Friday, April 20, 2018

Cleanse the Temple! Buddhist Monks versus Local Officials in China

Sometimes social science is born from observing simple puzzles. Consider this one: In China, many attractive temples charge admission fees that are obviously higher than is needed for maintenance and the feeding of monks, but other temples do not. What is going on? The fees are for the local government, which sees a famous temple as a way to get revenue without taxing the local people. But what is convenient for the local government is a moral outrage for the monks and many locals, who will sometimes successfully mobilize against the fees. The interesting question is why they can defeat the fee-collecting government officials sometimes but not always. 

In a recent article in Administrative Science Quarterly, Lori Qingyuan Yue, Jue Wang, and Botao Yang look at this question to find out how popular movements based on moral and religious principles contend with pressures from the government and market forces. The battle is unequal because the government has the power of formal authority and markets have the persuasive power of money. The popular movement has none of these, only moral outrage. The contention is particularly unequal in an authoritarian state, where outrage does not translate into power through elections, and illegal forms of protest can be dealt with harshly.

The answer to this question, like many questions about society, lies in how organizations work. The government organization is one side of the story, and there the main issue is that it has many layers – local and central parts of the state. The central state cannot govern locales effectively and prefers to stay away, but it also wants economic development and social peace. Knowing this, the local government officials can ratchet up fees when their areas are economically backward, but they need to reduce them when the protests are loud enough to catch the attention of the central state.

The other side of the story is the organization of protests. Here, the religious leaders did the obvious thing – founded an organization with the specific goal of reducing fees. But protesters don’t just make their own organizations, they also use existing ones. Here, the press was used, though in an authoritarian state the companies that hire journalists and publish newspapers or TV programs are not the most useful. They are too accountable to the state to be able to do much. Instead, the effective organizations are the providers of social media, because they allow the protestors to make themselves heard both by other potential protestors and by the state, which monitors social media protests to understand social unrest and censor its expression. 

So a battle may look like a contest between a union of markets and local governments on the one side and the moral outrage of individuals on the other, but that is not its true nature. There are organizations on both sides, and this is true for any conflict that each side really wants to win.

As I suggested in the title, the conflict between markets and morality is an old one. Two gospels mention Jesus driving merchants out of the temple and overturning their tables. It is a good story, but it is no longer how conflicts are won. People don’t get results; organizations do.

Thursday, April 12, 2018

Business Schools as Seminaries: Firms Practice the De-diversification We Teach

I know that business schools don’t educate priests, so calling them seminaries is provocative. The provocation is based on facts, and these facts deserve attention. Like any other form of education, business schools teach strongly held beliefs on how the world works and why some actions are better than others. By the way, what I just said is not equally true for all kinds of education. For example, science places more emphasis on how the world works, while engineering places more emphasis on what actions are best. Business schools are even more engineering than engineering departments, because students taking MBA degrees are very interested in knowing what to do to become successful, and they prefer short explanations of why the sources of success are connected with how the world works.

This is important because the actions taken by those few MBAs who become CEOs of major corporations are very consequential, so business schools are also very consequential. What we teach is practiced by firms, both when it is right and when it is wrong. A recent paper in Administrative Science Quarterly by Jiwook Jung and Taekjin Shin looks at how business schools were behind the largest change in firm structure in recent history: the breaking up of diversified corporations into smaller specialist firms.

This change is literally a textbook case of what firms should do. According to finance theory of capital markets, investors are better off diversifying by buying many specialist firms than a single diversified firm. According to the economic theory of managers, firms are more valuable when they are so specialized that it is easy to reward and punish CEOs based on how well they do. The combination of these two theories moved into business schools in the 1970s and has stayed there ever since. Jung and Shin discovered an easy way to measure its effect: In the exact same time period, firms led by CEOs with MBAs from before the 1970s kept diversifying, and firms led by CEOs with MBAs from the 1970s onward were de-diversifying. The CEOs were practicing what their business schools preached.

Does this sound like a good effect of education, or is there anything scary about it? We like people to choose the right actions based on knowledge of how the world works. Business schools have a special responsibility because some of the people we educate become very important for the society and economy. So this seems like a good outcome: for anyone who believes what business schools teach, it was great that businesses became less diversified.

Here is the scary part. Any form of science is wrong or incomplete sometimes, especially if it is a young science like the branches of knowledge that business schools teach. Remember when all the finance professors thought the economy was healthy, just before the financial crisis? It gets even worse when our graduates learn what actions are best but prefer short explanations of how the world works. Remember when all investment advisors loved web businesses, just before the dot-com bust? If we teach too confidently, trouble will follow.

De-diversification sounds like a safe case, because there is pretty good evidence that diversified firms are worth a little less than de-diversified ones. But we should keep in mind that even this case isn’t entirely clear. The de-diversification took place during a time period when changes in competition law enforcement meant that buying competitors and increasing prices became easier and a better use of money than diversifying. Also, for firms heavily engaged in product development, some diversification can be a significant advantage, as another recent ASQ paper has shown. Even the best of our knowledge can be changed as we continue to learn. That’s how science works, and that’s why teaching should be done with some modesty.

PS: For those who wonder about the picture of this blog: Martin Luther was a professor and a priest.

Jung, Jiwook, and Taekjin Shin. 2018. "Learning Not to Diversify: The Transformation of Graduate Business Education and the Decline of Diversifying Acquisitions." Administrative Science Quarterly, forthcoming.

Sunday, April 8, 2018

Do We Trust the Firefighter Who Finds Fires or Books Exciting?

One of the most studied and least understood aspects of life is how people decide to trust each other. Trust is not much on our minds in daily life, but that is because trust is not needed for most of what we do. When shopping, we know that a credit card payment probably won’t lead to fraud later on and that the change we get when paying with bills is not fake currency. In traffic, trusting others is more important, but we generally trust that other drivers know the rules of the road, except perhaps if we’re on a bike.

In some areas of life, trust is very important, including on the job. Even in occupations that are mostly safe, every now and then there may be dangerous situations in which trust in others is important. Trust matters because danger triggers a fight-or-flee dilemma: you can try to solve the problem, at some risk to yourself, or you can escape and let the problem get worse. When solving a dangerous problem calls for teamwork, it is important that everyone makes the same decision.

This type of trust is the inspiration behind a recent paper in Administrative Science Quarterly by Michael Pratt, Douglas Lepisto, and Erik Dane. They looked at firefighters, whose occupation calls for risky teamwork. They have to trust that others will “have their back” in fighting a fire when the situation gets dangerous, so that each can rely on the other. Firefighting is especially interesting because firefighters don’t actually spend much time fighting fires. The increased fire safety of buildings and the need to have enough firefighters on the payroll in case of large fires means that they spend most of their time waiting for calls or handling emergencies that have nothing to do with firefighting. Helping cats down from trees is mostly a myth, but vehicle accidents, gas leaks, and emergency medical assistance are facts of life – firefighters can often get to a scene before the ambulance.

The problem with having safe buildings is that firefighters have little direct evidence from fighting fires together of whom they can trust – when they’re called to the scene of a fire, they may not have ever seen each other fight fires. That means they have to operate on trust derived from indirect evidence. I started by saying that trust is well studied and little understood. One thing we do know is that when people try to decide whom to trust, they look for signs of trustworthiness. When this happens in occupations, the signs may not make sense to outsiders, but they are very real for the people involved. The firefighters in this research tried to understand where their colleagues were coming from, both in their backgrounds and in their attitudes toward the everyday chores at the firehouse. Based on small or large signs they picked up in their early interactions with a newcomer, they would put the newcomer into a small set of categories. And here is where the interesting part lies, because the categories did not inspire the same amount of trust.

The firefighter who has a college education? That one is the “book-smart” type and is not  a commonsense type whom you can trust to think quickly and do the right thing in a dangerous situation. The firefighter who buys his own scanner and goes to fires even when he’s off duty? That would be a “spark,” who has the right motivation but is too excitable and thus is only warily trusted.  Less trusted is the “paycheck” firefighter, who is there for only one reason and likely won’t take risks to help a fellow firefighter out of a burning building. So who is trusted most? For firefighters it is the “worker” type, who they see as always reliable and careful – someone who combines the professionalism of a (good) plumber with the discipline of a soldier, who checks the equipment, cleans up, or does whatever else needs to be done when there are no calls. So the answer to the question of who do you trust is that if you are a firefighter, you probably don’t fully trust the colleague who is just book smart, the one excited by fires, or the one who’s there for the paycheck.

If you are not a firefighter, the answer to the question is different. You don’t know who to trust, and you can’t tell who is of what type. That’s part of how organizations work, because they contain occupations and jobs that have internal codes understood by few others, including management. That’s one reason why managers should be careful not to judge quickly when they see behaviors they don’t understand. Look inside the thinking of the people responsible, and things make more sense.

Pratt, Michael G., Douglas A. Lepisto, and Erik Dane. "The Hidden Side of Trust: Supporting and Sustaining Leaps of Faith among Firefighters." Administrative Science Quarterly, forthcoming.

Wednesday, April 4, 2018

#mefirst: Female Executives Are Superior to Male Executives in Societies that Discriminate against Women

Here is an unusual business idea. Suppose you are a business in a society that discriminates against a group of people, such as women. Why not hire and promote members of that group—not because you can pay them less, but because their talent, dedication, and way of thinking make them different than others in ways that can be beneficial to your organization? Is this done anywhere, and does it increase organizational performance?

In a recent paper in Administrative Science Quarterly, Jordan Siegel, Lynn Pyun, and B. Y. Cheon looked at firms that promote women into upper mid-level and senior managerial positions in South Korea. At those levels, there are few women in a typical Korean firm because of a significant social bias against women having roles of responsibility outside the family. Using the best data and methods available to us for analyzing firms’ profitability, they could precisely measure the effect of having female executives. Add 10 percent women at the top level, and you will get a 1-percent increase in returns on assets. In case you wonder, a 1-percent increase in profitability is a lot of money, and it is easy to add 10 percent female executives because most Korean firms don’t have any.

What is going on here? Obviously, the increased profits aren’t explained by what female executives are paid compared with male counterparts. Executive payment (at least in Korea) adds up to only a tiny fraction of the profitability we are seeing here. Siegel, Pyun, and Cheon asked observers who know how businesses operate, and they got some interesting answers. The most important is that women think differently, and think more independently, than men. The different way of thinking is typical of people who have different roles in society, and it is the reason we often want decision-making groups to be diverse. More kinds of people mean more ideas, and diversity is kind of low when the average executive team has 2.5 percent women.

Independent thinking may seem like a somewhat radical explanation, but it makes sense in this study for both a general reason and a more specific one. In general, people who are discriminated against need to think on their feet because doing well in the workplace is not something that happens based on who they are: it depends on what they do, and in particular what they do differently. The promoted female executives did well because they were special. Also, there was a specific reason that independent thinking led to greater success in this study: young men in Korea have to serve in the military, where independent thinking is strongly discouraged and following orders is encouraged. Female executives have a creative advantage over male executives in this context.

So if firms in such societies can gain so much advantage by promoting women, why don’t they all do it? There are many reasons for not breaking with a norm of discrimination, starting with ignorance. Firms don’t know that female executives are superior (which is why this research was needed), and they may not even recognize that there are few women among their executives. After all, being male is normal for an executive.

Still, some firms in this study did hire and promote female executives, and many of them were foreign. Does this mean that discrimination is absent in the homelands of these foreign firms? No. Most of the foreign firms were multinationals with hardly any women in their home country among their top executives. Discrimination against women may have been weaker in their home country than in Korea, but just as importantly, they had discovered the benefits of promoting women in Korea. Discrimination in society seems to be easier to overcome if it is costly—not a highly virtuous conclusion, but one with some hope at least.

It was fun for me to read this research. I had the idea of doing a research project like this a long time ago when I worked in Japan. I was too busy with other projects to do it and did not check whether there were data available that would have made it possible. Now it has been done, and the results confirm what I expected.

Jordan, Siegel, Pyun Lynn, and B. Y. Cheon. 2018. "Multinational Firms, Labor Market Discrimination, and the Capture of Outsider’s Advantage by Exploiting the Social Divide." Administrative Science Quarterly, forthcoming.

Thursday, March 22, 2018

Why Can a Firm Like Samsung Do Well? Compare and Compete

Take a look at the product line graph of Samsung Electronics pictured here. As I am sure you know from entering any consumer electronics store, they have all sorts of entertainment systems including large TVs, a lineup of high-performance mobile phones, computers and peripherals, cameras, and even washers and dryers. In addition to that, they make many of the electronics that go into these devices, such as microprocessors, memory, and other semiconductor devices. For businesses they supply a broad range of communications equipment both wired and wireless. They are the archetypical diversified corporation that is not supposed to exist anymore and that in many economies (such as the U.S.) has been dismantled and sold at a profit. But they still hold together.

It is not because of friendships among managers – the way to get promoted is to do better than your peers, so it is a fiercely competitive company internally. Compare your performance with the nearest department, function, or division, and find a way to do better than it. But if the diversified corporation isn’t a way to bring people working on different but related businesses together in a somewhat friendly way, what is it for? The departments or divisions might as well be different corporations, because they would definitely compare and compete then too. In a recent paper in Administrative Science Quarterly, Oliver Baumann, J. P. Eggers, and Nils Stieglitz found a key to the answer. Interestingly, it is exactly through competition that such corporations can do well. They are unique because both the type of competition and awards from competition are nearly the opposite of what you see between independent companies.

The type of competition is nearly opposite because corporations that compete want to win the support of customers, but divisions that compete want to win the support of headquarters. The awards from competition are nearly opposite because customers provide cash from purchases, but headquarters provide budgets to operate and invest. The two are different because headquarters’ money can be directed into specific activities such as research and development, which helps the division explore new grounds. Customers’ money can do the same, but it has many other uses including the simple option of using it to spend more to win customers’ support for exactly the same products.

This matters because a smart headquarters knows that an ambitious division that wants to win can make smart and aggressive investments in technologies. Often these will be too ambitious, so the division ends up losing money, but there is a solution to that. As long as the corporation has divisions with complementary products, there is usually a benefit to some other division as well. What is required is complementarity among divisions so that both winner and loser investments for one division can become winner investments for the corporation. Look at the Samsung product line again. It is full of complementarity. There are devices using the same parts, exploiting similar intellectual property, and shaping complementary customer preferences. The diversified firm still has some life left if it remembers to compete, compare, and invest in technology.

Friday, March 16, 2018

Do Auditors Prevent Fraud by Firms? It Depends

The relationship between an auditor and the audited firm has always been interesting. Auditors are supposed to check the firm’s financial accounts and approve them, which lets others such as investors and the state know that the firm is not misrepresenting any information. They have some other duties as well, but you could say that auditors save the investors from seeing artificially high profits and the taxman from seeing artificially low profits. So who hires the auditor, the investors or the state? The firm does. That’s why it gets interesting, because it means that the auditor is implicitly hired to keep the firm within the rules for investors and the state while serving the interests of its management.

In a recent paper in Administrative Science Quarterly, Aharon Mohliver looks at an even more interesting part of this relationship by doing research on the role that auditors played in first condoning, then spreading, and finally extinguishing a questionable practice firms began to use when changes in the tax code affected their ability to pay managers above a $1 million cap without subjecting them to significant tax liabilities. At first the practice was questionable but not illegal, and auditors in some local offices helped their client firms start using it. The findings tell a very informative story of how auditors pay close attention to the interests of the managers who hire them, and also to the fine line between legal and illegal.

The questionable practice is called stock-option backdating. Stock options are often given to managers because they let managers earn higher income if the value of the firm increases, and to make them fair they are often given (for free, of course) at the exact value of the firm on the day they are given. In MBA-speak, those options have upside potential, no downside potential, and are incentive compatible. In plainer words, they reward managers for effective management but don’t punish failure. Firms report the costs of stock options as compensation expenses.

What I just explained is a regular stock option, without backdating. A backdated stock option looks just the same, but in reality it has been assigned an earlier formal date than when it was given, and that formal date somehow turns out to be a day just before the firm had a big increase in value. Through what seems like a very lucky dating of the option, the managers getting the backdated stock option earn significant sums of money not taxed as regular income. Backdated stocks are a trick for compensating managers at the expense of investors. They are a form of fraud, and though they were unethical from the start, initially there were no laws or rules against backdating so they were not yet illegal. (There were no rules because no one making rules had thought of backdating stock options.)

So the auditors stepped in. They spread knowledge of backdating from one client to the next, especially if clients were part of their local and dense communication networks. They were also sensitive to lawmakers, however, so this spreading of backdating was strongest when the uncertainty about the legality of backdating was greatest. When it became more certain that backdating would be made illegal, the auditors stopped spreading the backdating trick, and when it actually became illegal they stopped its use in the firms that had already started using backdating. So, auditors follow written law very well, are neutral to law that will soon happen, and are willing to help management profit from legally questionable conduct. Nice to know if you happen to be a manager, investor, or lawmaker. If you are an auditor you probably know it already.

Mohliver, A. How Misconduct Spreads: Auditors’ Role in the Diffusion of Stock-option Backdating. Administrative Science Quarterly, forthcoming.

Thursday, March 8, 2018

Follow the Money: How Endorsements Influence Entry

Applications are part of life. Some are minor, like applying for a library card; some are consequential, like applying for a job. Often the consequential ones involve selection of a few from many, like applications for work or study admission. We usually think that they should be decided based on merit. Partly this is because we care about fairness, and partly it is because the selection matters for the workplace and the school too, not just for the applicant. Selecting the best should give the best results.

So what exactly is the purpose of having others endorse your application? Maybe you have never done that, but it is common for applicants to have others contact individuals who could sway the decision. Is it a way of cheating, by bypassing the evaluation of merit? Is it a way to get attention so the merit gets considered more carefully? Or is it simply useless? The question is important because so many crucial decisions happen through application processes in which some but not all applicants are endorsed. A recent paper in Administrative Science Quarterly by Emilio J. Castilla and Ben A. Rissing has looked closely at what happens, using applications to an MBA program as their data. The results are interesting.

The dim view of endorsements as saying nothing (good) about quality is at least partly true. The endorsed applicants were sometimes (not always) rated as stronger “on paper” as seen through CVs but often were scored lower than the non-endorsed applicants in interviews. Yet in the end, endorsed applicants were more likely to be selected for program admission – twice as likely, in fact. Clearly, getting endorsed is a good idea for those who are almost good enough to make it based on merit. This is not because their applications are examined more carefully. There was no evidence that the same qualification was discovered more easily when the applicant was endorsed. Instead, the endorsed applicant was more likely to be selected even if his or her qualifications were good but not the best.

Maybe there is something about the endorsed applicants that test scores and interview responses can’t discover? Well, Castilla and Rissing also looked at what happened later. Among those who got admitted, the endorsed applicants were no more likely to receive awards. Or get higher grades. Or get higher salary or signing bonuses in their first jobs. Or have higher salary growth. Essentially they were the same as non-endorsed applicants in their performance after being admitted, both at school and after school.

But there were two differences. One seems minor but is interesting. Endorsed applicants were more likely to lead a student club while in the program. Maybe endorsement is a sign of good citizenship? The other is not minor at all. Endorsed applicants gave larger donations to the school five years after graduation. So in a way, it is better to select endorsed applicants, but it is in a follow-the-money way. They repay the favor of being selected, while those who were selected purely on merit have less reason to pay back – or maybe they have less (family) money.

Castilla, Emilio J., and Ben A. Rissing. 2018. "Best in Class: The Returns on Application Endorsements in Higher Education." Administrative Science Quarterly, forthcoming.

Wednesday, February 28, 2018

Schools Unite, Churches Divide: When Communities Organize to Help

Two of the most powerful organizing efforts following recent shootings are #neveragain following the Marjory Stoneman Douglas High School massacre and #BlackLivesMatter following the shooting of Michael Brown by a police officer. They have something in common that you may not have noticed: they were triggered in homogeneous communities. Parkland, Florida, where the massacre took place, is overwhelmingly white and well-off. Michael Brown was shot in a majority-black neighborhood in Ferguson, Missouri.  Each community came together to mourn the death of their own and to prevent repeats of the same tragedy. Each effort has been very effective, at least in getting media coverage.

I mention these examples because communities don’t always organize effectively, and we have seen in past research that more-homogeneous communities can more easily organize both for self-support and for supporting others. In a recent article in Administrative Science Quarterly, Wesley Longhofer, Giacomo Negro, and Peter W. Roberts test this effect again, and they also look at whether local organizations can unite or divide communities that would not be naturally united. They find that schools unite and churches divide, and the reason is interesting.

We have to start with why diverse communities have difficulty organizing to help. The problem is that when communities have a mix of people with different color, wealth, religion, and other characteristics, people start believing that those who seem different may have different values and ideas of what is good and bad. More and more, people associate with those who are most like themselves, including in community organizations. And as they interact with those who are most like themselves, they continue to strengthen the beliefs that they are different from the rest. The result is a community that is separated in its people, and also in the community organizations that people belong to, like churches, clubs, and associations of many kinds.

Suppose there is a common cause that just about everyone agrees to support. In this research, the common cause was collection of money for UNICEF (the Trick-or-Treat campaign done every year). Many people are in favor of UNICEF, especially if they have children. But it is still the case that homogenous communities organize better and help more because they are more united to begin with. The exception is that campaigns organized by public schools overcome the negative effect of diversity, and even reverse it to make diverse communities more helpful. Public schools are special because they are mandated and (in the USA) are organized to maintain diversity of students, so they span diverse groups of people and help them understand each other. That way, public schools unite diverse communities.
For the same reason, campaigns organized by churches and clubs had less effect in diverse communities. Both are voluntary organizations, so they are exactly the type of place where people interact with those most similar to themselves. Community organizations that reflect the divisions of the community, like churches and clubs, divide efforts to organize help; those that span the divisions of the community, like public schools, unite efforts to organize help. In times with many and deep divisions in communities, it is worth asking what organizations exist that can span different groups and help the community help itself and others.

Tuesday, February 20, 2018

When Networks Merge: The Other Benefit of Firm Acquisitions

Here are two facts we have known for a long time. One is that a firm acquiring another firm combines their assets, and that can give synergies if they have something that works better together than apart. That something can be any kind of asset, by the way, including knowledge or intellectual property. The other is that firms establish and change interfirm networks through forming and dissolving alliances with other firms, and they use alliances to gain synergies too. So far everything sounds conventional and straightforward.

But these two facts don’t tell the whole story. A firm acquiring another firm also combines their networks, and that can create synergies when the combined network is better than the original ones. In fact, it can change a network much more radically than just forming and dissolving alliances one by one. This third fact is the start of an article in Administrative Science Quarterly by Exequiel Hernandez and J. Myles Shaver, but the article does not end there. It also checks whether firms are deliberately choosing acquisition targets based on these network synergies.

The question is important. It speaks to how smart firms are in maneuvering and modifying interfirm networks, which is useful to know, especially because people are not particularly smart in modifying interpersonal networks. But firms are not people, and acquisitions are not normal firm actions – they are analyzed carefully, and networks could be one of the factors taken into account. They could even be more important for acquisitions than some of the assets that researchers have long obsessed over. After all, alliances are observable in advance, like physical assets are, but they are unique and therefore more strategic. The other unique and strategic assets in play are often people with knowledge, but they are known to sometimes leave a firm after it has been acquired, so it is pretty risky to acquire to get people. Alliances usually stay. 

Network synergies are especially potent if they make the combined firm a better broker of knowledge because they connect to firms that are not themselves connected and do not have other shared connections (that’s called gaining structural holes). Brokers of knowledge can help create novelty and can reap more of its benefits. Synergies are also potent if they make the combined firm more central in the overall network, giving it higher status. Pretty much any combination of firm networks will improve brokerage and status, however, so it is not enough to see that this happens after an acquisition. What we need to know in order to look for deliberate choice of network synergy is whether the increase from the firm network that got acquired was better than the increase would have been for other firms that could have been acquired. Strategy is about choices, so a choice has to be compared with what was not chosen. 

This is where Hernandez and Shaver make a fully convincing case for network synergies as an important factor in acquisitions. They studied biotech, where networks are very important, and so are assets like people and intellectual capital. Their analysis is impressive and leaves no doubt that the opportunity to combine networks and gain network synergies was an important factor in the choice of acquisition targets. That means we now have a new way of looking at acquisitions, and we are better able to tell what firms may get acquired, and what they were acquired for. 

Hernandez, E., & Shaver, J. M. Network Synergy. Administrative Science Quarterly, forthcoming.

Wednesday, February 7, 2018

From Tigger to Eeyore: How Gig Economy Workers Cultivate Work Identities

When some people hear the term “gig economy,” they think of temps working for agencies, but that misses 90 percent of the picture. The gig economy consists of people who act as independent workers, contract firm workers, on-call workers, and temporary help agency workers. Fully half are independent workers, and with the gig economy growing fast and now encompassing one-sixth of the U.S. workforce, independent workers have become important in society. But what is it like to be an independent worker in a world of organizations and employees?

An article in Administrative Science Quarterly by Gianpiero Petriglieri, Susan Ashford, and Amy Wrzesniewski finds that the answer is… complicated. The reasons give an interesting look at both the world of employees and the world of independent workers. Studying the world of organizational employees, scholars and observers of society have long been interested in how people’s identities become shaped by their affiliation with an organization, and how some organizations strengthen this and make use of it. The classic book “The Organization Man” by William Whyte was part of a greater conversation on how people’s identities and actions may become too connected to the safety of being in an organization as part of a collective.

If the idea of collectives as capturing and constraining people captured employees’ reality, for independent workers, contracting and independent work should mean freedom and the ability to express one’s individuality. And that should be a good thing. The problem is that Whyte may have been right when he suggested that people like collectives and fear the freedom of individualism. The independent workers interviewed by Petriglieri, Ashford, and Wrzesniewski expressed an unmoored existence with wildly fluctuating emotions – like the Tigger and Eeyore fluctuations that one of them mentioned. They also experienced uncertainty about their personal identity, economic position, and the recognition of their work. All of this because independent workers don’t have an organization as a holding environment that defines their identity, determines their economy, and recognizes their work.

So what do the independent workers do? The key finding is not that they have found one clear solution, but instead that they seize on all sorts of ways to secure their work identities. They make routines for anchoring themselves, not necessarily because the routines help the work. They connect to places where they do the work, almost as a ritual of establishing the place as a context that helps define their individuality. They connect to people who can provide interpretations of what they do and affirmations of who they are. They find ways of connecting their work to higher goals for society, so they can define a purpose of life. Some of their actions are hard to understand for people who work for organizations. I don’t know how a writer can revere the public library as a workspace, but maybe that’s because I don’t know enough about writing. I did software development much earlier in my life, though, and it is a mystery to me that an independent software engineer can describe his home office as a “fighter pilot cockpit” – to me, part of the beauty of software engineering is that it is completely portable, so places are unimportant.

When actions are hard for outsiders to understand, have seemingly precarious links to outcomes, and are highly varied across person, time, and place, they display all the signs of having a function. In this case, the function is to hold on to and cultivate an identity in the absence of a collective, and to manage the emotions that come with independence. We may find that the new economy has many more unmoored people holding onto their identities in ways we’ve not seen before.

Petriglieri, G., Ashford, S. J., & Wrzesniewski, A. 2018. Agony and Ecstasy in the Gig Economy: Cultivating Holding Environments for Precarious and Personalized Work Identities. Administrative Science Quarterly, forthcoming.

Sunday, January 28, 2018

Improving Social Science: What Can Journals and Editors Do?

We all know that correct science is needed for much of what we do. So many parts of our modern world—things we buy, use, or interact with in various ways—are based on science and work as they should only when the science is correct. Social science does not build things, but it teaches us how society works and how it can be improved. This gives value to social science, including to organization and management theory. One could even argue that organization theory has special motivations to be a correct science, because so many parts of our modern world—things we buy, use, or interact with in various ways—are made and operated by organizations and work as they should only when the science of managing is correct.

In an editorial essay in Administrative Science Quarterly,William Starbuck argues that we need to improve social science. The argument has multiple parts, and I will discuss just one here. It is a simple issue with a lot of complications: Research is done by people. People have all sorts of thoughts, feelings, actions, and reactions, which are often different from the cold and objective look at evidence that science calls for.

People want safe jobs, success, and recognition. They often feel under pressure to do well, both from what they want and from rules such as the promotion system we have, which is strongly driven by publications. This drives some of them to deviate from the true reporting of findings, which could involve selective modeling to strengthen findings, holding back findings that go against expectations, making up theory for unexpected findings, or even editing or falsifying data. A very important problem is that many researchers who are selective, hold back, or make up theory believe that they are better than those who edit or falsify. But they are not. Any one of the actions I just mentioned is a misleading departure from scientific standards. We understand why some people do it, but we need them to stop.

People assess scientific results, but they also think about the people doing the science, and that colors their assessment because people have stronger feelings about people than they have about scientific findings. Much of social science is aware of this effect and tries to shield authors through double blind review, to hide their identity from those who assess them. The fields that don’t do this end up rewarding the already famous over and over again. But double blind is not enough. People are good readers and can make all sorts of guesses about who the writer is, or at least what kind of person the writer is. The guesses are
usually accurate, but the assessments that follow the guesses are biased and disadvantage those who have low status. We understand why some assessments are shaped by status, but we need it to stop.

When people make the science, with bias, and people assess the science, with bias, how can we improve it? Starbuck has a wide range of suggestions that can help improve our procedures. At ASQ we are thinking carefully about these problems, and we have wondered whether part of the problem is that the evidence is not presented with enough appeal and transparency. We have changed our invitation to contributors to encourage more display of data before showing models and to encourage using graphical approaches that show the reader exactly how much is explained by the theory and how much is not yet explained. I have also written a blog post on this issue. People will still be people. The solution has to involve better procedures, including those that allow the data we work with to become more prominent.

Thursday, January 11, 2018

Between Guardrails: How Organizations Handle Mission Contradictions

Digital Divide Data (DDD) is a commercial enterprise doing data-entry work for profit. It is also a social enterprise that trains Cambodians to obtain better jobs than the ones they do for DDD. Is that a contradiction? Maybe it is not fully contradictory but instead just a tension—one that many social enterprises handle because they need to sustain themselves commercially, not just do good work. We have long known that the dual purpose of social enterprise is seen as a contradiction internally and can lead to various problems and coping strategies, but we have not known much about the long-term effects.

Now we know more, thanks to an article in Administrative Science Quarterly by Wendy Smith and Marya Besharov. They followed DDD for more than ten years, seeing it as a great example of the effects of how such contradictions are dealt with over a long time. It is a great example both because DDD has coped with them well, while many other organizations break apart or fail, and because it has faced a particularly difficult tension between its commercial and social work, as the commercial work has slim margins and some of the social activities can undermine it seriously.

What do we learn from DDD? As you might expect, the answer to such contradictions has more than one part, but here I want to describe just one: guardrails. Establishing guardrails is a way to set up the organization that follows some old organization theory almost to the book, although the DDD founders may not have been aware of it. In a hybrid organization like DDD, whose commercial and social activities are both important, one of the many possible solutions is to make sure that the organization holds strong advocates of each one and is not set up to let one type of activity dominate. That setup results in a battle for dominance between these advocates and between the coalitions they can muster for support whenever a critical problem arises.

That sounds like a noisy and costly way to organize, and it is. But its key feature is that the battles arise whenever one coalition sees the organization as going too far in one direction and neglecting the other, and the battles help to pull it back to the center. As long as the organization can balance its activities, it is peaceful. That’s why competing advocates and coalitions function as guardrails – they keep the organization from going off track and favoring one mission over the other.

The reason this is important is that hiring advocates for contradictory positions without giving priority to one looks like a way to generate problems for the organization. There is not one overriding mission, there is not a clear organizational identity, it is not possible to predict when conflicts will start, and it is hard to predict how they will end. But all these frightful sources of noise help stabilize the organization and resolve the tension between its contradictory goals and activities.

Thursday, January 4, 2018

The Different Uses of Training: Training to Retain First-time Workers

Firms often train workers, and nearly always for very specific reasons. We are most familiar with how they teach specific skills for their equipment and procedures, including re-training people when these change. Whether we’ve taken such training ourselves or have worked with assistants or administrators who have done so, we understand that such training is important for both the organization and the worker: it should help the worker produce more valuable output (which they can share), and it is more valuable if the organization can retain the worker on the job longer after training.

But the reality is that many workers don’t stay on the job very long, either because they experience a lack of fit with the employer or they have difficulty meeting the organization’s expectations of them as an employee and continuing to manage their responsibilities outside of work. This is especially true for women entering the workforce for the first time whose domestic roles haven’t prepared them for work. It is also true for people with self-employment backgrounds such as families doing farming or craftwork. Such first-time workers are the focus of an article in Administrative Science Quarterly by Aruna Ranganathan, who studied women entering the workforce for the first time as employees of a garment factory in India. Many of these women didn’t last long on the job: about a third left within three months of hiring.

As expected, the employer provided training to help new workers get up to speed. But what was unusual is that the content of the training differed depending on the trainers’ experience, and the content made a big difference in attrition rates. Ranganathan found that less-experienced trainers in the factory focused on teaching the new employees assigned to them only job-specific skills, such as how to use a sewing machine. These trainers saw their goal as teaching the “equipment and procedures” knowledge I referred to before. More-experienced trainers taught job-specific skills and also provided more general work-readiness training that focused on skills related to self-presentation, interpersonal communication, work–life separation, and self-reliance.

Clearly this is a different form of training because it is a way of socializing the first-time women workers, helping them feel comfortable in their workplace, behave as expected, communicate well when needed, and work independently when needed. These activities are natural for many people who are socialized into workplaces early in life through exposure to an organization such as a university or a business. The women studied by Ranganathan came from rural villages, where such socialization is hard to get. Successful work-readiness training, which decreased the numbers of women quitting shortly after they were hired, was important both for the firm and the employees: re-hiring is costly for the firm, and leaving paid work as a result of lack of fit hurts these women’s income and further employment chances.

Socialization training was different from job-specific training because the trainers didn’t work from a checklist of skills to impart. Instead, the experienced trainers seemed to have a natural understanding of what the new workers could experience as problems; they taught new employees how to get to work on time in the morning, showed them where the bathroom was, and encouraged them to take breaks for drinks of water, for example. Without the benefit of a checklist of such seemingly simple (yet clearly important) skills to teach, less-experienced trainers didn’t teach them, perhaps because they didn’t understand the importance of such work-readiness skills.

We rarely think of training as having such general goals to help employees feel ready to work. We rarely think of socialization as happening through training rather than through workers interacting formally. We rarely study how developing nations modernize through having people who were earlier engaged in farming or housework taking on the role of paid employees. Ranganathan’s research is eye-opening because it is right in the middle of so many important and neglected topics.