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.