Archive for January, 2015

Benefits of Academic Blogging

| Peter Klein |

I sometimes worry that the blog format is being displaced by Facebook, Twitter, and similar platforms, but Patrick Dunleavy from the LSE Impact of Social Science Blog remains a fan of academic blogs, particularly focused group blogs like, ahem, O&M. Patrick argues that blogging (supported by academic tweeting) is “quick to do in real time”; “communicates bottom-line results and ‘take aways’ in clear language, yet with due regard to methods issues and quality of evidence”; helps “create multi-disciplinary understanding and the joining-up of previously siloed knowledge”; “creates a vastly enlarged foundation for the development of ‘bridging’ academics, with real inter-disciplinary competences”; and “can also support in a novel and stimulating way the traditional role of a university as an agent of ‘local integration’ across multiple disciplines.”

Patrick also usefully distinguishes between solo blogs, collaborative or group blogs (like O&M), and multi-author blogs (professionally edited and produced, purely academic). O&M is partly academic, partly personal, but we have largely the same objectives as those outlined in Patrick’s post.

See also our recent discussion of academics and social media.


30 January 2015 at 11:39 am 1 comment

Two Large-Sample Empirical Papers on Strategy and Organization

| Peter Klein |

Bryan Hong, Lorenz Kueng, and Mu-Jeung Yang have two new NBER papers on strategy and organization using a seven-year panel of about 5,500 Canadian firms. The papers exploit the Workplace and Employee Survey administered annually by Statistics Canada. The data, the authors’ approach, and the results should be very interesting to O&M readers. Here are the links to the NBER versions; there may be ungated versions as well.

Business Strategy and the Management of Firms
NBER Working Paper No. 20846, January 2015

Business strategy can be defined as a firm’s plan to generate economic profits based on lower cost, better quality, or new products. The analysis of business strategy is thus at the intersection of market competition and a firm’s efforts to secure persistently superior performance via investments in better management and organization. We empirically analyze the interaction of firms’ business strategies and their managerial practices using a unique, detailed dataset on business strategy, internal firm organization, performance and innovation, which is representative of the entire Canadian economy. Our empirical results show that measures of business strategy are strongly correlated with firm performance, both in the cross-section and over time, and even after controlling for unobserved profit shocks exploiting intermediates utilization. Results are particularly striking for innovation, as firms with some priority in business strategies are significantly more likely to innovate than firms without any strategic priority. Furthermore, our analysis highlights that the relationship between strategy and management is driven by two key organizational trade-offs: employee initiative vs. coordination as well as exploration of novel business opportunities vs. exploitation of existing profit sources.

Estimating Management Practice Complementarity between Decentralization and Performance Pay
NBER Working Paper No. 20845, January 2015

The existence of complementarity across management practices has been proposed as one potential explanation for the persistence of firm-level productivity differences. However, thus far no conclusive population-level tests of the complementary joint adoption of management practices have been conducted. Using unique detailed data on internal organization, occupational composition, and firm performance for a nationally representative sample of firms in the Canadian economy, we exploit regional variation in income tax progression as an instrument for the adoption of performance pay. We find systematic evidence for the complementarity of performance pay and decentralization of decision-making from principals to employees. Furthermore, in response to the adoption of performance pay, we find a concentration of decision-making at the level of managerial employees, as opposed to a general movement towards more decentralization throughout the organization. Finally, we find that adoption of performance pay is related to other types of organizational restructuring, such as greater use of outsourcing, Total Quality Management, re-engineering, and a reduction in the number of layers in the hierarchy.

22 January 2015 at 10:50 pm 3 comments

Henry G. Manne (1928-2015)

| Peter Klein |

manneVery sorry to report the passing of Henry Manne yesterday at the age of 86. Manne made seminal contributions to the literatures in corporate governance, securities regulation, higher education, and many other subjects. Here are past O&M posts on Manne and his contributions. I tried several times to get him to guest blog on O&M but couldn’t pull it off.

I got to know him fairly well in the last few years and he was a charming companion and correspondent — clever, witty, erudite, and a great social and cultural critic, especially of the strange world of academia, where he plied his trade for five decades but always as a slight outsider.

Here are tributes and commentaries from David HendersonJane Shaw, Don Boudreaux, and me. We’ll share more in the coming days.

18 January 2015 at 6:13 pm 1 comment

Team Science and the Creative Genius

| Peter Klein |

Turing1_jpg_600x639_q85We’ve addressed the widely held, but largely mistaken, view of creative artists and entrepreneurs as auteurs, isolated and misunderstood, fighting the establishment and bucking the conventional wisdom. In the more typical case, the creative genius is part of a collaborative team and takes full advantage of the division of labor. After all, is our ability to cooperate through voluntary exchange, in line with comparative advantage, that distinguishes us from the animals.

Christian Caryl’s New Yorker review of The Imitation Game makes a similar point about Alan Turing. The film’s portrayal of Turing (played by Benedict Cumberbatch) “conforms to the familiar stereotype of the otherworldly nerd: he’s the kind of guy who doesn’t even understand an invitation to lunch. This places him at odds not only with the other codebreakers in his unit, but also, equally predictably, positions him as a natural rebel.” In fact, Turing was funny and could be quite charming, and got along well with his colleagues and supervisors.

As Caryl points out, these distortions

point to a much broader and deeply regrettable pattern. [Director] Tyldum and [writer] Moore are determined to suggest maximum dramatic tension between their tragic outsider and a blinkered society. (“You will never understand the importance of what I am creating here,” [Turing] wails when Denniston’s minions try to destroy his machine.) But this not only fatally miscasts Turing as a character—it also completely destroys any coherent telling of what he and his colleagues were trying to do.

In reality, Turing was an entirely willing participant in a collective enterprise that featured a host of other outstanding intellects who happily coexisted to extraordinary effect. The actual Denniston, for example, was an experienced cryptanalyst and was among those who, in 1939, debriefed the three Polish experts who had already spent years figuring out how to attack the Enigma, the state-of-the-art cipher machine the German military used for virtually all of their communications. It was their work that provided the template for the machines Turing would later create to revolutionize the British signals intelligence effort. So Turing and his colleagues were encouraged in their work by a military leadership that actually had a pretty sound understanding of cryptological principles and operational security. . . .

The movie version, in short, represents a bizarre departure from the historical record. In fact, Bletchley Park—and not only Turing’s legendary Hut 8—was doing productive work from the very beginning of the war. Within a few years its motley assortment of codebreakers, linguists, stenographers, and communications experts were operating on a near-industrial scale. By the end of the war there were some 9,000 people working on the project, processing thousands of intercepts per day.

The rebel outsider makes for good storytelling, but in most human endeavors, including science, art, and entrepreneurship, it is well-organized groups, not auteurs, who make the biggest breakthroughs.

10 January 2015 at 1:26 pm 1 comment


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Nicolai J. Foss and Peter G. Klein, Organizing Entrepreneurial Judgment: A New Approach to the Firm (Cambridge University Press, 2012).
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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).
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