Posts filed under ‘Strategic Management’
| Peter Klein |
At the recent Academy of Management conference in Philadelphia I was pleased to participate in a pre-conference workshop organized by Paul Drnevich, Larry Tribble, and David Croson, “Theories and Their Words: A Cross-Academy Discussion of Perspectives on Value Creation and Capture.” From the blurb:
In this workshop a panel of senior and emerging scholars provides a forum to examine and discuss the roles and implications of several prominent management theories and their differing terminology for creating and capturing value. Our distinguished panelists will provide an overview of the value implications of several well-known foundational theories of the existence and purpose of business organizations: Transaction Cost Economics (TCE), Property Rights Theory (PRT), the Capabilities and Resource-based View (RBV), and Industrial Organization (IO), discuss challenges often encountered in efforts to integrate these theories and their terminology, and explore commonalities and intersections across these perspectives that may yield opportunities for future research. We provide perspectives from the distinguished scholars as a means of clarifying how each theory explains the core concepts of value creation and value capture, without which a sustainable business cannot exist. We then offer a discussion of points of commonality and integration of the theories around value creation and value capture with an open forum Q&A session with the presenters regarding directions for future research. We conclude with round-table breakout discussions, each led by a senior scholar and focused on a specific aspect of the theory they presented for more detailed discussion of future research in that theoretical stream.
The presentations from the workshop are online here. You may find them interesting for for research and for teaching. My own presentation on strategy and transaction cost economics covered the basics of TCE and asked if TCE is really a theory of strategy (short answer: no and yes).
| Peter Klein |
I have a chapter in a new book edited by David Howden and Joseph Salerno, The Fed at One Hundred: A Critical View on the Federal Reserve System (New York: Springer, 2014). My chapter is called “Information, Incentives, and Organization: The Microeconomics of Central Banking,” and builds upon themes discussed many times on this blog, such as Fed independence. Here is a SSRN version of the chapter. The book comes out next month but you can pre-order at the Amazon link above.
| Peter Klein |
Besides the essay on Mark Casson discussed below, the Strategic Entrepreneurship Journal has released forthcoming profiles of Ian MacMillan (by Rita McGrath), Arnold Cooper (by Tim Folta), and Steve Klepper (by Rajshree Agarwal and Serguey Braguinsky), as part of its series on “Research Pioneers.”
| Nicolai Foss |
| Peter Klein |
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.
| Peter Klein |
That’s the title of a new review paper by Nicholas Bloom, Renata Lemos, Raffaella Sadun, Daniela Scur, and John Van Reenen, summarizing the recent large-sample empirical literature on management practices using the World Management Survey (modeled on the older World Values Survey). Here’s the NBER version and here’s an ungated version from the LSE’s Centre for Economic Performance.
This literature has been rightly criticized for its somewhat coarse, survey-based measures of management practices, but its measures are probably the most precise that can be reliably extracted from a large sample of firms across many countries. In that sense it is on par with the Global Entrepreneurship Monitor, the Economic Freedom Index, and other databases that attempt to capture subtle and ultimately subjective characteristics across a broad sample.
Here’s the abstract of the Bloom et al. paper:
Over the last decade the World Management Survey (WMS) has collected firm-level management practices data across multiple sectors and countries. We developed the survey to try to explain the large and persistent TFP differences across firms and countries. This review paper discusses what has been learned empirically and theoretically from the WMS and other recent work on management practices. Our preliminary results suggest that about a quarter of cross-country and within-country TFP gaps can be accounted for by management practices. Management seems to matter both qualitatively and quantitatively. Competition, governance, human capital and informational frictions help account for the variation in management.
It provides a nice overview for those new to this literature. An earlier review paper by Bloom, Genakos, Sadun, and Van Reenen, “Management Practices Across Firms and Countries,” appeared in the Academy of Management Perspectives in 2011, along with some critical comments by David Waldman, Mary Sully de Luque, and Danni Wang.
[Another Becker-themed guest post, this one from former guest blogger Russ Coff, a leader in the emerging field of Strategic Human Capital.]
| Russ Coff |
Human capital theory (HCT) has brought a lot to the strategy literature. It has also held it back as scholars import logic that is inconsistent with core assumptions of the literature.
Before I launch into my heretical rant, let me acknowledge, as others have said so eloquently, Gary Becker was a truly innovative thinker. The most unique part was that, while he was firmly grounded in economic logic, he did not hesitate to venture into new terrain. Though he is most known for his work in HCT, his thoughtful explorations of marriage, discrimination, crime, and many other topics demonstrate the breadth and depth of his intellect.
However, strategy represents new terrain that is often inconsistent with the logic of HCT. In this sense, I think Becker would have relished the opportunity to examine this context as a new problem. Human capital challenges the strategy literature in the most fundamental ways possible – if we go beyond a cursory integration with Becker’s world. Here are some examples:
How much does firm-specific human capital (FSHC) matter? Drawing on HCT, scholars often assume firm specificity is important since it hinders mobility and allows the firm to capture rent. However, recent work suggests that this effect may be overstated. It requires strong information about human capital as opposed to the coarse signals that employers often rely upon. Thus, a worker moving from a successful firm may have ample opportunities as the firm’s success serves as a signal of the worker’s capabilities – FSHC investments are ignored. Even with strong information, individuals who invest in FSHC may be in demand by firms seeking employees who are willing and able to make such investments. When we consider such market imperfections (at the core of strategy theory), some of the classical HCT logic breaks down.
General human capital as a source of competitive advantage? Recent work in economics (Lazear’s skill-weights model) and the literature on stars focuses on workers who have skills that are valuable across firms. Both literatures point out how valuable and rare such skills can be (at very high levels). The scarcity and imperfect markets suggest that general human capital can be a source of advantage. Such people may be much more scarce and much less mobile than is assumed in classical HCT. Practitioners focus extensively on this type of knowledge. Can it lead to an advantage?
What is competitive advantage? From this, we might ask some more fundamental questions about competitive advantage, firms, and ownership. Most scholars implicitly adopt an agency theoretic view where shareholders are the only residual claimant and competitive advantage is therefore rent that flows to shareholders. Any value that flows to employees is considered not to have been captured by the firm. Joe Mahoney points out that shareholders would be the sole residual claimants if all factors are traded in perfectly competitive markets (e.g., wage = MRP). For this to be true, firms would have to be homogeneous and human capital would need to be a commodity. As such, this logic assumes away the possibility of competitive advantage altogether. If firms are heterogeneous and there are factor market failures, shareholders would not generally be sole residual claimants. What, then, is competitive advantage? (more…)