Monday, January 20, 2020

Learning from Others’ Mistakes: When Ships Go Too Fast

Can you think of an innovation that looks very promising, especially because so many others have started using it? Can you recall any such innovations that have been disappointing? In consumer markets, cold-press juicers have spread widely and have been marketed by their positive health effects, but there is now evidence that they do more harm than good. Their sales are slowing. In business markets, airlines have long known that larger airplanes were better, and were lining up to buy the giant Airbus 380 and the slightly smaller Boeing 747-8, but they stopped after realizing that the new generation wide-body aircraft were more economical.

There are many cases like this, including worse mistakes than these two. This raises the question of how firms can quickly understand that a new innovation will disappoint, and can stop themselves from adopting it. This was a question I examined in a paper in Strategic Management Journal on the fast ferry innovation, which was briefly popular but soon proved to be a very specialized type of ship. The problem with fast ferries is that they were too fast and too heavy (they carry cars as well as people). Making such a combination go fast is a significant engineering feat, but it is also very expensive, and few routes can charge high enough ticket prices to make it profitable.

Shouldn’t this have been easy to discover? Not really. Fuel prices fluctuate, and maintenance costs are hard to estimate in advance. It is a lot easier to make the cost calculation after buying and operating a ferry (or a few ferries), but then it is too late. Still, the shipping firms learnt how specialized fast ferries were, and it took “only” about five years for this knowledge to spread. Importantly, the shipping firms learnt from each other.

Here is how it happened. Each firm that started using fast ferries accumulated experience with the costs, and this experience must have leaked. We know this because sales of fast ferries made additional sales to nearby shipping firms less likely. Some firms gave up on their fast ferries and sold them in the second-hand market (at a discount, of course), and this also made additional sales less likely. Resales seem like even stronger reason not to buy, but actually the effect of giving up was about the same as the effect of using a fast ferry. Firms learn from the high costs just as much as they learn from resales.

This is a natural finding except for one important detail. If a firm is operating an expensive piece of equipment with disappointing results, it will soon be clear that selling it is the best option. But, in order to sell it without losing too much money, it is important that the costs are kept hidden. This means that the information about the high costs must have leaked from the shipping firms using fast ferries despite their best efforts to keep them hidden.

Inter-organizational learning is hard to stop. Firms learn from the mistakes of other firms, even the mistakes that they try to keep hidden!

Monday, January 13, 2020

Woven Networks: Why One Type of Contact Isn’t Enough

Most people who work know that it is important to have friendly working relations with other workers, especially with managers. Researchers call these relations network ties and have found that they are great for getting work done and improving career outcomes. It is less clear to most, but very obvious to business school professors, that those who are or want to become managers are especially interested in network ties, and not only with other (higher-up) managers. They try to connect with anyone who can be useful, including various specialists in the organization.

A special version of these ties is formed between technologists making inventions and managers launching new products. They need each other, and each knows they are competing with others in the organization who are trying to use other innovations to launch other products. Out of mutual interest in their careers (and to be helpful to their employer), they may partner up, exchange information, and then – importantly – try to influence others to get their innovative product approved for launch. In a recent paper in Administrative Science Quarterly, AnneTer Wal, Paola Criscuolo, Bill McEvily, and Ammon Salter document what may be an especially good way for these partners to influence others for the sake of launching innovative products.

The authors discovered that a special structure – the woven network shown in the figure here – is best for these technologist/manager partners to pursue. In the figure, a manager and a technologist who are collaborating to advance an innovation are both connected to peers and seniors in the organization, and they are both connected to other managers and technologists. In other words, each of them is connected to people who occupy different roles at different levels. This allows them to create buzz for the innovation and to influence their bosses. What’s new about that? Here’s the key: the technologist networks with people in various role sets, and the manager networks with different people in those same role sets. The results of this specific type of influencing create a particularly strong advantage.

Technicians and managers have different knowledge, different goals, and different interpretations of an innovation. A manager always sounds more credible talking about its commercial features and less credible talking about its technological features. For the technician, it’s the other way around. By tapping into this particular kind of networking, the team helps both kinds of information reach people in different functions and at different levels of the organization. The team’s joint influence over different people within a given role/level gets reinforced when those people then talk to each other about the innovation’s potential.

How big are the effects of such interwoven networks? A modest change in the degree of this type of networking increases the likelihood of innovation launch by about 8 percent. In management studies, and especially anything that has to do with innovation, that is a big effect. It is interesting that the effect is so big and the behavior needed to get it is contrary to what many people do. A geeky technician will mostly speak to peer technicians. An instrumental technician will mostly speak to senior managers. Each of them will be missing influence with important roles in the organization, and they will have a better chance to succeed if they are paired with a manager who networks with people in a variety of roles and encourages the technician to do the same. In networking, as in so many other aspects of bringing a new product to life, teamwork is key to producing the best possible result. So let’s start talking—and not just to the people who already know what we know and think how we think.

Ter Wal ALJ, Criscuolo P, McEvily B, Salter A. 2020. Dual Networking: How Collaborators Network in Their Quest for Innovation. Administrative Science Quarterly, forthcoming

Wednesday, December 18, 2019

Are Football (Soccer) Time-Keeping Rules Fair Play?

Think about this: football games are divided into two halves of 45 minutes each, and time lost during the regulation time can be added by the referee. What can go wrong? Well, to begin with, research by me, Nils Rudi, and Anup Walvekar published in PLOS ONE found that in one of the elite football leagues, most teams played 50-55 minutes on average per game, so 35-40 minutes of time were lost to game stoppages.

The loss of time isn’t fair either. Our research found that when play was stopped, teams that were ahead in the score spent more time restarting the game than teams that tied, and they in turn spent more time than teams that were behind. An advantage meant more time wasting, and this was true for goalies doing kickoffs, goalies kicking or throwing a captured ball, freekicks, throw-ins, corner kicks, and substitutions. See the figure for some examples of the time wasting (the vertical axis shows the time used).

To enforce free play, referees are supposed to prevent time-wasting, but from our research findings it is clear that they can’t do this. In fact, we analyzed the time-wasting and found that the teams were able to follow a nearly optimal (for them) time-wasting strategy, which means that that they are effectively sabotaging fair play, and they are also giving football fans fewer minutes of watching their favorite game than the fans would like to have.

What can be done? Football is special in many ways. It is the oldest organized team play that is currently big business. It is the largest sport worldwide. Larger revenue than any other, more professional players than any other, probably also more amateur players than any other (they are hard to count). And, it is the most important team sport that has a set game duration and no stopping of the game clock when the play stops. Think about it: the American Football, Ice Hockey, and Basketball stop the clock when the play stops; Baseball and Cricket do not have a clock; only Football and Rugby have a game clock and no clock stopping.

If the clock stops whenever play stops, it is impossible to take advantage of game stoppages to waste time and turn a goal advantage early in the game into a win. Most game stoppages would get shorter as a result. Goalie kicks are 80 percent slower under current rules than they would be if the clock is stopped. Goalie restarts are 24 percent slower, and freekicks are 36 percent slower when teams try to waste time. Naturally, the total game time would need to get shorter if the clock is stopped the play stops, but we can calculate how much shorter it should be for the fans to get the same number of actual play minutes.

Football is an important game for all its fans, and in fact the main irritation is when play is stopped, and the opposing team is leading and is slow to start the play. How many football fans have booed players from the opposing team who are suspiciously slow to get back up after a tackle, letting seconds tick off the clock while the whole stadium is waiting? If the clock is stopped, everyone would know that the pain is real, and the game is fair. It would be a big change in a traditional game, but maybe it is worth it?

Thursday, October 31, 2019

Rational Fouls? Yes, Professional Soccer Players Mostly Cheat Rationally

Fans usually watch soccer games with a great deal of excitement and passion. The players look excited too, even passionate. But remember, they are professional soccer players, hired and paid well to perform at top levels. Your local team may not be all that good (it depends on where you live), but the games broadcast on television involve top league sides that can hire elite players from anywhere in the world. Has it occurred to you that they may actually be more calculating than passionate when playing the game?

They are, at least most of the time. In a forthcoming paper in Organization Studies, Nils Rudi, Anup Walvekar, and I studied how soccer players foul each other. In other words, we studied how a soccer player decides to slide down, kick down, elbow, or pull an opposing-team player so that the referee calls a foul.

Fouls are an interesting topic, for a few reasons. First, fouls are against the rules of the game, but can benefit their team. They are a good comparison with other things employees can do that are illegal or immoral but benefits their firm in the short term, such as misleading or defrauding customers. Second, fouls are risky for the player. The referee is watching, and a violent foul not only gives a free kick, but also a yellow card to the fouling player. That can be very expensive for a player who gets a per-game bonus payment, as many of them do. Finally, fouls often look like acts of passion, as when a defending player slides into the attacker to knock him down.

So how do soccer players decide when to foul? Mostly they are rational. We were able to calculate the cost of fouling as change in likelihood that the team of the fouled player will score as a result of the foul. Intuitively, this is easy – fouls lead to free kicks, which can give goals. (Mathematically it is more complicated, but it is completely doable.) We were able to show that players choose are more likely to foul more the better it is for the team to do so. Not exactly surprising, except that the effect was quite strong. Many of you know enough about the off-the-field antics of some soccer players to doubt that they are fully rational, but on the field, they are complete professionals and experts in what they do.

But there are two exceptions, and both are interesting. First, there is the organizational goal of winning the game. Players and teams hate to lose a lead, and they foul less rationally when they are defending a lead. Second, there is the individual goal of looking good. Players hate to lose the ball, and they foul less rationally when they have just lost the ball to the opposing team. In fact, they completely lose their rationality if they are near the player who stripped them of the ball.

We know this because we can measure not only whether organizational and individual goals affect the likelihood of fouling, but also whether it affects how much the cost of fouling is taken into consideration. Defending a lead and becoming hot-headed after losing the ball both make the player think less of the cost of fouling. So, we know that in one type of organization with a highly expert team, decisions are made rationally except for when it really matters to the decision maker.

Tuesday, October 22, 2019

Punch or Block? How Organizational Members React to Social Movement Anger

The Dick’s Sporting Goods chain store stopped selling military-style semiautomatic rifles after the Marjory Stoneman Douglas High School mass shooting. No wonder: the Stoneman terrorist had bought a gun from one of their stores. Even though he didn’t use it in the attack, the store was one decision away from becoming an accessory to a mass shooting of school children.

Gun control is an issue that provokes significant anger from people on both sides. People who advocate for stricter controls express anger over the lives lost and the failure to quell domestic terrorism. People on the side of no gun control express anger over losing their right to buy any weapon they like.

Not all social movements provoke the degree of anger gun control does, but we have more to learn about those that do. A recent article by Katherine A. DeCelles, Scott Sonenshein, and Brayden G. King in Administrative Science Quarterly shows us something new about social movements that provoke anger and how organizations respond to them. The authors find that anger related to a social movement affects the response of organizational insiders who agree with the social movement, but not in the way we might expect. In the case of Dick’s Sporting Goods, the organizational insiders would be employees who agree that gun control is necessary and that the store should limit its gun sales and/or have stricter background checks.

Employees’ reaction to a social movement they agree with would seem fairly simple to predict: they would express their support of the social movement and try to influence the organization to agree to its demands. This is often the case, and employees are often successful: organizational insiders who agree with a social movement make organizations much more likely to change. In other words, a social movement often creates an opportunity to push an organization for change.

But this article points out that social movements invoking anger are different. Anger leads to a feeling of being under siege, so employees agreeing with the movement face a dilemma. They are angry too and would like to express it. Yet they also depend on the organization for work and pay, and they have reasons to fear that involvement in an angry social movement will lead to negative repercussions, whether from coworkers who disagree or from management. In other words, they have to decide whether an angry social movement is a good opportunity to punch for change.

The research showed that this conflict between anger and fear was resolved in favor of fear. While people outside the organization were more likely to act in response to the social movement when they were angry, organizational insiders were less likely to act. This was because greater anger also led them to fear negative consequences of acting. Employees often did not act on their anger but instead sought to protect themselves. In other words, they decided that the best response to an angry social movement was to block punches that might come from management, not to punch for change.

In Dick’s Sporting Goods, change happened. Not only did they stop selling the semi-automatic rifles that are favored by mass shooters, but they also destroyed them. They are considering stopping sales of guns of all types in their stores. Why did this happen? The decisive factor was that, angry or not, the CEO got on the side of the social movement. Management does matter, especially when there is controversy and anger.

DeCelles, K. A., Sonenshein, S., & King, B. G. 2019. Examining Anger’s Immobilizing Effect on Institutional Insiders’ Action Intentions in Social Movements. Administrative Science Quarterly, Forthcoming.

Monday, October 7, 2019

Angry Friends: How Past Collaboration Can Increase Conflict

Let’s look at something that most of us would agree is true: People and firms that have collaborated in the past will treat each other better in the future. This behavior is widely accepted to be true in business, and plenty of research evidence backs it up. It is part of what we call network theory, where one of the central ideas is that past collaboration or contact between two people creates a tie between them that facilitates future collaborations.

Like all things we believe to be true, we think about this one only when we see that it’s not. A recent article in Administrative Science Quarterly by Jose Uribe, Maxim Sytch, and Yong H. Kim looks at collaborations among lawyers. In most collaborations, people or firms work together for their own benefit. Lawyers also seek to benefit themselves, of course, but they do so by acting as representatives for others. In this paper the lawyers represent firms involved in disputes over intellectual property, which can be a very important and potentially valuable form of legal action.

A past collaboration means that the lawyers have been on the same side in an earlier lawsuit, usually representing different firms that have the same goal. This study considers what these lawyers do when they later represent firms on opposite sides of a lawsuit. One might think that lawyers who have collaborated in the past will treat each other better and come to a better solution in a shorter time. This is possible, but if the firms they now represent are strong rivals, the opposite happens: The lawyers are more aggressive if they have collaborated in the past. That means longer time to settle the case and fewer cases settled out of court.

Does this make sense? It does not if we assume that the firms observe and care about only the final outcome of the case. This article shows that having more-aggressive lawyers on each side typically leads to worse outcomes for both sides, such as dings to their stock prices. But it turns out that firms also look at their lawyers’ history with the other side’s counsel and care about the process, not just the outcome, and that is where things go wrong. Lawyers who have collaborated with opposing counsel in the past know they need to prove their loyalty to their current client, and the easiest way to do so is to be aggressive – the firm is watching the process and will see this as a sign of loyalty.

The results of this research do not mean that what we know about collaborations is wrong – only that it is incomplete. A history of collaborating would likely make most lawyers want to collaborate, but they are trapped by the need to prove loyalty to clients that are strong rivals. There is no way out of this trap, which also hurts the client, but they can make it less serious by agreeing to act collaboratively on smaller procedural steps that simplify the case for the judge and lawyers but are not inspected closely by the client. And indeed, some lawyers did exactly that, presumably because they still wanted some level of collaboration and also knew that this would be better for the client.

So we still know that past collaborations make people want to treat each other better, but the role of representing someone else can reverse that. To represent someone you need them to trust you, and if that takes some aggression against a past collaborator you will consider doing that. At least if you are a lawyer.

Uribe, J., Sytch, M., & Kim, Y. H. 2019. When Friends Become Foes: Collaboration as a Catalyst for Conflict. Administrative Science Quarterly, forthcoming.

Friday, September 27, 2019

Rise of the Moderately Capable: Succession in Family Business

How can the prince of an absolute monarch survive and inherit the throne? How can the child of a family business founder take over the business? Two different questions with the same answer: Don’t be too ambitious, and don’t be too capable. This sounds like a bleak story, so I should explain the research behind it.

The theory and evidence are found in a recent article in Administrative Science Quarterlyby Xu Huang, Louis Chen, Erica Xu, Feifei Lu, and Ka-Chai Tam. They look at the problematic situation that parents and successors of family businesses find themselves in. Family business founders believe that success comes from exactly their actions and values, so successors should imitate them exactly. Yet imitating them too closely creates competition, which encourages the parent to dominate the child instead of giving the successor freedom.

How can this domination be avoided? The answer is simple and discouraging. The successor should not be too ambitious or too capable, because these attributes would increase the competition and lead to dominance by the founder. In fact, highly ambitious and capable children will be dominated by the family business founder because they are too good, just as unambitious and incapable children will be dominated because they are not good enough.

The research team found evidence for this through surveys of family business founders and successors in China. But they went further than that: One part of their study looked at how princes of Chinese monarchies before 1000 AD fared, finding that those who were not too ambitious and capable had the best chance of succeeding the king. Of course, not succeeding an absolute monarch is a little worse than not taking over a family business – those who failed might be killed by their father and replaced by a more amenable prince.

So in some ways the world has improved, because the price of being too capable is no longer death. But this research still does not deliver good news. Family businesses are very important in most parts of the world. If only the moderately capable successors gain freedom, these firms will not become as successful as they might, to the cost of the family, the employees, and society. Strictly speaking this effect has been shown for only the founder generation of family businesses, and we could hope that it disappears in the second or third generation.  

Family businesses are complicated because they mix family and business, which are usually kept apart in modern society. In the ancient world family and business were the same thing, and I can’t help wondering whether that meant they had better mechanisms for dealing with the mix than we do now.