Wednesday, May 1, 2019

Help Mom! Dad is Still Trying to Run the Business!

Does the title ring a bell? One of the oldest problems in business is when and how to accomplish succession and transfer control of the family business to the next generation. The only natural succession point is at the death of the previous generation, and the problems of that timing are obvious to those who study history and see the parallel between early-history kingdoms and family businesses. So we can agree that the next generation should take over while the older generation is still alive, but this leaves the question of how quickly the decision-making power should be transferred. After all, it is true that the older generation is both more experienced and less in touch with current affairs. What to do?

In a recent paper in Administrative Science Quarterly, Jian Bai Li and Henning Piezunka looked at this transition from father to son (their data had few women in charge) as one of handling succession in a multiplex network tie. A network tie is any social connection between two people, and a multiplex tie is one that spans different social arenas. I have a multiplex tie with my boxing trainer who seeks my advice on his entrepreneurial venture. A father–son pair involved in the same business has a multiplex tie because, well, they are father and son.

For a father to hire his son in the family business is unproblematic because the father has higher rank in both the family and the business. For a son to succeed his father in leading a family business is problematic for the same reason – the lower-rank family position of the son now is coupled with a higher-rank business position as top manager, unless the father leaves the business entirely. I think we understand that leaving the business completely is difficult, especially for a founder, and being managed by a son is not any easier. Of course the father, being a father, can make sure that the son bears most of the cost of the complications this entails, because he can draw on his authority in the family sphere whenever necessary.

As the title suggested, this leaves a role for the mother. The research showed that she could very effectively handle the transition by barring work discussions from the family context and advising the father and son separately on how to handle each other. But this required that she not work at the firm, because any role she had in the firm would complicate relations and make her a participant rather than an advisor. In network terms, the mother could help the succession only if she was involved in only one of the multiplex ties between father and son. When she was involved in the firm as well as the family, succession failed. Indeed, I am personally familiar with a succession process that failed exactly because the mother was also involved in the business, so to me this rings true.

This research was done in China, but I think those who know family business succession elsewhere will know the problem of succession well. Because this way of solving the problem is based on sound network theory principles, it is likely to help family business succession everywhere, including in contexts in which the mother is the founder, more than one sibling might be involved in succession, and the neutral advisor may or may not be a family member. Succession is never easy, but being aware of the multiplex network roles of those involved and using them to better advantage could make it less painful.

Sunday, April 21, 2019

How Revolutionaries and Discoverers Act in an Emerging Industry

In the age of discovery, Europeans set sail to explore and conquer a world that was then filled with uncertainty and potential. The leaders of expeditions each acted very differently, generally as a result of their own inclinations, and these days we often classify them as revolutionaries and discoverers. The revolutionaries wanted to change the world and capture parts of it to be exploited by themselves and for the Crown. They were relentless and focused, much like Hernán Cortés who overthrew the Aztec empire. He beached and later burned his ships to commit everyone to his venture, and he disobeyed his own governor’s order to halt the expedition. Cortés was a driven man who overthrew an empire and helped create another.

The discoverers wanted to understand the world, like Captain Cook whose many expeditions included one that circled the globe near Antarktis to discover (but eventually disprove) the giant continent Terra Australis. Along the way he mapped the actual continent Australia and many other places he found, returning to great fame and adulation for his flexible and decisive planning and excellent maps. He was unwilling to stay home, however, and embarked on one more expedition that ended in his death. Captain Cook was a driven man who helped an empire understand the world better.

In an article in Administrative Science Quarterly, Tiona Zuzul and Mary Tripsas analyzed four new firms in the emerging industry of airtaxis and found that two of the firms were led by revolutionaries and two by discoverers. The revolutionaries wanted to use the formation of a new air taxi service to change the world. The discovers wanted to explore what new demand the new service could capture. Although these were pioneering firms in the same industry, they acted very differently because of their founders. The difference speaks to an old debate in organization theory: which firms are able to change their strategies, and which firms are too inert to do so even when facing threats to their existence?

Usually new firms are thought to be flexible, and especially firms in emerging industries, because they face environments with so much uncertainty that strategies may need to be torn up and replaced regularly as new information becomes available. But that’s not how revolutionaries think and act. The two firms founded by revolutionaries in this study kept their strategies with minor adjustments and even made strategic changes that deepened their commitment to the existing strategy. They maintained the differences from jet charters that in their minds defined the new industry. They stayed committed to their innovative optimization software, selection of airports, and selection of aircraft. They communicated their strategy so clearly and consistently that potential customers also saw them as committed. And both companies failed quickly.

Discoverers think and act differently. The two companies they founded kept changing their strategies, in many cases bleeding into some overlap with charter jet business practices and equipment. They did not commit to the initial strategy at any time. Their communications were never clear enough to fully define to potential customers what exactly they were doing and not doing. Their actions broke rules for strategy (be clear and consistent) and marketing (communicate who you are) but kept them flexible enough to take advantage of new opportunities and pull back from threats. So far only one of them has failed, and it did so after operating longer than either firm led by a revolutionary.

So, will firms led by the modern equivalent of Captain Cook always win? Let’s not conclude that. Clearly, they are more flexible than those led by Cortés, but flexibility also has costs. Inertia is excellent if the first idea is by chance correct. I would usually place my bets on the discoverer, but I also know that Cortés lived long and Captain Cook was killed.

Wednesday, April 17, 2019

Multicultural Individuals and Organizational Innovation: More is Better

I have a son who is proudly multicultural, with a geographical range that covers three continents and a skill range that goes from playing violin to programming for parallel processing, with some things in between. He mainly thinks of that range as useful for him personally, but now there is research suggesting that organizations should also be interested. The reason relates to an old dilemma about the costs and benefits of diversity.

A research paper by Matthew Corritore, Amir Goldberg, and Sameer B. Srivastava in Administrative Science Quarterly explains the dilemma well and gives new evidence. The dilemma is that diversity is both good and bad. It is good because diversity means there is a wide range of ways of looking at a problem and thinking of solutions, and combining these can fuel creative solutions that are better than what any individual skill set would produce. It is bad because diversity makes communication harder as a result of fewer shared assumptions and skills, and it generates less agreement on how to describe solutions. This good-and-bad combination has made it very hard for managers to best make use of the diversity available.

Corritore, Goldberg, and Srivastava found out that diversity has very different effects depending on whether it is found between people or within people. A multicultural organization or team in which each member has one cultural value each is exactly where the good-and-bad dilemma happens. It cannot be fully creative, and it will be less efficient than a monocultural organization or team. In fact, interpersonal diversity in organizations predicts lower profitability. But if the multicultural organization or team has members with more than one cultural value each, the result is different. Now the potential creativity can be fully realized, so firms with such people will make more innovations and experience greater economic growth.

The findings are neat. They confirm that the dilemma experienced by managers and measured by researchers is real. Diversity is good and bad at the same time, and it may be best when it is intrapersonal. This gives a solution to the managers trying to hire for creativity, because they can now see that hiring people who are different from one another is too simple a solution. Intrapersonal flexibility should also become a target of hiring, such as the diversity that can be gained from varied backgrounds and experiences.

Of course, the solution has a few problems attached to it. First, people who are truly multicultural are scarce, so hiring for that characteristic will be difficult. I can imagine that my son would be pleased about that problem of becoming a valued scarce resource, but firms looking for his type will not. Second, it can be difficult to even recognize who is multicultural. Researchers can do it through analyzing their writing, as in this research paper, but firms don’t have access to such tools.

Going by simple indicators is not enough, as I know from living in Singapore. Many foreigners from Australia, Europe, and America are introduced to Asia through spending time in Singapore, but they can be divided into those who live the expat life with little local contact and those who learn the culture more deeply. Multiculturalism is in the mind, and so is the willingness to obtain it.

Monday, April 1, 2019

Hire the Second Best! When the Expert Looks Suspicious

It is said that one of the distinctive features of the Trump White House is the low levels of expertise of its staff, including some who are not relatives or in-laws of the president. The reason is that an overriding concern in hiring is loyalty and commitment to the president (the person) rather than the presidency, which rules out the most capable individuals who could have served holding job titles like Chief, Director, Deputy, Assistant, and Special Assistant. Of course, this focus on loyalty and commitment above all is an anomaly of the current White House… or is it?

A recent article in Administrative Science Quarterly by Roman Galperin, Oliver Hahl, Adina Sterling, and Jerry Guo has looked at how professional hiring managers select candidates and found that they typically prefer moderately high-capability applicants over extremely high-capability candidates. Why is that? When a job applicant has extremely high capability, the hiring managers question (without evidence) whether this person will be committed to the organization and motivated to work for it.

Notice what an odd kind of discrimination this is. For most kinds of employment discrimination that we know about, the people discriminated against are often different demographically than the hiring manager (so, not white, or not male), and the hiring manager can draw on cultural stereotypes to question their work capabilities. In this research, gender and racial stereotypes are not in play, and the hiring managers are fully aware that they are choosing the less-capable candidate. The problem is that they are comparing the applicants against an ideal-type hire who is good at exactly the job hired for and who will enjoy the job and stay with the organization for a long time. They are trying to predict the applicant’s future behaviors and worry that the most capable applicant sees the job as just a stepping stone to something better.

So, what can the extremely capable candidate do to get hired? One thing is to signal their commitment. The researchers were able to show that applicants with any kind of commitment signal would be more likely to be hired if they had extremely high capability than if they had moderately high capability.  For example, applicants can pay more attention to the organization’s mission than to the pay package or can tell the hiring manager that they have declined offers from other organizations. The only problem is that this is just talk, and it is not clear that actual applicants can persuade hiring managers of their organizational commitment as well as this research team could. If a hiring manager dismisses the signals of commitment as empty talk, the extremely capable candidate would again be less likely to be hired than someone less capable.

When we do research on how organizations make hiring decisions, we often encounter disappointments. The world is far from as meritocratic as we think it should be. The process documented by this research looks a lot like hiring contaminated by envy of the best candidates, and who knows, envy could be exactly what starts speculation that an extremely capable candidate isn’t good enough for the job and the organization. In any case, it is strange to see research showing that extreme capabilities can be a liability for job applicants, and it’s a reason to worry about how organizations function.

Tuesday, March 5, 2019

Women’s Entrepreneurship: One More Form of Disadvantage

How easy is it to start a new venture? The graph shows how people answer this question across many European countries. To the right, there is a surprise for those who listen to Fox News, because the Scandinavian countries (all of them supposedly socialist and anti-business) are where people believe businesses are easiest to start. From left to right, there is a big non-surprise for those who study entrepreneurship, because in all nations shown here, men consider it easier to start ventures than women do. Indeed, the graph is disappointing for those who think that Scandinavian gender equality extends to entrepreneurship, because it clearly does not. More on that in a moment, because this finding makes more sense after looking at some recent research.

The graph is from a recent article in Administrative Science Quarterly by Vartuhi Tonoyan, Robert Strohmeyer, and Jennifer E. Jennings, who have investigated the source of gender differences in the ease of entrepreneurship. Their idea is simple and powerful: because entrepreneurship starts with experience in the labor force, different treatment of men and women in the workplace is the origin of their different sense of how easy it is to form a venture, and also of their success in forming and growing new ventures.

We know from research on the labor market that the following are true: 1) women are less likely to be promoted into management positions, 2) women are concentrated in certain occupations with less pay and independence than typically male occupations, and 3) women are concentrated in certain industries that are less connected to the market economy than typically male industries. These patterns hold across levels of worker education and job prestige. The plumbing contractor is more likely to be male. The municipal administrator (especially at the bottom level) is more likely to be female.

These labor market patterns form beliefs about entrepreneurship because our experiences at work help prepare us for entrepreneurship—or don’t. There is a distinction between a manager and an entrepreneur, but the distinction is smaller than that between a low-level worker and an entrepreneur. Managers (many of them, at least) and entrepreneurs obtain and allocate resources, formulate goals and pursue them, hire employees, define their roles, and evaluate their work. Having experience as a manager gives people confidence in their ability to start a venture, as well as a useful comparison point: management can be just as stressful and time-consuming as entrepreneurship but in support of someone else’s venture, not your own.

Stereotypes about what women can and should do have held them back from such management roles, as well as from certain parts of the labor market. Many women have been directed into typically female roles – caring and serving roles – and positions supervised by others, usually men. This has led to a list of occupations and jobs in which workers accumulate less experience relevant to entrepreneurship. For example, even though restaurants are famously easy ventures to found (and usually quick to fail), I have met only one restaurant owner who started as a waiter, and he was a man. And women are heavily weighted in certain industries, like public administration, which are remote from the markets in which entrepreneurs form new ventures.

So it is hard for women to escape discrimination in the workplace by pursuing entrepreneurship. They are found in exactly those roles and workplaces with the hardest paths to entrepreneurship, so they are disadvantaged in both games. No wonder women have to do more than men to succeed.

Oh, and the Scandinavian gender equality I mentioned at the start? Scandinavian nations are relatively good at avoiding underpayment in stereotypically female industries like public administration, and in stereotypically female occupations too. But that does not mean that people think differently in those nations than they do elsewhere in Europe. So in the absence of strong economic reasons to go against the flow, men and women have done more gender sorting in the Scandinavian labor market than in many other nations. As one would expect, the result is that Scandinavian women find it much harder to start a venture than men do, though still easier than a man in France or Germany.

Tuesday, February 26, 2019

My Brother Is Bigger Than Yours: The Power Dynamics of Alliance Expansions

Interorganizational collaborations exist because organizations are compatible with each other and have complementary resources. That starting point makes collaborations sound friendly, as the word collaboration suggests, but things are never that simple in business. Each organization also has its own interests, and there may be enough conflict among them that power relations matter. How does that influence who gets added to an alliance when more members are needed? This is a very interesting and practical question answered by Lei Zhang and Isin Guler in a recent article in Administrative Science Quarterly.

The key to answering this question is to look at all the organizations that could enter an alliance as one big network and consider all the connections among them. Have two organizations collaborated before? If so, they may have had a conflict in the collaboration, but it is even more likely that they have learned to get along and have benefited from each other. That builds trust, as well as friendships among their executives. Have they collaborated many times? If so, they are especially likely to trust each other more than they trust others. They can be seen as political allies even when they operate along with other organizations in a collaboration. It’s a lot like the politics seen when children play. The closest friends are allies when playing in larger groups, and some groups prefer not to add such pairs of friends.

Take that one step further, and we can see how firms might be careful about who they add to a collaboration. Add a firm that you have not collaborated with but another partner has collaborated with many times, and there is a risk that the partner has gained a close ally to use against you. Adding a firm that has collaborated with many partners seems safer. Adding a firm that has collaborated with you but not others is ideal – but is unlikely to happen unless the other firms are naïve.

This was exactly how U.S. venture capital syndicates grew. Syndicates regularly add members because they need more money and the members prefer not to concentrate too much funding in a single venture, but every addition is a political calculation. Many prior collaborations with partners made an addition more likely, but not if the collaborations were with some members but not others. So, the syndicate members strengthened the collaboration by recruiting trusted new partners but were careful not to strengthen any one member’s power too much by adding members that were too closely tied to one member and weakly tied to others. Interestingly, there was an exception. A syndicate member with high status could influence new member additions so much that it could recruit friendly firms that were not close to the others.

Why all these politics when putting money into a firm? The neatest part of this study is that Zhang and Guler interviewed the venture capitalists and heard them explain why they cared who they collaborated with. It starts with the role of venture capitalists in advising and governing the firms they finance, which is a much closer relation than many other forms of financing. Because they support the firms so much (or meddle so much, depending on your point of view), they have strong views on what should be done with each firm, and they vary greatly in how much they trust the advice given by other venture capital firms. Venture capital syndicates resemble cars driven with many hands on the wheel and many feet on the accelerator pedal, so trust and agreement among the members matter greatly.

Zhang, L., and I. Guler. 2019.
"How to Join the Club: Patterns of Embeddedness and the Addition of New Members to Interorganizational Collaborations." Administrative Science Quarterly, forthcoming.

Monday, February 18, 2019

Maternal Leave and Stalled Careers: Considerate Discrimination

In Norway and Sweden, the paid parental leave after childbirth has one component that is exclusive to the mother and one shared between parents. Advocates of gender equality in the workplace have been critical of the parents’ ability to give all the leave to the mother and encouraged by the fact that most parents decide to let the father take some time off to care for the child. But think about this for a moment: If paid maternal leave is a major accomplishment of the movement for equal rights and opportunities for women in the workplace, does it make sense to let fathers take some of it?

Research by Irene Padavic, Robin Ely, and Erin Reid in Administrative Science Quarterly suggests that sharing family leave benefits across genders is exactly the way to achieve greater equality in the workplace. Yes, much research has shown that women have disadvantages and that these grow greater after childbirth. The idea of a work-family conflict that needs to be addressed by providing various benefits to women and especially mothers is grounded in this observation. But firms unwittingly use these benefits in ways that stall women’s careers and prevent changes that could create less-demanding work conditions for both men and women as well as greater equality in opportunities.

First, the various benefits to make the workplace more flexible and adapted to provide work-family balance are typically oriented toward making it easier for working women to fulfill the wife and mother roles, which in a typical family handle much more of the housework than the husband and father roles. In practice, that means that the workplace allows women to work fewer hours and move to internal-facing roles, which in turn makes them less promotable and even stigmatizes them as recipients of benefits. In Padavic, Ely, and Reid’s research from a global consulting firm, women took 11 years to be promoted to partner, while men took 9 years. And this disparity applies only to those women who got as far as promotion: at the partner level, only 10 percent were women.

Second, it was widely recognized that women in this firm had less successful careers than men, but management in the firm emphasized that this stemmed from the nature of the work, which simply did not fit women’s needs to achieve a good work-family balance. Indeed, the firm was seen as accommodating these needs quite well because it offered women alternative job paths involving less demanding work schedules and less travel. The implication was that if women did the same work as men (putting in the same hours and accepting the same heavy travel requirements), they could do equally well.

Third, managers did not recognize that the firm’s work schedules, unrealistic deadlines, and demand for employees to be available 24/7 were as burdensome for men and equally disruptive to their family lives as they were for women. The belief that the bond between mother and child is special and much more important to maintain than the bond between father and child was so firm that evidence showing how the work hours and travel schedules disadvantaged male workers too was dismissed. Everyone “knew” that this was “women’s problem,” so the firm was doing enough by catering to women’s needs for family time.

Discrimination is actions based on beliefs. There is a distinction between the belief that women are not fit for work and the belief that women have greater needs for a work-family balance than men, but it is a small distinction. In both cases the result is discrimination and stalled careers, and it doesn’t help anyone that the second kind of belief and discrimination seems more considerate than the first.

Padavic, I., R. J. Ely, and E. M. Reid
2019. "Explaining the Persistence of Gender Inequality: The Work–family Narrative as a Social Defense against the 24/7 Work Culture." Administrative Science Quarterly, forthcoming.

Monday, February 4, 2019

Self-driving Cars and Surgery: Up with Robots, Down with Skills

Imagine that you have just purchased the latest self-driving car and you are on your way to work. The car is in control because the route is familiar and the car has all the modern sensing and decision-making functions. You assure yourself that you can take control of it at any time. But if there is a sudden dangerous situation—someone darts into the road or another vehicle is moving erratically—will you do so? I venture that the answer is yes if you are an experienced driver of old-fashioned cars that need to be driven—your instinct will be to rely on your own skills to avert problems. If you learned to drive after the self-driving technology was the standard? I’m guessing the answer might be no. And the answer could be very consequential.

Research by Matthew Beane published in Administrative Science Quarterly explores a situation with similarities to this one. He examined what’s happening in operating rooms around the world, where robots are increasingly used to perform surgeries. At least for the moment, the most effective robots do not make their own decisions, but they can be controlled quite effectively by a single surgeon at the control panel. That single surgeon often no longer needs a team performing different surgical tasks for the operation to go smoothly. And that surgeon is not likely to give up the controls during a challenging operation to a medical intern who needs to learn how to perform the surgery.

If you’re the intern, that leaves you in a position of scrambling for any opportunity you can get to practice with the new technology so you can gain the necessary skills to guide the robots. At the same time, you aren’t (as often, at least) part of a surgical team performing traditional surgeries, so you aren’t building the skills that are essential backups if something goes awry during the robotic surgeries you’re observing.

Surgeons don’t live forever. What happens when they are replaced by the interns who are currently receiving less hands-on training than they had? I guess we’re all going to find out.

We immediately understand that less training of surgical interns is a very bad idea, but that does not solve the dilemma. Surgeries using robots are performed best by the most experienced surgeons with minimal help, so actively involving residents adds time and risk. The residents can do little more than observe the surgeon controlling the robot. The onus was on the residents Beane studied to learn the skills with minimal costs to the attending physician in charge. And some of them did, showing significant ingenuity in the process.

Because the robots were only supposed to be used by the most qualified surgeons, only two approaches to learn were open to the residents. They could learn when the surgeon was not there, or they could learn as a favor from the surgeon. Learning when the surgeon was away could be done before they even became residents at the hospital, if they were lucky enough to be in a place with the right equipment and surgeons who allowed them to practice. It could also be done by watching recordings of earlier surgeries, though this type of training only showed what the robot did, not how to use the actual controls.

The other option is to learn from the surgeon during an actual operation. Usually that means getting control of the robot during the less critical part of the operation, and being watched over by the surgeon at every step. This approach is fast and accurate, but it also means that any mistake becomes very visible, and usually leads to the surgeon taking over the controls right away. It is the best way of learning, but also the scariest one. The risk was real because residents would be compared based on very few operations, and surgeons would prefer to continue working more with those who had done best – whether it was because of skill or because of luck.

The difficulty of learning when robotic equipment takes over a production process but still needs human control is not just in hospitals. The self-driving car is an example, and there are many examples of more subtle processes. The software that recommends whether an applicant can get a mortgage or not, and at what interest rate, is an invisible robot that can be controlled by the bank employee. But as the software gets smarter and the employees get less training, they have less foundation for checking its work, or even to be employed at all. Robots are smart, but organizations need to use them smartly.

that less training of surgical interns is a very bad idea, but that does not solve the dilemma. Surgeries using robots are performed best by the most experienced surgeons with minimal help, so actively involving residents adds time and risk. The residents can do little more than observe the surgeon controlling the robot. The onus was on the residents Beane studied to learn the skills with minimal costs to the attending physician in charge. And some of them did, showing significant ingenuity in the process.
Beane, Matthew. 2019. Shadow Learning: Building Robotic Surgical Skill When Approved Means Fail. Administrative Science Quarterly, 64: 87–123.

There is also a TED talk on this research.