Tuesday, January 28, 2014

Tell Your Boss about the Problem, If You Have One

Sometimes management practice and research results are so far apart that it is worth giving a warning. Let me give an example. It has long been accepted in research that giving voice is useful for improving organizations. Employees who tell others about problems and suggest solutions can increase learning and effectiveness, even though doing so does not always earn them popularity. We also know more because recent research by James Detert and coauthors published in Administrative Science Quarterly has shown a more concrete and detailed version of this relation. It helps to have employees give voice to managers, both in their own unit and in other units. It actually hurts performance to have workers give voice to each other, presumably because other workers can only listen (and possibly be annoyed), but lack the authority to make major changes.

The prescription is clear. Make sure that managers make it safe for their workers to speak up, and that they actually pay attention to what is said. Channel complaints up, not sideways in the organization. But here is where management practice creates problems. One is the old problem of managers not wanting to hear how their unit can improve, because it suggests that they are not doing well enough (duh. . .). The other is a new one seen especially in small high-tech firms. As Rachel Silverman has noted in Wall Street Journal, some high-tech firms believe that management should be kept out of the firm as much as possible, and are reluctant to assign management roles to any employees.

How does that work? Well, they divide tasks and emphasize independence and sideways coordination. They are happy about that change because it means that their founders can say things like “I want people here who are doing the work, not managing the work.” But the problem is clear when you compare with the research. No manager means that there is no place up for the voice to go. Sideways coordination means that voice has to go sideways. They are actually organized in the worst possible way from the viewpoint of using employee voice to improve the organization.

Have the tech firms discovered some special magic that makes a manager-less organization work for them even though it hurts productivity elsewhere? Probably not; Rachel Silverman cites research showing that middle managers are the most important people for determining success in the gaming industry, which typically has small companies or small teams. So, it is time for the myth of effectiveness without management to face reality.

Saturday, January 11, 2014

How do Firms Hire in Recessions? Ideologically.

The latest Jobs Report from the US confused many because it showed fewer hires by firms than one would expect given all the positive news from the economy lately. Lately there has been expansion in manufacturing, growth in economic activity overall, and increased exports from the US, showing clear signs that the US economy is doing better than before. One would think that firms would hire under such conditions, especially to increase production, but the jobs report contradicts that idea. What is going on here? First, to be technical, manufacturing has become a pretty small part of the economy, and General Motors producing more trucks doesn’t mean that Starbucks will hire more people. In fact, it may not even mean that GM hires more people, because manufacturing firms can choose between investments and hiring as ways of increasing production.

But the technical question is not the interesting part; what should interest us is what firms will actually decide to do. How are managers thinking about the economy, and their own response to it? There is a fair amount of research on this, and a recent paper in American Journal of Sociology by Todd Schifeling adds more knowledge. Two clear answers emerge. First, what managers are thinking about the economy and their own response is partly driven by what others do. Firms imitated each other in their choices of how many to hire during recessions, something they don’t do when the economy is doing well. The usual explanation for imitation is uncertainty, and it makes sense that a troubled economy is more uncertain than a healthy one. On the other hand, those who think that managers apply creativity to solve the problems presented by a recession are probably disappointed to see this. Recessions are anti-creativity events.

But another effect was equally interesting. During the 1950s and 1960s recessions that he studied, business leaders were affiliated with two organizations with opposing views on what firms should do during recessions. Committee for Economic Development (CED) saw hiring by firms as a way to fight against recessions, but National Association of Manufacturers (NAM) favored adapting to the recession through reduced hiring. These responses were connected to political ideology, with the CED view seeing firms as important economic problem-solvers while the NAM view saw firms as needing to wait for someone else to fix things. And as it turned out, one could tell what a firm would do by which of these organizations their leadership was affiliated with, with CED-affiliated firms hiring more than NAM-affiliated firms. Then as now, the response to recessions was a political issue, but the discussion was not just what the state should do, but also what firms should do.

What does this mean for firms and the economy now? Well, we know that the economy can recover from a recession by actions from the state, from firms, or from consumers. Or maybe through some sort of sheer luck. Many think that the state should do nothing, but these days firms also do nothing and consumers have learnt not to spend more when the economy is doing poorly. That leaves luck. The CED style of adapting to recessions is rare now, but to scholars who are interested in strategy rather than economics it actually looks pretty interesting. If a firm can afford to maintain and even strengthen its employment during a recession, will it or the contracting firms be stronger when the economy starts recovering again? It depends on whether you think money saved from not hiring is the key source of strength, or whether innovation and production is more important. It would be interesting to see whether the expanding CED firms or the contracting NAM firms did better when the economy recovered.

Cronin, B. and J. House. 2014. “Hiring Slowdown Blurs Growth View.” Wall Street Journal, January 10, 2014.

Thursday, January 2, 2014

Is Networking Good for Business? Yes, But Not Always How You Expect

There is no shortage of advice for entrepreneurs, managers, and executives on what they should be doing in order to succeed in business. Some of the advice comes from people who really should be careful about giving advice because they haven't actually succeeded in business—they are just good writers. Other advice comes from people who really should be careful about giving advice because they have succeeded in business once—and who knows what role luck had in that. No wonder, then, that many entrepreneurs, managers, and executives who read business-advice in books and columns do so as a form of entertainment, and then proceed to ignore the whole thing.

But wouldn't it be great if some of the advice actually was backed by evidence? Especially if the advice were urging changes in key behaviors from individuals and businesses with the promise of superior effectiveness? Consider networking, an activity heavily promoted by business gurus and that one takes up a lot of your time, most likely. Yes, the meeting and greeting, exchanging cards, memorizing names, faces, hobbies, and spouses, and so on. It's a part of the daily life of management. You act as if networking is really important, especially if you are an entrepreneur building a new business or a new corporate unit. But just how valuable is it? Is it really that important to "never eat lunch alone"?

Let's look at the problem from the angle of an individual first, and then from that of a business. We think we know a lot about how networks help individuals succeed. We have been taught the adage that "You never know who might be able to help you somewhere down the line." But, when you look more closely, it is not just how many people are in your network, but how they are connected to you and to one another that really matters. "It depends" is not a terribly exciting answer in itself, so let me give you just one example of how it depends. People have two styles of network building. One is network broadening, which means gaining more contacts and establishing rapport with each of them. The other is network deepening, which means maintaining and strengthening relations with your existing contacts. We often assume that network broadening is better, and plenty of guru-authors will affirm this. And in fact, this is true for entrepreneurs who are building businesses, because network broadening helps them initiate more business exchanges (suppliers and customers). Score one for conventional wisdom. But two words of caution are needed. The first is that these are personal styles, and people are often less effective if they apply a different personal style than they are comfortable with. The second is that we don't know enough about networking styles yet, and we may yet discover situations that are actually better served by network deepening.

We also recognize that networks help firms succeed. And the dynamic plays out in close similarity to individuals. Your business likely adheres to one of the following two network structures. Some firms have networks that reach many other firms, and these firms are in turn not well connected to one another, like a hub and spoke. Other companies have networks that reach fewer firms, and these firms are well connected to one another—the network is integrated. Both types of networks are effective, but under different conditions. Do you experience frequent turbulence, and do you need frequent innovation? Pick the hub and spoke: It will give you options and facilitate experimenting with different solutions under different circumstances. Do you experience stability (not all industries are turbulent!), and do you rely on good execution for success? Pick the integrated network. It will give you efficiency, reliability, and stability.

Like many forms of business advice, "go network" is generally sound. But, like many forms of business advice, it is too often presented generically, as if there is a "one size fits all" answer. And that is often the conclusion we discover when we let evidence influence management advice. Thinking deeply and consulting multiple sources of input can be less entertaining and more challenging than some of the books you could read, but it's a better option if you want to do something that works.

(This blog post was previously published in Strategy+Business) 

Further Reading
Henrich Greve, Timothy Rowley, and Andrew Shipilov. Network Advantage: How to Unlock Value from your Alliances and Partnerships. 2013: Jossey-Bass.

Timothy J. Rowley, Dean Behrens, and David Krackhardt, “Redundant Governance Structures: An Analysis of Structural and Relational Embeddedness in the Steel and Semiconductor Industries,” Strategic Management Journal, March 2000, vol. 21, no. 3,  369–86: On interfirm network types.
Balagopal Vissa, “Agency in Action: Entrepreneurs’ Networking Style and Initiation of Economic Exchange,” Organization Science, March/April 2012, vol. 23, no. 2, 492–510: On interpersonal network styles.