Friday, December 16, 2016

Lean in or Lean out? Unfair Treatment Stops Women’s Careers in Many Ways

We have by now learnt a lot about how women’s careers are held back by unfair evaluation and promotion procedures, and it gets worse at higher levels in the organization. The glass ceiling exists at some point before the executive suite, unless we are talking about the more symbolic executive offices that are seen as good women placeholders. Women know this too. A centerpiece in the discussion about women’s careers is the book “Lean in: Women, Work, and the Will to Lead” by Cheryl Sandberg, COO of Facebook, which offers career advice for women to get ahead. Many women took the recipe-like advice as a way to behave more like men, in order to the get ahead the way men do. Others asked whether title “the Will to Lead” and its focus on women’s behaviors was a way of blaming the victims of a system set up to make them fail.

It is fair to say that the discussion of that book is a sideshow for most women with careers. They care about the hiring and promotion decisions that they are exposed to, and they doubt that these are fair. That makes sense: why should they be any different from the others?  Chances are that they have been hit by unfair promotion criteria at some point in their career.

Now research by Raina Brands and Isabel Fernandez-Mateo in Administrative Science Quarterly has revealed a cruel twist on this story. In turns out that people adapt their behaviors to the fairness of the system they are in. If they are treated fairly, they will reach for opportunities. If they are given signals that they belong in a group, they seek to join it. And once you think about those two mechanisms, it is obvious what happens to women seeking executive positions. They are not treated fairly and felt to belong, and the rejections from positions that they (often) should have gained discourages them from reaching for new opportunities. After all, who plays a losing hand? Naturally this accumulates over time, because more experience means more rejections, so exactly the women best placed to become executives are most likely to think they cannot reach that level.

This is not just a story about women. Unfair treatment can hold back a group in the short run. In the longer run it creates discouragement and resentment, and the members of the group starts holding themselves back. They are leaning out of the unfair
system, looking for better places to work. The labor market gets split as they avoid the career paths with unfair treatment, and organizations need to fill their positions from an increasingly narrow and less talented pool of applicants. The firm that shows through its hiring that it has a problem with female, black, Muslim, and Hispanic job applicants will learn the long-term consequences of narrow hiring.

Sunday, December 4, 2016

Probing the Protests: Firms can learn to Avoid Activists

Often we see popular protests against firm initiatives. Recently the Standing Rock Sioux tribe and environmentalists organized protests against the planned Dakota Access Pipeline, which was scheduled to run through sacred grounds and across a river. The project has been suspended not because of protests, but because the Army Corps of Engineers blocked the measure needed for it to be legal. Could the construction backers have understood that the pipeline routing would lead to protests? In retrospect it seems obvious that an oil pipe through sacred land would be seen as a rough equivalent to an oil pipe through a church, and would lead to some anger. But the more general question is, can firms learn to avoid provoking activists?

It turns out there is research showing that such learning happens, at least for firms that are experienced with protests. An article in Administrative Science Quarterly by Lori Yue, Huggy Rao, and Paul Ingram studied the combination of two events: protests against Wal-Mart Inc. store development proposals and subsequent Target Corporation filing of store development proposals. This sounds complicated, but it is a really simple sequence. Walmart needs to file a proposal and have it approved in order to open a store (stores are big projects). After a proposal is filed, there can be protests against it (many dislike the idea of a nearby Walmart store), and Walmart can then decide whether to stop planning for the store. Walmart is known to file many proposals, and has a pattern of probing for places that are “protest-safe” by the seeing whether there is a protest or not.

But in our sequence, the next step is to see what Target does if there is a protest after Walmart’s filing. Here it gets interesting. For Target, it could be a simple rule to just avoid places with protests. In fact, they found that Target does avoid places with protests, but it was also learning in smarter ways. First, because Target knows that labor unions are uniformly unhappy with large low-price (and low-wage) department stores, it pays less attention to union-organized protests than to protests from other local groups. Second, it distinguished between protests that specifically paint Walmart as evil, versus those that are against any large store. Target is likely to enter when protests are specifically against Walmart, but to avoid places with protests against big stores. So, Target learns as much as possible from each protest.

And Target is even more sophisticated than what I just wrote. These learning patterns are what Target uses for locations that they are not familiar with, so they need to use protests to learn instead of relying on own local knowledge. If Target already has knowledge about a location, it ignores the protest and goes ahead with its own plans based on the commercial promise and its own assessment of risk.

Clearly, a corporation needs to be pretty unpopular (and to have unpopular peers) to become this good at learning from protests. And equally clearly, protests are not just temporary solutions, they are also signals that firms pay attention to and learn from. Protests have a deterrence effect, just as proposals have a probing goal.

Sunday, November 27, 2016

Kickstarting the Disadvantaged: Activism in Venture Funding

Research and news tell the same story: there is discrimination both in employment and in business. Women are few and far between among executives and founders of technology firms, and claims of bias are often made, especially in Silicon Valley. On the financing side, venture capital firms appear to disadvantage women in executive roles. #AirbnbWhileBlack is a hashtag collecting discussions of discrimination, and has led to Airbnb examining its processes for retaining hosts.

This looks like a problem for women seeking to start businesses, especially if those businesses are in industries with few women to begin with, like high technology. Even worse, the tendency to favor similar people to oneself – homophily – could make this even worse. Interestingly, a recent article in Administrative Science Quarterly by Jason Greenberg and Ethan Mollick has found a counter effect. The idea is that if a minority thinks that it is discriminated against, it will be especially supportive of its own members. It will not only favor its own, as all groups do, but it will do so in an activist way. If this happens, being recognized as a disadvantaged minority – like women in technology – will lead to better treatment, at least from members of the same minority.

Does it happen? It is not clear whether this is always true, but one good place to look is in crowdfunding, where ventures and their founders are presented to a “crowd” of any interested funder, and they in turn decide what ventures to back. And indeed, women Greenberg and Mollick found that women targeted women’s ventures for funding, and did so especially for industries were women are known to be scarce. So, women especially supported other women not in fashion or publishing, where women are frequent business founders, but in technology, where they are scarce.

This is clearly not a reason to think that discrimination will balance out. Crowdfunding is the form of funding where this type of activist support is most effective, but most venture funding is not done through crowds – and we already know that venture capital firms, for example, have mostly male executives. Also, activist funding does not have large effects when there are few women funders to begin with. So, we can conclude that this provides some relief, but it is a less fair solution than simply evaluating ventures on their merit.

Sunday, November 20, 2016

Getting the Orange out of My Head: How Respect can set Inmates Free

Organizations can have very different work environments, including differences in the respect they give to employees. Organizational cultures differ, and managers differ, in whether they see employees and valuable and how well they acknowledge this. Many organizations think that it makes a difference – notice how I used the word “employee” just now, but actually words like “colleague” and “team member” are frequent in actual work. Does this matter?

For an example of how much this can matter – in a very special context – a recent paper in Administrative Science Quarterly by Kristie Rogers, Kevin Corley, and Blake Ashforth looked at an organization that operates professional call centers as part-time work for selected inmates in prisons. Every day inmates go to work in their orange jump suits (yes, just like in the TV series). Every day they go back to the prison wing after working. But this work is not like the demeaning chain gangs that we see in some old movies; the organization (Televerde) values its inmate workers and gives them both encouragement and respect.

So what happens? The respect they get from their Televerde managers, and from customers, changes lives. They get a specialized respect based on the value of the work they do, and their performance, and this gives excitement and self-respect. They get general respect from being seen as real people with lives and accomplishments, not inmates with orange jumpsuits and numbers, and this gives ideas of a changed and improved life. Together, these two kinds of respect, and especially the general one, puts the inmate-workers on a path toward removing themselves from their identities as current and future inmates, and attaching themselves to a new identity as a professional doing legal and respected work out of prison.

It happens impressively fast. These changes were easy to see over a period of less than a year (for most it was much faster), even though the Televerde workers were still in the prison wing, with their old friends and controlling prison wardens, every day after work. As part of the identity journey, they needed to transition from their old thinking habits – the orange in their heads – to a new way of seeing themselves as part of a regular civil society that they could not yet reach because it was outside the prison walls. Remarkably, they were able to not just see their inmate identity and their worker identity as separate beings coexisting in their minds, they also could shift to a new and holistic identity that would guide their lives after they were released from prison.

Giving workers respect is seen as important also in regular organizations, with no inmate workers, but there is a certain degree of cynicism about its effect, and there are also managers who don’t think it matters. After seeing how transformative it can be under these conditions, when it is done honestly, maybe it is time to reconsider.

Monday, November 14, 2016

What If Everyone Learns From Others? Finding Fool’s Gold

So the US election ended with a Trump win and wild swings in the stock markets. The Dow Jones fell from 18,200 to 17,900. Then, less than a week after, stock prices rushed back up and passed 18,800. What happened? Let’s start with the simple observation that we were observing stock sales and buys by investors, who sell and buy for profit, and who have a lot of experience selling and buying. These wild movements were not a result of ignorance, and not a result of playfulness either. Investors chasing value drove prices down and back up, and lost and gained money. And, this was not a unique event, we are familiar with dramatic price changes as the market responds to uncertainty.

What drove these events was in fact a fundamental process that has been studied long, and we can go back to a paper by Hayagreeva Rao, Gerald Davis, and myself in Administrative Science Quarterly in 2001 to learn about it. People making decisions under uncertainty try to learn ways to reduce uncertainty. When they are looking for value, one way is to learn from others. After all, if we see someone moving toward one option, or away from it, their decisiveness could indicate that they know something that we don’t know. But people can be decisive for many reasons. They may have correct knowledge. They may have incorrect knowledge. They may be impatient. But learning from others can be very tricky when those others act on incorrect knowledge or impatience. This was known before our study.

What we found went one step further. Learning from others is especially tricky when those others learn from others. In that case, it is enough for some people to make decisions without correct knowledge. Others do the same learning from them, and then others do the same learning from those who learnt from them. And so on. See how this can make stock markets plunge, with very little basis in fact? Or increase? In fact, our research was based on stock market actors – not investors, but stock analysts. They want to cover firms that are good but overlooked, because analysts are most useful for investors if they give scarce information on valuable opportunities. But we found that when analysts were chasing valuable firms, they were in fact only chasing other analysts. And the later they were in learning from others, the less valuable were the firms they found.

This is a problem that extends much further than stock markets, though it is easier to  prove there than elsewhere. Learning from others is a good strategy as long as it is not over-used. But, those who learn from others typically don’t stop using that strategy soon enough, so at some point it becomes costly. Again and again we see people, and firms, chasing fool’s gold: opportunities that looked good to the first who entered, but only because of incorrect information.

Monday, November 7, 2016

Being Led by a Narcissist: What Will Happen?

A narcissist is someone who has an inflated perception of oneself, and will give exaggerated accounts of own capabilities, past accomplishments, and ability to predict and change future events. Narcissists have, to put it colloquially, huge self-esteem. Clearly this suggests leadership as an appealing career path for narcissists. After all, leaders are looked up to, which confirms what the world should be like for narcissists, and leaders can accomplish great deeds, which narcissists are confident they can. That does not mean that CEOs of firms are narcissists in general. CEOs typically are not given the firm by dad; they are career managers who get their position based on a track record of success. Some degree of randomness is involved in who wins, but it also helps to have a realistic view of oneself and the world, and narcissists fall short on that dimension.

Still, there are enough CEO narcissists around that it is possible to do research on them, and thanks to an article by Arijit Chatterjee and Donald Hambrick in Administrative Science Quarterly, we know how they lead. The key question to pose is how CEOs learn from experience – do they become more cautious by low performance, and bolder by high performance, as one might expect and want a firm to do? After all, adjusting actions to feedback is an astute way to behave both for individuals and firms.

Intuition suggests that narcissists don’t respond much to feedback because they are already convinced of their own greatness, so they will ignore evidence to the contrary. The research showed that this intuition is only half right, and this is where things get interesting. It is true that narcissists are unresponsive to indicators of their own performance – objective indicators, the kind that one should learn from.  A narcissist CEO will completely ignore recent stock returns when calibrating the level of risky investments; a non-narcissist CEO will pay close attention and make more risky investments when they indicate success.

But that does not mean that narcissists ignore feedback. The reason is that narcissists are not as confident as they seem. In fact, they can be very insecure, and as a result they crave applause and lash out at criticism. This means that social feedback – praise – has a big effect on the behavior of narcissists. In fact, the opposite relation holds there. A non-narcissist CEO will nearly ignore media praise when adjusting risky investment, while a narcissist will make strong increases in risky strategic investment when praised a lot.  

So is it OK to be led by a narcissist? This research suggests that it might be OK, provided that social praise exactly mirrors objective indicators, or that the leader is not responsible for any decisions involving risk. Those are strict conditions, so it seems that it will nearly always be better not to be led by a narcissist.

Monday, October 31, 2016

Small Firms are Admired. But are They Good Employers?

There has been a strong movement toward smaller firms in many economies. This is partly a result of larger firms doing less well than before, and shrinking as a result of failure, and partly because large firms find it convenient to subcontract work, making their payrolls smaller than the actual work done for them. Along with this, we are seeing increased admiration for small firms, entrepreneurs founding and running them (especially), and even the “gig economy” where many people are not really employees of anyone, just individual contractors. If you took an uber ride today, you had a gig (economy) with someone.

We may wonder what all this does to employment. That’s a big question, but a practical place to start is wage levels and inequality. We already know that large firms pay more than small firms do, for the same worker. There is also some indication that they have greater wage equality, because employees inside large firms can compare their pay more easily, and can protest when inequality is high. But how does the presence of large firms affect the overall employment, including those who work for smaller firms? That’s the ambitious question answered by a paper in Administrative Science Quarterly by Adam Cobb and Flannery Stevens. They look at how US states differed in the proportion of people employed by large firms over time, and measured the effect on the income inequality -- the spread of income across the population.

What they find is disturbing for those who celebrate the rise of small firms. Large firms in a state reduce income inequality, which is only possible if they reduce inequality both inside themselves and among firms around them. So, rise of small firms means rise of income inequality. Some other findings are interesting too, and suggest problems. Large firms can have higher wage inequality if their employees compare themselves less, which is easier if they have racial diversity (races are often separated by job title, just as genders are). Racial diversity in large firms increases income inequality in the state, and this effect is especially large if the large firms are dominant employers in the state. Dispersion of large-firm employment across locations, which also prevents comparison, also makes large firms a weaker force in reducing income inequality.

Many lament the lower freedom in large firms, and hierarchies can even feel oppressive for employees. But the freedom of small-firm employment has its costs too. Jobs are lost more often, pay is lower, and even as neighbors they are less valuable – being in a state with many people employed by large firms equalizes income. Something to think about.

Friday, October 21, 2016

Can the State Help Firms Innovate? “Get some!”

The role of the state in business is hotly debate in some parts of the world, but less controversial in other parts. A key reason for the debate is that some think that the state can do some things better – for example, having a long-term perspective and committing resources – while others think the state should stay out because its decisions and execution are worse than the private sector. Different parts of the world has reached different answers, with the US standing apart as particularly skeptical of the state, with most of Europe and important parts of Asia having a much more optimistic view of the state.

One of the places with some controversy is actually China, which has gone through a market transition but still has state intervention both through state ownership and state grants to firms. This makes it a great place for looking at what the state can do, and an article by Kevin Zhou,Gerald Gao, and Hongxin Zhao in Administrative Science Quarterly takes advantage of this opportunity.  Their idea is simple. State ownership gives Chinese firms advantages both in general financing and in funding research and development, which in turn should help innovation. But, the effect on innovation will only happen if the firms are actually good at using these extra resources. So, they need to pick good research (decision making) and do the research and development well (execution) in order to do better than firms without state ownership.

Their research has a rich set of results on state effects, but the key conclusions are easy to summarize. Yes, state ownership means getting more money for research and development. Yes, those funds are used less effectively than in firms with no state ownership. And here is the interesting tradeoff: the two effects don’t balance out; instead they make firms with some state ownership superior to those with a lot, and with nothing. The advice is clear: get some! And interestingly, this advice is particularly important not for established firms, which one might think are the ones best able to milk the state for funds, but for start-ups. The reason is that start-ups are better users of the added funds they can get from the state. So, a state that understands this relation should (as the Chinese state clearly does) not just give money to the large and established firms, but also to startups.

And what happens if there is too much of the state? This is a problem seen some places in Europe, where there isn’t a deliberate market transition as in China, and where the state has a fair amount of money. For example, Norway has mostly been directing its oil-funded pension money abroad, for a number of reasons including the peculiarity of owning firms and choosing what firms should receive research funds. In spite of this caution, there is still significant state funded research in Norwegian firms, and Financial Times has reported some indications that it is used less effectively where there is a lot of it. Just like in China.

Wednesday, October 12, 2016

Virtual Teams: When Can They Innovate?

Some claim that more than half of all professional employees are now in virtual teams, where virtual means that one or more of the following is true: 1) team members are dispersed, 2) team members communicate electronically, and 3) team structure is shifting over time. I am the member of such teams, and my teams are also multinational  (some count that as a dimension of virtualness too). All of these factors make it harder to manage teams, and especially hard for teams that innovate rather than perform standard tasks. Why? Because teams that innovate need close communications in order to share idea, develop them further, and avoid misunderstandings along the way. Distance, in any form, makes this harder.

So why let innovating teams be virtual? Part of the reason must be that managers are confident in the results. However, research in Administrative Science Quarterly by Christina Gibson and Jennifer Gibbs looked at the issue and found that there are significant drawbacks in making teams virtual. Along each dimension of virtualness, teams lost some innovation ability. But importantly, they also found that this negative effect could be reduced. If the teams were managed in a way that made communication psychologically safe, there was still reduced innovativeness in more virtual teams, but less reduction. 

Psychological safety is a simple idea because it just means that team members should be able to say things without fear that other team members will react negatively, even if they are not sure that what they are saying is correct. This is important because when doing innovations, it is normal to be in doubt, but important to bring up issues, especially those that are uncertain, because innovation comes from testing out and resolving uncertainty. So, this is very useful research, with clear implications for how one can design teams for innovation.

The research also has two other features I wanted to mention.  One is that the research is 10 years old, but still an important insight. Good research stays current a long time. The other is that part of the research was done on a fighter aircraft budgeted to 200 billion, so obviously a context calling for highly innovative teams. They don’t say what aircraft it is, but I can guess because I happen to know about an aircraft program that was budgeted to 200 billion but now costs 400 billion. Psychological safety in virtual teams makes a difference... The picture of my guess on the aircraft is in this post.

Tuesday, October 4, 2016

Did ASQ Help Create the Field of Strategy? Some Evidence

Administrative Science Quarterly is a generalist journal covering a wide range of research on organizations, as you can see in its invitation to contributors. One might think this would make it less influential in any particular topic, but this is not true. The leading generalist journals are more prestigious than specialized journals, and as a result they get top quality papers, especially if those papers are meant to have wide impact. This gives them more readers, and readers who pay more attention. Equally important, generalist journals are places that assemble papers with multiple ideas that can cross-fertilize fields of study. Often they are the places to look for ideas that will grow and rejuvenate fields.

So is that true for ASQ and strategy? A paper by Sridhar Nerur, Abdul Rasheed, and Alankrita Pandey looks at how strategy developed over time, focusing on research in Strategic Management Journal and journals that cited it, or were cited by it. This inflates the influence of SMJ a bit, but is fair enough because SMJ is the leading specialist strategy journal. Next they looked at citations between journals staggered in time periods. These changed over time, as strategy research took shape, but I think that the figure below is a good example because it shows 1995-1999, which was a time period in which the strategy field nearly had its current shape.

Notice that there are two-way arrows between the leading generalist journals ASQ and AMJ (Academy of Management Journal), and ASQ and ASR (American Sociological Review). Other than that, all the arrows show journals learning more from ASQ than ASQ learns from them – they are one-way arrows (the arrows point in the direction of citations, so an arrow into a journal means a citation to the journal, which is the same as acknowledging influence from the journal). Interestingly, in this time period, there is no direct influence from ASQ to SMJ, so we cannot see ASQ shaping strategy directly, but we can track indirect influences such as ASQ to ResPol (Research Policy) to SMJ. This pattern of indirect influence started in 1990; before that ASQ directly influenced strategy. 

Does this mean that ASQ was a starting point that lost influence? Not at all. In fact, all these journals cite each other, so the graph just shows the highest-volume citation paths.  When adding up the direct and indirect influence, the total influence can be found, and Nerur, Rasheed, and Pandey show that ASQ maintained a top 3 rank as a source of new strategy knowledge in all time periods except 1985-1989. They also show a broader point—in the top 5 most influential journals in strategy, only one was a specialist: SMJ.
So we know that ASQ is influential in strategy, but it is not a strategy journal. It is a prestigious generalist journal, which makes it influential in many fields.

Nerur, S., Rasheed, A. A., & Pandey, A. 2016. Citation footprints on the sands of time: An analysis of idea migrations in strategic management. Strategic Management Journal, 37(6): 1065-1084.

Wednesday, September 28, 2016

What is a Service Designer? Who Cares?

The figure above illustrates well the problem that service designers face. They are a new occupation and seek a role in designing how organizations interact with their customers or clientele, both for firms and public organizations. Such interactions have either been ignored before, or done by other occupations – for example, as part of consulting contracts. Given how important service is in the modern economy, it seems reasonable to design services – just think back to the last time (earlier today?) that bad service annoyed you or created a problem. Probably the first thing that comes to your mind is a minor annoyance, but keep in mind that hospitals and airlines are also service providers, and both of them need to avoid mistakes. Service design is useful, but new occupations always have to establish themselves as distinct and necessary. How is that done?

A forthcoming paper by Anne-Laure Fayard, Ileana Stigliani, and Beth Bechky in Administrative Science Quarterly explains how the service designers found their place. They focus on the tools they used to gain a mandate as an occupation that has a distinct role in the organization, with clear authority over some tasks. Clearly the methods they developed – like the figure above – was an important part, because any methodology not held by another occupation creates distinctiveness. The closest competitors were management consultants and product designers, and none of them used such scripting tools. Service designers also developed other tools for interacting with customers and understanding their needs well.

Tools were not the most important part of their mandate, however, as they saw it. Instead, they emphasized the special ethos of service designers. They had values of holistic views of customers interactions, empathy with the customer, and co-creation of services with customers and client firms. This ethos was more important than the tools, because the tools were just ways of putting this ethos into practice. This is an important claim because it means that one cannot become a service designer simply by copying the tools (as consultants might try), because the tools don’t work the right way when used by someone lacking the service designer ethos. Other people than service designers might believe that they can do the same work, but it would be difficult for them to provide service design legitimately without a clear service designer background and signs of this ethos in how they work.

The paper provides more detail, and tells an interesting story of how an occupation created itself out of nothing and made what looks like a clear mandate and a well-defended position for itself. Service design is here to stay. So, next time you experience service problems, you can ask yourself if service design has not been done, or whether it has been done poorly.

Fayard, A.-L., Stigliani, I., & Bechky, B. A. 2016. How Nascent Occupations Construct a Mandate: The Case of Service Designers’ Ethos. Administrative Science Quarterly.

Wednesday, September 21, 2016

Wide Research, Narrow Effects: Why Interdisciplinary Research – and Innovation – is Hard

Interdisciplinary research is seen as very valuable for society and economy. Some of that could be hype, but there are some good examples of what it can do. You have probably noticed that oil is no longer 100 dollar per barrel, and the US is no longer a big importer. This is a result of fracking, a result of interdisciplinary research. And if you don’t like fracking, a good alternative is photovoltaic energy, which comes from the sun, and from interdisciplinary research.

So some interdisciplinary research has been good for society. Is it also good for the scientists who are supposed to do it? The answer to this question is very interesting, and is reported in an article in Administrative Science Quarterly by Erin Leahey, Christine Beckman, and Taryn Stanko. The start is easy to explain: interdisciplinary research is less productive, but it gets more attention. The answer got more complicated, and more interesting, when they started looking at why that happened. 

The first step was to look at whether interdisciplinary research is more difficult to do, or whether it is because it is harder for it to gain acceptance and get published. The answer is clear: it is not harder to gain acceptance, but it is harder to do, especially early on. The second step was to look at why this research got more attention. Here many factors played a role, but one stood out to me: Actually what increases especially much is the variation in how much attention interdisciplinary research gets, and that helps explain the increased average. So interdisciplinary research is related to fracking in one more way – few reap the awards from it.

This paper doesn’t really result in career advice for scientists, because everyone will be interested in different kinds of research, and have different ideas on how much risk to take on. But has important insights on how innovations are made. Building on closely related ideas is much easier to do, so no wonder much of what scientists – and companies – do is incremental. And this is true even though we often tell stories of the great successes of interdisciplinary research and integrative innovations, while forgetting all those who tried and didn’t succeed. Whether that means we cross-fertilize knowledge too little, too much, or just enough is hard to tell.

Thursday, September 15, 2016

Facing Ragnarok: How Community Diversity Helps Disaster Recovery

Let’s start with religion. Ragnarok is a series of disasters on earth, ending with the great battle of the Norse Gods against Giants and beasts. For those who don’t read sagas (or play the computer game Ragnarok), the Norse Gods are very diverse, which helps them defeat their enemies. So, is diversity also a good thing when facing adversity in our world?

A recent paper in Administrative Science Quarterly by Sunasir Dutta tells us that the answer is yes and no. Let me explain. He examines the effect of natural disasters on communities in California, which of course is one of the few states with enough disasters to do such a study. He is interested in whether the communities can found new human services organizations to help disaster recovery. The answer is that communities with more diversity of voluntary associations are better able to recover from disasters, and this effect is bigger for more unexpected disasters and more complex disasters. An unexpected disaster would mean something that the community does not expect, like a flood in the Southern California counties that often get hit by wildfires instead. A complex disaster is when multiple events happen in the same year, like an earthquake and a wildfire (I am not making this up – it happens). So part of the answer is yes, and it is a good illustration of how communities build organizing capacity that can help them later on.

But the answer is also no. Political diversity makes a community less capable of founding new human services organizations to help disaster recovery, possibly because it is related to disagreement and polarization that complicates the unified effort needed to form human services organizations.

This is an interesting contrast because it illustrates how diversity can have many different effects. Voluntary organizations provide a community with models of organizing, trained volunteers, and networks of people who help each other. They are a form of organizing capacity that gets stronger the more kinds are present. I have written more about this in a blog post on how research shows that communities are imprinted with the memory of past organizing. On the other hand, political views are markers of ideological boundaries. They also represent different views of who are responsible for community help, how it should be organized, and how it should be led. No wonder these forms of diversity have opposite effects.

Wednesday, September 7, 2016

Republicans in the Board: Leadership Trumps Collective Accomplishment

Facebook is the quintessential small company with high value that are becoming more common in the modern economy. How small is small? As of December 2015, it employs 12,000. What about Google? 57,000 employees. And if we turn to the other side of the modern economy, services, we find that Walgreens has 240,000 employees – I am deliberately not showing Walgreens instead of Walmart because we all know that Walmart is a giant firm. Taking the step back into industry, the formerly dominant part of the economy, Ford Motors has 199,000 employees (again I am not picking the largest, which would be GM).

When these firms do well – or poorly – who do we credit or blame? The answer is surprisingly political. In a recent study of executive compensation published in Administrative Science Quarterly, Abhinav Gupta and Adam Wowak examine whether the different views of leadership held by Republicans and Democrats affect how Chief Executive Officers get paid. The idea is simple – members of the board of directors determine how much the CEO gets paid, and they reveal their political views through donations to the parties (naturally they can donate to none, one, or both). If the board members believe that CEOs are largely responsible for what ten to hundred thousand people do, they will pay the CEOs more on average, and they will also make the pay more sharply dependent on the company's recent performance.

It is not a secret that Democrats attribute a lot of credit to the collective effort of workers and managers, and less to the CEO. What has become clear recently is that there is a clear authoritative streak in the Republican Party, and accordingly a tendency to credit the results to the CEO. Do the results of the study bear this out? Abundantly. A Republican dominance of a board leads to higher CEO pay. It also leads to more dependence of the CEO compensation on accounting profit and stock market value increase. Even more revealing: these relations are stronger when the analysis is limited to the compensation committee, which is the subgroup of the board that determines CEO pay (usually with the help of consultants).

So now we know that CEO pay is political, in additional to the earlier findings showing that it is customary and performance dependent. Does that make CEO pay unfair? Well, actually the answer to that is political too. Consider how you feel about this issue; it probably fits your political views in general.

Wednesday, August 31, 2016

Adam Smith Meets Machiavelli: When in Markets, Connect to the State

We have heard a lot about lobbying in the US, and its effects on law writing, law enforcement, government contracts, and subsidies. We also know that in authoritarian governments, firms can act as the arm of the state, and firms and state can be mixed up to such an extent that it is hard to tell who is running who. A classic example is the People’s Liberation Army in China, which owned 20,000 companies 10 years ago (and was ordered to sell them). If state relations help firms in both market economies and authoritarian states, what happens when an authoritarian state gets a market economy? Again China offers an example.

A forthcoming article in Administrative Science Quarterly by Heather Haveman, Nan Jia, Jing Shi and Yongxian Wang looks at whether firms profited from connections to the state. Of course we expect the answer to be yes, but the interesting part is when the firms profited most. Here are some interesting highlights. First, market development reduced profits, so competition works. Adam Smith would be pleased. Second, state connections had little overall effect on profits – surprising, right? But remember that this was a period with changing market development over time, and the interesting finding is this: State connections increased profits when the market became more developed. Machiavelli would be pleased – even when markets are strong, an authoritarian state can Trump them.

How does this happen? The short answer is that we don’t really know the details; there are simply too many ways that a state can support specific firms that it likes, and can place other firms at a disadvantage. That’s exactly why state connections are suspicious; their results are hard to trace. At least one advantage with an authoritarian state is that it is not subtle, so some of the things it does are easy to trace. Haveman and her coauthors found that resources were directed to the state-connected firms, which explained some of their advantage, but far from all.

Will this pattern continue? Well, I have also done research on China with Cyndi Man Zhang, and we found that Chinese managers were still heavily state-oriented in their actions. Maybe that is why the ones that could also use the state did well. But the advantage is so large that it is hard to see them stop doing it, especially when they got better at using the state the further along the transition to a market economy had gone. So Adam Smith has met Machiavelli and been defeated.

Wednesday, August 24, 2016

We are the Uber of Hype: When Entrepreneurs Crowd

Teaching entrepreneurship at a business school has its annoyances, and prime among them is students visiting to seek opinions and support for their business idea, which they describe as “We are the [insert famous company] of [insert market]”. That is a quick and catchy way of summarizing the idea, but there are problems with it. The main one is that it also summarizes that the idea is copied from something else. Copied ideas are not always bad, but very often they are. The first problem is that copying is easier than originality, so a copy faces competition. The second problem is that copies of successful firms (and yes, they are more common than copies of failed firms) involve too much excitement to understand the source of success. I have earlier written about DoorDash, which can be described as the Uber of meal delivery. Except that Uber gets its competitive advantage from knowing where all its cars are, always. It is not so hard to know where a restaurant is, so DoorDash is uber-like without a key uber advantage.

Well, going against logic and annoying business school professors are not decisive problems of copying successful firms. After all, none of them say what will happen in the market. So what happens, really? Now we know, thanks to a forthcoming paper in Administrative Science Quarterly by Elizabeth Pontikes and Bill Barnett. Their idea is simple. Look at spectacular successes in the financing of ventures, as well as agonizing failures of firms, and see if they result in crowding around successes and flight from failures. Then, see if the success crowd fails, and the entrepreneurs who stay near failures succeed.

Their answers are in support of the annoyed business school professors, and against the “uber of something” entrepreneurs. Yes, entrepreneurs crowd success and flee failures. But also, venture capitalists react exactly like business school professors, and they simply turn off the funding for entrepreneurs who crowd success. Also, firms that crowd success are more likely to fail, whereas firms that follow failures are less likely to fail. Clearly the impulse to chase success is a trap, whereas trying near a failure calls for thoughtfulness, which is often a step toward good outcomes.

So does this mean that entrepreneurs should be thinking about how to make a Blackberry variation, given its recent failure? Well, not so fast. Unthinking copying of anything is a problem, so they should not unthinkingly enter near a failure. Instead, they should think carefully about the elements of success, and those that led to failure. Blackberries had devoted followers because of the keyboard, and were also well liked for their security. They were hit by the sheer breadth of smartphone capabilities, and also by the market power by the largest high-price firms (Apple, Samsung) and the race upward in the market by the low-price firms. Is it still possible to make a device that keeps the Blackberry strength and survives the current market? Asking that question is the way to get from failure to success.

Pontikes, Elizabeth G., and William P. Barnett. 2016. "The Non-consensus Entrepreneur: Organizational Responses to Vital Events." Administrative Science Quarterly forthcoming.

Wednesday, August 17, 2016

Please Lobby Someone Else: Social Movements Can Make Firms Unpalatable

Under fundraising rules following the Citizens United v. FEC Supreme Court, funding needs for politicians are so great that a member of congress is expected to raise at least $18,000 per day, every day of the year. For new members, that can mean as much as 30 hours per week on fundraising calls, an amazing use of time for members of a legislative body that is supposed to deliberate to govern and make laws. Equally important, many of those calls have to be to firms, who can afford higher donation amounts than individuals. Firms also like this arrangement, naturally, because lobbying for favors involves donations as an important tool.

So is it possible for a firm to lose touch with politicians? Mary-Hunter McDonnell and Timothy Werner has a forthcoming article in Administrative Science Quarterly showing that this can happen. The idea is simple, but powerful. Politicians are stuck between those who fund their reelection and those who actually vote. Often voters don’t pay close attention to the funding, so politicians can take money from a broad range of firms, but social movements can single out firms for attention. This does not mean that voters will also notice whether these firms have political connections, but politicians cannot take the risk that they will notice – so they stay away from the firms that get singled out.

How do we know? It is actually quite easy to see how well connected a firm is politically. It can donate money (but politicians can return the donation), it can be invited to testify to congress, and it can simply get contracts to do work for the government. All of these connections get weaker if social movements target firms for boycott actions, they showed. And even more importantly, the research found that the weakening of connections was especially pronounced if the social movement issue had much voter attention, or if the firm was well known to begin with. This makes sense because the risk that voters will notice is especially high if either the firm or the issue is well known.

What does this mean for firms, and for society? Well, for firms the lesson seems clear – they need to avoid the attention of social movements in order to keep the attention of politicians. Not a very ethical implication, but a clear one. And for society? Well, it may seem nice that social movements can isolate firms from politicians through boycotts, but is it really? The main reason it is possible is that other firms are happy to pick up the slack through lobbying more when some firms are isolated. And those firms are not necessarily better. We live in a world of B2C (business to consumer) and B2B (business to business) commerce, where B2B is much bigger and less exposed to boycotts. If there is a boycott of Victoria’s Secret (which has happened) and defense contractor Lockheed Martin picks up the slack, do we have a better society?

Thursday, August 4, 2016

Keeping Threesomes Stable and Creative

Just to halt any false expectation you may have, this is a blog post about how sets of three (or more) firms can collaborate for innovating over time. It is a very interesting and important topic because the approach for doing innovations has changed a lot recently, and especially in fast-moving industries involving information technology: apps, smartphones, internet servers, automotive computer controls for example. We have long done research on firms being innovative (on their own), and we are beginning to know a lot about firms pairing up to make innovations. Unfortunately, the new approach is to do innovations in groups of three or more, and to keep working in different configurations of firms. That is something we know little about.

Fortunately, a forthcoming paper in Administrative Science Quarterly by Jason Davis has important insights. He looks at the central problem of how these groups of firms can stay together and maintain the high trust and low conflict needed to be innovative over time. Using data on collaborative projects from firms in the computing industry, he found a key insight that is only possible by understanding how different interfirm collaboration is from interpersonal collaboration.

People can form stable collaborative relations if one of them acts as a leader and is recognized as such, or if they form a cohesive team with all members staying close. That’s not what makes firm collaborations stable and innovative. Firms cannot have one leader over time because repeated projects typically involve different configurations of interests and capabilities. They cannot be cohesive because each project typically has greater complementarities between one pairing (dyad) of firms than between the other two. As a result, the configurations that work for people fall apart in conflict or in distrust when firms try to repeat collaborative innovations.

Instead, what is special about firm is recognition that firms are interdependent and that they need to work together in the future, even if they do not collaborate closely at a specific time point. This leads to a form of collaboration called group cycling: each pair of firms that are most interdependent works together closely, with the third at a distance, but they remain in touch and aware of the need to reconfigure with a different focal pair later on. Conflict is avoided because the most complementary firms work together. Trust is kept because all partners see current collaborations as preparations for future collaborations.

Interfirm collaborations is a special kind of network among organizations. Part of its special status comes from the realization that, unlike many other networks, what works for firms is different from what works for people. This is a good insight in management because we often think that intuition carries over from one level to the next.

Davis, Jason P. 2016. The Group Dynamics of Interorganizational Relationships: Collaborating with Multiple Partners in Innovation Ecosystems. Administrative Science Quarterly, forthcoming. 

Thursday, July 28, 2016

Radical Flank Marketing: How Engineers Adapted to Lost Power

Many firms that emerge or grow as a result of radical technological progress owe a lot – maybe everything – to their technical occupations, and in return give them both formal power and informal status and gratitude. Often the same firms find that these engineers have lost importance because the technology is now developed, and the next step forward is to find ways of entering new markets or strengthening current market positions. Engineers don’t know how to do that; the marketing department does. So can firms really shift authority away from the source of their success to the new path to success? Often the answer is no, as seen in firms applying technological innovations that ignored marketing challenges – such as Sony’s continued development of disk-based music players after flash media enabled firms to make compact players like the iPod.

But there are also successful cases, and a forthcoming article in Administrative Science Quarterly by Emily Truelove and Katherine Kellogg explains one mechanism. They followed a car-sharing company that made a strategic shift to marketing following a period of strong engineering success based on radical innovations. This was a classic case of a firm with engineers as a powerful occupation with a track record of success and professional norms that are completely different from the new leaders in marketing. They had all opportunities to resist, which they did – until they suddenly started making compromises. What happened?

The firm had engineers that were either radical or moderate in their views on the role (and power) that engineering should have and the type of engineering that was needed. They also had radical and moderate marketing professionals. The battle between engineering and marketing alerted engineers to the difference between marketing people, and the radicals were seen as such a great threat that the moderate engineers started collaborating with the moderate marketers. So, the firm was reconfigured from an engineering versus marketing battle to a moderate-moderate collaboration with radicals on both sides out of the loop, in both power and product/market development.

This is a very nice illustration of how power struggles in organizations can get resolved. It also is a point that harks back to classical organizational theory. Back in the days of Cyert and March, the Behavioral Theory of the Firm introduced the concept of a dominant coalition, and suggested that managers could be very astute in forming coalitions. Indeed they can – as Truelove and Kellogg pointed out, the dominant coalition can shift from a department to a cross-department collaboration.

Friday, July 22, 2016

Amphibious Coffee Maker: How Alessi Became Profitably Artistic

I don’t want to get too personal, but I am tempted to suggest that you own some product or products made by Alessi – products that make you feel vaguely artistic and unique even though they are mass produced and sold to millions of people. If you are familiar with the history of Alessi, you may know that these products are radically different from their original collection of serving tools for the food and hospitality industry, a classical low-margin high-volume good with professional buyers. From the design of the Alessi good you own – and the price – you have probably guessed that it is a high-margin good. And you are not a professional buyer of household goods.

How did Alessi make this change in product focus? This is the topic of an article in Administrative Science Quarterly by Elena Dalpiaz, Violina Rindova, and Davide Ravasi. They show that, interestingly, this move into a much more profitable and “cushy” market segment was controversial and complex. Professional serving tools are designed differently, made differently, and marketed differently than the artistic goods that Alessi now focuses on, so this was a change in philosophy and in skills.

Their article explains how this was done, and how other firms can learn from the transition, giving a full picture of how a complex change process was done. I will just tell you one element: the role of the amphibious coffee maker. What makes a coffee maker amphibious? It can live in two environments, moving smoothly from kitchen, where it functions well, to living room, where it looks good. Amphibious products, both concept and actual product, were used internally in Alessi to explain the strategic change. They were used externally to guide customers along the path from a set of truly artistic (but less useful) products that were sold in small numbers in the transitional period to the mass-produced and more useful (but still pricey) products that Alessi wanted to sell.

This is a very important insight. Amphibious products created a bridge in the customers’ mind between the artistic and the useful. With this bridge in place, the customer was willing to adjust the price range paid for a coffee maker, or an egg stand, or a wine bottle opener.

Amphibious products also created a bridge in the organization between its origin as a maker of mass-produced serving tools to its destination as a maker of artistic household goods. Alessi’s products were now amphibious; Alessi was now amphibious.  Truly an interesting success story.

Friday, July 15, 2016

Will it be a Success? Evaluating Creative Ideas in Firms

You probably know someone who owns an Apple Watch, or maybe you own one yourself. Is it a creative idea? Well, the multi-function watch was creative the first time it appeared in Science Fiction writing, but that was long time ago. Technologically a watch with the Apple Watch functionality has been possible for a while too, but firms have waited because they were unsure if it could become a success. If fewer and fewer people wear watches, because smartphones do the same job and much more, why make a watch? In fact, the potential for success of Apple Watch was in dispute as soon as it was launched, and it is still not settled. This is an issue that surfaces again and again – firms need to estimate the potential success of ideas, both creative ones and more conventional ones.

In a forthcoming paper in Administrative Science Quarterly, Justin Berg looks at that question through a new lens: who makes the best estimate? Is it managers (who make the decision), creators (who come with ideas), or people generally (who could be customers)? The question is important because it reflects an ongoing tension in firms. Creatives think that managers don’t have the right kind of thinking to appreciate their work, and managers think that creatives are poor decision makers, especially when evaluating their own work. Theoretically the key difference is between the divergent thinking that underlies creativity, and the convergent thinking that underlies analysis and decision making. 

What kind of thinking fits what kind of task is a good topic for discussion over drinks, but we won’t know the answer without studying it, as Berg did. To make sure the creative content was easy to evaluate, he used proposed circus acts, and drew creators and managers from the industry (yes, of course there is a circus industry).  The answers are easy to summarize, and important too.

The creators are right: They are much better at assessing creative success than managers are. In fact, managers could be the worst, with laypeople doing better in one measure of assessment accuracy.

The managers are right too: Creators are bad at assessing the success of their own work (you get no points for guessing that they over-estimate it). Even more interesting, a creator with a strong past success is especially bad at assessing, probably because of overconfidence. This gives a good rule of thumb for those who will become managers at some point: If a creator says, “I know product idea this will success/fail because [insert own success story here]”, you know exactly who to ignore. But the other rule of thumb is to ignore yourself. Have the creators assess each other’s ideas, or you can’t do that, use laypeople.

Friday, July 8, 2016

Fancy Stuff: How to Make People Really Like a Type of Product They Used to Despise

Let me start this post with a confession. I like whisky and think the different types taste very different from each other, I also like cognac but can’t tell them apart well, and different types of grappa I can tell apart but don’t really have an opinion on which ones are better. OK, so now you know my bias, which is important for what follows, and many of you have probably made an assessment of how (un)cultured I am.

But here is something to think about first: why did I mention grappa along with the other two alcohols? A few years ago, that would have been pretty insulting to whisky and cognac, but now it is natural at least among some people. And that is a big change with some importance outside drinking too, for example for management. In a paper forthcoming in Administrative Science Quarterly, Giuseppe Delmestri and RoystonGreenwood write about the Cinderella-to-Queen transformation of grappa, and what it means for our understanding of categories in general, and specifically organizations in markets.

Their paper is great in its description of how a dilemma for grappa producers, and their solution to it, solves a puzzle for researchers: why do different product types have different status rankings, and how much does that change over time? Grappa was cheap booze for the underclass. That was not ideal for grappa makers, who very much would have liked higher prices. But as long as rich people everywhere – in Italy too – though that grappa was no good, preferring other alcohols instead, that was not going to happen.

Some grappa producers were able to find a path to higher status. It involved failed attempts and even a bankruptcy, and exactly that combination of failure and eventual success let Delmestri and Greenwood work out the process. The paper has much more detail than I can give here, but the short story is that a rise in status involves distancing from the low-status past and present (detachment), copying of related high-status products (emulation), and connections to the broader society (sublimation). All needed to be done, and the “raw materials” for all needed to be present. The story of grappa’s rice to high status is interesting because it shows exactly how customers can change their minds when all the right levers are pulled. It took bottles designed to resemble perfume flagons, single-grape distilling and regional labeling, and linking to Milanese high fashion to make grappa fashionable and prestigious, but it could be done.

I think the story is also interesting because it suggests a condition that needs to be present for it to work. Grappa became high status after a long campaign. Can any regional or local product accomplish the same? Before you say yes, consider this: Italy is a pretty cool place, so grappa had a good starting point.

Sunday, July 3, 2016

A Whiter Lamar and Lei: Resume “Whitening” Happens and Gives Success

Presumptive GOP presidential nominee Donald Trump labeled President Obama “Kenyan” and claimed he was born outside the US, and has also tweeted a picture of presumptive Democratic presidential nominee Hillary Clinton with the text “Corrupt” and a red (not yellow) David’s star. What does that have to do with the title of this blog? Well, people’s perceptions are colored by associations, and many have negative views of Africans (and African Americans) and Jews. And Asians (and Asian Americans).

So how to get a job if you belong to any group that is subject to discrimination? Discrimination is well known, and both individual students and university career service employees know the answer. A resume can be “whitened” by removing signs such as a distinctive African American or Asian name, and by removing work experience or volunteering naming (or even entire activities) that gives out racial signs. I know people who have done it. It is disturbing both to them and to their friends, not least because any kind of resume tampering has ethical implications, and the idea that one can improve the odds of getting a job by removing mention of volunteer work is so obviously wrong, even if it is correct.

In a paper forthcoming in Administrative Science Quarterly, Kang, DeCelles, Tilcsik, and Jun examine both how and why people whiten resumes, and the effects it has. Let me start with the most shocking finding. Not only does whitening work, by giving higher likelihood of a callback (we knew this from prior research), but it works equally well for firms that signal a commitment to diversity. So, firms that say they value diversity are not truthful. But, students believe them, so they will engage in less whitening of their resumes when the employer has job listings that signal that they value a diverse workforce. Ironically, this turns statements on the value of diversity in job listings into a trap for job seekers, who will not whiten their resumes and suffer discrimination.

The study also provides insight into the thinking behind whitening through a series of in-depth interviews on how it was done, and why students would or would not whiten resumes. First, it was clear that whitening meant breaking a barrier: students believe in meritocracy, and value their own identity and experience. Doing it is as unpleasant as it sounds. But still, many (not all) students knew the risk of not getting callbacks if their resumes were not white enough, and chose to do it. The techniques used were largely truthful: A “white” hobby could be added, and “Black” or any Asian markers could be removed from voluntary organization names. More radically, an Asian student could replace the given name with a chosen whitened one, or use both, and an African American student could pick the least black-sounding name even if it was a middle name not normally used.

The findings are remarkable and discouraging because they are from the USA, which is one of the most diverse and meritocratic job markets in the world. One might hope that time will work against the discrimination that gives a need to whiten, but then again, political and social signals are currently not encouraging.

Saturday, March 26, 2016

What kind of company is DoorDash? A question of identity

Wall Street Journal reported that the venture DoorDash, which is backed by the prestigious venture capital firm Sequoia Capital, recently raised an additional $127 million in capital. We are used to seeing high numbers for Silicon Valley firms (DoorDash is from Stanford), so this is not so surprising in itself. But, the story has some interesting details.
What interested Wall Street Journal is that this was a so-called “down” round in financing. A down round means that the company is valuated below the earlier round, so the earlier financiers are taking a loss (again, Sequoia). Finally, $40 million of the new capital came from – you have guessed it by now – Sequoia. This looks a bit like a problem.
So what exactly is DoorDash? It describes itself as a “software-enabled logistics company”, but more concretely, you would normally use it to order food deliveries from various restaurants that don’t operate their own delivery service. Given the value, it obviously delivers a lot of food, so far 22 urban areas.
Beyond the fact that so many million dollars seems a lot for delivering food, what exactly is the problem? The practical problems are that it is not profitable (yet, as they always say) and that it has problems retaining employees. But perhaps a more serious problem is in understanding what kind of company it is. Delivering food to someone is clearly logistics, but there is a catch: the deliveries are actually done by contractors, not DoorDash itself. So the logistics company is really a contracting company.
A contracting company can actually be a good thing -- Uber is very valuable and is also a contracting company, not a taxi company. In fact, one may wonder why DoorDash don’t just describe themselves as an online delivery network, like Uber calls itself an online transportation network. As a first cut, that seems like a good metaphor, although it immediately brings to mind an important difference between the two. Cars move around, and Uber gets a big advantage from knowing exactly where they are. Most restaurants stay put.
This gets to the core of the DoorDash dilemma. Companies form identities, which in turn influence how customers think of them and what other companies they compare them with. It also influences how other companies get founded and choose to compete with them. DoorDash can’t have an Uber identity because Uber’s greatest strength is their weakness. But the inside looks pretty Uber-like, so having another identity of logistics is also a thin story. Finding a good identity will be important for them because it will affect their value now and later.
Identities and their consequences is something that researchers have worked on for a long time. For a good sample of research on how identities are formed and what they do, I would suggest looking at research by Navis and Glynn on the emergence of new market categories, published in Administrative Science Quarterly. Many of the practical problems of forming identities and living with the consequences are nicely developed there.