Posts filed under ‘Management Theory’
Extreme Decentralization at Walmart
| Peter Klein |
A fascinating NY Post story on Walmart by a reporter who went undercover and got hired as an entry-level worker. The story reveals a surprising amount of decentralization for a firm sometimes regarded as some kind of Taylorite dinosaur. (Thanks to Rafe Champion for the pointer.) Excerpt:
Having pledged ourselves, we encountered the aspect of Wal-Mart employment that impressed me most: The Telxon, pronounced “Telzon,” a hand-held bar-code scanner with a wireless connection to the store’s computer. When pointed at any product, the Telxon would reveal astonishing amounts of information: the quantity that should be on the shelf, the availability from the nearest warehouse, the retail price, and (most amazing of all) the markup.
All of us were given access to this information, because — in theory, at least — anyone in the store could order a couple extra pallets of anything, and could discount it heavily as a Volume Producing Item (known as a VPI), competing with other departments to rack up the most profitable sales each month. Floor clerks even had portable equipment to print their own price stickers. This was how Wal-Mart detected demand and responded to it: by distributing decision-making power to grass-roots level. It was as simple yet as radical as that.
We received an inspirational talk on this subject, from an employee who reacted after the store test-marketed tents that could protect cars for people who didn’t have enough garage space. They sold out quickly, and several customers came in asking for more. Clearly this was a singular, exceptional case of word-of-mouth, so he ordered literally a truckload of tent-garages, “Which I shouldn’t have done really without asking someone,” he said with a shrug, “because I hadn’t been working at the store for long.” But the item was a huge success. His VPI was the biggest in store history — and that kind of thing doesn’t go unnoticed in Arkansas.
New Theoretical Developments in Strategic Management
| Mike Sykuta |
“New Theoretical Developments in Strategic Management: Opportunities for Research Contributions” is the topic of an interactive online seminar Thursday, 26 February, 12:00-1:30pm EST. The speaker is Michael Hitt, Distinguished Professor of Management and the Joe B. Foster Chair in Business Leadership and the C.W. and Dorothy Conn Chair in New Ventures at Texas A&M University. During the 90-minute seminar participants will explore theoretical developments in strategic management including the resource-based view, institutional theory, and a new concept of strategic entrepreneurship, and will offer updates on how more established theories such as TCE and agency theory are being applied.
The seminar is sponsored by the Agribusiness Economics & Management (AEM) Section of the Agricultural & Applied Economics Association (AAEA). The AEM Section has sponsored online seminars previously on topics that may be new or less familiar to its members, one of the more valuable contributions any professional society provides. Although many of the “new theoretical developments” described above may not seem quite so new to frequent O&M readers, they are certainly more novel in the context of agribusiness research.
You can register for the conference as an individual or as a host location for as many people as can fit into your local class or conference room. This is an especially good opportunity for graduate students and faculty to learn more about the research opportunities in this area. I expect several of our Missouri colleagues and grad students will be participating. Check out the conference website for information about technical requirements and registration.
Attacking Incentive Pay is the “Height of Irresponsibility”
| Peter Klein |
Imagine you’re a salesperson at a company. In order to create an incentive for you to bust your tail, the company negotiates with you a leveraged compensation plan under which you receive a relatively small base salary plus fairly generous commissions on the sales you close. Suppose you do a bang up job one year, but the company as a whole suffers a loss because of some poor decisions beyond your control (or because of developments in the macroeconomy, such as the bursting of an asset bubble facilitated by government-sponsored entities). Now imagine that the government perceives your company to be strategically important and therefore decides to subsidize it by, say, buying its preferred stock or extending it a loan. Would it be “the height of irresponsibility” for your employer to honor your legitimate compensation expectations and pay you the wages that you effectively earned under your implicit deal with the firm? And what would happen if your employer didn’t pay you what you legitimately expected? Wouldn’t you and the other successful salespeople at your company immediately bolt, leaving the company with a much less effective sales force?
I have little to add to Thom’s excellent post on Obama’s populist attack on bonuses except to note that the compensation system is just one element of a firm’s organizational architecture (along with the allocation of decision rights, systems of performance evaluation, and so on). The firm, as Holmström and Milgrom put it, is an incentive system, and the elements of this system interact in complex and nuanced ways. The idea that regulators can simply march in and dictate changes to one element or another, based on popular prejudice, without affecting the performance of the system, is typical of the hubris of the intellectual.
The Heath Brothers on Incentives
| Peter Klein |
Dan and Chip Heath worry that incentive plans backfire because of focusing illusion — managers place too much weight on a single variable in the incentive contract, ignoring the likely side effects. I don’t disagree that this is possible but Chip and Dan seem to be knocking down a pretty feeble straw man. The drawbacks of single-variable, quantitative incentive schemes are well known in the organizational design literature, spawning oodles of studies of multi-tasking, the use of multiple performance measures, the benefits and costs of subjective evaluation criteria, and the like. (There’s a nice overview in BSZ chapter 16.)
The Economics and Sociology of Stonehenge
| Peter Klein |
Recent research on Stonehenge recognizes that its construction was not just a massive technological undertaking, but a huge organizational challenge as well. Here’s a recent item from American Scientist (via 3quarks):
Although many people might straightforwardly conclude that an undertaking on the scale of Stonehenge must have been an expression of concentrated power within Neolithic society, the claim cannot be conceded without thinking about the long processes of inspiration, discussion, mobilization of labor and periodic reenergizing of all those involved that must have accompanied such enterprises and indeed made them possible. The challenge for archaeologists can slide from simple detection of the presence of power to analysis of the ways in which social preeminence could be asserted and maintained for what was all too often just a brief interval.
So research into the ways in which monuments “worked” is crucial. How did people approach and move around these great assemblies of earth, timber and stone? Did they do so freely, or were they directed? What did interventions in nature on this scale signify, and what meanings could be projected by the materials used in their construction? How were tradition and innovation respectively regarded? Leaders or would-be leaders must have had tricky paths to negotiate.
I’m waiting for the pop-management book, Leadership Lessons from the Stonehenge Builders.
New Foss Thought Piece
| Nicolai Foss |
I blatantly confess that I enjoy writing what are known in academic putdown-ese as “essays” or “thought pieces,” that is, “conceptual” papers that do not construct a theoretical model, and/or engage in empirical analysis. My most recent product in this genre is inelegantly titled, “Alternative Research Strategies in the Knowledge Movement: From Macro Bias to Micro-Foundations and Multi-level Explanation.” It is an invited paper for European Management Review (the other invited contributors are David Teece, Bronwyn Hall and Will Mitchell). Mail me at njf.smg@cbs.dk if you want a copy. Here is the abstract:
The emergence over the last two decades or so of “knowledge” as an important part of the explanatory structure of management research is an intellectual breakthrough that is comparable in terms of its transforming impact to the behavioral revolution of the 1960s. A veritable “knowledge movement” has emerged that spans several fields in management. I take stock on alternative research strategies with that movement, distinguishing between “capabilities first,” “networks first,” and “individuals first” strategies. Reasons are given why more research attention need to be allocated to the latter strategy if the knowledge movement is to continue making progress, but that the aim should ultimately be to reach towards multi-level research that combines aggregate constructs with top-down processes and bottom-up processes.
New Book on Knowledge Governance
| Nicolai Foss |
I and various other people, notably Prof. Anna Grandori (U. Bocconi), who came up with the term, have been pushing the notion of “knowledge governance” over the last five years or so.
The organizing knowledge governance idea is that processes of knowledge use, creation, retention, integration, and sharing can be influenced towards desired levels through the deployment of administrative apparatus. “Knowledge governance” signifies that this field is taken up with the interplay between knowledge processes and organizational processes. It represents the coalescing of a number of parallel developments, such as the convergence of organizational economics (i.e., transaction cost economics, property rights theory and agency theory) and the knowledge-based view in strategic management, and the emerging interface between knowledge management and perspectives from organization theory and organizational behavior. Here is a Primer on knowledge governance.
With Professor Snejina Michailova of the University of Auckland, I have edited Knowledge Governance: Processes and Perspectives, which was published this week by Oxford University Press. It features a number key contributors to the emerging knowledge governance field, including Anna Grandori, Jackson Nickerson, Todd Zenger, Linda Argote, and Teppo Felin. (more…)
Wernerfelt (1984)
| Nicolai Foss |
Birger Wernerfelt’s 1984 paper in the Strategic Management Journal, “A Resource-based Theory of the Firm,” is conventionally considered one of the founding contributions to the RBV, on par with Jay Barney’s 1986 and 1991 papers. The paper has more than 6,000 hits on Google Scholar (which probably translates into more than a thousand on Web of Science), while Barney’s 1991 paper has more than 10,000. Although the underlying conceptualization of the firm is similar, the papers address different dependent variables, namely diversification and growth (Wernerfelt) and sustained competitive advantage (Barney) (a point missed by those who indiscriminately cite both papers, usually in the context of competitive advantage).
In a recent paper in Organization Studies, “The Development of the Resource-based View: Reflections from Birger Wernerfelt,” Andy Lockett, Rory P. O’Shea, and Mike Wright draw on conversations with Wernerfelt to tell the story of the 1984 paper. (more…)
Sentences to Ponder
| Peter Klein |
[A] firm’s internal organization is not fully reducible to routines, norms, and firm-specific customs. The element of command — emphasized rightly by Coase and Williamson — is of great importance as well. A firm is neither reducible to custom and norms, nor to hierarchy and command. All elements interact strongly, and monetary incentives play a role as well.
That’s from Ekkehart Schlicht’s “Consistency in Organization,” in the December 2008 issue of JITE (not yet online; SSRN version here). Schlicht argues that the exercise of authority in organizations establishes precedent — commands to do this or that become routines or customs that are embedded into the organization’s culture — and that authority must be used consistently within the organization, suggesting limits to firm size and scope. Interesting read. Some similarities to Nickerson and Zenger’s envy theory.
It Was Only a Matter of Time . . .
| Peter Klein |
. . . before someone blamed the financial crisis on agency theory. Sure enough, Raymond Fisman and Rakesh Khurana trace the source of the current mess not to expansionary monetary policy, or lax underwriting standards, or implicit (now explicit) government guarantees against market discipline, or the Basel Committee, or a host of other policy and institutional failures, but to business schools, and the critics’ favorite bête noire, the concept of shareholder wealth maximization.
[B]usiness schools [promote] a particular brand of free-market ideology — squarely focused on shareholder maximization theories — that forms the staple fare of MBA and executive education courses today. . . .
In the world views that underlie modern business education, the market always “gets prices right” and “managers” are merely agents for shareholders. An individual’s worth can be reduced to one’s worth in the market.
If I get $100 million in compensation, the thinking goes, it is because ‘I deserve it.’ There is no discussion of the role of circumstance, luck or market failure. It is the type of thinking that has resulted in literally hundreds of billions of dollars being transferred away from organizational resources and into the personal bank accounts of CEOs, and is now bringing capitalism to its knees.
So, teaching future managers how the price system works, how managerial behavior effects shareholder wealth, how marginal productivity affects wages, and the like is equivalent to encouraging managers to lie, cheat, and steal! I suppose it would be better to teach that water runs uphill, that central planning is more efficient than free markets, and that men are angels. Perhaps we should cover socially responsible statistics and accounting too.
Sumantra Ghoshal famously blamed transaction cost economics and agency theory for much of the world’s ills, including the Enron affair. At least Ghoshal offered some arguments. Fisman and Khurana can’t be bothered. (HT: Ben Asa Rast.)
Christmas Links
| Peter Klein |
Rotman’s Roger Martin explains the challenges faced by Santa in the Knowledge Economy:
While he may have an indisputable track record of effectiveness, Santa is clearly an industrial-age leader. He is going to need to change his leadership style dramatically to prosper in the knowledge economy. His focus on the physical characteristics of his workers — e.g. Rudolph’s red nose — is “old world.” He just has to learn how to value and reward the brains and accumulated knowledge of his elves and reindeers for his enterprise to prosper in the new economy.
The problem with satire, however, is that some people don’t quite get the joke. Consider, for example, this book on leadership, the contents of which can be summarized thusly:
1. Build a wonderful workshop!
- Make the MISSION the MAIN THING
- Focus on your PEOPLE as well as your purpose
- Let VALUES be your guide
2. Choose your reindeer wisely!
- Hire TOUGH so you can manage EASY
- PROMOTE the right ones….for the right reasons
- Go for the DIVERSITY advantage
3. Make a list and check it twice!
- PLAN your work
- WORK your plan
- Make the MOST of what you have
4. Listen to the Elves!
- OPEN your ears to participation
- PAY ATTENTION to how you’re perceived
- Walk awhile in THEIR shoes (more…)
Pomo Alert: New Management Journal Special Issues
| Peter Klein |
We haven’t raised the pomo periscope for a while, but two recent management journal special issues call for its return. The June 2008 issue of the Scandinavian Journal of Management contains a symposium on “Recreating/Recontextualising Entrepreneurship,” which includes such articles as “Accidental Ventures — A Materialist Reading of Opportunity and Entrepreneurial Potential” and “Transduction and Entrepreneurship: A Biophilosophical Image of the Entrepreneur.” Then there’s the new issue of ephemera, with the theme “University, Failed” and articles like “Institutionalizing Critique: A Problem of Critical Management Studies,” “Epistemic Convenience,” “I Wanted to Be an Academic, Not a ‘Creative’: Notes on Universities and the New Capitalism, and “We Are All Workers: A Class Analysis of University Labour Strikes.” Hoo-boy.
Good to Great: Neither Good nor Great
| Peter Klein |
I’m not a fan of “guru” books like In Search of Excellence, Built to Last, and Good to Great, for reasons well documented by Phil Rosenzweig in his excellent Halo Effect. These books suffer from ad hoc generalization, sampling on the dependent variable, and a host of related methodological and expository flaws. If Rosenszweig’s critique is startling, then two articles from the November 2008 Academy of Management Perspectives on Jim Collins’s Good to Great — perhaps the leading guru book of our time — are devastating. Here is Bruce Resnick and Timothy Smunt:
With sales of more than 4.5 million copies, Good to Great by Jim Collins provides an inspiring message about how a few major companies became great. His simple but powerful framework for creating a strategy any organization can use to go from goodness to greatness is certainly compelling. However, was Collins truly able to identify 11 great companies? Or was the list of great companies he generated merely the result of applying an arbitrary screening filter to the list of Fortune 500 companies? To test the durability of his greatness filter, we conducted a financial analysis on each of the 11 companies over subsequent periods. We found that only one of the 11 companies continues to exhibit superior stock market performance according to Collins’ measure, and that none do so when measured according to a metric based on modern portfolio theory. We conclude that Collins did not find 11 great companies as defined by the set of parameters he claimed are associated with greatness, or, at least, that greatness is not sustainable. (more…)
Directions for a Troubled Discipline: Strategy Research, Teaching, and Practice
| Peter Klein |
That’s the title of a symposium in the new issue of the Journal of Management Inquiry, edited by Michael Lounsbury and Paul Hirsch.
Debates about relevance versus rigor in management research have only grown in intensity over the past decade (e.g., Pfeffer, 2008). The following dialog highlights how these concerns have become manifest in the field of strategy, in which there has been disquiet in some circles about the dominance of abstract theorization and a movement toward a re-engagement with practice and practitioners (e.g., Jarzabkowski, 2005; Kaplan, 2003; Whittington, 2006; Whittington et. al., 2003). After a brief introduction by Jarzabkowski and Whittington that situates the dialog, Bower’s article “The Teaching of Strategy: From General Manager to Analyst and Back Again?” defends the importance of a practitioner focus by highlighting the historical role of process research in the early development of the business policy field and the case-oriented teaching tradition at the Harvard Business School. In contradistinction, Grant’s article on “Why Strategy Teaching Should be Theory Based” emphasizes the importance of economic theory in both strategy teaching in research. Finally, in “A Strategy-as-Practice Approach to Strategy Research and Education,” Jarzabkowski and Whittington conclude with an argument hat aims to forge a truce between these often rhetorically opposed positions. They argue that a strategy-as-practice perspective can usefully bridge the divide between research and practice without sacrificing either rigor or relevance.
This issue of JMI also includes a 25-year retrospective on DiMaggio and Powell’s famous “Iron Cage Revisited” paper, for you institutional isomorphism types out there (we know who you are).
Interesting Blogs
| Peter Klein |
- Urban and Regional Studies, by Pedro Marquez
- Beerkens’ Blog, by Eric Beerkens
- Estzer’s Blog, by Eszter Hargittai
- Terminal Degree, by a funny music professor
Organizational Economics versus Strategy
| Peter Klein |
Brayden has a nice post at our good-twin blog on the differences between organization theory and strategy research. Writing from the perspective of an organizational sociologist, Brayden argues that organization theory is a higher-status, “purer” discipline, but that strategy research asks better questions and is providing more insight into organizations than organization theory.
I think much of Brayden’s analysis carries over to economics as well. Organizational economics (referring to people like Tirole, Hart, Gibbons, Holmström, Baker, Zingales, Aghion, Garicano, Bolton, etc.) has a much higher status than the kind of work published in the Strategic Management Journal or the strategy papers in Organization Science, the Academy of Management Review, or Management Science. (If by “strategy” we mean simply game theory, then strategy research would have the same status as organizational economics.) The explanation is simple: economic theory is a high-status discipline while sociology and applied economics, sociology, and psychology are not. A prominent economist who does some work that could be considered strategy once told me, when asked about SMJ, that its authors “ask good questions, but don’t know how to answer them.” He said it with a knowing smile and a slight shake of the head, the way a Southerner might say “bless their hearts.” Still, one would have to admit that some terrific work has come out of the strategy journals in recent years, particularly (ahem) as economics has become a more foundational discipline in that field.
Micro-Foundations at the Rotterdam School of Management
| Nicolai Foss |
We have blogged extensively on “micro-foundations” here on O&M (particularly in those Golden Days of O&M when the present blogger was more active). The micro-foundations theme seems to be gaining a lot of ground in management recently. About two years ago I had a paper on the subject rejected from a leading management journal because the reviewers and the editor argued that the micro-foundations theme was essentially non-controversial and scholars handled it in a pragmatic manner — i.e., there was no need to raise it as an issue. That same editor, I hear, is now actively talking about the pressing need for micro-foundations in management ;-) This reflects an increasingly widespread discourse on the subject. At the recent Strategic Management Society Conference in Köln micro-foundations were explicitly discussed in several of the PDWs, in David Teece’s keynote speech, in the keynote panel that I participated in, and in lots of paper sessions.
The work of Teppo Felin and I on the micro-foundations issue (e.g., here) has been particularly taken up with the lack of clear micro-foundations in the dominant capabilities view of the firm and strategy. Back in 2005 Teppo and I organized a two-days conference in Copenhagen on the subject. Koen Heimeriks, then an Assistant Professor at Copenhagen Business School, is organizing something like a follow-up conference at the Rotterdam School of Management where he is now an Assistant Professor. Keynote speakers are Sid Winter, Maurizio Zollo, and yours truly. Here is the homepage for Koen’s conference. Koen is a very good and meticulous conference organizer, the subject is inherently interesting, so please submit a paper!
Alfie Kohn on Parenting
| Peter Klein |
A new item for our Alfie Kohn archive, courtesy of Joshua Gans.
One comment on the alleged crowding-out effect of extrinsic motivation. As I explain to my students, even when behavior is intrinsically motivated, extrinsic motivation can have powerful effects on the margin. For example, I didn’t go into academia for the money, but because I love research and teaching, I like keeping my own hours, I enjoy walking through leafy quads, and I look right smart in a tweed jacket with elbow patches. However, on the margin, the choice between teaching one more course or one less, attending this conference or that, working on one paper or another, is most definitely affected by monetary and other professional rewards.
Likewise, I want my children to work hard, be kind to others, eat their vegetables, clean their rooms, and so on, not because of rewards and punishments, but because those are the rights thing to do. But do I use extrinsic motivation to elicit marginal changes in behavior, subject to those general rules? You bet your Christmas Wish List I do.
New Issue of Strategic Entrepreneurship Journal
| Peter Klein |
Volume 2, number 3 of the Strategic Entrepreneurship Journal, a special issue edited by Sharon Alvarez and Jay Barney on “Opportunities, Organizations, and Entrepreneurship,” is now out. It features my paper “Opportunity Discovery, Entrepreneurial Action, and Economic Organization,” Nicolai’s paper with Kirsten Foss, “Understanding Opportunity Discovery and Sustainable Advantage: The Role of Transaction Costs and Property Rights,” and several others of interest. The abstracts from my paper and the Foss & Foss paper are below the fold. (more…)
Nair, Trendowski, and Judge on Penrose
| Peter Klein |
The October 2008 AMR features an essay by Anil Nair, Joseph Trendowski, and William Judge on Edith Penrose’s seminal Theory of the Growth of the Firm (1959), written in the form of a book review. The essay is gated, but you can get a flavor from the conclusion:
Many economists call the unexplained variance in a regression equation the “Penrose effect.” According to Barney, it was left to strategy scholars to propose that the Penrose effect comprises the intangible resources and capabilities that are the source of sustained competitive advantage, and while these phenomena may be difficult to measure directly, the implications of these phenomena for firms’ operations and performance could be tested. After reviewing the passionate and prolific research that has attributed its intellectual roots to Penrose’s book, it is clear to us that her work was successful in rallying scholars who sought an alternative to the standard structure-conduct-performance model within strategy. However, scholars should be careful that Penrose’s theory (and the book) does not become a Rorschach blot on which they impose their own biases.
Here is a paper that links Penrose to Austrian concepts of subjectivism and capital heterogeneity. Penrose was of course a student of Fritz Machlup, himself a student of Mises. Apparently at one point the book was to be a joint project with Machlup; in Murray Rothbard’s papers is a memo Rothbard wrote for the Volker Fund evaluating a 1953 grant proposal by Machlup and Penrose for a “Growth of the Firm” project. (Rothbard’s assessment was unfavorable; he was, however, a fan of Penrose’s earlier paper on “Biological Analogies in the Theory of the Firm,” which he cites favorably in “The Mantle of Science.”)
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