Wednesday, February 24, 2021

Creativity and Instability: Lessons for Management

In the news we just learnt that the famous painter Edward Munch wrote “painted by a madman” on his most famous painting “The Scream.” As in all his endeavors, that inscription and painting neatly combined insight and instability. His insight preceded research on the management of creative work by 125 years.

Management scholars just caught up. Research by Guiseppe Soda, Pier Vittorio Mannucci, and Ronald S. Burt published in Academy of Management Journal investigated what distinguishes teams that can produce highly creative products. Their work is quite a feat because it focused on one of the greatest strings of creative successes in modern television: the science fiction series Doctor Who produced by BBC. This is a series that has been widely praised as being high quality and creatively conceived throughout, but differences among episodes in the creativity were still large enough for the researchers to find the sources of creativity.

Ready for the answer? It is instability, as Munch noted and practiced. But the lesson is a little more complicated than that. It is well known that certain kinds of network connections generate creativity, specifically open networks in which each person gets diverse information by being connected to people who are not connected to each other. This is well known and makes sense but is not as reliable a predictor of creativity as one would expect. It also follows that getting a stream of diverse information creates creativity (indeed, some of my research shows that), but again it is a less reliable predictor than one would expect.

Why do these two factors work sometimes but now always? The answer is instability. An open network does not generate much creativity if it is stable, because there simply is not enough new people to spur creativity. Similarly, new content helps creativity little when the network is stable because it keeps being interpreted by the same people. Add some instability to the network, and suddenly openness and information diversity start operating as expected, increasing creativity.

In the case of Doctor Who, the effects were big enough that many modern fans do not even realize that the TV series has been canceled because of lack of audience interest, before being restarted and again experiencing significant success. Creativity won the day.

Of course, this research was not done for the purpose of giving us more good TV. Firms depend on creativity in many areas of activity, most conventionally in research and development, but also for product updates, new business model generation, and re-launch of product and service lineups that have gone obsolete in in the minds of consumers. This research tells managers that fans can and should shake up the teams that make such changes whenever significant creativity is needed. When managers follow Munch’s lead and generate instability, team members who are moved around may scream, but the increase in creativity is worth it.

Soda, Guiseppe,Pier Vittorio Mannucci, and Ronald S. Burt. 2021. Networks, Creativity, and Time: Staying Creative through Brokerage and Network Rejuvenation. Academy of Management Journal, forthcoming.

Friday, February 19, 2021

A Surge and Emotion: When Meaningful Work Becomes Too Busy

If you are like many of us, you are secretly or openly envious of those who have especially meaningful work. We may find meaning in some parts of our work but not all, and we are very aware of those who connect their work and passion perfectly. There is the artist who is so successful that all their time is spent creating art, not selling it. There is the humanitarian who works with an NGO that keeps its people in the field, in the places with the greatest need and effect of their work. There is the medical doctor who has stayed away from the repetition of general practice and specialist clinics and instead spends all the time diagnosing and helping unique cases.

In our envy, we overlook something special about meaningful work. It derives much of the meaning from the pursuit of quality, and as a result, it needs to be done at a slow pace. The violinist who has to prepare too many pieces resents the sacrifice in preparation. The humanitarian and doctor who need to solve problems too fast worry about failures. But then, what happens with the people doing meaningful work when there is a surge in the workflow? This is the topic of research by Winnie Yun Jiang published in Administrative Science Quarterly. Her research context is perfect for the topic because she examined how a US refugee-resettlement agency was overwhelmed by a surge in refugees, most from the Syrian war.

Consider the transition from doing meaningful work to being overwhelmed with work. The purpose of the work is unchanged – so many people are in great need, and this organization is their main line of support to find a place to live, find work, and quickly integrate into a new and very different society. This takes time and effort. Except there isn’t any time because there are many more refugees than before, so either the workers have to stretch their hours and efforts to the maximum or do less for each refugee, or maybe both. The work is the same, but the motivation and meaning fade.

Can an organization built on meaningful work handle this? They cannot easily expand because meaningful work is typically meaningful for some people but not others. They cannot reward their workers more because most organizations with meaningful work are low-budget outfits to begin with – they are built around the idea that meaningful work means that high pay is not needed. They cannot routinize work for speed because tailoring is at the core of meaningful work. This type of organization is not well suited to handle workload surges, so its members have to adapt.

Can the members handle it? Jiang found they adapted in multiple ways, with varying levels of success. One approach was to change their work by drawing new boundaries that eliminated the most time-consuming tasks, while still performing faster versions of the same service. For example, they would no longer go with the refugees to get drivers’ licenses but would make and give out information sheets on how to do so. A deeper change was to redefine the work so that the meaning given was a better fit to what they could accomplish in the new situation. The most common redefinition was to focus on the number of new resettlements they could handle instead of the attention to each one. Typically, though, the members would find a middle road with some focus on individuals while also making sure they handled the surge.

Were managers useful? Some of them were very helpful in the transition because they focused on sense-giving. They were able to reframe the work in ways that gave meaning even as the refugee surge made the old style of working impossible. They explained how essential the organization had become, and they empowered its members through expressing and focusing on positive emotions. Even as the organization had difficulty dealing with the surge, its leaders helped the members adapt. And that is a central feature of leadership: When the organization fails, or nearly fails, leaders can still keep its members motivated and functional.  

Jiang, W. Y. 2021. Sustaining Meaningful Work in a Crisis: Adopting and Conveying a Situational Purpose. Administrative Science Quarterly, forthcoming.

Friday, January 29, 2021

The Adolescence of Performance Feedback Theory

Organizations have goals, and members of organizations try to meet those goals – especially if they are managers. This is obvious, but what has been less obvious is what level of performance on each goal they aspire to meet, and how they react to falling short of this level or exceeding it. Performance feedback theory is a body of research looking at this issue, starting with the classic book “A Behavioral Theory of the Firm” by Cyert and March and continuing with a long string of research articles, nearly all of them following “Organizational Learning from Performance Feedback” written by me.

The basics are well known by now. Firms – and people – learn how to aspire from their own past and from others like them. They do not try to improve when doing better than the aspiration level, but when doing worse they will sometimes try hard to improve, and at other times go rigid. When they have multiple goals, it is often possible to find out which goal is more important and is addressed before the others. The long string of repeated findings are typical of research that has captured an important piece of reality.

So why is there a new book now, “Organizational Learning from Performance and Aspirations,” by Pino Audia and myself? Because researchers are different from the firms we study.  When things go well we wonder what else we can do, and how to improve. The answer, we think, is that there are quite a few things that are missing or can be fixed in this research. In the book we go into detail, but here are some of the leads to what we think can and should be done so that this research – which we think is still at its adolescent stage – can grow up.

First, take into account that individuals have goals too, and often these are simply to feel good about themselves. This is a major problem for self-improvement, and also for organizations that rely on managers to acknowledge that low performance is a problem that needs to be fixed. Managers who self-enhance will ignore warning signs. When does this happen, and what are the consequences?

Second, acknowledge that organizations and individuals do not just have one or possible two goals, but are often surrounded by multiple goals. They need to pick which one(s) to address, and it is not simply a matter of checking which goals are most consequential and show the lowest performance. In particular, hierarchies influence which goals matter most, and self-enhancement complicates things too.

Third, look to the organizational environment as a source of goals that the organization may not voluntarily adopt, but may be forced to adopt because powerful others want it to or, almost the opposite process, may be led into by managers who perform poorly on their main goals but discover environmental goals that they do well on and can use to impress their superiors. 

Fourth, order our thinking about performance feedback to take into account all the levels of decision-making in organizations. Individual managers matter, organizational units matter, the organization as a whole is important, and the environment sets the stage.

In the book, we develop these threads of ideas further and try to make a wide set of proposals of research that can be pursued. We hope you find it useful and inspiring!

Audia, Pino G. and Henrich R. Greve. 2021. Organizational Learning from Performance and Aspirations: A Behavioral Perspective on Multiple Goals. Cambridge, UK: Cambridge University Press.

Wednesday, January 13, 2021

The Diffusion of Cleverness: Ups and Downs of Reverse Mergers

Management scholars have spent much time studying the diffusion of innovations, starting with work on new technologies and continuing to research on social practices such as institutional innovations and even strategic positions in markets. By now we know a lot about why some organizations are early adopters, and how other organizations are influenced by the number and status of early adopters, and by how close to them they are geographically or in social networks.

How about the diffusion of cleverness? By cleverness I mean small inventions that manipulate the rules in ways that are beneficial for the user, and may or may not be harmless to others. Clever innovations are very common in financial markets, where rules are everywhere, and clever interpretations of rules can be used as shortcuts. Because such clever interpretations often go against the original intent of the rule, they are usually controversial. A great example of cleverness is reverse mergers, which were studied by Ivana Naumovska, Ed Zajac,and Peggy Lee in a recent article in Academy of Management Journal.

A reverse merger (RM) is done as follows. A law firm registers a publicly listed company with stock, but the company does no business – it is just a shell. A private company that actually does business then goes public through a merger with the shell company, paying a small fee for the shell company and keeping the same ownership, unless the private owners also want to use the reverse merger to invite new ownership. This is a simple and inexpensive way to go public compared with an initial public offering. Clever, right? And as you might expect, US capital markets saw the diffusion of cleverness in the form of RMs during the mid-2000s, as Naumovska and coauthors found. They also found that this looked a lot like a regular diffusion process, where firms were more likely to use an RM the more prior RMs had happened.

So, is there anything special about the diffusion of cleverness? Yes, because clever innovations are shortcuts, and with shortcuts come controversy. Those who lose their advantage from the rules will be opposed, the press may become interested, and the regulators who made the rules will not be happy. And this happens more the more adoptions of cleverness have happened, so the cleverness is promoted by past adoptions but also undermined by past adoptions. Indeed, the SEC made rules to increase the reporting requirements of RM, though they did not otherwise make RMs harder. More importantly, the press turned against RMs and even stock market investors became skeptical and delivered lower returns to RM firms.

So, what does this teach us about the diffusion of cleverness? In some ways, it is similar to the diffusion of technological or business innovations, because innovations always come with uncertainty, and often the drawbacks of innovations are not discovered until many have adopted. When that happens, the process that follows is very similar to the RM diffusion and its later collapse. But there is an important difference that we need to keep in mind. Technological innovations are uncertain, so we know that some of them are mistakes but we do not know which ones.

Cleverness is different. Cleverness involves controversy nearly every time, so we can be confident that the diffusion of cleverness will see a collapse at some point. That is a good reason to be careful when evaluating a clever innovation, especially in financial markets where they are so frequent.

Naumovska, Ivana, Edward J. Zajac, and Peggy M. Lee. 2020. "Strength and Weakness in Numbers? Unpacking the Role of Prevalence in the Diffusion of Reverse Mergers." Academy of Management Journal forthcoming.


Friday, December 18, 2020

You Want to Control Us? But We Are Your Employees!

Organizations control people and processes – that is how organizations organize. It is unpleasant to some employees and surprising to others, but it is true. A serious concern employees have is that often the forms of control are designed by people who do not understand their work because they are too high up in the organization, as managers often are. If new instructions that control employees do not fit their work, what happens?

This very important question is addressed in research by Jillian Chown published in Administrative Science Quarterly. She looked at an interesting and typical case of control. A new process that improves work has been discovered elsewhere in the organization, executives love the process and its results, and now they are instructing new departments to follow the process. Except that those departments work differently from the ones that initially benefited from it. Everyone knows that people are stuck in their habits and often resist change that is good for them, but they also resist change that is bad for them and the organization. It is important to tell these apart. Chown focused on a work practice used successfully in the inpatient wards of a hospital and then transferred to outpatient clinics. 

Guess what? Outpatient clinics have patients who come and go every day, which makes them very different from inpatient wards. The new process did not work in any of the six clinics, and in response, the staff of the clinics started modifying it to make improvements. This is where things got interesting. Usually, we think of modification as a form of customization. If a meeting in the morning does not help a team schedule processes and assign work and equipment well enough, they may change who attends, what information is brought up, and what kind of decisions are made in the meeting. A team can customize, learn from the customization, customize again, and repeat this until they have a process that works well. Top-level executives and managers further below can see that a customized process is a great way to implement something similar to what they intended, but better. In Chown’s research, customization was an easy and good outcome for half of the clinics. But the other half did not customize. What about them?

In these clinics, the staff saw the new process as completely unfit to the problems they faced and did not see a path toward fixing it through customization. The result was conflicts with the program managers trying to start the process adoption, and these conflicts had interesting outcomes. The clinics were able to halt the process adoption in the original intended form and even the customization of it. But also, the clinics knew that change was needed to improve their workflow, and executives demanded it happen urgently. In response, they started innovating processes. These had some minor resemblance to the original process but were different in form and content, so they were transmutations of it.

Transmutations were not easy to develop because the learning process was harder than with customization and also had less support from the program managers, but all the clinics in question managed to find new processes that improved their work. This is a great testament to how well teams can find new forms of control of their own work. It also brings up a small puzzle: If these improvements were always possible and were so different from what the executives tried to introduce, why had they not happened already? People do resist change, but when they are pushed, they can identify change that works. The specifics of a new form of control may matter less than the effort to enact it.

Chown, Jillian. 2020. "The Unfolding of Control Mechanisms inside Organizations: Pathways of Customization and Transmutation." Administrative Science Quarterly, forthcoming.

Thursday, December 3, 2020

Changing Lenses: Using a Different Theory to Look at Internationalization

Here is a slightly nerdy question for those interested in social science: How attached are theories to fields of investigation? For example, in business schools we have marketing and organization theory. So marketing is about markets, and organization theory is about organizations, right? Not to mention all the subfields within marketing and organization theory, which are dedicated to understanding specific topics. Consumer Behavior in Marketing is about (drumroll…) how consumers behave. But is it so simple?

It is not. Many fields of investigation have been dominated by specific theories, making thinking about them so uniform that much can be learnt from other theories making inroads. To take two examples that I know well: Finance studies financial markets, but organization theory has shown that the status of investment banks affects decisions in those markets, which is against finance scholars’ belief that pricing is pure demand and supply. Organization theory studies organizations, but the entry of economists have increased awareness of how contingent rewards (incentives) can have a big role in organizing.

This means we should look around for opportunities to give established fields of investigation new ideas. That is exactly the purpose of an article by Irina Surdu, Gabriel Benito, and me in Journal of International Business Studies looking at the theory of International Business and arguing that the behavioral theory of the firm, which is an organizational theory, can inform international business studies. Why do we think this will happen? First, addressing a field of investigation with a new theory always brings out something interesting, so it would be surprising if it did not.

Second, who does international business? Firms do. Firms are organizations, and the most man-hours spent studying organizations are logged by organizational theorists, not scholars in international business. Yes, internationalization is a specific action taking by a minority of all firms, but knowing how firms act in general is very useful for understanding any specific action they do.

Behavioral theory is particularly important because it is about how firms learn, and how their managers cope with bounded rationality. This is very important for internationalization because firms that engage in international business repeatedly step into areas of uncertainty that are too great for the boundedly rational manager to make flawless decisions. Instead, they probe, get feedback, adjust, and learn. That is what the behavioral theory of the firm is about.

We do not yet know what will come from an investigation of internationalization through the lens of behavioral theory. That’s part of the beauty, because there are so many ways that this theory can be used, and so many things that can be discovered and can improve our knowledge of international business. In the end, this will feed into how we teach students to manage the complex international world that they are facing. We have now issued an invitation to researchers to change lenses, and we think it will be productive.

Surdu I, Greve HR, Benito GRG. 2020. Back to basics: Behavioral theory and internationalization. Journal of International Business Studies forthcoming.

Tuesday, December 1, 2020

Sprinters or Legionnaires? Why Entrepreneurs Benefit from Collaboration

What happens when you put talented and ambitious people together? That is an important question in many contexts, and a currently popular version is accelerators for entrepreneurs. Accelerators select the most promising venture plans from many applicants, giving them a pool of talent and ambition. They have training programs, coaches, and access to industry and funding contacts, and their goal is to help the participating entrepreneurs produce valuable ventures. Importantly, accelerators also house the venture teams together and have them interact in the training program and during their regular work.

But how should we think about their interaction? In sports, talented and ambitious people are brought together because they improve through competition. Sprinters run faster, and gymnasts develop better routines. But people are also brought together because they improve through collaboration. Soccer teams fine-tune their attacks and defenses, and Caesar’s veterans were so coordinated that they could beat other Roman armies in the civil war. Competition and collaboration can both be effective, maybe even simultaneously, but which one is best for entrepreneurs?

Thanks to research by Rekha Krishnan, Karen S. Cook, Rajiv Krishnan Kozhikode, and Oliver Schilke published in Administrative Science Quarterly, we can now answer that question. They had access to an accelerator in Silicon Valley and followed three cohorts of selected ventures, with enough differences in training and other events that it was possible to discern the formula for success. The answer may be a surprise: entrepreneurs are legionnaires, not sprinters. Collaboration with other ventures in the cohort first improved their social connections and then improved their resource access.

How did this happen? The paper has such a rich description that I cannot do justice to it here, but the main events are easy to summarize. The training included exercises that can be described as bonding rituals, such as social or sporting events. Even a simple game such as talking about hobbies or other personal information can be a bonding event. They also included exercises that can be described as tournament rituals, such as reporting of their progress toward many goals, in front of all the others. Bonding rituals and tournament rituals had very different effects. Bonding rituals led to social interactions not organized by the accelerator and generated friendships and openness. This made it easier for the entrepreneurs to ask questions and share important information. Importantly, bonding rituals made entrepreneurs comfortable with giving valuable tips to each other without getting anything back in return.

And the tournament rituals? They became show of strengths, just like a 100-meter sprint is, and they failed to create friendships and social interaction. Even worse, tournament rituals made entrepreneurs think that valuable tips should not be given away for free – they should be traded. But of course, this does not work. Unlike goods, information cannot be priced and traded well, and two people rarely have needs for each other’s information at exactly the same time.

This is where the legionnaire entrepreneurs win. Tightly bonded, they are willing to give without asking for anything in return, but they still get much in return. Not at the same time, and often not even from the same entrepreneur, but they know that in a group that collaborates, everyone is better off. Maybe entrepreneurs are not so different from everyone else after all.

Krishnan, R., K. S. Cook, R. K. Kozhikode, and O. Schilke

2020 "An Interaction Ritual Theory of Social Resource Exchange: Evidence from a Silicon Valley Accelerator." Administrative Science Quarterly: forthcoming.