Looking a Leader, Becoming a Leader: Assertiveness versus Deference

The third presidential debate between President Barack Obama and Governor Mitt Romney had a one-on-one format that was in part a dialogue of the two, in part each of them addressing the camera and the moderator. In a dialogue format they get a chance to show how they address each other. Now, if you saw the debate, can you recall whether they were assertive in their style or whether you heard clauses that appeared to hedge their position or make disclaimers? Probably you remember an assertive style throughout, which is the style a politician who wants to be elected wants to cultivate. It is also the style that many leaders choose. Assertiveness is associated with self-confidence, which can make others confident in that person (or so it is thought). It also maintains an air of status and high position in a hierarchy. This is how we expect leaders in government and business to behave.

If so, is that how you should behave in order to become a leader? That is a trickier question. For one thing, people who are trying to advance up a career ladder may find it unwise to behave assertively toward their managers. It is widely thought to be bad idea, though the evidence of what would happen if you did so is not so rich. That's because people avoid assertiveness when interacting upwards in the hierarchy - they prefer to be a little deferential - and maybe we can't blame them for not running that experiment on themselves.. But what about the choice of assertiveness or deference in peer interactions? There one might see more of a battle for superiority through showing assertiveness, at least if we think of human workplaces as roughly akin to chimpanzee tribes with their dominance contests. But what a drag on productivity and strain on work relations that would be.

I can imagine workplaces that descend into dominance contests given the right (wrong?) kind of circumstances. But research by Alison Fragale and colleagues shows that the normal pattern is actually the opposite of this expectation: when interacting with peers in the workplace, people are especially careful to show deference in their statements. That is because peers have a greater need to signal friendly, non-threatening intentions to each other than individuals who interact up or down the hierarchy. Fragale and colleagues were able to show this through analysis of email logs in two studies, which was a clever design because people do tend to think a little longer before hitting “send” than they do before engaging vocal cords, so email communications are well-calibrated for tone as well as content.

I thought there was an interesting message in this research because it does suggest that an ability to get along and smooth social interactions is important in a career-oriented workplace where individuals want to get ahead. It is not just about sounding assertive and looking “leaderly.” And there is one detail about this research that I found particularly delightful: One of the studies used email records from the West Power Trading division of Enron; not an organization known for its warm and fuzzy organizational culture!

Fragale, Alison R., John J. Sumanth, Larissa Z. Tiedens, and Gregory B. Northcraft. 2012. Appeasing Equals: LateralDeference in Organizational Communication Administrative Science Quarterly, 57:373-406

Matching: A Nobel Prize, and Some Evidence from Networks

The Nobel Prize in economics in 2012 was given to Lloyd Shapley and Alvin Roth for their contributions to the theory of matching. Matching is when two sides of a relation needs to find a suitable other in order to make something of value. For example, workers need to be matched with jobs that match their skills and interests, students need to be matched with schools and subjects, and cargos need to be matched with ships and routes. Each match can have varying quality, and an objective may be to get the best possible match quality in total – but of course that does not mean that each individual match is perfect. In fact, often the best one can do is to make sure that the match is stable, meaning that nobody wants to trade places. Because the units that are being matched are selfish, so they don't care about the total quality of matches, only their own match quality, the theory and practice of matching is complicated and well worth studying. In fact, it gets even worse if one lets the quality of matches become uncertain, but that is another field of research again. 

Most of the matching studies have been in markets that have been allowed to operate freely, or have been given specific mechanisms to improve efficiency. Economists are particularly interested in efficient markets, and Shapley, Roth, and others inspired by them have made great progress in market matching. To show some of the range, Roth has been involved in applications as varied as medical resident assignment, school choice, and organ donor matching.

Management scholars have recently taken an interest to matching too, but in a different context: networks. The idea is that we now know much about what networks do, but not enough about where they come from. Matching seems like a logical explanation because networks in business are relations where two sides need to find a suitable other in order to make something of value. That's exactly a matching problem. Following that logic, Hitoshi Mitsuhashi and I found that alliances in the shipbuilding industry could be explained by matching based on compatibility of resources and complementarity of markets. Moreover, alliances that are better matched also show better performance.

That study was done on firms operating trans-oceanic container routes, which means that they are sizable corporations. But it also works for small entrepreneurs who are making interpersonal networks to start a new business. Balagopal Vissa looked at their intention to form a tie with others they had met and the actual establishment of exchange between the two ties, and found that – again – compatibility and complementarity played a role, this time in the form of social similarity and task complementarity.  Entrepreneurs want to be reassured by having someone similar to themselves on social dimensions in the other firm, but they also want the businesses to complement each other in value creation.

For network scholars, this is a new way of thinking because it means looking inside each node in the network and comparing it with the others. Now it matters who you are and what you can do. For those who are used to thinking about matching, that has always mattered, so it is an easy logic to follow. It is a powerful combination of ideas, and now matching is becoming increasingly important to understand the networks that connect firms, both large and small.

Mitsuhashi, H. & Greve, H. R. 2009. A MatchingTheory of Alliance Formation and Organizational Success: Complementarity and Compatibility. Academy of Management Journal, 52(5): 975-995.

Vissa, B.2011. A Matching Theory of Entrepreneurs' Tie Formation Intentions and Initiation of Economic Exchange. Academy of Management Journal,54(1): 137-158.

Zynga’s Falling Shares, and the Fall of Entrepreneurship as Internet Firms Grow (Old)

We have just been treated to news on how many publicly listed Internet firms that gave stock or stock options to their employees have seen major declines in the value of their stock. Famous firms like Zynga and Facebook have been hit, as well as some less well-known ones. The immediate concern for these firms is that they are losing some of their employees, who have seen the big stock payoffs they anticipated (and briefly had) disappear. In fact, this has not happened yet, at least on a large scale, but executives worry that employees might leave once the job market gives them better outside options.

The successful Internet firms were built on entrepreneurship and have thrived on quick adaptation and exploitation of business opportunities, and these may be necessities rather than just virtues in such a fast-moving industry. The longer term worry is that it is not clear that this entrepreneurial spirit can be maintained as these firms grow and age. First, the most entrepreneurial employees may find that they prefer to start their own business, or even join another startup, rather than to work in a growing and increasingly bureaucratic firm. As star employees they have probably been given larger managerial responsibilities, but not every entrepreneur wants to become a manager. Second, even if they stay, they may find that it is harder to drive through new initiatives in a larger organization with more complex procedures and more boxes to tick before anything new can happen. They may stay, and may try to find and exploit new opportunities, but they are wrapped inside a structure that makes it harder to be timely to the market.

All this sounds very reasonable, but actually the fall of entrepreneurship is not as inevitable in larger and older firms as it seems. Aleksandra Kacperczyk recently published an article in Administrative Science Quarterly on development of new business opportunities inside firms, or intrapreneurship, finding that while employees of large and old firms were less likely to leave in order to start a new business, they were more likely to create business opportunities inside their own firm. This may sound surprising from the description of large and old firms as more bureaucratic, and to some extent it is. But larger firms also have more resources to put behind new business generation (would you rather have your business be backed by Google or someone else?). Many older firms have become pretty experienced at what they are doing, and good at it. So the conventional wisdom that not much entrepreneurship happens inside the larger and older firms needs a second look. There is evidence that seems to disagree.

Kacperczyk, Aleksandra J. 2012."Opportunity Structures in Established Firms." Administrative Science Quarterly 57(3):484-521.

Ovide, Shira and Scott Thurm. 2012. Silicon Valley’s Stock Funk. Wall Street Journal, October 5, 2012.

Who should lead Procter & Gamble out of the crisis?

Procter & Gamble (P&G) has had poor financial results as of late, and the Wall Street Journal is reporting that its CEO Robert McDonald is under pressure from hedge fund manager William Ackman. Ackman is convinced that Mr. McDonald is not the right person to lead P&G because of apparent inaction in the face of a three-year run of profit declines. I have earlier argued that it is simplistic to just argue for CEO replacement when things go poorly, and I could make the same case here: P&G has a high-quality, high-price position in many markets, which means it will temporarily suffer when the economy is doing poorly. In the long run it may do better by holding firm and waiting for the recovery than by changing its position.

However, the Wall Street Journal on P&G also documents clear mistakes that cast doubt on their current leadership. They may need to rethink their strategy. Is Mr. McDonald the right person to do that? Recent research by Adam Kleinbaum in Administrative Science Quarterly suggests that we can know the answer by looking at Mr. McDonald’s career. Mr. McDonald was a Tide brand manager before becoming a laundry business manager, then had stints in the Philippines and Japan before taking over regional responsibilities in Northeast Asia. His last functional job before COO and CEO was (surprise!) Fabric Care. In other words, Mr. McDonald was a laundry manager in a company that gets a large bulk of its revenue from laundry products. I don’t know for sure what a typical P&G managerial career looks like, but his seems pretty typical.

Adam Kleinbaum’s point is that managers with typical career paths get narrow interpersonal networks with limited opportunities to connect people (broker) across different areas of the organization. This matters because brokerage across different areas of the organization lets the manager contact friends who have different types of information than their immediate reports and learn about ideas and opinions that they would not otherwise have known. Such ideas from separate parts of the information, in turn, can be assembled like pieces of a puzzle to form new initiatives and renew the strategy. The usual tools for making new strategies, like working groups and committees, are often more political than such networks of friends and can be less frank. It is reported that they have been pure talking shops during Mr. McDonald's time.

There is a good chance that William Ackman wants to force renewal of P&G by replacing Mr. McDonald with someone from outside the organization. Given the size and complexity of P&G, it would probably be difficult to find anyone who could take on that job and be effective right away, so that would likely be a mistake. On the other hand, if my guess about Robert McDonald’s career path is correct, he is not a likely source of renewal for P&G either. The upside is that a large organization such as P&G should have a large pool of the type of manager that Adam Kleinbaum calls “organizational misfits”: people whose experiences have been so unusual that they have much better connections across the organization than the average P&G manager. Maybe the P&G board of directors should be looking for a few good misfits from within its ranks?

Glazer, Emily, Ellen Byron, Dennis K. Berman and Joann S. Lublin. 2012. P&G’s Stumbles Put CEO on Hot Seat. Wall Street Journal, Sep 27 2012.

Kleinbaum, Adam M. 2012. Organizational Misfits and the Origins of Brokerage in Intrafirm Networks. Administrative Science Quarterly, 57.

Wikipedia. “Robert A. McDonald.” Accessed Sep. 27 2012.

Renesas Electronics: When the Network Cares about the Firm

Today there was news that a government-backed Japanese investment fund may be entering the fray to buy domestic firm Renesas Electronics corporation after takeover firm KKR has issued a bid. A piece of everyday protectionism, or is there a bigger story behind this action? Well, let us start with the fact that the current high yen means that there are more Japanese firms and funds buying abroad than the other way around, so Renesas is special.

Renesas makes specialized controllers that are used in a variety of industrial applications, and is best known for its high market share in the automotive market. In fact, car makers, who are normally wary of being too dependent on any one supplier, trusted Renesas so much that it came as a nasty shock to them when the great earthquake and Tsunami one year ago devastated some of its manufacturing facilities and caused delays in the delivery of essential parts. It was able to recover quickly in part from a massive recovery effort from its suppliers and customers, but it is still not healthy economically. As a high-quality firm with economic problems, it is a classic takeover target.

Strictly speaking that should not worry the government, because good takeover houses can inject necessary capital and improve their target before reselling them. These firms make a living by improving their target, not by destroying them. But the likely reason the government is worries is probably that Renesas’s customers are worried. As an essential supplier to firms across a wide range of industries, it sits as a hub in a network that creates a lot of value in aggregate. No doubt some of that value goes to Renesas, but not all: its customers also benefit a lot. What worries them now is that a new owner will take a cold hard look at each relation and cut those that don’t seem to pay off. That could destroy significant value for the customer firms and even the economy as a whole.

This is why the customers are now rallying to have someone – either the government or themselves – rescue Renesas. There is a network creating value that might go away if one isn’t careful, and there is merit in having a friendly owner. As Renesas is currently managed, the network around Renesas is worth much more than Renesas itself. That might be changed under new ownership such as KKR, or even under the same ownership and a tougher set of managers, but its customers are pretty happy about the current arrangement. Later I plan to write more about what makes networks valuable. For now, let the games begin: KKR versus the Japanese government.

Schlesinger, J. M. and B. Frischkorn. 2012. Japanese Government-Affiliated Fund Weighs Renesas Bid. Wall Street Journal, Sep 23. 2012.

I See You: Face-saving Helps Negotiators Understand Each Other

We just completed a long education for executives for a World Fortune 500 corporation. The program included some negotiation exercises, and we talked to the participants about them afterwards. They found the negotiation stressful, and especially because the emotions were so strong when negotiating within the corporation and the same culture (all of them were from the same nation; I prefer not to say which one). It would have been easier to negotiate with outsiders, and even foreigners, they said.

It struck me as interesting that these managers were relatively unfazed by cross-cultural negotiation compared to negotiating with their compatriots. But, I should not have been surprised, because there is still much we don't know about negotiation. This is definitely odd given its importance for business. To take one example, the potential $34 billion merger between diversified commodities firm Glencore and mining firm Xstrata has been a long saga of negotiations between the two firms, as well as with large shareholders including some sovereign wealth funds. Currently, the tie-up seems to hinge on whether the Glencore can agree with Xstrata shareholder Quatar Holding on the price of Xstrata shares. One can imagine the stakes when representatives of these firms meet.

A key task in negotiations is to come to a common understanding of the situation – a mental model. When the parties even disagree on what is true and what is relevant and important, it is hard to even know how to negotiate, let alone reach an agreement. This is one of the key challenges in cross-cultural negotiations, where the gap in mental models is greater. It is one of the reasons I was surprised to hear managers express comfort with that situation. It turns out that we can explain who is more successful in reaching common understandings. In recent research, Liu and coauthors found that a concern for face-saving (for oneself and the other) helped negotiators get to a better common understanding and shared mental models. This was true for Chinese and US negotiators. Concern for face-saving also gave higher creation of value through finding win-win contracts, and higher satisfaction with the process.

It is easy to explain these findings, and to apply them. Face-saving means that the individual is paying attention to the concerns that the other is expressing, because face-saving in negotiations is something both sides have to collaborate to accomplish. Attention to the other also helps understanding and value creation. Concern for face-saving differs between cultures, but individuals also differ in face-saving within the same culture. In order to benefit from this knowledge, managers putting together negotiation teams need to be aware that the most assertive negotiators may be ineffective in inter-cultural negotiation: that style is the opposite of what a face-saving negotiator will use, and it risks destroying value.

Liu, L. A.,Friedman, R., Barry, B., Gelfand, M. J., & Zhang, Z.-X. 2012. The Dynamicsof Consensus Building in Intracultural and Intercultural Negotiations. AdministrativeScience Quarterly, 57(2): 269-304.

Sharing Less to Learn More: A Radical Rethinking of Productivity

Sometimes management scholars get findings that shake up established truths and make us rethink how firms function. These findings are often directly important to managers as well, because they question common practices that are used with the intention of producing better decision making, higher productivity, and greater competitive strength – but may turn out to have the opposite effect.

Ethan S. Bernstein published a paper "The Transparency Paradox: A Role for Privacy in Organizational Learning and Operational Control" that has just such a finding. The established truth is that transparency in production processes increases productivity because it allows faster learning from others, as problems are immediately seen and effective solutions can immediately be learned by others in the same situation. The idea is to use visibility along a production line to drive a fast learning curve of efficiency increases, and it is a key component of the vaunted Toyota Production System and Total Quality Management practices.

The problem is, his research showed it to be false. In a study design that combined observation of production practices with a controlled experiment, he made some very interesting observations. First, he showed that workers concealed production practices from managers even when production lines were fully visible. Their reasons for doing so was that they had formalized procedures for production steps (also a key quality control practice), and when they found ways to do things faster but still with high quality they preferred to do them under-cover rather than go through the procedure for changing the procedures. But that meant they were worried about getting caught. Second, he showed that the time and effort spent concealing these practices was a form of waste that was especially high when the production lines were visible, because managers could easily see far along the line. Third, he showed that the economic effect of this concealment was big. When some production lines were given privacy (through the kind of curtain that one sees between hospital beds!) while others were left open, the private lines outperformed the transparent ones by 10-15%. That’s a big number in manufacturing efficiency; especially for this firm, which was a contract manufacturer that got all its profits from making goods more efficiently than other contract manufacturers.

So what to do? Clearly, researchers need to find out whether there are conditions that make concealment likely and costly. It is not clear that visible production lines are costly at Toyota and all other firms using them too. If not, then we have to ask why. Managers need to reconsider the role of visibility in manufacturing efficiency. If privacy can give a 10 plus percent improvement in some firms, possibly also theirs, it is a good idea to reassess what they are doing and maybe hang some curtains as an experiment. In a decent-sized manufacturing facility, it takes less than an hour of more efficient production to cover the cost of those curtains!

Bernstein, Ethan S. 2012. "The Transparency Paradox." Administrative Science Quarterly 57(2):181-216.

See also his blog entry, which has a photo of the production line before and after.