| Nicolai Foss |
Since the arguably first use of the “microfoundations” terminology in the context of macro management research in a 2005 Strategic Organization essay by Teppo Felin and me, the “microfoundations project” has gained considerable attention. Most recently, the Academy of Management Perspectives has featured a symposium on the subject with contributions from Sid Winter, Henrich Greve, Sid Winter, Andrew van de Ven, Jay Barney and Teppo, and Siegwart Lindenberg and me. One notable development is that positions have converged somewhat; notably, earlier outspoken critics, such as Winter, now see merit in the project. Another notable development is that the whole thing is moving from the admittedly preachy phase towards more of a “doing” phase.
An indication of not only the influence but also the acceptance of the project is that the Strategic Management Society now sponsors a “special conference” (so-called) in Copenhagen (specifically, at the Copenhagen Business School) on the subject of “Microfoundations for Strategic Management Research: Embracing Individuals.” FB page here. A full program should be up soon, but let me anticipate this a bit by noting that we have a fabulous line-up with keynotes by Richard Rumelt, one of our field’s most important thought-leaders; Europe’s perhaps most currently influential economist, Ernst Fehr; and sociology heavy-weight Ron Burt. In addition we will have a debate on microfoundations between Teppo Felin, Russ Coff, Michael Jacobides and Rodolphe Durand; a panel on foresight with Giovanni Gavetti, Sid Winter and Dan Lovallo, and much other juice stuff!
Paper proposals (5-7 pages) are due no later than December 5. (Check the conference site for instructions in a week or two). Hope to see you in Copenhagen next year!
| Nicolai Foss |
When I was a graduate student 20-25 years ago I remember transaction cost economics being routinely mocked by all and sundry for “being static,” “neglecting learning,” and “not saying anything about innovation and entrepreneurs,” in addition, of course, to the usual charges of working with an impoverished and overly cynical view of human nature.
While TCE still highlights opportunism as a key assumption, it is fair to say that over the last decade important work has brought dynamics, learning and innovation within the orbit of TCE. This has mainly been brought about by a coterie — some of which are former students of Oliver Williamson — such as Nicholas Argyres, Kyle Mayer, Todd Zenger, Steve Michael, O&M’s Peter Klein, and last, but certainly not least, Jackson Nickerson.
Jackson is the author of a large number of truly innovative papers in management research and economics, many of which have a TCE bent. Thus, with Todd Zenger he has done important work on envy (and other aspects of social comparison processes) as an antecedent of internal transaction costs, on why firms seem to switch between extremes in their organizational forms, and, again with Zenger, he has pioneered a “problem-solving approach” to economic organization.
My department will feature this extremely original thinker as a speaker in our seminar series on Friday (here). Jackson will present a novel take on the dominant design stream of thinking about industry evolution, building on the US auto industry data base that (his co-authors) Lyda Bigelow and Nick Argyres have successfully exploited in earlier publications. Will be exciting!!
| Nicolai Foss |
So, my school is now deep into discussing the results of the recent “employee satisfaction survey.” Thus, each department is expected to spend minimum 2,5 hours discussing the results, and to come up with an action plan to handle those problems that — per definition — exist. And in my capacity as department head I have just ended this round of annual reviews which focus on the “competence development” of faculty. The practice of management has changed, to be sure. An approach that is decidedly not acceptable anymore, at least in my part of the world, is exemplified by this great drummer chewing out the band he led (more here; here is the mandatory Hitler version; and, in case you really want to practice, here are the transcriptions). Bob Sutton wouldn’t like it.And yet, badass approaches to management may work — perhaps not for those autonomously motivated, self-directed types (i.e., us), but certainly for those with motivational issues (see Emily Bazelon’s Slate piece on Rutgers coach Mike Rice). Toughness has costs and benefits. It seems that much current management thinking focuses on the costs of tough management approaches and neglects the potential benefits. No?
| Nicolai Foss |
Our Moral Leader at O&M has his own fan page on Facebook. He mixes entertaining libertarian outbursts with info on new conferences and links to cool new papers, articles, and so on–in other words, O&M en miniature. Pay a visit and like Peter’s page.
| Nicolai Foss |
Kathleen Eisenhardt’s 1989 Academy of Management Review paper is likely still the first, but hopefully not the last, exposure many management scholars have to agency theory. The paper is somewhat imprecise, and it shows its age, but as an introduction to the theory, one can do worse. However, much has in fact happened in agency theory since 1989 in terms of extensions and refinements of the theory, and also in terms of critical reactions, some of which have been partly aligned with the theory.
In particular, (some) economists and (more) management scholars (e.g., Wiseman and Gomez-Mejia) have tried to bring behavioral perspectives into agency theory. In a new paper (forthcoming in the Journal of Management), Alexander Pepper of the LSE and Julie Gore of the University of Surrey provide a useful overview of “behavioral agency theory,” somewhat in the style of Eisenhardt’s earlier review (i.e., with propositions that summarize the earlier literature). They include, for example, prospect theory, work on inequity aversion and even self-determination theory under the behavioral hat, and thus bring both cognitive and motivational issues into the orbit of behavioral agency theory.
A few mildly critical comments.
- There is no claim in the paper that the various behavioral ideas are consistent and “add up,” but this is something that should perhaps have been discussed. Standard theory may make extreme assumptions but it is a highly consistent and neat theory. In contrast, behavioral agency theory is a bouillabaise of very different ingredients that are linked to the standard theory in a somewhat ad hoc manner.
- The authors position and motivate the paper in terms of gaining more insight into executive compensation, but of course the scope of behavioral agency theory is much broader.
- The authors, like Eisenhardt, repeats Michael Jensen’s distinction between “positive agency theory” and “principal-agent theory,” which makes as little sense today as it did in 1983 ;-)
Still, Pepper and Gore’s paper is definitely worth a read and I highly recommend it.
| Nicolai Foss |
A few interesting links, Tyler-style:
- Too ephemeral, even for the Pomo Periscope, but fun nonetheless: Le Blog de Jean-Paul Sarte.
- Yes, blogging and tweeting (and FB’ing?) research is worth it.
- Vitorino Ramos’ blog. Interesting thoughts on self-organization, complexity, bounded rationality …
- Very interesting 1997 study on what matters most when it comes to explaining scientific “eminence” — quantity, quality or depth of research.
| Nicolai Foss |
Proto-pomo Jean-Paul Sartre was a certified commie. I was therefore baffled to read about Sarte’s views on ownership (here). In Being and Nothingness Sarte argues that “to have” is one of the three fundamental categories of human existence (along with “to do” and “to be”), and notes that the “totality of my possesions reflects the totality of my being … I am what I have … what is mine is myself.” More broadly, there is a highly interesting literature on “psychological ownership,” informed mainly by philosophy and psychology, but with interesting linkages to evolutionary anthropology. The “endowment effect” in behavioral economics may be seen as part of this. Although the main applications of psychological ownership theory so far seems to have been to organizational behavior (e.g., this paper), there seem to me to be potentially interesting applications to the political philosophy, particularly for those who find the Lockean theory of ownership a bit lacking in the psychological dimension.
| Nicolai Foss |
In economics, the hierarchical firm arises for reasons related to economizing with transaction costs, managerial attention allocation, information synthesis and what not. Many organizational economists would argue that absent transaction costs, there would be no hierarchies as there would be no firms. But, what if the existence of hierarchy has a partly genetic basis, that is, humans evolved in such a way that they have come to “like” hierarchies (which may therefore exist even if transaction costs were zero)? After all, those small hunting bands roaming the African savannahs 30, 000 years ago likely had leaders, a division of labor and so on, and evolutionary anthropology suggests that our brains evolved to handle the intricacies of handling this division of labor. Thus, we may be “hardwired for hierarchy.”
OK, speculation to be sure, but in “The Fluency of the Social Hierarchy: The Ease With Which Hierarchical Relationships Are Seen, Remembered, Learned, and Liked,” recently published in the prestigious Journal of Personality and Social Psychology, Emily Zitek and Larissa Tiedens provide some potentially supportive evidence: In five studies, they show that hierarchies are perceived, understood, remembered and learner faster and more efficiently than other kinds of social relationships.
There may be many reasons for this finding, but one is the simple one that hierarchical superiors have potentially strong influence on our lives. Very apropos, another recent study, “The hierarchical face: higher rankings lead to less cooperative looks,” by four UMichigan psychologists, finds that the “higher ranked an individual’s group is, the less cooperative the facial expression of that person is judged to be.” Interestingly, one of their settings is interaction with deans!
Abstracts below. (more…)
| Nicolai Foss |
Observing how economists relate to psychology is interesting. On the one hand, there is considerable fascination: Social psychology research often produces interesting findings about human interaction, and motivational and cognitive psychology yields insight in human behavior and decision-making which is more fine grained than most econ research. On the other hand, there is an often ill-tempered dismissal, too often based on an incomplete understanding of the relevant material, of any psychology findings that may be seen as going against the standard economics model of rationality. “This is entirely consistent with maximization once you take all constraints into consideration,” “This is just another instance of altruistic preferences”, etc. etc. are conventional defensive stratagems that are entirely understandable given the metaphysical status of the standard model in economics.
An area where many economists, at least as seen from my perspective as an outsider, seems to have given in concerns so-called “motivation crowding.” This is the idea that “extrinsic motivators” (such as performance pay) can crowd-out out “intrinsic motivation,” the kind of inner motivation that, many motivational psychologists argue, is the most suitable one for tasks involving creativity, problem-solving and learning. Since this effect was first imported (from self-determination theory in motivational psychology) into economics in the mid-1990s by, first, Bruno Frey, and then David Kreps, it has been rather generally acknowledged by many organizational economists, personnel economists and labor economists as a real and worrying phenomenon. “Worrying” because it suggests that conventional incentive instruments may be counter-productive.
A recent paper by Meiyu Fang and Barry Gerhart (2012), “Does Pay for Performance Diminish Intrinsic Interest?” suggests that economists should perhaps think twice before they embrace the crowding effect, at least in the context of real world organizations.The authors question random assignment experiments on the grounds that in organizations assignment is anything but random. But perhaps more substantively they argue that “perceived competence” and “perceived autonomy” (key constructs in self-determination theory) are positively related to pay for individual performance, rather than negatively as the crowding effect would posit. For example, being exposed to performance-contingent rewards may drive feelings of control and autonomy (“I decide myself how much I wanna make here”, “If I deliver, the Man has to pay” etc.). These ideas are tested on data from a survey of 609 white collar Taiwanese employees, and largely confirmed. A fascinating and recommended read.
| Nicolai Foss |
Mark Casson is one of the most influential scholars in the international business and entrepreneurship fields. He is also living proof that huge influence can be won and held, not by regularly cranking out papers in the “A journals,” but by writing solid monographs. Although Casson has certainly written his share of high-level papers, he is arguably best known for two books, namely his slim 1976 monograph with Peter Buckley, The Future of the Multinational Enterprise, and his 1982 (single-authored) book, The Entrepreneur: an Economic Theory. While the former is one of the founding contributions to the theory of the multinational corporation (some say, the founding contribution), the latter was, at the time it was published, the perhaps most sophisticated economics-based treatment of entrepreneurship theory. I reread it about a year ago, and was struck by how up-to-date and fresh it still is. (Here is a brief popular statement of Casson’s views on entrepreneurship).
Professor Andrew Godley of the Henley Business School has put together an exciting conference (15-16. Dec., University of Reading) to celebrate the thirtieth anniversary of Casson’s book. The program includes luminaries such as Mike Wright, Saras Sarasvathy, Ram Mudambi and my former PhD student and colleague, Jacob Lyngsie. Unfortunately, I am not able to participate myself, but the conference should be of interest to the O&M readership. Here is the program.
| Nicolai Foss |
I have seldom attended a meeting or conference on management research where the notion of “normative theory” hasn’t been brought up. A couple of decades ago when transaction cost economics was making its influence felt in management research, it was frequently dismissed as “just another normative contingency theory.” Discussants may quiz presenters on whether they are “doing positive or normative theory,” and gravely tell them that they must heed the difference between the two.
While I am all for being upfront about one’s (normative) premises, I am not sure the notion of “normative theory” makes a lot of sense. (There is ethical theory which may be partly falsifiable, but this is usually not what is meant by “normative theory”). There are theoretically informed statements about what ought to be the case — but these are simply derived from positive theories with the addition of an “ought” clause. To be sure, one can build theory that is designed to help remedy some state in the real world that one considers undesirable. Theorizing (i.e., the construction of theory) is, of course, shot through with normative considerations, as Gunnar Myrdal famously argued. But, that doesn’t make the theory a “normative theory” per se. A theory can be (should be) 100% wertfrei although its emergence is entirely explainable in terms of moral, political, etc. considerations.
Theory can be (should be?) used as an instrument, to be sure. Thus, the proponent of a theory may tell decision-makers that if they want to achieve X, they should do Y. That is still not “normative theory,” because the proponent doesn’t tell decision-makers that X is something they ought to pursue. Fairly simple stuff, to be sure. But, many management scholars apparently haven’t fully absorbed the basic implications of what Hume, Menger, and Weber said on these issues. And in today’s method-obsessed graduate programs, they likely won’t.
| Nicolai Foss |
In a SOapBox Essay in 2005, Teppo Felin and I called for “micro-foundations” for macro management theory, specifically the dominant routines and capabilities (etc.) stream in strategic management. (check Teppo’s site for the paper, commentaries by Jay Barney and Bruce Kogut, and various other Felin & Foss papers on the subject). We thought our argument was fairly simple, not really that novel (economists have been talking about micro-foundations for decades), and “obviously true.” Yet, the argument was apparently provocative (or, perhaps more correctly, our formulation of it was…), and it met with considerable hostility. For example, the DRUID 2008 conference in Copenhagen featured a panel on micro-foundations with opposing sides represented by Sidney Winter and Thorbjørn Knudsen, and Peter Abell and yours truly, respectively. I remember seeing several (extremely) prominent management scholars shaking their heads in disbelief about the folly of micro-foundations. (The debate, though not the head-shaking, can be accessed through the DRUID site).
And yet, 7 years later the micro-foundations project appears to have met with general acceptance, although it is sometimes referred to as the “Foss Fuss,” by at least one very prominent contributor to our field. In fact, some of the head-shaking persons from DRUID 2008 now themselves talk about micro-foundations. Both Sid Winter and Thorbjørn Knudsen (not headshakers) now embrace micro-foundations–albeit of the “right” kind (e.g., behavioralist and informed by neuroscience and experiments). Papers in leading journals have “micro-foundations” in the title. Specific examples: :
- The Journal of Management Studies just published a special issue on “Micro-origins of Routines and Capabilities,” edited by Teppo, me, Koen Heimeriks, and Tammy Madsen, and featuring contributions by various luminaries.
- The European Management Review’s December issue (not yet online) will feature a transcribed exchange between Sid Winter, me and Maurizio Zollo on micro-foundations.
- A leading association in our field will adopt “micro-foundations” as the theme of one its conferences (to be held in 2014). Details to be disclosed (soon).
Micro-foundations are “everywhere.” List der Vernunft, I reckon.
UPDATE: The Academy of Management Perspectives will feature a paper symposium next year on micro-foundations. Contributors: Jay Barney, Teppo Felin, Henrich Greve, Siegwart Lindenberg, Andrew van de Ven, Sid Winter, and me.
| Nicolai Foss |
Given the importance they usually ascribe to the sinister forces of “neo-liberalism,” it is — perhaps– surprising that prominent pomo writers seldom engage with the major economists with more or less strong classical liberal/libertarian leanings, such as Nobel Prize Winners Gary Becker, James Buchanan, Ronald Coase, Milton Friedman, and Friedrich Hayek. However, most of these write very clearly; for example, it is hard to imagine a stronger contrast to the murky prose of pomo than Nobelist Gary Becker’s refreshingly direct and clear writing.
And yet, pomo demi-god and arguably the clearest writer among the pomo social critics and philosophers, Michel Foucault critically dealt with Gary Becker in his 1979 “Birth of Biopolitics” lectures. In a recent UChicago WP, “Becker on Ewald on Foucault on Becker’: American Neoliberalism and Michel Foucault’s 1979 ‘Birth of Biopolitics’ Lectures,” Foucault’s assistant at the time of these lectures, Francois Ewald, debate Foucault’s Becker-reading with Bernard Harcourt, and–the scoop of this transcribed dialogue–Becker himself.
The whole debate is (unlike the Pomo Periscope) highly civilized; in fact, Becker notes that “I was very happy to read these two lectures, which impressed me in a number of directions. They are very clear, I thought. He had a good understanding of what human capital consisted of.” However, in spite of his politeness Becker offers a direct refutation of the Foucauldian critique that economics in general, and human capital theory in particular, dehumanize people and portray them stimulus-response puppets:
Instead of saying that the vision of man is poor, I would say the vision of man is rich in this approach, because you enrich both what people do as consumers—that’s why I think Foucault says this was an interesting theory of consumption—and you enrich what they do in terms of a lot of their other life decisions that would go beyond consumption, in terms of their education, how they might invest to respond to different government laws, how they might evade bad laws.
A fun read!! HT to Henrik Lando.
| Nicolai Foss |
From the official SMG blog, Strategy and Organization:
A long-standing discussion in management research concerns the relation between capabilities perspectives on the firm and organizational economics, including transaction cost economics and agency theory. In particular, proponents of capabilities ideas have criticized organizational economics for exaggerating the role of opportunism (and similar constructs), neglecting value creation and downplaying dynamics. Conversely, proponents of organizational economics have criticized the lack of a clear unit of analysis, causal mechanisms and micro-foundations in the capabilities approach.
“While these early debates clarified many things,” says SMG Professor Nicolai J Foss, “the field is increasingly moving towards a more conciliatory stance in which the two perspectives are seen as capable of cross-fertilizing each other. This is going further than merely stressing a relation of complementarity in which capabilities ideas lend themselves to the explanation of organizational heterogeneity while organizational economics provides the understanding of the organization of heterogeneous resources and capabilities. The new view is that, notably, organizational economics has the potential of illuminating capability emergence and therefore organizational heterogeneity.”
With Nicholas Argyres (Washington University), Teppo Felin (Brigham Young University), and Todd Zenger (Washington University) Foss is an editor of the September-October issue of the leading management research journal, Organization Science, titled “Organizational Economics and Capabilities: From Opposition and Complementarity to Real Integration” (http://orgsci.journal.informs.org/content/23/5.toc). This special issue contains a number of articles by leading contributors to the discussion, and mixes theoretical, empirical and modeling approaches, as well as an introduction by the editors that survey the debate and defines a new agenda for research in the field.
“We are pleased that we got so many high-level contributions for this special issue,” says Foss, “and in particular that these contributions truly manage to define a new, creative research frontier where the emphasis is on researching the interplay between theoretical mechanisms identified by the two perspectives.
| 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!
| 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!
| 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
| Nicolai Foss |
OK, my eleven weeks, Euro-style, full-tax-payer-paid, summer vacation starts today. In the time-honored tradition of narcissistic academic bloggers, here is what I plan to (hope to) read while frolicking on the beaches of the Riviera and relaxing in those small Spanish villages:
- Jonathan Haidt: The Righteous Mind. This will be a re-read. I read Haidt’s book 2 months ago and loved most of it, although I thought it was rather weak towards to the end. The whole argument is basically founded on the notion of group selection, and while group selection has made a huge comeback in terms of scientific respectability, perhaps Haidt is overdoing it?
- Mark Pagel: Wired for Culture. Interest in group selection is also why I will read Pagel’s book, which seems to be all about human group selection, written by a leading British expert on human evolution. A reason why I take an interest in group selection stems from my interest in Hayek’s work on cultural evolution which is basically a group selection story — and which has been strongly criticized for exactly this reason.
- Ezequiel Morsella, John A Bargh and Peter M. Gollwitzer: Oxford Handbook on Human Action. No, this is not a commentary on Mises, but a collection of essays that” … brings together the current thinking of eminent researchers in the domains of motor control, behavioral and cognitive neuroscience, psycholinguistics, biology, as well as cognitive, developmental, social, and motivational psychology. It represents a determined multidisciplinary effort, spanning across various areas of science as well as national boundaries.” Great and accessible reading for anyone with an interest in human action and behavior that goes beyond simplistic economics treatments.
- Steven Pinker: The Better Angels of Our Nature: Why Violence Has Declined. Pinker is always worth a read!
| Nicolai Foss |
In conversations with Italian colleagues I have often been struck by the sad cynicism, sometimes even spite, with which they talk about Italian academic institutions. There is mention of “barons,” backstabbing, secret deals and networks, “the Roman approach,” the Illuminati and whatnot (OK, perhaps not that specific secret society) that hinder fully realizing the potential of Italian social science. To be sure, the situation cannot be entirely debilitating as there is quite serious research being conducted across a number of Italian universities (and as a frequent visitor to both Bocconi and Luiss Guido Carli I can testify to this). But, there is clearly a perception of rot among Italian academics themselves .
Here is a quite controversial 2009 paper, “L Words: The Curious Preference for Low Quality and Its Norms,” by famed rational choice sociologist, Diego Gambetta and philosopher Gloria Origgi. The paper begins thusly: “We have spent our academic careers abroad, Gloria in France and Diego in Britain. Over this long period of time each of us has had over a hundred professional dealings with our compatriots in Italy – academics, publishers, journals, newspapers, public and private institutions. It is not an exaggeration to say that 95% of the times something went wrong. Not catastrophically wrong, but wrong nonetheless.”
The reasons for “this cocktail of confusion, sloppiness and broken promises” that, allegedly, is Italian academia, can be located in a peculiar equilibrium, described as the “L world.” This is not, as one might think, a world described by the PD-game, but rather a situation in which both (all) parties agree on delivering high quality (H) and both (all) deliver low quality (L), and, as Gambetta and Origgi explain, (more…)
| Nicolai Foss |
The University of Chicago Press has just published the seventh volume, “Business Cycles, Part I and II,” in their nineteen volumes Collected Works of F.A. Hayek project. The two books contain most of Hayek’s well-known interwar work on the business cycle, particularly his more methodological Monetary Theory and the Trade Cycle (originally published in 1928) and, of course, Prices and Production, in addition to a number of essays on, as they were called, “industrial fluctuations.” The two parts of Volume 7 both have excellent 40+ pages introductions penned by Hansjoerg Klausinger who may well be the scholar in the world with the deepest knowledge of Hayek’s contributions to business cycle theory and who does a superb job in terms of discussing Hayek’s work through the lens of modern economics.