Failing Once, Failing Twice: What Makes Firms Search for Radical Improvements?

Cynics would say that firms don’t look for opportunities as much as they should. Instead, it is problems that generate search for improvements. The cynics would be right – what we call problemistic search, triggered by disappointing profits, is a real thing and it is more frequent than search for opportunities. That is bad enough, but actually things are worse.

Research by Thomas Keil, Evangelos Syrigos, Konstantinos Kostopoulos, Felix Meissner, and PinoAudia published in Journal of Management shows that multiple goals complicate things even further. This is because problemistic search can be replaced by self-enhancement. Executives and organizations engaged in self-enhancement do not solve problems, but instead they look for reasons to claim that there is no problem to solve. Chief among these reasons, I mean excuses, is finding a secondary goal that shows higher performance.

Does this happen? There is ample experimental evidence that individuals self-enhance when given the opportunity. This research is novel in showing that organizations can self-enhance in response to very important goals, and self-enhancement has important consequences.

Pharmaceutical companies rely on drug approvals for their profits, so having drugs pass the late stages of the approval process is a primary goal. They also need a good research pipeline, so drugs moving through early-stage approval is a secondary goal. How to get many drugs and novel drugs? A key decision is whether to search in the proximity of their current expertise, or whether to move into new disease areas and acquiring candidate drugs from other firms. Proximate search is safe but is a questionable strategy for a firm with low performance. Distant search is riskier but is the way to renew a firm with low performance.

What the firms should do in response to low performance is trivially simple. If the internal research is good, stay with it and do a proximate search. Otherwise do distant search. The good news from the research by Keil and coauthors is that the pharma firms behave exactly like that. They turn to distant search when the performance from the current search is low.

There is also bad news. They do this only when seeing disappointing performance on both the primary goal and secondary goal. Disappointing performance on the primary goal – the most essential one – is not enough to trigger distant search. Even worse, doing poorly on the primary goal and well on the secondary goal produces less distant search than doing well on both goals. For the sake of firm profitability, and for society getting necessary medicines, this is very problematic.

Self-enhancement is something we can understand and accept when we see it in individuals. It is a slightly childish thing to do, but people want to preserve their self esteem and want to look good in their own view, and that of others. Better than they deserve, even.

It is much harder to understand and accept self-enhancement by firms. Firms exist for practical reasons. They produce products and services, they develop improvements in products and services, and being good in actuality is much more important than being adept at self-enhancement. Unfortunately, this research is a reminder that there is self-enhancement in firms too. No doubt this is because the managers and executives of firms are people too, and the firms are lacking processes that control their individual self-enhancement.

Keil, T., E. Syrigos, K.C. Kostopoulos, F. D. Meissner, P. G. Audia. 2023. (In)Consistent Performance Feedback and the Locus of Search. Journal of Management forthcoming.

Talk is Expensive: When a Competitor Has Financial Ties to Media

We understand that media ownership can be translated into power, especially when a media outlet has a dominant owner and the context is politics. Rupert Murdoch, Fox, and Donald J. Trump are keywords that come to mind. That’s just a rich guy playing around with the governance of a nation, with no connection to the world of business competition, right? Wrong. Media ownership also affects competition among firms, and the effects are seen also when the ownership structure is more dispersed.

This is the main discovery made in a paper published in Administrative Science Quarterly byMark R. DesJardine, Wei Shi, and, Xin Cheng. Their starting point is the remarkable concentration in firm ownership that has happened following the growth in institutional investments in the form of fund management firms. These investors want to (in fact, are obliged to) maximize the returns of their holdings, so they will do whatever it takes to increase the value of the firms they own.

What does “whatever it takes” mean? This is where media ownership comes into play. An interesting feature of owning media firms is that media firms are involved in news gathering and reporting, which can influence the competitive balance of an industry. Hurt one firm, and the other gains. Report selectively, and the value of firms owned by the fund that also owns media outlets will increase. As a result, media talk is expensive for the competitors of firms that have a media connection in their ownership.

Such media effects are a very big deal because they show an illicit use of media ownership that tilts valuations of firms, and corresponding access to resources and success in markets, away from the products and services they provide. They can only happen as a result of unethical actions by media executives and editors.

The research they present has plenty of evidence. Media coverage turns negative when a competitor firm has financial links with the media. This effect is stronger for competitors with more similar product lines, so relevance increases negativity. The effect is stronger for competitors nearby, so proximity increases negativity. And, most perniciously, if the media company CEO has equity-based compensation, so the CEO gets paid more when the media company value increases, the effect is also stronger. In sum, negative media coverage is a result of financial links, and it is particularly negative when the competitive relations between firms are close and when the media company CEO is for sale.

Should we worry about this? People arguing that “talk is cheap” would not be too concerned about these findings. But media coverage has significant consequences for firms, especially for their access to financial resources, so seeing it can be tilted so easily means that there is one more area of competition that requires regulatory attention. We cannot have an economy and society in which consequential, expensive talk is for sale.

DesJardine, Mark R. , Wei Shi, and, Xin Cheng. 2023. The New Invisible Hand: How Common Owners Use the Media as a Strategic Tool. Administrative Science Quarterly, forthcoming.

When Your Calling Goes Silent: Journalists React to the Decline of Journalism

Occupations differ in so many ways, and often we don’t recognize these differences. I recently discussed the emphasis on precision and process in the Singapore educational system and made the point that the job market for nuclear plant operators is limited. Nuclear plant operation is an occupation that demands precision because mistakes are exceedingly costly, but there is no benefit in that occupation from other kinds of excellence. Other occupations require attention and stamina – think of truck drivers. Yet other occupations require investments in energy and devotion that go far beyond what most people will provide – think of orchestra musicians, and of journalists. People in such occupations often refer to their work as a calling.

When an occupation that requires a calling goes into dramatic change and even decline, what happens to the people in it? Journalism is currently in such a period, and research by Winnie Yun Jiang and Amy Wrzesniewski published in Administrative Science Quarterly has documented the effects on individual journalists. It is sad reading but provides important understanding.

Journalism is threatened from all sides by digitalization. A good journalist is now someone who generates a lot of clicks on their online article. A good journalist is someone who can compete effectively with the social media types, who specialize in attracting clicks to media with very little content. A good journalist is someone who can accept low pay. After all, why should newspapers pay well when their business is to generate clicks to content pages that drop preference cookies and show advertising content?

Journalists confront these changes at every turn. Many lose their jobs, and some quit. Some try to find work that matches their skills, and others try to find work that matches their values (not necessarily the same thing). The problem is that when an occupation is a calling, it can be difficult to reinterpret work. When someone is forced to leave such an occupation, it can be painful – perhaps impossible – to reorient oneself as a worker. Some people find ways to move forward by specializing in some of the skills they have developed in that occupation. Others find that being asked to give up their focus on other skills, and to abandon the values that propelled them to seek that career, is simply too difficult, both in the thinking and the emotion.

Facing such threats, journalists are divided: some reinvent their careers by searching for meaning in new occupations, and others cannot find that meaning outside of journalism and thus face a truly unsolvable dilemma. What unites them is the sadness of realizing that their future will be different from their past and, in important ways, will be worse. For all of us who love meaningful careers in general, and journalism specifically, this is a painful story of coping and adaptation.

Jiang, Winnie Yun and Amy Wrzesniewski. 2023. Perceiving Fixed or Flexible Meaning: Toward a Model of Meaning Fixedness and Navigating Occupational Destabilization. Administrative Science Quarterly, forthcoming.

Language in Organizations: When and Why are Men Given Higher Performance Evaluations than Women?

Researchers are familiar with the gender gaps in performance evaluations of employees, and the promotion gaps that follow. Firms are aware of this too, and many of them take serious steps to become fair in their evaluations. Imagine looking inside one such firm - a Fortune 500 technology company committed to fairness - and seeing that they also differ in how men and women’s work is evaluated. How could that happen?

Research by Shelley J. Correll, Katherine R. Weisshaar, Alison Wynn, and JoAnne DelfinoWehner published in American Sociological Review shed light on how unfair evaluations happen. They looked at the scores given to men and women, and also examined the text of the performance assessments. They asked two questions: (1) Were workplace behaviors viewed similarly when done by women and men? (2) Were workplace behaviors valued similarly when done by women and men?

What is viewed and how it is valued are central components of performance assessment. And, in this firm, the answer to the two questions were “yes” to both questions for most of the nearly 90 workplace behaviors they studied. The interesting part is in the exceptions to this rule, because that is where gender bias is found.

Let’s start with what behaviors were viewed more often in men and women evaluations. For men, managing people was mentioned much more often, and nearly always positively. For women, communication style was mentioned much more often, and nearly always negatively. In fact, the (common) negative views of women’s communication style were the exact opposite of the (rare) negative views of men’s communication style. Women were too aggressive and outspoken, said the performance valuations, and men were too modest.

Does that match our everyday experience of how women and men communicate? Perhaps not, and maybe it suggests that they were held to different standards. Women are supposed to be modest and soft spoken; men are supposed to be assertive. This is so conventional that it is remarkable to find such a double standard in a firm committed to fair evaluation.

Now let’s see what behaviors were valued differently in men and women evaluations. This is also very conventional. Being a helpful person was viewed similarly often in men and women and typically produced the second-highest rating. A four out of five, so promotion possible but not a sure thing. Being a person who takes charge was much viewed more often in men and was strongly linked to a top rating in men but to a second-highest rating in women.

Again, we see the same convention play itself out. Men should communicate assertively, they should take charge, and they should be promoted for this. Women being helpful and taking charge is OK, but not great.

Language matters because it shapes thinking, which in turn affects how people are evaluated by others and given responsibilities at work. It is doubtful that a technology firm benefits from having evaluation and promotion practices that correspond to old-fashioned gender roles, and it is certain that such practices are not fair. To change them, it is necessary to change how managers view, value, and talk about behaviors at work.

Correll, S.J., K.R. Weisshaar, A.T. Wynn, J.D. Wehner. 2020. Inside the Black Box of Organizational Life: The Gendered Language of Performance Assessment. American Sociological Review 85(6) 1022-1050.

Conceal or Reveal? How Catholic Clergy Sex Abuse Went Unreported

Let us talk about sexual abuse of minors for a moment. It is an uncomfortable topic, made even more uncomfortable by the fact that the sex abuse scandal in the U.S. Catholic church broke after two decades of sex abuse being known in communities and by the church. What happened? Knowing the answer is useful for protecting the vulnerable in society and for understanding how societies and communities interact.

Recent research published by Alessandro Piazza and Julien Jourdan in Academy of Management Journal provides important answers. Their approach was intuitive and important. If members of the same large organization (the Church) are responsible for the same kind of abuse in many communities, but this is kept quiet in some communities but not in others, maybe it is valuable to find out what kind of communities protects the organization and lets its employees victimize its vulnerable members?

What they found is depressingly familiar to anyone who studies organizations and communities. Communities who identify with the organization protect it – so although a majority Catholic community would have many more potential victims and families reporting abuse, a greater proportion of Catholics in the community actually protected the church against having misconduct made public.

Well-organized communities also protected the Church. Many voluntary associations and informal meeting places indicate a community capable of much joint social action and self-improvement. In the case of abuse by local clergy, this positive community characteristic instead turned negative. Rather than acting to reveal the abuse, the communities showed inaction.

Finally, community homogeneity also predicted communities that protected the abusers and the Church. Specifically, ethnic homogeneity (for example, nearly all White) was an indicator of communities that would be unlikely to making public cases of sex abuse.

Why did this happen? Homogeneity, organization, and identification are characteristics of communities that are capable of a great deal of organized action, but in the abuse case, they instead seemed to display organized inaction. But let us not make a theory of grand conspiracies of communities against vulnerable members: a simpler explanation is probably correct.

Speaking out is costly. It is especially costly when the complaints are sensitive, as in sex abuse. It is even more costly when the accusation is directed at a highly respected pillar of the community, as when the abuser is clergy. The costs increase when community homogeneity and organization create the suspicion (and often, reality) that others will organize against the whistle-blower, and when community identification with the organization makes such counter-organization a near certainty.

So, parents would be quiet, journalists would not write stories, editors would not allocate space in newspapers, and the Church would quietly reassign and sometimes defrock the perpetrators. For decades. We need to understand this because the processes are general, and they can happen for similar or different kinds of abuse, and for similar or different organizations.

Piazza, A., J. Jourdan. 2023. The Publicization of Organizational Misconduct: A Social Structural Approach. Academy of Management Journal forthcoming.

 

The Old Invading the New: Competition Across Generations

If you have visited France and are like me, you have been completely impressed by the amazing French bakeries. Truly artisanal artistry with a great lineup of baked goods. You likely have also failed to notice that there are two kinds of them. One is the original kind where the baker handles every step of the process. The other is a modern kind using pre-mixed flours and fixed recipes from one of a few major brands—in other words, French artisanal franchise breads and pastries.

What makes this a case of competition across generations? That’s the topic of research by Laura Dupin and Filippo Carlo Wezel published in Administrative Science Quarterly. The idea is that both kinds of bakeries make the same kinds of goods, but the modern kind is standardized across locations rather than unique. Why should customers – and bakers – care about the difference? Well, the customers may be better at tasting the difference than I am. And the bakers may care more, because the modern kind know that they are giving up uniqueness and “personality” for an easier way of doing business.

What does that mean for competition? Bakeries are the kinds of businesses that care deeply about location, because the business (at least in France) involves the baker getting up crazy early to make breakfast-style goods, which nearby customers buy and carry home or to work. I have certainly walked past bakeries in France to get to a better one farther away, but there are limits to how far I will walk, and there are also limits to how far a local customer will walk. So, bakers want to be near to customers, and they may also want to be away from each other.

Bakers also think of how distinctive they are, and that’s where things get interesting. The modern style think they are less distinctive because, well, they are less distinctive. The traditional ones think they are more distinctive. That introduces an interesting dynamic. The modern kind wants to be located away from all others and, if possible, in the same place as an earlier (failed) modern kind. The traditional baker is more likely to be fine with locating near a modern one because they know they are distinctive and think that gives them an advantage.

Does this matter for other kinds of businesses? It should. Customization gives distinctiveness, and so do brand names. As goods move around more and more easily, industries become “nearer” all the time. In the modern age of easy comparison of products on platforms and in online reviews, the branded good may become more powerful than ever.

Dupin, Laura and Filippo Carlo Wezel. 2023. Artisanal or Half-Baked? Competing Collective Identities and Location Choice among French Bakeries. Administrative Science Quarterly, forthcoming.

Why Women Managers Have Difficulties Fixing Gender Inequality

Consider this combination of factors: a woman employee works in an organization with a gender equality initiative, and she even has a woman manager. Is this the best possible situation? No, it is not. And the explanation has nothing to do with queen bees. Instead, the problem is that women managers are, well, women, and their experience with discrimination has left a trace in how they work and interact with others.

This is, in brief, the finding of research by Vanessa M. Conzon recently published in Administrative Science Quarterly. She studied an organization with a science, technology, engineering, and mathematics (STEM) business and staffing, which is one more reason why a gender equality initiative should go well, given the high education and liberal values of many employees in STEM organizations. Yet, this organization displayed a paradoxical divide: women managers spoke more clearly in support of a flexible work policy that made space for maternity leave and onsite childcare, but it was the men managers who more often let the women employees use this policy. Why?

Conzon discovered that the underlying reason was that men and women managers differed in the work they had been allowed and expected to do, and the resulting work habits. For men, there were two paths: dive into technological expertise, or dive into client relations. The two could be sequenced, with technology first, or they could be combined. Promotions followed their success in handling these assignments. For women, the most open path was one of handling administration and coordination, often done despite their technical skills and overlooking their potential client-handling skills. Promotions followed their success in supporting coworkers and subordinates.

These gendered career paths shaped how they interacted with subordinates and what they allowed subordinates to do. Men thrived in their technical and client-facing roles regardless of the work schedules of their employees, and they coordinated their employees from afar with email as the main tool. Women required employees’ presence to coordinate and support them, and to some degree even to make sure employees did what they were told to do. Although a manager was still a manager, man or woman, an undercurrent in the firm was that subordinates followed men managers’ instructions more faithfully than women managers’ instructions.

The result was a flexible work policy that had very different consequences for men and women managers. For the men managers, the policy mattered little because employees would still do as they were told roughly when they were supposed to, and it mattered little how they scheduled their work hours or whether they worked at home or in the office. For women managers, employees’ use of the flexible work policy meant that the valuable face time would be reduced and become unpredictable, making the managers’ job harder.

So yes, support for such a policy is good – but to see who will actually make it happen, we should also consider who benefits from the policy, and who is damaged by it.

Conzon, Vanessa M. 2023. The Equality Policy Paradox: Gender Differences in How Managers Implement Gender Equality-Related Policies. Administrative Science Quarterly, forthcoming.