Wednesday, November 20, 2013

Standing Tall: Lady Gaga’s Shoes and Young Artists

OK, admit it right away: you know what Lady Gaga's shoes look like. You may also have heard that the look is the work of Japanese designer Noritaka Tatehana, who totally puzzled his art college professor by turning in such shoes as a graduation project. But the designs delighted Lady Gaga, and immediately he became a star shoe designer. He is still not 30 years old, but he is beginning to have stardom enough to benefit others. He is starting a gallery called Pocket in Tokyo, which will be devoted to showing off young Japanese artists and helping their career.

Associated Press

The tale of the shoe designer becoming an art promoter sounds a lot like something that could only happen in the world of design and art. After all, many people think of this as a world in which the criteria for judgments are unclear, assessments are very subjective, and status can be gained just by being near someone else with high status and having a flock of followers. But is this so different from business? It has been a while since research showed investment bankers and their customers to be hugely status conscious in their decisions (see Podolny's work). There is a lot of uncertainty in business, because so much of what is being done has to do with the future performance of a product, a research team, or an entire organization. Status matters in art and in business.

Podolnly did not choose the investment bankers as a topic because they are less rational than others; it just happened to be easy to measure their status rankings. Later research has shown status to influence many business decisions, and to be especially important for young firms because of their uncertain futures and need to collaborate with others. It really matters who they work with, because the status sets the path for their future. In other words, Noritaka Tatehana understands well something that firm founders should pay very close attention to: the connections at the start are truly important.

The role of status in alliances is something that I have written about in the new book with Tim Rowley and Andrew Shipilov ( We don't understand shoes that well, but would give Noritaka Tatehana top marks for his understanding of how business works.

Podolny, Joel M. 1994. "Market uncertainty and the social character of economic exchange." Administrative Science Quarterly 39(September):458-83.

Wednesday, November 13, 2013

Recession Graduates: Do Today’s Young People Complain Less Than They Should?

The global recession has had strong effects on the job market. A year ago, statistics from the US showed that more than half the unemployed had a college degree. This year, the unemployment rate of recent college graduates in the US was estimated to 17%. And the employed college graduates have pretty poor jobs; nearly one-half of them do work that does not require a college degree. Europe isn't any better, with high youth unemployment rates in many nations, including among college educated job applicants.

So the conclusion is that a recession is a bad time to graduate, right? Yes, if you apply objective criteria. But people make surprising judgments, and job satisfaction is one of them. A study by Emily Bianchi will be published in Administrative Science Quarterly, and it has looked at the connection between economic conditions and job satisfaction. The result is clear and surprising: those who graduated and entered the workforce during a recession were more satisfied with their jobs, both soon after getting employed and later in life.

How can that be? We know that recessions don't just create unemployment; they also reduce the quality of the jobs that are available. If worker judgments followed suit, they should be less satisfied. But still, those who got jobs during a recession are more satisfied because satisfaction is a result of how well you do compared with how well you think you could have done. This comparison is radically different in recessions, because each worker knows about the possibility of unemployment, and is pleased and grateful to have avoided it. This comparison with worse outcomes is unique for difficult economic times, because in boom times workers can instead compare with various success stories, and will have a harder time seeing unemployment as a possibility. And, the comparison is surprisingly stable. Graduating in tough times means continued comparisons with bad outcomes many years afterwards.

So are recessions unimportant then, because people will be satisfied when they graduate from college and get jobs during a recession? Not quite. The study focused on those who actually got jobs: it is safe to assume that the unemployed are not satisfied with their situation. And the research also shows that there is a worst-of-everything state. A worker who got a job during good economic times will be less satisfied to begin with, and when a recession slows down the career outcomes that person will be even more dissatisfied.

Sunday, November 3, 2013

Fracking Conventional Wisdom: Why Natural Gas is still Abundant

Wall Street Journal has an article by Gregory Zuckerman on how the financial crisis and the new technologies for oil and gas extraction surprised the main market players, but were understood and exploited by outsiders. This is probably news to many, and it has interesting practical implications and a strong link to research.

Let’s start with the practical part. Many parts of the world were depleting their oil and gas reserves, and special concerns about this were raised in the United States, which tends to worry about the strategic value of energy and relations with the nations in Arabia who are richest in oil and gas. Business people also paid attention, and started making investments that made sense under the assumption that USA would have little energy left soon. Oil company engineers also paid attention, and some worked to find new oil and gas extraction techniques that would work in places where extraction was not possible yet. This is normal for oil companies (or any company that sees its market disappear); in fact the industry also has worked a while on how to get more of the oil out of existing fields. But these engineers and their managers fought a losing battle against superiors who had so much expertise with what worked and what did not that they judged the projects to be hopeless.

Instead, it was minor – very minor – oil companies that developed the “fracking” techniques that are now turning USA into an gas-rich country that could soon start exporting oil. They were companies run by owners who have earlier worked picking cotton and running restaurants: not the usual oil executive background. For the sake of handling global warming, this increase in worldwide burnable materials is a potential problem, but for the US oil industry it is right now a cause of celebration.

Are researchers surprised by this? Well, we do not expect this process to happen every time, but it happens often enough that people have worked on it for a while. Two things happened in this case. First, the technology was disruptive, or different enough from ordinary oil extraction techniques that it was not a natural follow-up to the techniques that the companies mastered. Michael Tushman and Phillip Anderson wrote about the problems that existing companies have with disruptive technologies in 1986. Second, the firms were faced with problems that could make them shrink or even die. In 1963, Cyert and March wrote about how firms with problems search for solutions near the source of the problem itself and initially try conventional solutions, the opposite of making disruptive innovations.

So, here we have it: many surprised oil executives and few surprised researchers.

Zuckerman, Gregory. 2013. The Outsiders Who Saw Our Economic Future. Wall Street Journal, November 3, 2013.