Posts filed under ‘Strategic Management’
| 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?
| Nicolai Foss |
I am intrigued by notions of “business models” and “business model innovation.” Many academics dismiss these notions, arguing that they are too fluffy or too much overlapping with established thinking in strategic management. I understand both objections, but still think there is something to these notions. Specifically, they capture the need for integration of and coherence among strategic choices related to value proposition, segments, value appropriation models, and value chain organization in a way that I don’t see clearly reflected in mainstream strategy thinking. And yet, it is also clear that the basic unit of analysis, the busines model, remains un-dimensionalized, even though business models and the innovation thereof clearly differ–and therefore pose different leadership, management and organizational design challenges. In other words, extant research does not adequately represent the heterogeneity of business models (innovation), and therefore does not dimensionalize them.
In a new paper, Nils Stieglitz and I argue that a key dimension along which business models (and hence the innovation thereof) differ is the strength of the interdependences, or, complementarities, between their constituent components. Thus, some business model innovations are more modular, while others are more architectural. Also, business model innovations can be dimensionalized in terms how radical they are. We argue that leadership challenges systematically depend on the nature of the relevant business model innovation. To our knowledge this is the first dimensionalization exercise in the literature and the first attempt at building a contingency theory of business model innovation.
| Peter Klein |
A friend complains that management and entrepreneurship scholarship is confused about the concept of transaction costs. Authors rarely give explicit definitions. They conflate search costs, bargaining costs, measurement costs, agency costs, enforcement costs, etc. No one distinguishes between Coase’s, Williamson’s, and North’s formulations. “Transaction costs seem to be whatever the author wants them to be to justify the argument.”
It’s a fair point, and it applies to economics (and other social sciences and professional fields) too. I remember being asked by a prominent economist, back when I was a PhD student writing under Williamson, why transaction costs “don’t simply go to zero in the long run.” Indeed, contemporary organizational economics mostly uses terms like “contracting costs,” and since 1991 Williamson has tended to use “maladaptation costs” (while retaining the term “transaction cost economics”).
When I teach transaction costs I typically assign Doug Allen’s excellent 2000 essay from the Encyclopedia of Law and Economics and Lee and Alexandra Benhams’ more recent survey from my Elgar Companion to Transaction Cost Economics (unfortunately gated). Doug, for example, usefully distinguishes between a “neoclassical approach,” in which transaction costs are the costs of exchanging well-defined property rights, and a “property-rights approach,” in which transaction costs are the costs of defining and enforcing property rights.
What other articles, chapters, and reviews would you suggest to help clarify the definition and best use of the “transaction costs”? Or should we avoid the term entirely in favor of narrower and more precise words and phrases?
| Nicolai Foss |
Business models have become important tools in the top-manager’s toolbox. A business model is the articulation of the logic by which a business creates and delivers value to customers. It also outlines the system of revenues and costs that allows the business to earn a profit. It is both a map—i.e., a mental representation—and the real structure of the company’s internal and external activity systems.
However, in spite of more than a decade’s interest in business models and the innovation, their specific leadership and organization design challenges are only beginning to be understood. What is specific about these challenges is that top-management needs a map of the existing business model and the one it aspires to implement and execute, and a plan of how to get there. Moreover, business models can be very complex systems, with many interlocking elements, requiring coordination. Hence, business model innovations are truly major organizational change projects.
Writers on business models typically outline a number of elements of a company’s business model. These include the value proposition, segments, the value chain, and revenue model. But many writers and practitioners alike tend to stress only or a few of these.
Indeed, very often a single element of the business does stand out. For example, the tipping point business model of Groupon, Moolala and similar seems to be all about the value proposition centered on providing discounts on meals, products and services with local merchants. (more…)
| Peter Klein |
A renewed interest in conglomerates has brought forth a HBR blog post from Herman Vantrappen and Daniel Deneffe, “Don’t Write Off the (Western) Focused Firm Yet.” As they rightly point out, the choice between a focus and diversity “depends on the context in which the business operates. Specifically, focused firms fare better in countries where society expects and gets public accountability of both firms and governments, while conglomerates succeed in nations with high public accountability deficits.” I would put it slightly differently: the choice between focused, single-business firms and diversified, multi-business enterprises depends on the relative performance of internal and external capital and labor markets. The institutional environment — the legal system, regulatory practices, accounting rules — plays a huge rule here, but social norms, technology, and the competitive environment also affect the efficient margin between between intra-firm and inter-firm resource allocation.
The point is that all forms of organization have costs and benefits. There is no uniquely “optimal” degree of diversification or hierarchy or vertical integration or any other aspect of firm structure; the choice depends on the circumstances. Instead of favoring one particular organizational form we should be promoting an environment in which entrepreneurs can experiment with different approaches, with competition determining the right choice in each context. Let a thousand flowers bloom!
Update: From Joe Mahoney I learn that not only was Chairman Mao’s actual exhortation “Let a hundred flowers blossom,” but also he may have meant it sarcastically: “It is sometimes suggested that the initiative was a deliberate attempt to flush out dissidents by encouraging them to show themselves as critical of the regime.” My usage was of course sincere. :)
| Peter Klein |
Some interesting review issues and special collections are hot off the virtual presses. The Journal of Management has just released its annual review issue with a number of valuable papers, including this one of particular interest to the O&M crowd:
The Many Futures of Contracts: Moving Beyond Structure and Safeguarding to Coordination and Adaptation
Donald J. Schepker, Won-Yong Oh, Aleksey Martynov, and Laura Poppo
In this article, we review the literature on interfirm contracting in an effort to synthesize existing research and direct future scholarship. While transaction cost economics (TCE) is the most prominent perspective informing the “optimal governance” and “safeguarding” function of contracts, our review indicates other perspectives are necessary to understand how contracts are structured: relational capabilities (i.e., building cooperation, creating trust), firm capabilities, relational contracts, and the real option value of a contract. Our review also indicates that contract research is moving away from a narrow focus on contract structure and its safeguarding function toward a broader focus that also highlights adaptation and coordination. We end by noting the following research gaps: consequences of contracting, specifically outcome assessment; strategic options, decision rights, and the evolution of dynamic capabilities; contextual constraints of relational capabilities; contextual constraints of contracting capabilities; complements, substitutes, and bundles; and contract structure and social process.
The always-interesting Strategic Organization has also released a package of previously published papers as a virtual special issue titled “Whither Strategy?” I have a soft spot for anything using the word “whither,” but this is a great collection by any name. Check out the ToC:
- Advancing strategy and organization research in concert: Towards an integrated model? | Durand, R. 2012. Volume 10, Issue 3. pp.297-303
- The end of strategy? | Farjoun, M. 2007. Volume 5, Issue 3. pp.197-210
- Strategic organization: A field in search of micro-foundations | Felin, T., & Foss, N.J. 2005. Volume 3, Issue 4. pp.441-455
- The disintegration of strategic management: it’s time to consolidate our gains | Hambrick, D.C. 2004. Volume 2, Issue 1. pp.91-98
- Stylized facts, empirical research and theory development in management | Helfat, C.E. 2007. Volume 5, Issue 2. pp.185-192
- So you call that research?: mending methodological biases in strategy and organization departments of top business schools | Heugens, P., & Mol, M.J. 2005. Volume 3, Issue 1. pp.117-128
- Process thinking in strategic organization | Langley, A. 2007. Volume 5, Issue 3. pp.271-282
- The field of strategic management within the evolving science of strategic organization | Mahoney, J.T., & McGahan, A.M. 2007. Volume 5, Issue 1. pp.79-99
- Walking the walk as well as talking the talk: replication and the normal science paradigm in strategic management research | Mezias, S.J., & Regnier, M.O. 2007. Volume 5, Issue 3. pp.283-296
- Paradigm prison, or in praise of atheoretic research | Miller, D. 2007. Volume 5, Issue 2. pp.177-184
- The Strategy Research Initiative: Recognizing and encouraging high-quality research in strategy | Oxley, J.E., Rivkin, J.W., & Ryall, M.D. 2010. Volume 8, Issue 4. pp.377-386
- The brain as substitute for strategic organization | Powell, T.C., & Puccinelli, N.M. 2012. Volume 10, Issue 3. pp.207-214
- The cultural side of value creation | Ravasi, D., Rindova, V., & Dalpiaz, E. 2012. Volume 10, Issue 3. pp.231-239
- A sociological perspective on strategic organization | Ruef, M. 2003. Volume 1, Issue 2. pp.241-251
- Strategy-as-practice meets neo-institutional theory | Suddaby, R., Seidl, D., & Le, J.K. 2013. Volume 11, Issue 3. pp.329-344
- How to connect strategy research with braoder issues that matter? | Vaara, E., & Durand, R. 2012. Volume 10, Issue 3. pp.248-255
- Big Strategy/Small Strategy | Whittington, R. 2012. Volume 10, Issue 3. pp.263-268
| Peter Klein |
It’s been another fine year at O&M. 2013 witnessed 129 new posts, 197,531 page views, and 114,921 unique visitors. Here are the most popular posts published in 2013. Read them again for entertainment and enlightenment!
- Rise of the Three-Essays Dissertation
- Ronald Coase (1910-2013)
- Sequestration and the Death of Mainstream Journalism
- Post AoM: Are Management Types Too Spoiled?
- Nobel Miscellany
- The Myth of the Flattening Hierarchy
- Climate Science and the Scientific Method
- Bulletin: Brian Arthur Has Just Invented Austrian Economics
- Solution to the Economic Crisis? More Keynes and Marx
- Armen Alchian (1914-2013)
- My Response to Shane (2012)
- Your Favorite Books, in One Sentence
- Does Boeing Have an Outsourcing Problem?
- Doug Allen on Alchian
- New Paper on Austrian Capital Theory
- Hard and Soft Obscurantism
- Mokyr on Cultural Entrepreneurship
- Microfoundations Conference in Copenhagen, June 13-15, 2014
- On Academic Writing
- Steven Klepper
- Entrepreneurship and Knowledge
- Easy Money and Asset Bubbles
- Blind Review Blindly Reviewing Itself
- Reflections on the Explanation of Heterogeneous Firm Capability
- Do Markets “React” to Economic News?
Thanks to all of you for your patronage, commentary, and support!
| Peter Klein |
Diversification continues to be a central issue for strategic management, industrial organization, and corporate finance. There are huge research and practitioner literatures on why firms diversify, how diversification affects financial, operating, and innovative performance, what underlies inter-industry relatedness, how diversification ties into other aspects of firm strategy and organization, whether diversification is driven by regulation or other policy choices, and so on. There are many surveys of these literatures (Lasse and I contributed this one).
Some of the most interesting research deals with the institutional environment. For example, many US corporations were widely diversified in the 1960s and 1970s when the brokerage industry was small and protected by tough legal restrictions on entry, antitrust policy frowned on vertical and horizontal growth (maybe), and a volatile macroeconomic environment encouraged internalization of inter-firm transactions (also maybe). After the brokerage industry was deregulated in 1975, the antitrust environment became more relaxed, and the market for corporate control heated up, many conglomerates were restructured into more efficient, specialized firms. To quote myself:
The investment community in the 1960s has been described as a small, close-knit group wherein competition was minimal and peer influence strong (Bernstein, 1992). As Bhide (1990, p. 76) puts it, “internal capital markets … may well have possessed a signiﬁcant edge because the external markets were not highly developed. In those days, one’s success on Wall Street reportedly depended far more on personal connections than analytical prowess.” When capital markets became more competitive in the 1970s, the relative importance of internal capital markets fell. “This competitive process has resulted in a signiﬁcant increase in the ability of our external capital markets to monitor corporate performance and allocate resources” (Bhide, 1990, p. 77). As the cost of external ﬁnance has fallen, ﬁrms have tended to rely less on internal ﬁnance, and thus the value added from internal-capital-market allocation has fallen. . . .
Similarly, corporate refocusing can be explained as a consequence of the rise of takeover by tender offer rather than proxy contest, the emergence of new ﬁnancial techniques and instruments like leveraged buyouts and high-yield bonds, and the appearance of takeover and breakup specialists like Kohlberg Kravis Roberts, which themselves performed many functions of the conglomerate headquarters (Williamson, 1992). A related literature looks at the relative importance of internal capital markets in developing economies, where external capital markets are limited (Khanna and Palepu 1999, 2000).
The key reference is to Amar Bhide’s 1990 article “Reversing Corporate Diversification,” which deserves to be better known. But note also the pointer to Khanna and Palepu’s important work on diversified business groups in emerging markets, which has also led to a vibrant empirical literature. The idea there is that weak institutions lead to poorly performing capital and labor markets, leading firms to internalize functions that would otherwise be performed between firms. More generally, firm strategy and organization varies systematically with the institutional environment, both over time and across countries and regions.
Surprisingly, diversified business groups were also common in the US, in the early 20th century, which brings me (finally) to the point of this post. A new NBER paper by Eugene Kandel, Konstantin Kosenko, Randall Morck, and Yishay Yafeh studies these groups and reaches some interesting and provocative conclusions. Check it out:
Eugene Kandel, Konstantin Kosenko, Randall Morck, Yishay Yafeh
NBER Working Paper No. 19691, December 2013
The extent to which business groups ever existed in the United States and, if they did exist, the reasons for their disappearance are poorly understood. In this paper we use hitherto unexplored historical sources to construct a comprehensive data set to address this issue. We find that (1) business groups, often organized as pyramids, existed at least as early as the turn of the twentieth century and became a common corporate form in the 1930s and 1940s, mostly in public utilities (e.g., electricity, gas and transportation) but also in manufacturing; (2) In contrast with modern business groups in emerging markets that are typically diversified and tightly controlled, many US groups were focused in a single sector and controlled by apex firms with dispersed ownership; (3) The disappearance of US business groups was largely complete only in 1950, about 15 years after the major anti-group policy measures of the mid-1930s; (4) Chronologically, the demise of business groups preceded the emergence of conglomerates in the United States by about two decades and the sharp increase in stock market valuation by about a decade, so that a causal link between these events is hard to establish, although there may well be a connection between them. We conclude that the prevalence of business groups is not inconsistent with high levels of investor protection; that US corporate ownership as we know it today evolved gradually over several decades; and that policy makers should not expect policies that restrict business groups to have an immediate effect on corporate ownership.
| Peter Klein |
Former guest blogger Steve Postrel weighs in on the future of the dynamic capabilities approach (reprinted, with permission, from a thread on Academia.edu). Steve responds to the question, “Is the dynamic capabilities approach outdated?” with some typical insightful remarks.
Since DC is primarily an ex post facto construct measured by sampling on the dependent variable — i.e., if the firm successfully adapts, then it had DC — its prominence is not a sign that it is doing much intellectual work. . . .
[T]o a first approximation, arguments for the importance of DC have tended to be of the form “We know a priori that firms need to be able to change their operational capabilities from time to time; we have examples of successful firms that have adapted in this way and examples of less-successful firms that haven’t; therefore we can say that the successful adapters had more of this valuable thing we will call ‘dynamic capability.’”
Certainly there have been empirical papers that do better than that, by, for example, trying to look at firms that have adapted multiple times, or by identifying specific organizational structures and practices that might enhance adaptability. The difficult issue with looking at a “precursor” like experience is that theoretically experience could reduce DC by causing specialization and lock-in. Other putative precursors suffer from the ex post measurement problem — how do we know if a firm has the right knowledge for adaptation until we see whether it succeeds?
I suspect there are also deeper conceptual problems because DC is equivocal even with perfect measurement. It would be pretty hard to specify what one meant by the “amount” of DC a firm has or to compare the “amounts” that any two firms have. DC is certainly not a completely ordering relation and I’m not sure it’s even a partial order. Without presenting formal models and going back and forth between those and peoples’ intuition about what DC is “supposed” to mean, however, one really can’t pin these problems down enough to tell if they are serious. . . . (more…)
| Peter Klein |
The ISNIE 2014 Call for Papers is now available. The conference is at Duke University, 19-21 June 2014, home of President-Elect and Program Committee Chair John de Figueiredo. Bob Gibbons and Timur Kuran are keynote speakers. ISNIE is one of our favorite conferences, so please consider submitting a proposal! Submissions are due 30 January 2014.
| Peter Klein |
It finds what you’d expect: When agents are assigned multiple tasks, and evaluated using objective performance criteria, they will tend to favor those tasks that produce measurable outputs, at the expense of equally important, but harder-to-measure tasks. This is why, for example, professors at research universities often neglect their teaching duties. Sure it’s important, but quality is hard to demonstrate, so I’ll concentrate on publications, grants, and other research activities.
Testing the Theory of Multitasking: Evidence from a Natural Field Experiment in Chinese Factories
Fuhai Hong, Tanjim Hossain, John A. List, and Migiwa Tanaka
NBER Working Paper No. 19660, November 2013
A well-recognized problem in the multitasking literature is that workers might substantially reduce their effort on tasks that produce unobservable outputs as they seek the salient rewards to observable outputs. Since the theory related to multitasking is decades ahead of the empirical evidence, the economic costs of standard incentive schemes under multitasking contexts remain largely unknown. This study provides empirical insights quantifying such effects using a field experiment in Chinese factories. Using more than 2200 data points across 126 workers, we find sharp evidence that workers do trade off the incented output (quantity) at the expense of the non-incented one (quality) as a result of a piece rate bonus scheme. Consistent with our theoretical model, treatment effects are much stronger for workers whose base salary structure is a flat wage compared to those under a piece rate base salary. While the incentives result in a large increase in quantity and a sharp decrease in quality for workers under a flat base salary, they result only in a small increase in quantity without affecting quality for workers under a piece rate base salary.
| Nicolai Foss |
So, with Torben Pedersen, Bocconi University, I am arranging a Strategic Management Society “Special Conference” (so-called) on “Microfoundations in Strategic Management Research: Embracing Individuals” next year in Copenhagen. Specifically, the conference takes place from the 13. to the 15. of June at the Copenhagen Business School. (The DRUID conference starts on June 16). Pretty good lineup, I dare say, with keynotes by Ron Burt, Richard Rumelt and Ernst Fehr and several luminaries in the panels.
The deadline for paper proposals (5 pp + 2 pp refs) is December 5. Submit a proposal!
| Peter Klein |
Luigi Guiso, Paola Sapienza, and Luigi Zingales tackle the elusive concept of corporate culture in a new NBER paper. Using survey data from the Great Place to Work Initiative they show that firm performance is higher, other things equal, when employees perceive top management as trustworthy and ethical. They control for corporate governance variables and try to separate the effects of an ethical culture from the halo effect that distorts perceptions of high-performing firms. The data are cross-sectional, so it’s impossible to say that a strong corporate culture causes strong performance, rather than the other way around, but the findings are extremely interesting nonetheless.
| Peter Klein |
Michael Porter: “Why Business Can Be Good at Solving Social Problems”
Costas Markides: “Strategy Is about Making Choices”
Clayton Christensen: “Disruptive Innovation”
| Peter Klein |
Come to the CSIG Teaching Workshop this Saturday in Atlanta and find out!
| Peter Klein |
Three recent NBER papers on compensation, performance, and productivity:
Ann Bartel, Brianna Cardiff-Hicks, Kathryn Shaw
NBER Working Paper No. 19412, September 2013
Due to the limited availability of firm-level compensation data, there is little empirical evidence on the impact of compensation plans on personal productivity. We study an international law firm that moves from high-powered individual incentives towards incentives for “leadership” activities that contribute to the firm’s long run profitability. The effect of this change on the task allocation of the firm’s team leaders is large and robust; team leaders increase their non-billable hours and shift billable hours to team members. Although the motivation for the change in the compensation plan was the multitasking problem, this change also impacted the way tasks were allocated within each team, resulting in greater teamwork.
William Mullins, Antoinette Schoar
NBER Working Paper No. 19395, September 2013
Using a survey of 800 CEOs in 22 emerging economies we show that CEOs’ management styles and philosophy vary with the control rights and involvement of the owning family and founder: CEOs of firms with greater family involvement have more hierarchical management, and feel more accountable to stakeholders such as employees and banks than they do to shareholders. They also see their role as maintaining the status quo rather than bringing about change. In contrast, professional CEOs of non-family firms display a more textbook approach of shareholder-value-maximization. Finally, we find a continuum of leadership arrangements in how intensively family members are involved in management.
George J. Borjas, Kirk B. Doran
NBER Working Paper No. 19445, September 2013
Knowledge generation is key to economic growth, and scientific prizes are designed to encourage it. But how does winning a prestigious prize affect future output? We compare the productivity of Fields medalists (winners of the top mathematics prize) to that of similarly brilliant contenders. The two groups have similar publication rates until the award year, after which the winners’ productivity declines. The medalists begin to “play the field,” studying unfamiliar topics at the expense of writing papers. It appears that tournaments can have large post-prize effects on the effort allocation of knowledge producers.
Thank goodness I haven’t won the Clark Medal, Nobel Prize, or a MacArthur Award. I want to keep my productivity high!
| Peter Klein |
Tunji Adebesan and I are organizing the second annual teaching workshop for the Strategic Management Society’s Competitive Strategy Interest Group. The workshop is Saturday, September 28, 2:00-5:00pm, part of the upcoming SMS Conference in Atlanta. It’s open to emerging and established scholars in strategic management, organization, and entrepreneurship, or a related field.
This year’s theme is technological innovation and its impact on teaching strategy. The higher-education industry is abuzz with talk about MOOCs, distance learning, computer-based instruction, and other pedagogical innovations. Many of you are already using online exercises and assessments, simulations, and other activities in the classroom. How are these innovations best incorporated into the strategy curriculum? What can strategy scholars say about the impact of these technologies on higher education more generally? Are they sustaining or disruptive innovations, and what do they imply for the structure of the business school, and the university itself?
The interactive, participatory workshop begins with a panel session featuring experts on distance learning, online assessments, simulations, electronic textbooks, social media, and more. Panelists include Michael Leiblein (Ohio State), Jackson Nickerson (Washington University, St. Louis), Frank Rothaermel (Georgia Tech), and Bob Wiseman (Michigan State), along with Tunji and myself. Sample questions: Are MOOCs the future of higher education? Do they work? Can What are best practices for distance learning, and for incorporating online activities into the traditional classroom? Do improved distance-learning and collaboration tools facilitate new models for executive education and corporate training programs? How should strategy teachers make best use of social media, TED talks and other media, iPads, and other tools and apps, especially for younger students? Following the panel session, participants will break into small groups for in-depth discussion and practice using new tools. After regrouping, participants will discuss about what these innovations mean for the higher-education industry, and business schools in particular.
Pre-registration is encouraged but not required. If you’re planning to attend, please let us know by sending an email to email@example.com so we can plan accordingly. Feel free to email me with questions or comments.
| Peter Klein |
O&Mers attending the AoM conference may find these Professional Development Workshops, sponsored by the Academy of Management Perspectives and based on recent AMP symposia, of particular interest:
The first PDW is on “Private Equity” and features presentations on the managerial, strategic, and public policy implications of private equity transactions. Presenters include Robert Hoskisson (Rice University), Nick Bacon (City University London), Mike Wright (Imperial College London), and Peter Klein (University of Missouri). The private equity session takes place Saturday, Aug 10, 2013 from 11:30AM – 12:30PM at WDW Dolphin Resort in Oceanic 5.
The second is on “Microfoundations of Management,” and features presentations from Nicolai Foss (Copenhagen Business School), Henrich Greve (INSEAD), Sidney Winter (Wharton), Jay Barney (Utah), Teppo Felin (Oxford), Andrew Van de Ven (Minnesota), and Arik Lifschitz (Minnesota). The microfoundations session takes place Monday, Aug 12, 2013 from 9:00AM
– 10:30AM at WDW Dolphin Resort in Oceanic 5
| Peter Klein |
Welles was perhaps the greatest auteur of cinema and modern theater, so it’s no surprise that he comes out in favor of flatter hierarchies:
OW: [Irving] Thalberg was the biggest single villain in the history of Hollywood. Before him, an producer made the least contribution, by necessity. The producer didn’t direct, he didn’t act, he didn’t write — so, therefore, all he could do was either (A) mess it up, which he didn’t do very often, or (B) tenderly caress it. Support it. Producers would only go to the set to see that you were on budget, and that you didn’t burn down the scenery. But [Louis B.] Mayer made way for the producer system. He created the fellow who decides, who makes the directors’ decisions, which had never existed before.
HJ: Didn’t the other studio heads interfere with their directors?
OW: None of the old hustlers did that much harm. If they saw somebody good, they hired him. They tried to screw it up afterwards, but there was still a kind of dialogue between talent and the fellow up there in the front office. They had that old Russian-Jewish respect for the artist. All they did was say what they liked, and what they didn’t like, and argue with you. That’s easy to deal with. And sometimes the talent won. But once you got the educated producers, he has a desk, he’s gotta have a function, he’s gotta do something. He’s not running the studio and counting the money — he’s gotta be creative. That was Thalberg. The director became the fellow whose only job was to day, “Action” and “Cut.” Suddenly, you were “just a director” on a “Thalberg production.” Don’t you see? A role had been created in the world. Just as there used to be no conductor of symphonies.
HJ: There was no conductor?
OW: No. The konzertmeister, first violinist, gave the beat. The conductor’s job was invented. Like the theater director, a role that is only 150, 200 years old. Nobody directed plays before then. The stage manager said, “Walk left on that line.” The German, what’s his name, Saxe-Meiningen, invented directing in the theater. And Thalberg invented producing in movies. He persuaded all the writers that they couldn’t write without him, because he as he great man.
Clearly Orson would not agree with my take on entrepreneurship and ultimate responsibility, as applied to the arts. Or do well in a restaurant kitchen. I have to admit, though, that Welles has a certain credibility on the subject of creativity.
| Peter Klein |
A really interesting NBER paper from Thomas Triebs and Justin Tumlinson confirms what you may suspect, that firms operating outside the market system — in this case, in the former East Germany — do not learn the capabilities for judging market signals. Triebs and Tumlinson compare East and West German firms after unification and find that East German firms did not anticipate, or respond to, market information as well as their West German counterparts, other things equal, suggesting that during the Communist period, firms lost (or failed to acquire) the ability to work within a market setting. The paper is based on a formal learning model but the empirical results seem to square with a variety of approaches, including resource-based and managerial capabilities theories.
Learning Capitalism the Hard Way—Evidence from Germany’s Reunification
Thomas P. Triebs, Justin Tumlinson
NBER Working Paper No. 19209, July 2013
Communism in East Germany sought to dampen the effect of market forces on firm productivity for nearly 40 years. How did East German firms respond to the free market after being thrust into it in 1990? We use a formal learning model and German business survey data to analyze the lasting impact of this far-reaching treatment on the way firms in former East Germany predicted their own productivity relative to firms in former West Germany during the two decades since Reunification. We find in confirmation of our formal model’s predictions, that Eastern firms forecast productivity less accurately, particularly in dynamic and uncertain markets, but that the gap gradually closed over 12 to 13 years. Second, by analyzing the direction of firm level errors in conjunction with contemporaneous market signals we find that, in the years immediately following Reunification, Eastern firms estimate the market’s role as generally less potent than Western firm do, an observation consistent with overweighting experiences from the communist era; however, over roughly 14 years both converge to the same (incorrect) overestimate of the market’s role on their productivity.
I’m reminded of Mises’s remark that entrepreneurs, in a socialist economy, learn to excel at “diplomacy and bribery.” I suspect a study like Triebs and Tumlinson’s on political capabilities or skill at political entrepreneurship might yield the opposite result.