Wednesday, September 1, 2021

Jack of All Trades, Masterful One

I know that the title abuses the old adage “jack of all trades, master of none,” but it does so for a reason. First, as a small sidenote, the full expression used to be “jack of all trades” and was meant as a compliment. “Master of none” was added to make it less flattering. Second, I want to talk about some old research on how the old version, “jack of all trades,” might be more accurate provided the knowledge of each trade is not superficial.

In research published in Academy of Management Journal, Alva Taylor and I analyzed the collector values of old comic books. You know, the type of products that today don’t come in print, but instead appear as movies based on Marvel or DC characters. I am sure you have seen some of them. Comic books are interesting for research because we can measure the quality and innovativeness easily: high quality means high average value; high innovativeness means great variation in the value. Why the latter? Because anything new and surprising can fall flat but can also become a massive hit.

We had many findings, but I am particularly interested in the effect of creators having worked in multiple genres before making a new comic book. That’s the same as learning multiple trades because each genre has its own styles and conventions, so learning a new genre is difficult. But also, it can give fuel for innovation because knowledge of multiple genres helps the creator make novel combinations. And indeed, experience with multiple genres resulted in more innovative comic books. (It also increased quality, but that’s not the point I want to emphasize today.)

Here is the part I did not tell you yet. Comic books can be created by individuals or by teams, so we can talk about one person’s experience with genres, or the sum of genre experiences by a team. Is there a difference in which one becomes most innovative? Yes. Experience with more than three genres means that an individual will become more innovative than a team although individuals start out being less innovative. Clearly, individual creators have an easier time integrating genres.

Now there is research suggesting something similar happens not with knowledge integration, but with cultural integration in new ventures. This is important because many new ventures seek to combine the organizational cultures known by their founders into something new and unique, but often they end up adhering to an industry standard instead. Recent work by Yeonsin Ahn shows that cultural integration is helped by broader cultural experience, but only if this experience is held by individuals.

I can’t help but think that there is an interesting parallel here. It is so much easier to build up knowledge by sharing the work across individuals and forming a team. But, if the goal is to combine what has been learnt, individuals are better at it.

Taylor A, Greve HR. 2006. Superman or the Fantastic Four? Knowledge combination and experience in innovative teams. Academy of Management Journal 49(4): 723-740.

Monday, August 23, 2021

One of Us: How Women’s Inclusion Hurts Women

Have you heard stories or seen TV shows about how surgeons are the bossiest of doctors, ruling operating theatres like emperors, except that everything they do is more urgent than any imperial demands? That’s an exaggerated stereotype, but some surgeons fit it, and some forms of surgery are so exacting in process and speed that surgeons cannot tolerate slack. Many surgeons get away with bossiness because their work requires it—and because doctors are at the peak of the hospital pecking order and surgeons at the peak of the doctor pecking order. Everyone looks up to them.

Except that surgeons who are women are a little less looked up to than surgeons who are men. The usual mechanisms are at work, such as men (and some women) thinking of surgery as an activity that fits manly men better (so much cutting and bleeding...) and women generally having difficulty getting accepted in the top tiers of any occupation that has traditionally been held by men. But research by M. TeresaCardador, Patrick L. Hill, and Arghavan Salles published in Administrative Science Quarterly has found another source of difficulty: nurses.

Why are interactions with nurses problematic for female surgeons? Ironically, the source of the problem is that most nurses are women, and they interact differently with other women than with men. Nurses tend to act according to the script when the surgeon is a man: he orders, they obey. He does not need to chat or be friendly to get precise and timely work done, so the only benefit of being a friendly male surgeon is that he is seen as a nice guy. The same tends to be true when male nurses interact with female surgeons: they act according to the script.

But female nurses want – even demand – to include a female surgeon in the club of womanhood, where friendly chatting is required, members must know each other’s children’s names and ages, and work is rarely done exactly according to script. “After all,” they may think, “the female surgeon is one of us. That means she should also share some of the burden of the nursing tasks in addition to her work as a surgeon. That’s only fair. If she does not accept our requirements for inclusion and instead acts bossy, we can slow down our responses to her needs and make her job more difficult.” This is what precisely happened in the hospital the authors studied.

The result is extra work for the female surgeon and the loss of some of the special position that a surgeon has in the hospital pecking order. Maybe that’s OK because hospitals are too status conscious and hierarchical to begin with. But the problem is that only women surgeons face these demands for inclusion and the extra work accompanying it. It is discrimination against women, by women.

Is this something that women who are not surgeons should worry about? It probably is. What happens in the hospital is that different occupations interact to produce a result, and the higher-status occupation depends on the lower-status occupation for its success. That should sound familiar to many workplaces: higher-status workers are expensive, so organizations become effective by leveraging them through having lower-status workers do supportive tasks. If the supportive tasks are done differently depending on the sex of the lower-status and higher-status workers, this is an important source of workplace discrimination we need to better understand.

Cardador, M. Teresa, Patrick L. Hill, and Arghavan Salles. 2021. Unpacking the Status-Leveling Burden for Women in Male-Dominated Occupations. Administrative Science Quarterly, forthcoming.

Monday, August 16, 2021

How Smart are Strategists? Looking at Others to Find Your Own Failure

Both in research and in practical life we understand why innovations spread gradually, and why firms copy each other. Whenever an innovation is introduced, it could be good or bad, and this uncertainty makes managers hesitant to adopt the innovation until they have seen that others use it and benefit from it. There are many successful innovations in this world, but also many failures.

What about managers assessing the success or failure of their current strategy? That sounds like a much simpler problem because they know the market share, the revenue, the profit – everything they need to know in order to decide whether to stay with the strategy or adopt it. But, in research I published in Administrative Science Quarterly long time ago, I found that it is not quite that easy. Even when assessing their current strategy, managers copy each other, except in that case they are copying abandonments, not adoptions. If you had the same strategy as me and you abandoned it, I might just decide that mine is not good enough either.

How does this even begin to make sense? They have all the information they need, one may think, and do not need to look at each other. But social influence is so powerful that people copy all sorts of things (as anyone who follows fashion in clothes will know), and managers do the same when making decisions that affect the profit of their firms.

There is in fact a justification for copying abandonment. A strategy should not just be assessed based on how good it is right now, but also on how good it will be in the future. If other firms abandon because they think it is failing, then using that information is smart strategizing. Of course, it is unclear whether managers copy abandonment because of sheer social influence or because they are letting other assess the future.

I did research on how radio stations changed their format (what kind of music and other content they broadcast). To understand what was happening, I also interviewed program directors, who make the decisions, and announcers, who actually create the programs. Interestingly, many of them thought that abandoning an old format was a smart thing in general, because its market share was gradually decreasing, but they also named specific radio stations that had abandoned too soon, and without having a good alternative ready. So what managers is a mixture of social influence and smart strategizing.

This research was done a while ago, but the conclusion has become a theme in much of the research I do on managerial decision making. The smartest story of why they make decisions is not true. The dumbest story is not true either. All decision making is a mix of different influences, and managers are simply trying to balance different considerations to end up with decision that makes sense.

Greve HR. 1995. Jumping ship: The diffusion of strategy abandonment. Administrative Science Quarterly 40(September): 444-473.

Thursday, July 15, 2021

Entrepreneurship Failure: Poor Skills or Bad Luck?

We spend way too much time focusing on success. How much space in popular press is spent on the centi-billionaires and the firms they founded? How much academic research is drawn from successful enterprises, those who founded and financed them, and the CEOs currently leading them? Let’s talk about failure for a little while.

We understand that entrepreneurship success, the founding of enterprises that survive and grow, in most cases has a big skill component, though luck is needed too. Is the same true for entrepreneurship failure? Probably not, as Diego Zunino, Gary Dushnitsky, and Mirjam van Praag point out in research published in Academy of Management Journal. Skill is so important for success that we can be pretty sure it is present along with some luck. But by the same token, bad luck can sink an enterprise regardless of skill, so failure does not mean that skill is absent. It does, however, raise the possibility that skill is absent. 

Why is this important? Well, the successful entrepreneur often does not form any new enterprises because managing growth and ensuring continued success is already plenty of work, and it is rewarding work too. Failed entrepreneurs often wants to form a new enterprise, because they naturally believe that they are highly capable and just got unlucky. After all, entrepreneurship does go along with a high self-image and willingness to risk other people’s money, and these days “serial entrepreneur” is something of a badge of honor.

But what about the investors who are asked to fund enterprises? Do they look at the track record of the entrepreneur? How do they assess it? First, we need to understand that very few investors face the situation of those who were asked to help fund Amazon. Jeff Bezos told them that they had a 70 percent chance of losing their money, which is fairly realistic (actually the percentage is higher). More importantly, he had no past failures because he had never founded an enterprise – he had been an employee. Most entrepreneurs asking for funding will have a short or long track record of dead or moribund enterprises.

One simple and incorrect decision rule is to view any failure as a sign to stay away. Clearly that will exclude many skilled founders and promising enterprise. Another is to ignore past failures. Clearly that means not seeding out some entrepreneurs who really ought to get a job instead. But can potential investors thread a reasonable middle path?

Fortunately, the researchers found that they can. When assessing a potential venture investment, how promising people found it and how much they could be willing to invest was influenced by past failure, but not so much that past failure ruled out investment. Instead, past failure made the potential investors more sensitive to clues about whether they entrepreneur had skills that would help the venture. So, neither of the simple and incorrect decision rules are at work, but instead some form of middle path. This is what we want to see.

So, does that mean all is well? Not quite. We have to remember that the research shows average investor reactions, and averages are usually smarter than individuals when making judgments like this. This means that entrepreneurial failure does not cut off funding for new ventures. It does not mean that all individual investors avoid the simple and incorrect decision rules. Good news for entrepreneurship, less so for investment. 

Zunino D, Dushnitsky G, Praag Mv. 2021. How Do Investors Evaluate Past Entrepreneurial Failure? Unpacking Failure Due to Lack of Skill versus Bad Luck. Academy of Management Journal forthcoming.

Friday, July 9, 2021

Why do people discriminate?

We know that discrimination is common in organizations, in the economy, and in our social life. People are treated differently depending on a broad range of criteria, starting with race and gender, and there seems to be no form of training, qualification, or accomplishment that can help people escape discrimination. A classic example are Asian-Americans, who are a so-called “model minority” with a well-known taste for higher education. They suffer discrimination first through the accusation that they somehow do not deserve the education they have earned and then, more nastily, through violent attacks following the Covid-19 pandemic.

The fact of discrimination is well known, but the reasons are less clear – in part because there are too many explanations, and they contradict each other. Two well-known ones are taste discrimination and statistical discrimination. Taste discrimination is simple: people discriminate because they dislike, usually because others (parents? friends?) have told them who to dislike. Statistical discrimination is more complicated because the idea here is that some of those who are discriminated against should be assessed negatively, but it is hard to tell who, so the safe option is to discriminate against all. For example, an employer may think that some young women will get pregnant and quit soon and may decide that all young women should be thought of as short-term employees who do not need to be trained for promotion.

To many of us, statistical discrimination sounds like an excuse that may be true occasionally, but we assume most discrimination is based on cultural beliefs. But is that really so? Bryan Stroube has some interesting findings in research published in Administrative Science Quarterly. The findings were based on the discovery of transactions that offered reasons for statistical discrimination in one period, but these were removed later. In a peer-to-peer lending platform, there is always the concern that the loan may not be repaid, so statistical discrimination could be used to fund loans only to the most trusted social group. If the platform issues repayment guarantees, this motive for discrimination goes away. That is exactly what happened in the platform he studied.

So, what happened to the discrimination? This was a platform in China, where discrimination against women is common in economic arenas, even though women are thought to be reliable in paying back loans. You can probably suspect what happened. Women were discriminated against before the loan guarantee. After the loan guarantee, the economic security of women as lenders was no longer an issue, so women were even more strongly discriminated against.

Where does that leave the explanation of discrimination? Clearly people are capable of considering economic consequences and adjusting to them, and this affects the degree of discrimination. But at its core, discrimination is based on distaste and is culturally determined. Money is no excuse.

Stroube, Bryan K. 2021. Economic Consequences and the Motive to Discriminate. Administrative Science Quarterly, forthcoming.  

Thursday, July 1, 2021

Creative Sparks: Innovating by Moving and Processing Knowledge

Does knowledge help innovation? This is a simple question that is difficult to answer. In science, training people well enough to build on the knowledge of others is essential for advancing knowledge. But also, knowing too much forces thinking into established streams, making incremental additions easier but radical innovation harder. In business, most firms will place their bets on knowing more, to the extent of locating R&D in places with expertise, such as Los Angeles for video games or Silicon Valley for electronics and software more generally. Some firms even scatter their R&D around to have multiple listening posts to capture local expertise.

It is exactly this practice of multiple R&D teams that has helped us learn more about knowledge and innovation. In a paper published in Administrative Science Quarterly, Alex Vestal and Erwin Danneels analyze breakthrough innovations in the nanotech industry. This industry has multiple places with expertise (“hotspots”), such as San Jose, Boston, and Los Angeles, and firms have a blend of R&D teams that are in these hotspots or in places with less concentrated expertise.

So, does it help to be near expertise? It turns out that being too close to a hotspot with the same expertise as the firm is a drawback, just as scientists believe, but if the hotspot has slightly different expertise, the firm is more likely to produce a technological breakthrough. If the hotspot has expertise that is too different, a breakthrough is much less likely. The insight here is that one learns the most by being near, but not too near, the expertise of others. Maybe this is because being too close to the outside expertise means that there is little outside knowledge that needs to be moved inside the firm?

The explanation is not so simple as that. Instead, a hotspot with the same type of expertise as the firm may generate so much knowledge that it becomes difficult to process internally. But some firms had very close personal networks within their R&D team in the hotspot, which makes processing and integration of knowledge easier. For firms like that, there is no cost to being in a hotspot with the same expertise as the firm, because this makes technological breakthroughs much more likely.

Close networks among the local R&D team are not all good, however. Closely connected R&D teams are prone to ignoring knowledge gained from R&D teams in other locations, so they can fail to move knowledge that is already inside the organization but outside their specific location. As a result, the teams with close networks are less likely to make technological breakthroughs based on knowledge from outside their local hotspot.

This is interesting because it shows how the creative spark leading to innovation depends on how knowledge is moved around and processed. We have long known that hotspots for technology and innovation have knowledge moving quite freely, so firms can locate there to detect interesting knowledge and move it inside. Getting knowledge into the firm is not the same as using it effectively though. It needs to be moved to the right place in the firm, and it needs to be processed effectively.  

The key to gaining advantages is the social network inside the firm. Location relative to a hotspot of knowledge looks like an easy solution to the problem of facilitating innovations, but the firm also has to be able to move knowledge internally and process it internally. That means having employees who are willing and able to share knowledge.

Vestal, Alex and Erwin Daneels. 2021. Technological Distance and Breakthrough Inventions in Multi-Cluster Teams: How Intra- and Inter-Location Ties Bridge the Gap. Administrative Science Quarterly, forthcoming. 

Tuesday, June 8, 2021

Nepotism and Good Management Do Not Combine – or Do They?

Here is a piece of conventional wisdom that I and many others firmly believe: Nepotism is the enemy of good management because it places untested and often unqualified people in important positions simply because of who their parents are. Most of us do not work in organizations owned and controlled by families, and even some of us who do are working in organizations owned by families but controlled by professional managers who have been carefully selected. Then there is the rest of us, who worry about the capabilities of the owner family child in an executive role, and who have read the news about scandals such as the Samsung family ownership.

But every now and then some evidence appears that gives us reason to rethink our beliefs. In a paper published in Strategic Management Journal, Guoli Chen, Raveendra Chittoor, and Balagopal Vissa look at CEO pay in family firms in India, comparing those run by CEOs from the family versus those run by non-family CEOs. Their findings contained some surprises.

Here is an unsurprising finding: CEOs from the family get paid more. Sure, we all know about favoritism and about extracting resources from a firm (which also has non-family owners) to put into the family’s pockets. This is an annoying finding, but it is no surprise. Oh and by the way, the increase in pay depending on the firm performance is nearly the same for low and high performance provided the CEO is a family member, but a nonfamily CEO does not benefit from higher performance.

Here is a surprising finding: When they checked the data more carefully, they found that the family CEOs actually got rewarded very much when the firm had very high performance, less so when it had average or low performance. This is exactly how one would design an incentive scheme for CEOs, because disproportionate rewards at the high end are necessary to compensate for their reluctance to take risk. But why is the incentive scheme especially well designed for family member CEOs?

One more interesting surprise that might be telling: The relation between high performance and higher pay is particularly strong if the firm is named after the family. So, exactly the kind of firm that would embarrass the family if the performance were low has a family CEO with good incentive pay. Interesting way for the family to control their (younger) CEO member, right?

You have probably read through this and concluded that it does not matter. Having a good incentive scheme is not the same as getting high performance. After all, poorly qualified spoiled brats are not going to accomplish much regardless of how they are rewarded. True, except for one thing. The firms managed by family CEOs had higher performance on average than those managed by nonfamily CEOs. This is certainly a paper to make us reconsider our beliefs.

Chen, G.,R. Chittoor, B. Vissa. 2021. Does nepotism run in the family? CEO pay and pay-performance sensitivity in Indian family firms. Strategic Management Journal 42(7) 1326-1343.

Monday, June 7, 2021

Are There Morals in the Stock Market? Reactions to Firm Misconduct

People dislike fraud, so much in fact that they see it as immoral and are willing to make some sacrifices to punish the fraudsters. This is even true when they are trying to earn money through investments. The best evidence on this is from research on individual people managing their personal money, but in today’s stock market most of the money is moved around by professional fund managers who are simply looking for returns. Does the market still have any morals?

Research by Ivana Naumovska and Dovev Lavie published in Administrative Science Quarterly suggests there are some morals left, but they are… selective. They looked at firms involved in financial misconduct, which is the kind of misconduct that investors care the most about because it hurts them directly. (They might be more forgiving of pollution.) It is already known that investors react by withdrawing money held in the firm accused of misconduct—and also from similar firms, because the stigma of misconduct places similar firms under suspicion.

This research goes one step further by asking whether investors are not just reacting to stigmatization but are also strategic in how they respond. An interesting feature of similar firms is that many of them don’t just resemble each other; they also compete with each other. A firm engaged in misconduct is weakened by money withdrawals and other punishments, so shouldn’t that strengthen its competitors? If it does, then that could be a reason to bet money on the competition, even if it is similar. Again, a selective form of morals.

In fact, the research went even further. Recognizing that investors differ in how well they understand how firms compete, Naumovska and Lavie distinguished between the detailed analysis of firms done by mutual funds and hedge funds and the coarser understanding of other investors. All investors will react to stigmatization and competition, but the more sophisticated investors will be less sensitive to stigmatization and more sensitive to competition. More forgiving and more strategic, in other words.

Were they? Absolutely. Measuring stock market returns, it was easy to show that both stigmatization and strategic investment took place. The authors found a U-curved relation between stock market returns and the product market overlap of each firm with the firm accused of misconduct, such that intermediate levels of similarity were the worst. Importantly, less sophisticated investors punished firms more if they were more similar to the firm accused of misconduct, showing no strategic investment. The more sophisticated investors also reacted negatively to any level of misconduct but were significantly more forgiving if the two firms were so similar that the damage suffered by the accused firm might turn out to be profitable for the other firm.

So does the stock market still have morals? Some morals, and selective morals. A somewhat disturbing conclusion is that those of us who prefer to let others invest our money through mutual funds and ETFs (not hedge funds, I hope) actually make the market less of a moral place, because those who manage our money are less willing to deal out punishment for misconduct.

How much of a problem is that? Arguably punishing firms that are similar to one that commits any form of misconduct may be unfair because one should be presumed innocent until found guilty. But that overlooks some important details. First, people are presumed innocent, but we don’t need to hold firms to the same standard. Second, the stock market is not a court, and it is perfectly acceptable to move money away from the possibility of future misconduct. I am perfectly comfortable with stock market morals through stigmatization, and I am uneasy about the implications of this research.

Naumovska, Ivana and Dovev Lavie. 2021. When an Industry Peer is Accused of Financial Misconduct: Stigma versus Competition on Non-accused Firms. Administrative Science Quarterly, forthcoming. 

Sunday, June 6, 2021

Women’s Work? Firms May Penalize Social Impact Work by Male Employees

An important part of the move towards firms showing social responsibility is the spread of social impact work programs. These programs let employees offer part of their time to various initiatives with social impact. For example, my school has built a playground in an area of need. (I agree that a playground built by professors is a scary thought, but most people working for us are not professors.) Social impact work programs are thought to be very useful because they connect organizations and society much better than money donations, and many firms encourage them.

What if the same firms penalize the workers who take part in them? That would make no sense, but now we know it is happening. This is thanks to research by Christiane Bode, Michelle Rogan, and Jasjit Singh published in Administrative Science Quarterly. They looked at a major consulting firm with a social impact program that employees could volunteer for, and they checked what happened to the promotions of those who did or did not volunteer.

The good news is that it is fine to work for social impact if you happen to be a woman. Then there is all the bad news. First, the promotions of men who worked for social impact were delayed. Bad for them, who thought that the firm’s promise to encourage and reward social impact would be followed up. Bad for the firm, which claimed to want a robust social impact program.

Second, the promotions of men who worked for social impact were delayed. Bad for the firm’s (and the world’s) idea that professional workers are generally evaluated based on merit, not gender, because the difference between men’s and women’s consequences clearly demonstrates a workplace with some sexist views.

Third, the promotions of men who worked for social impact were delayed. Perhaps one of the more disturbing findings from this research was that this effect was not specific to the consulting firm. It could also be shown in a random sample of people acting as evaluators for a potential promotion. Their evaluations were very informative, and not in a good way. First, it was clear that the negative evaluation of men doing social impact work was entirely due to men making promotion evaluations. The male evaluators were the ones who acted as if they thought that men – but not women – should stay away from social impact.

Moreover, when reporting the reason for their negative evaluations of men, they were clear that a lower fit to the job was the problem. Doing good outside the job does not lower a woman’s fit to the job, but it lowers a man’s fit to the job. What is going on here? The findings raise a clear suspicion that the evaluators either know that women do lots of non-work work anyway (like most family work) or think that a dual work and society focus is fine for women but not for men.

The findings are discouraging because they suggest that a lot of education is needed to make social impact work a safe and gender-balanced effort for firms. The good news is that it is not too hard to accomplish because promotions are decided by a well-defined group of people, and it is easy to track how well they make decisions. In fact, the main reason the consulting firm findings were so clear is that they had good performance statistics for their employees, so it was easy to check whether the promotions were fair or not. This is exactly the foundation needed to make sure that promotion evaluators act in ways that match firm priorities, not oppose them.

Bode, Christiane, Michelle Rogan, and Jasjit Singh. 2021. Up to No Good? Gender, Social Impact Work, and Employee Promotions. Administrative Science Quarterly, forthcoming. 

Thursday, May 27, 2021

Creativity and Diversity: More Lessons from Management

The idea that creativity is stimulated by combining different kinds of information has been shown to be true many times, most recently in research showing that network brokerage of different groups is most effective when there is also instability of membership. Interestingly, the simplest way to combine different kinds of information is the hardest: bringing together a diverse group of people to work as a team is sometimes good for creativity, sometimes bad, and sometimes there is no effect.

How can we make sense of this? First, we can be patient. Teams trying to be creative quickly face a difficult task that many of them will fail. Instead, looking at creative efforts over time, by multiple teams, gives clearer results. Second, separate different types of diversity. Knowledge diversity creates creativity, but many other kinds of diversity have no effect on creativity but can create discomfort and difficulty working together. Unfortunately, people get along more easily with those who look like them and talk like them, so any team of people who work together can be divided by gender, race, or nation of birth. This is the reason that team diversity often has unclear effects: those who would benefit the most from working with each other often have difficulty doing so.

Alina Lungeanu and Noshir Contractor looked at the effects of knowledge diversity and cultural diversity in teams of scientists involved in the ultimate creative task: the generation of the new scientific field of oncofertility. Creativity in science is demanding because it not only requires new ideas; the ideas also must be objectively correct. Science is stricter than art in assessing the value of creativity. Creativity in science is demanding also because it requires time; it takes many years and publications to produce useful knowledge.

So, what did they find? For scientists collaborating, knowledge diversity means that they draw on different knowledge of past research, which happens to be easily measurable. More diversity produced more creativity. Cultural diversity produced less creativity. As added evidence that difficulty working together held back collaboration, they also found that scientists were especially likely to repeat collaborations with prior collaborators and were also more likely to collaborate with friends of friends than with total strangers.

This repeats a lesson that is worth repeating because it is so often ignored. The creative spark comes from encountering different knowledge, ideas, or norms. Different forms of thinking help creativity. But to make that encounter happen, people need to open up to each other and communicate freely. That requires some level of comfort with each other, so team-building efforts may be needed when team members come from different backgrounds. So first, facilitate communication, then let the communication generate creativity.

Lungeanu, A., N.S. Contractor. 2014. The Effects of Diversity and Network Ties on Innovations: The Emergence of a New Scientific Field. American Behavioral Scientist 59(5) 548-564.

Tuesday, May 18, 2021

Hiring Mental Disorder: How Employee Mobility Spreads Depression, Anxiety, and Stress

Mental disorders should be taken seriously because a condition such as depression, anxiety, and stress takes a significant toll on those who suffer it and their families, and it affects their work performance. Particularly tragic events occur when stressed operators of hazardous equipment (such as trucks, trains, or planes) make mistakes that threaten safety. The only good thing about mental disorders compared with other diseases is that they are not contagious.

Except, asdiscovered in new research by Julia M. Kensbock, Lars Alkærsig, and Carina Lomberg published in Administrative Science Quarterly, they are.

Focusing on the workplace, the authors found that mental disorders are contagious. The behavior of a person suffering from a mental disorder affects others by making their interactions and the work more problematic. The end result is that some coworkers end up with the same disorders of depression, anxiety, and stress. This is especially problematic because mental disorders spread through behaviors, so an undiagnosed patient in the organization is particularly threatening as no treatment or adaptation is possible. In a way, this is similar to how patients with contagious diseases can transmit even when they are undiagnosed or asymptomatic.

But this is not the worst part of the story. Organizations in which many employees have mental disorders – maybe because they have spread within the organization – become unhealthy, so hiring one of their employees carries a similar risk of hiring mental disorder as hiring an employee who has a mental disorder diagnosis. Of course, unhealthy organizations are exactly the places that employees want to leave in order to escape depression, anxiety, and stress, but they do not realize that they may be bringing it to their next workplace.

And there is an even worse part of the story too. To see why, ask yourself who in the organization affects coworkers the most. The answer is obvious – managers do. A manager interacts with many, influences many, and has the power to affect the work and rewards of many others. Hiring a manager with a mental disorder or from an unhealthy organization means that the organization now has a person who is fully capable of transmitting depression, anxiety, and stress to others, and the researcher team found that managers indeed have disproportionately high effects on the mental health of the organization.

We already know how the climate of a workplace, and the work done in it, is negatively affected by hiring jerks, especially jerk managers. The damage from having a manager with a mental disorder is similar, or possibly worse. But, the takeaway here is not that organizations should shun employees and managers with mental health disorders. Given their prevalence, trying to do so would have negative consequences for everyone involved. Instead, this research should be a wakeup call for any organization that is not already educating its people about mental disorders and working to improve their mental health. Mental health disorder is a treatable condition (unlike most jerks, I suspect). Given the dangers of contagion, there is no time to waste.

Kensbock, J. M., Alkærsig, L., & Lomberg, C. (2021). The Epidemic of Mental Disorders in Business—How Depression, Anxiety, and Stress Spread across Organizations through Employee Mobility. Administrative Science Quarterly, forthcoming. doi:10.1177/00018392211014819

Tuesday, May 4, 2021

Organizations Rule! When Self-Organization Became Structured

We often overlook an interesting contrast between the workplace and our private lives. In the workplace, we have an organizational structure in which people have fixed authority, are grouped together in units, and have specified processes for regular operations and for how to handle many exceptions. In our daily life, we have none of these (unless we are the von Trapp family), but we still get things done. To the curious mind, this begs the question of what organizations are for, apart from controlling people who cannot be trusted on their own.

Felipe G.Massa and Siobhan O’Mahony have published research in Administrative Science Quarterly that gives a nice answer to that question. They examined the self-organized Anonymous movement, which started off radically different from normal organizations in structure (they had none), processes (they improvised them), and ethos (freedom of information and action is paramount). Anonymous earned a reputation as an unpredictable group of activists that could suddenly descend on targets through protests and hacker attacks, seemingly organized through little else than internet forum conversations.

The only problem with this reputation is that it is only true of early stages of the Anonymous movement. They did indeed organize through shared forums and used shared norms and jargon to define boundaries and direct action. But Anonymous attracted so many newcomers that these mechanisms were no longer enough to maintain the identity of the movement and the cohesion of their actions, resulting in chaos. Reacting to this, senior members of the movement sought to use norms both for integrating new participants and for directing the protest actions they had become famous for, which were becoming less systematic and predictable.

Norms work well, right? After all, the Catholic church has applied strong norms and has been in operations for a couple thousand years. But churches are organizations too, and they use structure and processes just like any other organization. And the time came when Anonymous started looking more and more like an organization.

Anonymous now has well-defined roles, with different levels of experience and expertise determining what role a member fills. Anonymous has a hierarchy, with decisions made centrally and communicated outwards to the peripheral members. Anonymous has training of new members, manuals for how to act, and tests that allow promotion into higher ranks. In short, Anonymous is an organization.

Is this controversial or surprising? My first guess is that the most surprised people share one of two very different beliefs. One is the belief of economists that coordination of many is a simple matter of aligning preferences through some simple device, such as a price. This belief is correct, but it turns out that prices and mass-market goods are one of the few contexts in which it holds. The other is the belief of ideologists that mass movements can be coordinated by shared beliefs and norms. That is also correct, but only for short periods of time, as Anonymous found.

My second guess is that organizational theorists are the least surprised. We should not be surprised because what we have learned time and time again is that organizations are unbeatable for coordinating the actions of many, whether they be friends, strangers, or in between. Just ask Anonymous, if you can find the right person to ask.

 Massa, F. G., & O’Mahony, S. (2021). Order from Chaos: How Networked Activists Self-Organize by Creating a Participation Architecture. Administrative Science Quarterly, forthcoming. doi: 10.1177/00018392211008880

Friday, April 30, 2021

Church or Science? Moral Authority in Stem Cell Research

Who decides what can be done in society and business? The conventional answer in Europe is that it was the church in medieval times, the state after that, and now it is a free-for-all with business having a prominent role. All parts of the conventional answer are inaccurate, and we know that the correct answer depends on the context. So, let us consider a context with very strong dividing lines: stem cell research. Stem cells are “primitive” cells that have not yet specialized into specific types, so they can be used to cure a wide range of medical conditions provided they can be coached into becoming a type of cell that needs to be replaced or repaired. They are also controversial cells because a primary source of stem cells for research and production is fetal tissue – early-stage embryos.

Church beliefs on what embryos are for and scientists’ ambitions to cure degenerative diseases like Parkinson’s and Alzheimer’s clashed, and this conflict was examined by Joelle Evans in research published in Administrative Science Quarterly. In her study, a research laboratory encountered outside pressures against the stem cell research and reacted by having internal debates and forming a response. In so doing, the scientists took on a second role as creators and marketers of a moral stance explaining why stem cell research was valuable and how it should be done.

What she documented is an unusual role for scientists. More commonly, science is thought to be a free exploration of questions for which there is no moral judgment until the time comes to use the insights. This type of scientific handoff is very common, although it has been known to create complications in some cases – such as among the scientists who developed the atom bomb, with full knowledge of the purpose of their research.

Stem cell research is not nuclear physics and has no weapons application, but the question of what kind of raw materials can be used, and how they can be used, is fraught with moral problems. These moral problems have practical implications. For example, the USA has rich access to surplus blastocysts (pre-embryos) because in vitro fertilization (IVF) procedures create more blastocysts than can be safely inserted. IVF clinics routinely destroy excess blastocysts because they are barred from turning them over for stem cell research. As of 2019, a few hundred stem cell lines had been approved for use, and these are called stem cell lines because each originates in a single blastocyst with cells that keep being reproduced.

The researchers in this study faced two debates. Externally, they faced criticism for their use of stem cells and calls to account for it morally. Internally, they differed in their views on what could and should be allowed, with the internal lines of contention being shaped by the external pressures. The need to make an external account for their work was unfamiliar for researchers and made complicated by their internal divisions.

How did they respond? Interestingly, the combination of external pressure and internal fissures helped the lead researchers formulate a set of moral values that they could justify through connecting with accepted forms of ethical reasoning and explain externally and internally.

This served two purposes. Externally, the scientists gained a role in defining the value of their work and the constraints on how it should be conducted. Internally, they unified an organization that could easily have become divided, maintaining motivation for the team members troubled by the apparent conflict of moral values. They achieved strength through unity while embracing the diversity of beliefs within their laboratory walls.

Evans J. 2011. How Professionals Construct Moral Authority: Expanding Boundaries of Expert Authority in Stem Cell Science. Administrative Science Quarterly Forthcoming.

Thursday, April 22, 2021

Do People Governed by Algorithms Improve or Quit?

Wait, what does it mean to be governed by algorithms? If you do not know that yet, you are not working for any of the gig contracting platforms (Uber, TaskRabbit) or employers using algorithms to assess employees and predict and manage training and promotion. The increase in data processing capacity and machine learning tools means that algorithms have crept into a multitude of organizations and influenced how they manage people. Importantly, in some places the use of algorithms is acknowledged, and the results are shared with the employees, but in other places it is secret. Some workplaces make the algorithm transparent to employees, and others make it opaque. Because people usually learn how to game transparent algorithms to get high scores, opaque algorithms are becoming increasingly common and are currently the most important to understand.

So, what do opaque algorithms do to people? That is the topic of research by Hatim A.Rahman published in Administrative Science Quarterly. He focused on a labor platform that matches freelance workers with clients. The platform implemented an opaque evaluation routine that produced a new type of quality score for freelancers that was visible to them and to potential clients. How do people react to such scores? We know that scores become goals, and people commonly try to improve their performance by making changes. That is exactly why transparent algorithms result in inflated scores after a period of adapting to the algorithm. But opaque algorithms do not tell people how to improve, making the scores produced by those algorithms less useful as goals.

Instead of targeted improvements, opaque algorithms can produce experiments to find out what elements of the algorithm affect the score, and how. Many freelancers tried to change how they worked with clients through simple actions such as changing the type of work, length of contract, procedure for closing the contract, and so on. But these changes were unlike the changes made when decision-makers face goals that are more easily understood. As has been documented in research on performance feedback, it is very common for people facing low performance relative to a goal to react by making changes to improve the performance. That happened with the opaque algorithm too, but it was much more selective.

First difference: Not everyone tried to make changes. Many individuals who were not highly dependent on the platform responded by quitting it. And this was true whether they had high or low performance, so even many high-performing freelancers (according to the algorithm) simply left.

Second difference: Not everyone’s likelihood of making changes was a result of the algorithm score. Low-performing individuals were experimenting with different approaches regardless of whether they had setbacks in their scores or not. That was important because in the platform, a score below 90% was considered low, so the result was continuing turmoil in how freelancers were working.

Third difference: Among those who performed best and were dependent on the platform, those who experienced setbacks made changes to how they worked. So far so good, especially if those changes actually improved how they worked. But what about those who did not experience setbacks in the score? They tried to limit their exposure, including by not working with new clients on the platform. Having a high score was valuable, and accepting new work on the platform might endanger it, so they preferred to stick with existing clients or to find new clients that would let them work outside the platform.

Clearly, the opaque algorithm produced scores that made it easier for clients to distinguish between freelancers, and it also governed the freelancers by changing how they behaved. Were these changes improvements? Normally performance feedback on a meaningful goal results in improvements, but it is far from clear that an opaque goal has the same effect. Indeed, the three differences in how these freelancers reacted suggest that the opaque algorithm was a poor governance tool. 

Rahman, Hatim A. 2021. "The Invisible Cage: Workers’ Reactivity to Opaque Algorithmic Evaluations." Administrative Science Quarterly, Forthcoming.

Tuesday, April 13, 2021

CEO Power: Who is it Good For?

The CEO of a firm is given power to control the firm. That is because the purpose of the CEO role is to create a position that has centralized control, to enable consistent formulation and execution of strategy. The CEO is in turn governed by the board of directors, who also have a say on the strategy and who assess the results of the strategy execution. So far so good, but then there is the question of how much power the CEO should have, and what happens when the CEO has too much power.

Here is a classic example of too much power: The CEO can influence how the board of others assesses the CEO by choosing the reference group of other firms and CEOs that this firm is compared against. Do some CEOs really have this power? Does it benefit them? Does it harm the firm? Research by Pino G. Audia, Horacio E.Rousseau, and Sebastien Brion published in Organization Science gives the answers: Yes, yes, and yes.

The key here is that a firm can be compared either against a standard reference group such as an industry average or a reference group that is tailor-made to suit someone in the firm. Remarkably, even though the SEC guidelines strongly warn against tailor-made reference groups, 30% of the firms in the data they analyzed had them. Interviews indicated that although this choice of reference group should be done by the Chief Financial Officer (CFO), the reality was that the CEO was often deeply involved. So yes, at least in some firms CEOs had the power to change how they were assessed.

Did they benefit from this power? The simplest and arguably most meaningful measure of benefit is how much the CEO is paid. Controlling for everything else that influences pay, CEOs of firms with tailor-made reference groups were paid more when the firm performance was lower. So, clearly the point of a tailor-made reference group was to get paid more when firm performance indicated that they did not deserve it. It was an insurance policy.

Were firms harmed? The question of harm is difficult to answer, but it is easy to discover whether others tried to penalize the firm. This they did. Securities analyst coverage and rating of a firm’s stock is very important for the firm value, and securities analysts quite systematically downgraded firms to a lower rating or even stopped following them if they had tailor-made reference groups. The firm’s owners also reacted, as they saw an increase in governance resolutions filed by shareholders at the annual meetings.

The CEO use of power to shape the assessment of the firm’s performance was consequential for the CEO and the firm, and as we might expect, in opposite directions. The CEOs used their power to benefit themselves in ways that hurt their firms. This, at least, gives one answer to the question of what it means to give a CEO too much power to control the firm.

Tuesday, March 23, 2021

How Much to Know? Entrepreneur Experience and Venture Failures

We are well aware of the advantages of knowledge, both when doing something conventional and when making innovations. People who teach entrepreneurship do it because knowledge helps the foundation of a successful venture. But is there such a thing as too much knowledge?

When I work alone, more knowledge is better – it generally gives performance at a higher level, and it gives the creativity that can yield outstanding outcomes. My earlier research on innovations in the comic book industry is one of many research projects showing this effect. Things get more complicated when multiple people come together to do something complex like founding a new venture. The great benefit of having much knowledge and many kinds of knowledge is the potential for combinations that others cannot think of. The problem with doing this in a team is that combining knowledge requires communication, and communication gets harder when each member has different types of knowledge.

So how to resolve this dilemma? Research by Florence Honoré published in Academy of Management Journal shows a nice path.
The idea is simple: variety in knowledge is great as long as it stays within one person, but teams should also have shared knowledge that transfers directly to the problem they are solving.

This makes sense if we think of specialized knowledge as roughly equivalent to languages. People with shared experience speak the same language, while people who have different experiences need to translate. A person with many kinds of knowledge is a polyglot, and that is OK because we are all good at talking to ourselves.

So what did the research show? New ventures were at great risk of failing if their venture team had a mixture of experiences across team members, and this problem got worse the more founders had earlier been employed by multiple firms. On the other hand, more shared experience among the founders helped the firms survive, and this was especially true if the venture had multiple founders who transitioned from the same prior employer to founding a venture together.  

The implication for entrepreneurship is obvious. A team with experience in the same industry that they are forming a venture in will perform better, and they will do especially well if they make sure to also have one member with a variety of experiences. And, they should listen carefully to that person, because it is exactly the integration of knowledge from this polyglot member that can benefit the venture most. In other words, this research is another win for diversity in business.

Honoré, Florence. 2021. "Joining Forces: How Can Founding Members’ Prior Experience Variety and Shared Experience Increase Startup Survival?" Academy of Management Journal forthcoming.

Friday, March 12, 2021

Who does Strategy? Organizations!

A new book will be published soon, “Strategic Management:  State of the Field and Its Future,” edited by the excellent scholars Irene Duhaime, Michael Hitt, and Marjorie Lyles. My chapter is titled “The organizational view of strategic management,” and it synthesizes how the fields of organization theory and strategic management have moved towards each other already and will probably continue to do so in the future.

Why is this, and why does it matter? Let us start with the second question. There are two widespread myths among students of strategy, including researchers, and executives also believe them. The first is about the power of the individual decision maker. This myth almost makes sense. All of us make decisions many times a day, starting with simple stuff like choosing goods to buy and moving up to life-changing decisions such as educational choices. We feel powerful when doing that. But are we independent? Maybe we think we are, but do you really think that the enormous sums spent on marketing to influence our decisions are wasted? Research says they are not. We make decisions, but not independently.

Executives making decisions feel powerful too, only more so. And why not, executives making strategic decisions can allocate and redirect enormous sums of money and hours of effort. But are the executives independent? It does not take a large organization to make the executive completely dependent on information about the internal organization and external environment that is captured, processed, and presented to the executive by others. The individual choosing a cereal is influenced by marketing. The executive making strategic decisions is a product of the organization.

The second myth is that strategic decisions are a simple matter of picking the option that maximizes the economic value of the firm. If only that were true: life would be easier and we could pay executives much less because it is not hard to line choices up by value and pick the best. But strategic decisions are about uncertainty and evolution. They reach into the future, so the alternatives cannot be lined up by value, but it is possible to understand the type and size of uncertainty, and it is also possible to make choices that alter the uncertainty. They reach into the future, so it is important to guess how the world changes, and how the organization can evolve to match the world, or even influence it.

The solution to these two myths is to view the organization as the strategist. The responsibility for being strategic does not really lie with specific executives like the CEO, it is spread throughout the organization as its divisions, functions, teams, and individuals deal with a changing world, seeking to adapt to it and communicate what they have learnt to each other. It is in this interface that the fields of organization theory and strategic management communicate with each other. Strategies are shaped by societal groups outside the organization, individuals and groups inside it, the commitment and learning resulting from past strategies, and the goals formulated to manage past strategies. All of this is organizational, and all of it is strategic.

Despite these overlaps, organization theory and strategic management do not always communicate well. Organizations do not determine strategies, but some researchers think they do. Strategies cannot be chosen independent of organizations, but some researchers think they can. The reality is that organizations are stuck in an adaptive strategic cycle. The modern synthesis of organization theory and strategy is that problem and opportunity discovery by internal decision makers directs strategic change, and this strategic change in turn modifies the organization over time. More and more researchers in organization theory and strategy do their work with this adaptive cycle in mind, and in doing so they advance both fields of research. And this research in turn improves the teaching of management, and the practice of management.

Wednesday, March 3, 2021

The Diffusion of Differences: Two Paradoxes in Management Research

Is it possible to copy what others do and still become different from them? That seems like a paradox, but it could be reality in the world of organizations. Here is how it happens: Some new practice appears that claims to solve a problem, for example a technological innovation or a management technique. Is the claim true? It might be, but it might not, and the uncertainty about the value of an innovation is a problem that management needs to solve. Often, looking at what others do and copying them is an easy and smart solution. But if that is what organizations do, they should become similar to each other, right?

Wrong. Organizations are multidimensional in their activities and the environments they face. Some organizations copying others does not mean that all organizations do; they are often trying to solve different problems. Some organization copying specific other organizations does not mean that all organizations do; they often have different peer reference groups. Some organizations copying other organizations does not mean that they fully accept what the others do as true; they often try out innovations and reject those that do not fit their needs. For each new practice all these processes occur, and organizations live in a chaotic environment with many new practices that spread and are copied. What we see is the diffusion of differences.

How do we know this? In a recent research paper published in the Academy of Management Annals, Ivana Naumovska, Vibha Gaba, and I checked the last 20 years of diffusion research – 178 research articles in total. What did we find? First, less than half the studies reported how many organizations adopted a practice at the end of the study period, but from the studies that did report, less than 20 percent adopters was the most common result. Why did organizations react so differently? Usually because they faced different environments, so they were solving different problems, though other differences such as past learning and network ties also distinguished adopters from non-adopters. Looking over the past research, the diffusion of differences is a consistent finding across the articles.

This brings me to the second paradox. Most diffusion researchers believe that diffusion leads to similarity, or in their language, “mimetic isomorphism.” Why? One reason is that the diffusion of differences is surprising conceptually. It is hard to believe until you examine the evidence and think about the process. The more important reason is that the researchers have started with a deservedly famous theory article, “The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizations Field” by Paul DiMaggio and Woody Powell, and have gone on to over-interpret its conclusions. In that paper, copying other organizations was one process that could lead to similarity. Researchers these days say that copying other is a process that does lead to similarity. These are very different claims.

Our conclusion? First, obviously, theory should not get in the way of evidence. Second, the strong belief in diffusion creating similarity means that there are lots of holes in our knowledge about what diffusion processes do. Because differences among organizations have been overlooked, we simply do not know enough about their sources.

Naumovska, Ivana, Vibha Gaba, and Henrich R. Greve. 2021. "The diffusion of differences: A review and reorientation of 20 years of diffusion research." Academy of Management Annals forthcoming.

Wednesday, February 24, 2021

Creativity and Instability: Lessons for Management

In the news we just learnt that the famous painter Edward Munch wrote “painted by a madman” on his most famous painting “The Scream.” As in all his endeavors, that inscription and painting neatly combined insight and instability. His insight preceded research on the management of creative work by 125 years.

Management scholars just caught up. Research by Guiseppe Soda, Pier Vittorio Mannucci, and Ronald S. Burt published in Academy of Management Journal investigated what distinguishes teams that can produce highly creative products. Their work is quite a feat because it focused on one of the greatest strings of creative successes in modern television: the science fiction series Doctor Who produced by BBC. This is a series that has been widely praised as being high quality and creatively conceived throughout, but differences among episodes in the creativity were still large enough for the researchers to find the sources of creativity.

Ready for the answer? It is instability, as Munch noted and practiced. But the lesson is a little more complicated than that. It is well known that certain kinds of network connections generate creativity, specifically open networks in which each person gets diverse information by being connected to people who are not connected to each other. This is well known and makes sense but is not as reliable a predictor of creativity as one would expect. It also follows that getting a stream of diverse information creates creativity (indeed, some of my research shows that), but again it is a less reliable predictor than one would expect.

Why do these two factors work sometimes but now always? The answer is instability. An open network does not generate much creativity if it is stable, because there simply is not enough new people to spur creativity. Similarly, new content helps creativity little when the network is stable because it keeps being interpreted by the same people. Add some instability to the network, and suddenly openness and information diversity start operating as expected, increasing creativity.

In the case of Doctor Who, the effects were big enough that many modern fans do not even realize that the TV series has been canceled because of lack of audience interest, before being restarted and again experiencing significant success. Creativity won the day.

Of course, this research was not done for the purpose of giving us more good TV. Firms depend on creativity in many areas of activity, most conventionally in research and development, but also for product updates, new business model generation, and re-launch of product and service lineups that have gone obsolete in in the minds of consumers. This research tells managers that fans can and should shake up the teams that make such changes whenever significant creativity is needed. When managers follow Munch’s lead and generate instability, team members who are moved around may scream, but the increase in creativity is worth it.

Soda, Guiseppe,Pier Vittorio Mannucci, and Ronald S. Burt. 2021. Networks, Creativity, and Time: Staying Creative through Brokerage and Network Rejuvenation. Academy of Management Journal, forthcoming.

Friday, February 19, 2021

A Surge and Emotion: When Meaningful Work Becomes Too Busy

If you are like many of us, you are secretly or openly envious of those who have especially meaningful work. We may find meaning in some parts of our work but not all, and we are very aware of those who connect their work and passion perfectly. There is the artist who is so successful that all their time is spent creating art, not selling it. There is the humanitarian who works with an NGO that keeps its people in the field, in the places with the greatest need and effect of their work. There is the medical doctor who has stayed away from the repetition of general practice and specialist clinics and instead spends all the time diagnosing and helping unique cases.

In our envy, we overlook something special about meaningful work. It derives much of the meaning from the pursuit of quality, and as a result, it needs to be done at a slow pace. The violinist who has to prepare too many pieces resents the sacrifice in preparation. The humanitarian and doctor who need to solve problems too fast worry about failures. But then, what happens with the people doing meaningful work when there is a surge in the workflow? This is the topic of research by Winnie Yun Jiang published in Administrative Science Quarterly. Her research context is perfect for the topic because she examined how a US refugee-resettlement agency was overwhelmed by a surge in refugees, most from the Syrian war.

Consider the transition from doing meaningful work to being overwhelmed with work. The purpose of the work is unchanged – so many people are in great need, and this organization is their main line of support to find a place to live, find work, and quickly integrate into a new and very different society. This takes time and effort. Except there isn’t any time because there are many more refugees than before, so either the workers have to stretch their hours and efforts to the maximum or do less for each refugee, or maybe both. The work is the same, but the motivation and meaning fade.

Can an organization built on meaningful work handle this? They cannot easily expand because meaningful work is typically meaningful for some people but not others. They cannot reward their workers more because most organizations with meaningful work are low-budget outfits to begin with – they are built around the idea that meaningful work means that high pay is not needed. They cannot routinize work for speed because tailoring is at the core of meaningful work. This type of organization is not well suited to handle workload surges, so its members have to adapt.

Can the members handle it? Jiang found they adapted in multiple ways, with varying levels of success. One approach was to change their work by drawing new boundaries that eliminated the most time-consuming tasks, while still performing faster versions of the same service. For example, they would no longer go with the refugees to get drivers’ licenses but would make and give out information sheets on how to do so. A deeper change was to redefine the work so that the meaning given was a better fit to what they could accomplish in the new situation. The most common redefinition was to focus on the number of new resettlements they could handle instead of the attention to each one. Typically, though, the members would find a middle road with some focus on individuals while also making sure they handled the surge.

Were managers useful? Some of them were very helpful in the transition because they focused on sense-giving. They were able to reframe the work in ways that gave meaning even as the refugee surge made the old style of working impossible. They explained how essential the organization had become, and they empowered its members through expressing and focusing on positive emotions. Even as the organization had difficulty dealing with the surge, its leaders helped the members adapt. And that is a central feature of leadership: When the organization fails, or nearly fails, leaders can still keep its members motivated and functional.  

Jiang, W. Y. 2021. Sustaining Meaningful Work in a Crisis: Adopting and Conveying a Situational Purpose. Administrative Science Quarterly, forthcoming.

Friday, January 29, 2021

The Adolescence of Performance Feedback Theory

Organizations have goals, and members of organizations try to meet those goals – especially if they are managers. This is obvious, but what has been less obvious is what level of performance on each goal they aspire to meet, and how they react to falling short of this level or exceeding it. Performance feedback theory is a body of research looking at this issue, starting with the classic book “A Behavioral Theory of the Firm” by Cyert and March and continuing with a long string of research articles, nearly all of them following “Organizational Learning from Performance Feedback” written by me.

The basics are well known by now. Firms – and people – learn how to aspire from their own past and from others like them. They do not try to improve when doing better than the aspiration level, but when doing worse they will sometimes try hard to improve, and at other times go rigid. When they have multiple goals, it is often possible to find out which goal is more important and is addressed before the others. The long string of repeated findings are typical of research that has captured an important piece of reality.

So why is there a new book now, “Organizational Learning from Performance and Aspirations,” by Pino Audia and myself? Because researchers are different from the firms we study.  When things go well we wonder what else we can do, and how to improve. The answer, we think, is that there are quite a few things that are missing or can be fixed in this research. In the book we go into detail, but here are some of the leads to what we think can and should be done so that this research – which we think is still at its adolescent stage – can grow up.

First, take into account that individuals have goals too, and often these are simply to feel good about themselves. This is a major problem for self-improvement, and also for organizations that rely on managers to acknowledge that low performance is a problem that needs to be fixed. Managers who self-enhance will ignore warning signs. When does this happen, and what are the consequences?

Second, acknowledge that organizations and individuals do not just have one or possible two goals, but are often surrounded by multiple goals. They need to pick which one(s) to address, and it is not simply a matter of checking which goals are most consequential and show the lowest performance. In particular, hierarchies influence which goals matter most, and self-enhancement complicates things too.

Third, look to the organizational environment as a source of goals that the organization may not voluntarily adopt, but may be forced to adopt because powerful others want it to or, almost the opposite process, may be led into by managers who perform poorly on their main goals but discover environmental goals that they do well on and can use to impress their superiors. 

Fourth, order our thinking about performance feedback to take into account all the levels of decision-making in organizations. Individual managers matter, organizational units matter, the organization as a whole is important, and the environment sets the stage.

In the book, we develop these threads of ideas further and try to make a wide set of proposals of research that can be pursued. We hope you find it useful and inspiring!

Audia, Pino G. and Henrich R. Greve. 2021. Organizational Learning from Performance and Aspirations: A Behavioral Perspective on Multiple Goals. Cambridge, UK: Cambridge University Press.

Wednesday, January 13, 2021

The Diffusion of Cleverness: Ups and Downs of Reverse Mergers

Management scholars have spent much time studying the diffusion of innovations, starting with work on new technologies and continuing to research on social practices such as institutional innovations and even strategic positions in markets. By now we know a lot about why some organizations are early adopters, and how other organizations are influenced by the number and status of early adopters, and by how close to them they are geographically or in social networks.

How about the diffusion of cleverness? By cleverness I mean small inventions that manipulate the rules in ways that are beneficial for the user, and may or may not be harmless to others. Clever innovations are very common in financial markets, where rules are everywhere, and clever interpretations of rules can be used as shortcuts. Because such clever interpretations often go against the original intent of the rule, they are usually controversial. A great example of cleverness is reverse mergers, which were studied by Ivana Naumovska, Ed Zajac,and Peggy Lee in a recent article in Academy of Management Journal.

A reverse merger (RM) is done as follows. A law firm registers a publicly listed company with stock, but the company does no business – it is just a shell. A private company that actually does business then goes public through a merger with the shell company, paying a small fee for the shell company and keeping the same ownership, unless the private owners also want to use the reverse merger to invite new ownership. This is a simple and inexpensive way to go public compared with an initial public offering. Clever, right? And as you might expect, US capital markets saw the diffusion of cleverness in the form of RMs during the mid-2000s, as Naumovska and coauthors found. They also found that this looked a lot like a regular diffusion process, where firms were more likely to use an RM the more prior RMs had happened.

So, is there anything special about the diffusion of cleverness? Yes, because clever innovations are shortcuts, and with shortcuts come controversy. Those who lose their advantage from the rules will be opposed, the press may become interested, and the regulators who made the rules will not be happy. And this happens more the more adoptions of cleverness have happened, so the cleverness is promoted by past adoptions but also undermined by past adoptions. Indeed, the SEC made rules to increase the reporting requirements of RM, though they did not otherwise make RMs harder. More importantly, the press turned against RMs and even stock market investors became skeptical and delivered lower returns to RM firms.

So, what does this teach us about the diffusion of cleverness? In some ways, it is similar to the diffusion of technological or business innovations, because innovations always come with uncertainty, and often the drawbacks of innovations are not discovered until many have adopted. When that happens, the process that follows is very similar to the RM diffusion and its later collapse. But there is an important difference that we need to keep in mind. Technological innovations are uncertain, so we know that some of them are mistakes but we do not know which ones.

Cleverness is different. Cleverness involves controversy nearly every time, so we can be confident that the diffusion of cleverness will see a collapse at some point. That is a good reason to be careful when evaluating a clever innovation, especially in financial markets where they are so frequent.

Naumovska, Ivana, Edward J. Zajac, and Peggy M. Lee. 2020. "Strength and Weakness in Numbers? Unpacking the Role of Prevalence in the Diffusion of Reverse Mergers." Academy of Management Journal forthcoming.