Archive for August, 2012

More on Obsolete Technologies

| Peter Klein |

Following up an earlier post on the longevity of obsolete technologies, as specialty markets: Francesco Schiavone has a nice paper, “Vintage Innovation: How to Improve the Service Characteristics and Costumer Effectiveness of Products becoming Obsolete,” reviewing the core theory and discussing the case of the analog turntable (little did I know, not being a club DJ, that you can by a “vinyl emulator” to go wacka-wacka-wacka on your MP3s). Francesco’s Vintage Innovation website has more examples. Check it out!

30 August 2012 at 3:22 pm 3 comments

Carpenter’s Strategy Toolbox

| Peter Klein |

Carpenter’s Strategy Toolbox, named for the late Mason Carpenter, is a terrific resource for teachers in strategic management and related fields. Here’s an advertisement from former guest blogger Russ Coff:

Some of you may be familiar with Mason Carpenter’s old teaching toolkit. I have initiated a new site that includes everything from that site plus quite a few additional exercises and videos. Please check it out at:

www.CarpenterStrategyToolbox.com

You can filter by type of tool (exercise, video, etc.) using the tabs at the top or you can filter by topic (entrepreneurship, 5 forces, RBV, global, alliances, etc.) using the categories on the right side. You should find something useful in no time at all.

Here are links to a few exercises and resources that you might find especially useful (to give you a quick feel):

Please help make the site more useful:

  • Comment on tools you have used (adding tips, etc.)
  • Submit new tools so the resource is always growing
  • Let me know if you have any questions or suggestions

28 August 2012 at 9:25 am 2 comments

The Wisdom of Crowds

| Nicolai Foss |

A new special issue of Managerial and Decision Economics on “the wisdom of crowds” has just been published. It deals with issues of emergence in firms and markets, including capability formation, information aggregation and the like. The editor is Orgtheory.net’s Teppo Felin. The SI is genuinely interdisciplinary with contributions from a physicists, sociologists, political scientists and economists, including Austrian economists, Peter Leeson and Christopher Coyne.  I haven’t had time to read more than a few of the paper (including Teppo’s characteristically provocative and broad-ranging introduction), but look forward to peruse it. Enjoy!

24 August 2012 at 1:34 pm 2 comments

Do Bosses Matter?

| Peter Klein |

Do bosses matter? Stephen Marglin famously argued that management doesn’t affect productivity, just the share of output appropriated by managers. (I’ll take David Landes instead, thank you very much.) Despite a huge management literature on bosses, economists have not quite known how to answer the question. Ed Lazear, Kathryn Shaw (ironically, a former boss of mine), and Christopher Stanton have an interesting new take on this using detailed microdata, showing substantial effects of supervisor on worker productivity:

The Value of Bosses
Edward P. Lazear, Kathryn L. Shaw, Christopher T. Stanton
NBER Working Paper No. 18317, August 2012

Do supervisors enhance productivity? Arguably, the most important relationship in the firm is between worker and supervisor. The supervisor may hire, fire, assign work, instruct, motivate and reward workers. Models of incentives and productivity build at least some subset of these functions in explicitly, but because of lack of data, little work exists that demonstrates the importance of bosses and the channels through which their productivity enhancing effects operate. As more data become available, it is possible to examine the effects of people and practices on productivity. Using a company-based data set on the productivity of technology-based services workers, supervisor effects are estimated and found to be large. Three findings stand out. First, the choice of boss matters. There is substantial variation in boss quality as measured by the effect on worker productivity. Replacing a boss who is in the lower 10% of boss quality with one who is in the upper 10% of boss quality increases a team’s total output by about the same amount as would adding one worker to a nine member team. Using a normalization, this implies that the average boss is about 1.75 times as productive as the average worker. Second, boss’s primary activity is teaching skills that persist. Third, efficient assignment allocates the better bosses to the better workers because good bosses increase the productivity of high quality workers by more than that of low quality workers.

NB: For some reason, my graduate students are circulating this piece from last week’s WSJ.

21 August 2012 at 1:46 pm 1 comment

Journal of Organizational Design

| Nicolai Foss |

Journal of Organizational Design is a newly started open-access journal that should be of considerable potential interest to readers of O&M. While I am generally skeptical of open-access journals in social science — “open access” still largely signals “low quality” — JOD seems likely to become a success story. First, organizational design is making much of a come-back as a research field in management research and in economics organizational economics/the economics of the firm is fundamentally about organizational design issues. However, the established organization studies/theory journals do not seem to publish much organizational design research, and perhaps JOD can partially preempt this niche. Second, the editors (Børge Obel and Charles Snow) are assisted by impressive editorial board members and associate editors. Third, the journal is supported by an organized community. In any case, there is much interesting reading in the first two available issues of the journal, such as John Mathews’ interesting article on supra-firm architectures. Enjoy!

18 August 2012 at 4:30 am 5 comments

Cooking as Entrepreneurship

| Peter Klein |

To honor Julia Child on her 100th birthday, Lynne Kiesling writes a nice post combining three of my favorite things: cooking, entrepreneurship theory, and Austrian economics. Good cooking is about the combination of heterogeneous resources, it requires experimentation and creativity, and it either works or it doesn’t. Most important:

A system that will yield the most valuable and pleasing combinations of entrepreneurial economic or cooking activities will have low entry barriers (anyone can try to cook!) and a robust feedback-based system of error correction. Low entry barriers facilitate creativity in discovering new useful products from the raw elements, as well as enabling new value creation when some of those raw elements change. Error correction, whether a “yuck, that’s gross!” at home or a lack of profits due to low repeat business at a restaurant, is most effective and valuable when there are feedback loops that can inform the cook-producer about the value that the consumer did or did not get from the dish.

This emphasis on error correction highlights one of my differences with Kirzner’s approach to entrepreneurship. In Kirzner’s system, which emphasizes entrepreneurship as a coordinating agency, the entrepreneur is modeled as “piercing the fog” of uncertainty — hence the familiar metaphor of entrepreneurship as the discovery of preexisting profit opportunities. My approach focuses on action, not discovery, and gives a larger role to uncertainty. What generates coordination, in this approach, is the entrepreneurial selection process, not the “correctness” of entrepreneurial decisions.

Incidentally, Saras Sarasvathy often uses cooking to illustrate her “effectual” approach to entrepreneurial decision-making (i.e., cooks don’t always follow a recipe to produce a known dish, but use the ingredients they have in a sequential, experimental process). And for more on food, see here and here.

15 August 2012 at 10:10 pm 11 comments

Live Blogging Organizing Entrepreneurial Judgment

| Peter Klein |

Have you been dying to read Organizing Entrepreneurial Judgment but haven’t quite found the time? Are you a busy executive waiting for the Summary version? Hoping for an HBO Special? Not to worry, the good folks at HansEconomics are live-blogging the book, and the first chapter is up today. Thanks to John Dellape for doing this.

Bonus: Tom Snyder is preparing an abridged version of my 2010 book The Capitalist and the Entrepreneur.

13 August 2012 at 11:09 am 2 comments

Management Scholars and the Media

| Peter Klein |

Reporting today from the Academy of Management meetingin Boston. Too many interesting sessions to list them all. Today I attended a very good Professional Development Workshop on the opportunity-discovery perspective in entrepreneurship studies, organized by Henrik Berglund, Steffen Korsgaard, and Kåre Moberg and featuring Bill Gartner, Per Davidsson, and others. Lots of discussion of “discovery opportunities” and “creation opportunities,” and even my own case for dropping the concept of opportunities altogether.

Then, a PDW session called “Engaging the Media: Equipping Management Faculty to Share Their Knowledge More Effectively” featuring me, Jay Barney, Ron Mitchell, Maria Minniti, Mike Lenox, and Scott Kirsner, an ambassador from the world of journalism. I gave the blogger’s perspective, arguing for this medium as an effective way of sharing research results and informed opinion with students, journalists, policymakers, and the lay public. I also shared some practical tips borrowed from Mike Munger.

During the session there was a lot of discussion of economics, and how economists have been much more successful than management scholars at engaging the media. I argued that this has less to do with technique than with substance — economists have a long history of involvement with key social and policy issues of interest to journalists. But there are pitfalls to such a cozy relationship. The desire for relevance and influence can lead to compromise on rigor and and a loss of independence (Exhibit A). Management scholarship is already prone to faddishness and buzzwords, and a closer engagement with the media could exacerbate those unfortunate trends.

But, a question near and dear to our hearts here at O&M: Why are there so few academic blogs devoted to management and organizational scholarship? Economics and law have many influential academic blogs. Management has just a handful (most linked from our sidebar). When I talk to  management colleagues about blogging, manyt are reluctant. Will I have something to say? How much time will it take? Will it hurt my academic reputation? Economists don’t seem too worried about these. In part, the difference may be due to core theories and approaches. A little economic theory goes a long way in addressing social and policy issues, and most economists feel comfortable talking about current events without deep knowledge of the specifics. “It involves a price control? Well, let me tell you how that will play out…” Management scholarship is far more eclectic and often calls for deeper knowledge of the concrete phenomena at hand. Is this the most important difference? Or are there other reasons why management scholars don’t blog?

3 August 2012 at 8:52 pm 4 comments

Coase-Theorem Behavior Actually Does Happen

| Dick Langlois |

I often find it hard to persuade students that the Coase Theorem actually “works” – that one party really will bribe another party to give up a right when transaction costs are low. So I was pleased to find this example on the Atlantic Monthly website. An author called Patrick Wensink ripped off the trademarked Jack Daniel’s label for the cover of a novel called Broken Piano for President, whose principal (perhaps only) interesting characteristic is that it was published by a press called Lazy Fascist. Clearly this is a conflict over the use of a property right, and the author is enjoying uncompensated benefits. One would think that, as Jack Daniel’s clearly owns the property right, the company could force the author to change the cover. Apparently, however, the transaction costs of doing that are high, so the attorney for Jack Daniel’s wrote the author a charming cease-and-desist letter that actually offered to bribe the author to change the cover right away. This is a general point, I suppose, now that I think about it: as the transaction costs rise of using official legal institutions to resolve externality conflicts, the de facto owner of the right can effectively switch, even in a world in which the transaction costs we usually talk about – those of finding and negotiating with the conflicting users of the property – remain small enough to allow Coasean bargaining.

2 August 2012 at 2:21 pm 3 comments

More on Austrian Capital Theory

| Nicolai Foss |

The Mises Institute kindly invited me to give this year’s Hayek Memorial Lecture at their Austrian Scholars Conference on March 8. I chose Austrian Capital Theory as my subject, arguing that it is productive to consider it as a theory of production and not just as part of the theory of distribution and interest. The lecture has now appeared in print. Here it is on YouTube (complete with thick Euro-accent and all). And here is a characteristically fine recent paper by Peter Lewin that makes the point (which nicely converges with my Hayek Lecture) that capital theory was absolutely key to the evolution of Hayek and Lachmann’s thought. Peter cites Lachmann’s  extremely acute critique of Keynes (which Peter Klein and I would have cited had we known it in this paper):

The modern theory of investment, set forth by Lord Keynes in The General Theory, has had its many triumphs these last twelve years, but it still has a number of gaps. Conceiving of investment as simple growth of a stock of homogeneous capital, it is ill-equipped to cope with situations in which the immobility of heterogeneous capital resources imposes a strain of the economic system. In particular, it can tell us little about the ‘inducement to invest’ in a world where scarcity of some capital resources co-exists with abundance of others. (Lachmann 1948: 131

1 August 2012 at 1:55 pm 4 comments


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Nicolai J. Foss and Peter G. Klein, Organizing Entrepreneurial Judgment: A New Approach to the Firm (Cambridge University Press, 2012).
Peter G. Klein and Micheal E. Sykuta, eds., The Elgar Companion to Transaction Cost Economics (Edward Elgar, 2010).
Peter G. Klein, The Capitalist and the Entrepreneur: Essays on Organizations and Markets (Mises Institute, 2010).
Richard N. Langlois, The Dynamics of Industrial Capitalism: Schumpeter, Chandler, and the New Economy (Routledge, 2007).
Nicolai J. Foss, Strategy, Economic Organization, and the Knowledge Economy: The Coordination of Firms and Resources (Oxford University Press, 2005).
Raghu Garud, Arun Kumaraswamy, and Richard N. Langlois, eds., Managing in the Modular Age: Architectures, Networks and Organizations (Blackwell, 2003).
Nicolai J. Foss and Peter G. Klein, eds., Entrepreneurship and the Firm: Austrian Perspectives on Economic Organization (Elgar, 2002).
Nicolai J. Foss and Volker Mahnke, eds., Competence, Governance, and Entrepreneurship: Advances in Economic Strategy Research (Oxford, 2000).
Nicolai J. Foss and Paul L. Robertson, eds., Resources, Technology, and Strategy: Explorations in the Resource-based Perspective (Routledge, 2000).

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