Posts filed under ‘Myths and Realities’

“Why Managers Still Matter”

| Nicolai Foss |

BxrnIo-CQAA8lk7Here is a recent MIT Sloan Management Review piece by Peter and me, “Why Managers Still Matter.” We pick up on a number of themes of our 2012 book Organizing Entrepreneurial Judgment. A brief excerpt:

“Wikifying” the modern business has become a call to arms for some management scholars and pundits. As Tim Kastelle, a leading scholar on innovation management at the University of Queensland Business School in Australia, wrote: “It’s time to start reimagining management. Making everyone a chief is a good place to start.”

Companies, some of which operate in very traditional market sectors, have been crowing for years about their systems for “managing without managers” and how market forces and well-designed incentives can help decentralize management and motivate employees to take the initiative. . . .

From our perspective, the view that executive authority is increasingly passé is wrong. Indeed, we have found that it is essential in situations where (1) decisions are time-sensitive; (2) key knowledge is concentrated within the management team; and (3) there is need for internal coordination. . . . Such conditions are hallmarks of our networked, knowledge-intensive and hypercompetitive economy.

29 September 2014 at 10:02 am 3 comments

Academics and Social Media

| Peter Klein |

At this week’s Strategic Management Conference in Madrid I participated in an interesting session on Media Innovations, along with Will Mitchell and Wiley’s Caroline McCarley. My remarks focused on academics and their use of social media. How (if at all) can professors use blogs, videos, wikis, and other social media products to disseminate their research, to improve their teaching, and even to discover new ideas? Are social media and “serious” activities like research and class preparation substitutes or complements? Should untenured faculty avoid such distractions?

I began my remarks — where else? — with Kim Kardashian. Biologist Neil Hall made a bit of a splash a few months back by introducing the Kardashian Index, basically the ratio of an academic researcher’s Twitter followers to citations in peer-reviewed journals. (For a rough approximation, just divide Twitter followers by Google Scholar cites.) Someone with a very high K-index, the story goes, has a large popular following, but hasn’t made any important scientific contributions — in other words, like Kim, famous for being famous.

Science published a rejoinder suggesting that the K-index gets it wrong by implying, incorrectly, that popular and scholarly influence are inversely related. Indeed, among the top 20 natural scientists, by Twitter followers, are some scientific lightweights like Neil deGrasse Tyson (2.4 million Twitter followers and 151 citations), but also serious thinkers like Tim Berners-Lee (179,000 followers and 51,204 cites) and Steven Pinker (142,000 and 49,933). I haven’t run the numbers for economists and management scholars but I think you’ll find the same general pattern. E.g., among the biggies on the LDRLB Top Professors on Twitter list you find a mix of practitioner-oriented writers with modest academic influence (Bill George, Richard Florida, Stew Friedman, Gary Hamel) and scholars with huge citation counts (Mike Porter, Clay Christensen, Adam Grant).

I went on to emphasize (as usual) that, for the most part, these issues are nothing new. Scholars and thinkers throughout history have used whatever media are available to disseminate their ideas to wider audiences. In the 17th-19th centuries there were pamphlets, handbills, newspapers, and lecture halls; in the 20th century radio, magazines, TV, and other outlets. Classical economists like John Stuart Mill published anti-slavery tracts; the Verein für Socialpolitik took positions on important social issues of the day; the American Economic Association was founded to combat lassiez-faire; C. S. Lewis gave his famous wartime radio lectures; Paul Samuelson and Milton Friedman dueled in the pages of Newsweek, and Friedman took to the airwaves for the PBS series “Free to Choose.” So academic bloggers, Tweeters, Facebookers, YouTubers, LinkedInners, and Instagrammers are following in a grand tradition. Of course, what’s new today is the scale; without a contract for a newspaper column or TV show, any of us can set up shop, and have the potential to reach a very wide audience. (more…)

26 September 2014 at 10:26 am 5 comments

Westgren on Entrepreneurial Opportunities

| Peter Klein |

opportunity-magnetMy colleague Randy Westgren has two thoughtful posts on entrepreneurial opportunities (1, 2). Randy shares my unease with the construct of opportunity, which began as a metaphor introduced by Israel Kirzner, only to be reified by entrepreneurship scholars looking for a central organizing construct. My own view is that the concept of opportunity is redundant at best, misleading at worst. Randy expresses the same idea: “If the opportunity is so important to the entrepreneurial process, why are there so many mediating actions and decisions between the existence and the outcomes? How much of the outcomes does the existence of the opportunity explain?” He goes on to propose some useful taxonomies for making sense of the literature. More to come.

12 July 2014 at 6:50 pm 1 comment

Gans on Lepore on Christensen

| Peter Klein |

Josh Gans has some useful remarks on Jill Lepore’s New Yorker essay on Clayton Christensen.

Lepore only deals with the easy marks in her take down of Christensen and one suspects Christensen and his supporters can easily fend those off. It is the fundamental contradiction in taking a positive theory towards prediction that is where this entire ‘disruption industry’ falls down. I’d like to see journalists engaging more on that level so that we can be done with those bridges too far for good.

What Josh means by “fundamental contradiction” is that a disruptive technology, in Christensen’s definition, must not only be behind the cutting edge in some technical dimension, but also satisfy unmet consumer demands. The latter must be uncertain ex ante, otherwise the market leaders would also be developing the disruptive technology. Christensen advises incumbents to “disrupt themselves,” but this assumes they know which technologies will eventually be disruptive. Because they don’t, they must choose among several alternatives, including “do nothing” (i.e., try to exploit late-mover advantage).

The incumbent’s decision, contrary to Christensen’s reasoning, reflects entrepreneurial judgment, which may or may not be correct. There is no formula for managing disruptive technologies.

See also Lynne’s insightful commenta.

17 June 2014 at 11:13 am 5 comments

Temporary versus Permanent Behavioral Responses

| Peter Klein |

As a behavioral economics skeptic I was intrigued by a recent NBER paper on worker responses to a change in the employment contract. Rajshri Jayaraman, Debraj Ray, and Francis de Vericourt studied an Indian tea plantation that changed its employment contract to weaken pay-for-performance incentives and found, initially, a substantial increase in output, suggesting a “happy-is-productive” effect that would make the pop psychologists proud. “This large and contrarian response to a flattening of marginal incentives is at odds with the standard model, including one that incorporates dynamic incentives, and it can only be partly accounted for by higher supervisory effort. We conclude that the increase is a ‘behavioral’ response.”

Alas, the effect was only temporary, becoming entirely reversed within a few months:

In fact, an entirely standard model with no behavioral or dynamic features that we estimate off the pre-change data, fits the observations four months after the contract change remarkably well. While not an unequivocal indictment of the recent emphasis on “behavioral economics,” the findings suggest that non-standard responses may be ephemeral, especially in employment contexts in which the baseline relationship is delineated by financial considerations in the first place. From an empirical perspective, therefore, it is ideal to examine responses to a contract change over an substantial period of time.

This looks to me like a Hawthorne effect. Given that much of the empirical literature in behavioral social science uses relatively short time horizons, I wonder how many of the findings can be explained this way? How many key “behavioral” results are short-term responses to changing management practices, workplace conditions, the employment contract, etc., rather than indicators of something more substantial about human behavior and motivation?

5 March 2014 at 11:40 am Leave a comment

Cheating and Public Service

| Dick Langlois |

Everyone knows that people who want to go into government jobs have high pro-social preferences and impeccable honesty. Well, not so in India, according to Rema Hanna from the Kennedy School at Harvard, who spoke in our department seminar series Friday. Here is the abstract:

In this paper, we demonstrate that university students who cheat on a simple task in a laboratory setting are more likely to state a preference for entering public service. Importantly, we also show that cheating on this task is predictive of corrupt behavior by real government workers, implying that this measure captures a meaningful propensity towards corruption. Students who demonstrate lower levels of prosocial preferences in the laboratory games are also more likely to prefer to enter the government, while outcomes on explicit, two-player games to measure cheating and attitudinal measures of corruption do not systematically predict job preferences. We find that a screening process that chooses the highest ability applicants would not alter the average propensity for corruption among the applicant pool. Our findings imply that differential selection into government may contribute, in part, to corruption. They also emphasize that screening characteristics other than ability may be useful in reducing corruption, but caution that more explicit measures may offer little predictive power.

I wonder what her colleagues at the Kennedy School think of this. Ask not what you can do for your country; ask what your country can do for you.

24 February 2014 at 6:09 pm 3 comments

Relational Contracts and the Decline of General Motors

| Nicolai Foss |

The shifting fortunes in the international automobile industry over the last four decades have, for obvious reasons, been endlessly commented upon.  Usually, the two leading protagonists in the various accounts of the dynamics of the industry are General Motors and Toyota, the former because of its conspicuous decline (GM’s share of the US market dropped from about 60 to about 20% over a 30 years period), the latter because it has been steadily growing and is now the world’s largest automaker.

Discussions of the relative performance of these two industrial giants sometimes focus on vacuous categories like “culture” and “capabilities.” More detailed accounts stress the short-termism of General Motor’s investment decisions, its arms-length supplier relations, and its obsession with narrowly defined, easily-measurable jobs. Toyota’s relative success is often explained in terms of the Toyota Management Model with its emphasis on broadly defined jobs, intensive lateral and vertical information flows, and emphasis on problem-solving on the shop floor.  However, it is not immediately clear that GM did something very badly that Toyota did very well. The liabilities that led to the decline of GM were apparently were different from the assets that brought Toyota success.

In a new NBER paper, “Management Practices, Relational Contracts, and the Decline of General Motors“, Susan Helper and Rebecca Henderson argue, however, that GM and Toyota are directly comparable in terms of the relational contracts existing inside their corporate hieararchies and across the boundaries of these two companies, and that their differential performance is explainable in terms of the differences between the contracts. Relying on recent contract theory research on relational contracts (rather than the older, but neglected work of Harvey Leibenstein), Helper and Henderson reject a number of conventional explanations (e.g., that GM’s investment policy was oriented towards the short term), and convincingly argue that GM had difficulties understanding the nature and important role of relational contracts behind Toyota’s success and therefores truggled to implement similar relational contracts. They point to a number of reasons why relational contracts may be difficult to build, centering on problems of creating credible commitments and communicating clearly and suggest that these problems were rampant in GM.  In all, a very nice read that can be used in a number of different classes (org theory, economics of the firm, strategic management). Highly recommended! 

UPDATE: My colleague Henrik Lando draws my attention to Ben-Shahar and White’s 2005 paper on manufacturing contracts in the auto industry which tells a story that is consistent with the Helper and Henderson story. Here.

8 February 2014 at 2:29 pm 1 comment

Older Posts


Authors

Nicolai J. Foss | home | posts
Peter G. Klein | home | posts
Richard Langlois | home | posts
Lasse B. Lien | home | posts

Guests

Former Guests | posts

Networking

Recent Posts

Categories

Feeds

Our Recent Books

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).

Follow

Get every new post delivered to your Inbox.

Join 256 other followers