Getting the Orange out of My Head: How Respect can set Inmates Free

Organizations can have very different work environments, including differences in the respect they give to employees. Organizational cultures differ, and managers differ, in whether they see employees and valuable and how well they acknowledge this. Many organizations think that it makes a difference – notice how I used the word “employee” just now, but actually words like “colleague” and “team member” are frequent in actual work. Does this matter?

For an example of how much this can matter – in a very special context – a recent paper in Administrative Science Quarterly by Kristie Rogers, Kevin Corley, and Blake Ashforth looked at an organization that operates professional call centers as part-time work for selected inmates in prisons. Every day inmates go to work in their orange jump suits (yes, just like in the TV series). Every day they go back to the prison wing after working. But this work is not like the demeaning chain gangs that we see in some old movies; the organization (Televerde) values its inmate workers and gives them both encouragement and respect.

So what happens? The respect they get from their Televerde managers, and from customers, changes lives. They get a specialized respect based on the value of the work they do, and their performance, and this gives excitement and self-respect. They get general respect from being seen as real people with lives and accomplishments, not inmates with orange jumpsuits and numbers, and this gives ideas of a changed and improved life. Together, these two kinds of respect, and especially the general one, puts the inmate-workers on a path toward removing themselves from their identities as current and future inmates, and attaching themselves to a new identity as a professional doing legal and respected work out of prison.

It happens impressively fast. These changes were easy to see over a period of less than a year (for most it was much faster), even though the Televerde workers were still in the prison wing, with their old friends and controlling prison wardens, every day after work. As part of the identity journey, they needed to transition from their old thinking habits – the orange in their heads – to a new way of seeing themselves as part of a regular civil society that they could not yet reach because it was outside the prison walls. Remarkably, they were able to not just see their inmate identity and their worker identity as separate beings coexisting in their minds, they also could shift to a new and holistic identity that would guide their lives after they were released from prison.

Giving workers respect is seen as important also in regular organizations, with no inmate workers, but there is a certain degree of cynicism about its effect, and there are also managers who don’t think it matters. After seeing how transformative it can be under these conditions, when it is done honestly, maybe it is time to reconsider.

Rogers, Kristie M., Kevin G. Corley, and Blake E. Ashforth. 2016."Seeing More than Orange: Organizational Respect and Positive Identity Transformation in a Prison Context." Administrative Science Quarterly, forthcoming.

What If Everyone Learns From Others? Finding Fool’s Gold

So the US election ended with a Trump win and wild swings in the stock markets. The Dow Jones fell from 18,200 to 17,900. Then, less than a week after, stock prices rushed back up and passed 18,800. What happened? Let’s start with the simple observation that we were observing stock sales and buys by investors, who sell and buy for profit, and who have a lot of experience selling and buying. These wild movements were not a result of ignorance, and not a result of playfulness either. Investors chasing value drove prices down and back up, and lost and gained money. And, this was not a unique event, we are familiar with dramatic price changes as the market responds to uncertainty.

What drove these events was in fact a fundamental process that has been studied long, and we can go back to a paper by Hayagreeva Rao, Gerald Davis, and myself in Administrative Science Quarterly in 2001 to learn about it. People making decisions under uncertainty try to learn ways to reduce uncertainty. When they are looking for value, one way is to learn from others. After all, if we see someone moving toward one option, or away from it, their decisiveness could indicate that they know something that we don’t know. But people can be decisive for many reasons. They may have correct knowledge. They may have incorrect knowledge. They may be impatient. But learning from others can be very tricky when those others act on incorrect knowledge or impatience. This was known before our study.

What we found went one step further. Learning from others is especially tricky when those others learn from others. In that case, it is enough for some people to make decisions without correct knowledge. Others do the same learning from them, and then others do the same learning from those who learnt from them. And so on. See how this can make stock markets plunge, with very little basis in fact? Or increase? In fact, our research was based on stock market actors – not investors, but stock analysts. They want to cover firms that are good but overlooked, because analysts are most useful for investors if they give scarce information on valuable opportunities. But we found that when analysts were chasing valuable firms, they were in fact only chasing other analysts. And the later they were in learning from others, the less valuable were the firms they found.

This is a problem that extends much further than stock markets, though it is easier to  prove there than elsewhere. Learning from others is a good strategy as long as it is not over-used. But, those who learn from others typically don’t stop using that strategy soon enough, so at some point it becomes costly. Again and again we see people, and firms, chasing fool’s gold: opportunities that looked good to the first who entered, but only because of incorrect information.

Rao, H., Greve, H. R., & Davis, G. F. 2001. Fool's gold: Social proof in the initiation and abandonment of coverage by Wall Street analysts. Administrative Science Quarterly, 46: 502-526.

Being Led by a Narcissist: What Will Happen?

A narcissist is someone who has an inflated perception of oneself, and will give exaggerated accounts of own capabilities, past accomplishments, and ability to predict and change future events. Narcissists have, to put it colloquially, huge self-esteem. Clearly this suggests leadership as an appealing career path for narcissists. After all, leaders are looked up to, which confirms what the world should be like for narcissists, and leaders can accomplish great deeds, which narcissists are confident they can. That does not mean that CEOs of firms are narcissists in general. CEOs typically are not given the firm by dad; they are career managers who get their position based on a track record of success. Some degree of randomness is involved in who wins, but it also helps to have a realistic view of oneself and the world, and narcissists fall short on that dimension.

Still, there are enough CEO narcissists around that it is possible to do research on them, and thanks to an article by Arijit Chatterjee and Donald Hambrick in Administrative Science Quarterly, we know how they lead. The key question to pose is how CEOs learn from experience – do they become more cautious by low performance, and bolder by high performance, as one might expect and want a firm to do? After all, adjusting actions to feedback is an astute way to behave both for individuals and firms.

Intuition suggests that narcissists don’t respond much to feedback because they are already convinced of their own greatness, so they will ignore evidence to the contrary. The research showed that this intuition is only half right, and this is where things get interesting. It is true that narcissists are unresponsive to indicators of their own performance – objective indicators, the kind that one should learn from.  A narcissist CEO will completely ignore recent stock returns when calibrating the level of risky investments; a non-narcissist CEO will pay close attention and make more risky investments when they indicate success.

But that does not mean that narcissists ignore feedback. The reason is that narcissists are not as confident as they seem. In fact, they can be very insecure, and as a result they crave applause and lash out at criticism. This means that social feedback – praise – has a big effect on the behavior of narcissists. In fact, the opposite relation holds there. A non-narcissist CEO will nearly ignore media praise when adjusting risky investment, while a narcissist will make strong increases in risky strategic investment when praised a lot.  

So is it OK to be led by a narcissist? This research suggests that it might be OK, provided that social praise exactly mirrors objective indicators, or that the leader is not responsible for any decisions involving risk. Those are strict conditions, so it seems that it will nearly always be better not to be led by a narcissist.

Chatterjee, A., & Hambrick, D. C.2011. Executive Personality, Capability Cues, and Risk Taking: How Narcissistic CEOs React to Their Successes and Stumbles. Administrative Science Quarterly, 56: 202-237.

Small Firms are Admired. But are They Good Employers?

There has been a strong movement toward smaller firms in many economies. This is partly a result of larger firms doing less well than before, and shrinking as a result of failure, and partly because large firms find it convenient to subcontract work, making their payrolls smaller than the actual work done for them. Along with this, we are seeing increased admiration for small firms, entrepreneurs founding and running them (especially), and even the “gig economy” where many people are not really employees of anyone, just individual contractors. If you took an uber ride today, you had a gig (economy) with someone.

We may wonder what all this does to employment. That’s a big question, but a practical place to start is wage levels and inequality. We already know that large firms pay more than small firms do, for the same worker. There is also some indication that they have greater wage equality, because employees inside large firms can compare their pay more easily, and can protest when inequality is high. But how does the presence of large firms affect the overall employment, including those who work for smaller firms? That’s the ambitious question answered by a paper in Administrative Science Quarterly by Adam Cobb and Flannery Stevens. They look at how US states differed in the proportion of people employed by large firms over time, and measured the effect on the income inequality -- the spread of income across the population.

What they find is disturbing for those who celebrate the rise of small firms. Large firms in a state reduce income inequality, which is only possible if they reduce inequality both inside themselves and among firms around them. So, rise of small firms means rise of income inequality. Some other findings are interesting too, and suggest problems. Large firms can have higher wage inequality if their employees compare themselves less, which is easier if they have racial diversity (races are often separated by job title, just as genders are). Racial diversity in large firms increases income inequality in the state, and this effect is especially large if the large firms are dominant employers in the state. Dispersion of large-firm employment across locations, which also prevents comparison, also makes large firms a weaker force in reducing income inequality.

Many lament the lower freedom in large firms, and hierarchies can even feel oppressive for employees. But the freedom of small-firm employment has its costs too. Jobs are lost more often, pay is lower, and even as neighbors they are less valuable – being in a state with many people employed by large firms equalizes income. Something to think about.

Cobb, J. A., & Stevens, F. G. 2016. These Unequal States: Corporate Organization and Income Inequality in the United States. Administrative Science Quarterly.

Can the State Help Firms Innovate? “Get some!”

The role of the state in business is hotly debate in some parts of the world, but less controversial in other parts. A key reason for the debate is that some think that the state can do some things better – for example, having a long-term perspective and committing resources – while others think the state should stay out because its decisions and execution are worse than the private sector. Different parts of the world has reached different answers, with the US standing apart as particularly skeptical of the state, with most of Europe and important parts of Asia having a much more optimistic view of the state.

One of the places with some controversy is actually China, which has gone through a market transition but still has state intervention both through state ownership and state grants to firms. This makes it a great place for looking at what the state can do, and an article by Kevin Zhou,Gerald Gao, and Hongxin Zhao in Administrative Science Quarterly takes advantage of this opportunity.  Their idea is simple. State ownership gives Chinese firms advantages both in general financing and in funding research and development, which in turn should help innovation. But, the effect on innovation will only happen if the firms are actually good at using these extra resources. So, they need to pick good research (decision making) and do the research and development well (execution) in order to do better than firms without state ownership.

Their research has a rich set of results on state effects, but the key conclusions are easy to summarize. Yes, state ownership means getting more money for research and development. Yes, those funds are used less effectively than in firms with no state ownership. And here is the interesting tradeoff: the two effects don’t balance out; instead they make firms with some state ownership superior to those with a lot, and with nothing. The advice is clear: get some! And interestingly, this advice is particularly important not for established firms, which one might think are the ones best able to milk the state for funds, but for start-ups. The reason is that start-ups are better users of the added funds they can get from the state. So, a state that understands this relation should (as the Chinese state clearly does) not just give money to the large and established firms, but also to startups.

And what happens if there is too much of the state? This is a problem seen some places in Europe, where there isn’t a deliberate market transition as in China, and where the state has a fair amount of money. For example, Norway has mostly been directing its oil-funded pension money abroad, for a number of reasons including the peculiarity of owning firms and choosing what firms should receive research funds. In spite of this caution, there is still significant state funded research in Norwegian firms, and Financial Times has reported some indications that it is used less effectively where there is a lot of it. Just like in China.

Zhou, Kevin Zheng, Gerald Yong Gao, and Hongxin Zhao. 2016. "State Ownership and Firm Innovation in China: An Integrated View of Institutional and Efficiency Logics." AdministrativeScience Quarterly.

Virtual Teams: When Can They Innovate?

Some claim that more than half of all professional employees are now in virtual teams, where virtual means that one or more of the following is true: 1) team members are dispersed, 2) team members communicate electronically, and 3) team structure is shifting over time. I am the member of such teams, and my teams are also multinational  (some count that as a dimension of virtualness too). All of these factors make it harder to manage teams, and especially hard for teams that innovate rather than perform standard tasks. Why? Because teams that innovate need close communications in order to share idea, develop them further, and avoid misunderstandings along the way. Distance, in any form, makes this harder.

So why let innovating teams be virtual? Part of the reason must be that managers are confident in the results. However, research in Administrative Science Quarterly by Christina Gibson and Jennifer Gibbs looked at the issue and found that there are significant drawbacks in making teams virtual. Along each dimension of virtualness, teams lost some innovation ability. But importantly, they also found that this negative effect could be reduced. If the teams were managed in a way that made communication psychologically safe, there was still reduced innovativeness in more virtual teams, but less reduction. 

Psychological safety is a simple idea because it just means that team members should be able to say things without fear that other team members will react negatively, even if they are not sure that what they are saying is correct. This is important because when doing innovations, it is normal to be in doubt, but important to bring up issues, especially those that are uncertain, because innovation comes from testing out and resolving uncertainty. So, this is very useful research, with clear implications for how one can design teams for innovation.

The research also has two other features I wanted to mention.  One is that the research is 10 years old, but still an important insight. Good research stays current a long time. The other is that part of the research was done on a fighter aircraft budgeted to 200 billion, so obviously a context calling for highly innovative teams. They don’t say what aircraft it is, but I can guess because I happen to know about an aircraft program that was budgeted to 200 billion but now costs 400 billion. Psychological safety in virtual teams makes a difference... The picture of my guess on the aircraft is in this post.

Gibson, C. B., & Gibbs, J. L. 2006. Unpacking the Concept of Virtuality: The Effects of Geographic Dispersion, Electronic Dependence,Dynamic Structure, and National Diversity on Team Innovation. AdministrativeScience Quarterly, 51: 451-495.

Did ASQ Help Create the Field of Strategy? Some Evidence

Administrative Science Quarterly is a generalist journal covering a wide range of research on organizations, as you can see in its invitation to contributors. One might think this would make it less influential in any particular topic, but this is not true. The leading generalist journals are more prestigious than specialized journals, and as a result they get top quality papers, especially if those papers are meant to have wide impact. This gives them more readers, and readers who pay more attention. Equally important, generalist journals are places that assemble papers with multiple ideas that can cross-fertilize fields of study. Often they are the places to look for ideas that will grow and rejuvenate fields.

So is that true for ASQ and strategy? A paper by Sridhar Nerur, Abdul Rasheed, and Alankrita Pandey looks at how strategy developed over time, focusing on research in Strategic Management Journal and journals that cited it, or were cited by it. This inflates the influence of SMJ a bit, but is fair enough because SMJ is the leading specialist strategy journal. Next they looked at citations between journals staggered in time periods. These changed over time, as strategy research took shape, but I think that the figure below is a good example because it shows 1995-1999, which was a time period in which the strategy field nearly had its current shape.

Notice that there are two-way arrows between the leading generalist journals ASQ and AMJ (Academy of Management Journal), and ASQ and ASR (American Sociological Review). Other than that, all the arrows show journals learning more from ASQ than ASQ learns from them – they are one-way arrows (the arrows point in the direction of citations, so an arrow into a journal means a citation to the journal, which is the same as acknowledging influence from the journal). Interestingly, in this time period, there is no direct influence from ASQ to SMJ, so we cannot see ASQ shaping strategy directly, but we can track indirect influences such as ASQ to ResPol (Research Policy) to SMJ. This pattern of indirect influence started in 1990; before that ASQ directly influenced strategy. 

Does this mean that ASQ was a starting point that lost influence? Not at all. In fact, all these journals cite each other, so the graph just shows the highest-volume citation paths.  When adding up the direct and indirect influence, the total influence can be found, and Nerur, Rasheed, and Pandey show that ASQ maintained a top 3 rank as a source of new strategy knowledge in all time periods except 1985-1989. They also show a broader point—in the top 5 most influential journals in strategy, only one was a specialist: SMJ.

So we know that ASQ is influential in strategy, but it is not a strategy journal. It is a prestigious generalist journal, which makes it influential in many fields.

Nerur, S., Rasheed, A. A., & Pandey, A. 2016. Citation footprints on the sands of time: An analysis of idea migrations in strategic management. Strategic Management Journal, 37(6): 1065-1084.