Archive for February, 2014

WINIR Conference in Greenwich: Deadline Approaching

| Dick Langlois |

February 28 is the deadline for submitting an abstract to the first conference of the World Interdisciplinary Network for Institutional Research (WINIR), which will take place 11-14 September 2014 at the Old Royal Naval College, Greenwich. Keynote speakers include Timur Kuran. Information and abstract submission at the WINIR website.

25 February 2014 at 10:21 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

Entrepreneurship and Networks Workshop at CBS

| Nicolai Foss |

My colleagues at the Dept of Strategic Management and Globalization at the Copenhagen Business School, Louise Mors, Mia Reinholdt Fosgaard and Lisa Gärber are arranging an exciting workshop, “Micro Foundations of Social Networks and the Implications for Strategy and Entrepreneurship Research,” on June 12-13. The workshop takes place at CBS and has luminaries like Ron Burt and Martin Kilduff as keynote speakers. (The SMS special conference on “Microfoundations of Strategic Management Research: Embracing Individuals“, begins when the workshop ends, so you may combine the two).  This may be of interest to, say, Austrians who seek to add some theoretical and empirical meat to the skeleton of Kirznerian alertness and discovery and who recognize links between these notions and, for example, notions of brokerage in networks.

22 February 2014 at 4:43 am Leave a comment

The Theory of Mind in Agency Theory

| Nicolai Foss |

Agency theory is a highly important foundational theory in management research. It has been of great assistance with respect to conceptualizing and framing key problems in the design and management of reward systems, and it yields sharp and clear predictions. However, it does not provide a realistic treatment of a key psychological aspects of interpersonal relations. Specifically, agency theory does not adequately account for the principal’s ability to develop, hold and adjust a “theory of the agent’s mind”. The theory in fact contains a very lopsided account of the principal’s ability to read the agent’s desires, intentions, knowledge, and beliefs. Thus, in many models in agency theory, the principal’s knowledge of much of what is “inside the head” of the agent (e.g., the agent’s taste for risk, opportunity costs, and disutility of work) is assumed to be perfect, while he is assumed to be entirely ignorant of other aspects of what the agent intends, knows and believes. Such “asymmetrical” assumptions  allow for analytical tractability and clean predictions regarding how incentives and monitoring influences the behavior of agents, such as employees, managers, and suppliers. However, extreme and asymmetrical assumptions can also lead more applied research astray and lead to misapplications of theory in managerial practice. Thus, the assumption that a principal is capable of perfectly grasping, for example, an agent’s motivations seems highly, and increasingly, tenuous: High personnel turnover and the increasing use of fleeting project organization in many industries, as well as the increasing prevalence of cross-national and cross-cultural management teams and networks, make an assumption of a perfect ToM unrealistic.

In a new paper, “Putting a Realistic Theory of Mind Into Agency Theory: Implications for Reward Design and Management in Principal Agent Relations,” my CBS colleague Diego Stea and I take some initial and  highly exploratory steps towards working with a more realistic theory of mind in the context of agency relationships within firms (in an as yet unpublished modelling paper, we work these ideas into an adverse selection model). We argue that novel insights into the design and management of rewards follow from explicitly incorporating a realistic theory of mind into agency theory. Thus, a principal with a good theory of mind can better learn the type of the agent, read the signals related to the agent’s effort, signal to the agent, and adjust rewards to the agent.  A ToM creates value because it results in lower-variance estimates of the agent’s effort and type, and eases the matching of agents with contracts.

20 February 2014 at 1:54 pm 1 comment

Micro-foundations Happening: Strategic Human Capital

| Nicolai Foss |

After about a decade of methodological discussion (involving some preaching on both sides of the debate), the micro-foundations project in macro-management research is now beginning to take off in the “doing” dimension. Specifically, scholars are building micro-foundational theory and they are wrestling with the empirical challenges in the micro-foundations. The theoretical and empirical challenges largely derive from the inherent multi-level nature of the micro-foundations project.  Theory-building cannot just be somehow moving, say, individual-level organizational behavior insights to the organizational level, but must be genuinely multi-level which raises tricky issues of aggregation and downward causation. Data sampling will necessarily have to take place at at least two levels. This  is complicated and usually expensive. Access to good micro-level data is particularly troublesome (one of the advantages of living in a socialist country like Denmark is that the Big Nanny literally looks after her children: We have register data that is incredibly detailed regarding human capital dimensions (i.e., not just gender, age, education, etc., but also complete job history, school and university grades , criminal record, household income, history of medication, etc. — and this is for each and every employee in the DK economy)).

One of the areasis in which the micro-foundations project is being realized in the theoretical and empirical dimensions is what is increasingly often referred to as “strategic human capital.” This is an emerging field (it has its own interest group at the Strategic Management Society) that is quite overlapping with “strategic human resource management,” and which links strategic management, traditional SHR and HR, and human capital theory.  The February special issue of Journal of Management, expertly edited by Patrick Wright, Russ Coff and Thomas Moliterno, three key drivers in the SHRM/SHC field, contains ten fine papers on SHC.  The introductory essay by the editors nicely lays out the main challenges and issues. Many of the challenges are quite “low-practical” — e.g., people trained in strategy focus a lot on endogeneity, where HR and OB people focus a lot on construct validity issues that strategy folks care less about. Yet, such differences may be quite decisive–as the editors learned while handling the review process!  The editors also deal with key issues, such as what are the important dimensions of human capital for the purposes of the SHM field, how can human capital be characterized at different analytical levels, and what are the antecedents and consequences of human capital. I look forward to sinking my teeth into the research articles in the coming week.

16 February 2014 at 5:19 am 1 comment

CFP: Coase Memorial Issue of Man and the Economy

| Peter Klein |

An important announcement from Ning Wang, editor of Man and the Economy:

Man and the Economy
Call for Papers for a Special Issue in Memory of Ronald Coase

“R. H. Coase: The Man and His Ideas”

Man and the Economy will devote a special issue (December 2014) to the life and ideas of Ronald Coase, the 1991 Nobel Laureate in Economics and Founding Editor of this journal. During his long academic life, Coase devoted himself to economics, which, in his view, should investigate how the real world economy works, with all its imperfections. Coase viewed and practiced economics as a social science, a study of man creating wealth in society through various institutional arrangements. To honor the memory of Coase, we welcome original research articles that extend and develop the Coasian economics, including empirical studies of the structure of production and exchange. We also welcome critical and constructive commentaries that clarify and elaborate the Coasian themes, from a law-and-economics/new institutional economics perspective, which include, but not limited to, topics on transaction costs, property rights, theories of the firm and China’s economic transformation. In addition, we also welcome personal reflections and reminiscences of Coase as a colleague, a teacher, an editor, and/or a friend.

Submissions must be made online via the Journal’s website:

Deadline for submissions is September 30, 2014.

12 February 2014 at 8:51 am Leave a comment

More on Business Model Innovation

| 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.

11 February 2014 at 11:57 am 3 comments

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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).