, which may be the most decisive influence because other factors (like people and laws) often follow. Just compare the work of coal miners (whom the president sees as important for the future of the U.S.) with computer programmers (the present and future of India). Coal miners work in rigid hierarchies with clearly defined processes because of the safety concerns and communication difficulties they face, and they also face highly mechanized work that requires them mainly to serve their tools. They are an extreme case of the factory, which has its own set of theories that solved many problems 100 years ago but are now barely taught, though their insights survive in mines and factories. Computer programmers are organized in groups with clearly defined tasks but full freedom to design the solution and the process for arriving at the solution, and they face a knowledge-based, communication-heavy workplace in which people create and use intergroup networks to assemble and use knowledge. They work in network organizations, which have their own set of theories that are slightly more recent than the explosive growth of such workplaces.

Every time a technological revolution happens, existing theories begin to fail because they address the wrong kind of organization. The failures are recognized by scholars, who then start building new theories for the new reality. Often spurred by visible problems in organizations, they recognize that the new problems are different. They try to find theoretical solutions to these problems and test them, finding that many are wrong but some are right. As the research accumulates, science proceeds as usual and the best models are agreed on. Then these models are spread, first within the community of scholars and then to the practice of management. Because it takes a while to go through these steps, the period after any technological revolution is one in which few people know enough, though many – both scientists and managers – think they know a lot. The laws of organization have changed, and we need to find the new ones.

So, physics scholars really do have an easier job than management scholars. That’s pretty obvious. What is less obvious is that when we hear some entrepreneurs leading major web-based businesses complain about the uselessness of business schools, they are half right and half wrong. The right part is that researchers are catching up, so the schools clearly know less about their business than about coal mines, or even software outsourcing firms. The half wrong part is that they don’t know, either – it is possible to be right about a decision without knowing why – and scholars will soon catch up and know this technology and its organizations well.