Posts filed under ‘Management Theory’
Kitchen Hierarchy
| Peter Klein |
Before Kitchen Confidential made him a celebrity, Anthony Bourdain was a real chef, working upscale New York kitchens at places like the Supper Club and Sullivan’s. Bourdain’s style is not to everyone’s taste, but he knows how to manage a restaurant crew. A chef, after all, is not primarily an artist, but a manager, facing the same set of organizational challenges — delegation, incentives, monitoring — as any administrator.
I mention this because I recently stumbled upon an interview with Bourdain in the July 2002 Harvard Business Review. Despite several attempts by interviewer Gardiner Morse to get Bourdain to endorse creativity, spontaneity, and empowerment in the kitchen, Bourdain remains an unreconstructed devotee of Escoffier’s “brigade system,” a sort of culinary Taylorism in which each member of the cooking staff has a fixed place in the production chain, a very narrow job description, and an obligation to obey his chef de partie (section leader) and the head chef without question. (more…)
Call for Papers: Honoring the Life and Works of Alfred Chandler
| Peter Klein |
Shawn Carraher and John Humphreys are editing a special issue of the Journal of Management History devoted to the life and work of the late Alfred D. Chandler, Jr. (1918-2007). Submissions are due 7 April 2008. Details below the fold. (more…)
ASSA 2008 Papers on Organizations
| Peter Klein |
Some interesting papers from the ASSA Meeting in New Orleans, where I’ll be spending the next couple of days. (I don’t have links, so you’ll have to do your own Googling to find the texts.)
ROBERT GIBBONS and REBECCA HENDERSON, Massachusetts Institute of Technology — What Do Managers Do? Suggestive Evidence and Potential Theories about Building and Managing Relational Contracts
CLAUDE MENARD, ATOM – University of Paris Pantheon-Sorbonne — The Governance of Interfirm Agreements: A Relational Contract Perspective
RICARD GIL, University California-Santa Cruz, and JEAN-MICHEL OUDOT, ATOM – University Paris Pantheon-Sorbonne — Contractual Completeness and Ex-post Efficiency: Trade-Offs between Ex-Ante and Ex-Post Costs in Contract Design
LUIS GARICANO and PAUL HEATON, University of Chicago — Information Technology, Organization, and Productivity in the Public Sector: Evidence from Police Departments
DANIEL SPULBER, Northwestern University — Entrepreneurs in the Theory of the Firm (more…)
Review Papers on Personnel Economics
| Peter Klein |
The economics of human resource management, or personnel economics as it’s come to be called, is surveyed in two new papers, this one by Edward Lazear and Paul Oyer for the forthcoming Handbook of Organizational Economics and this one by Lazear and my former CEA boss Kathryn Shaw for a future issue of the Journal of Economic Perspectives.
These reviews emphasize the generality of the economic approach and argue that it explains observed HR practices, such as the rising variance in pay across individuals, increased use of pay-for-performance schemes, greater reliance on teamwork, and the like better than rival theories. E.g., from Lazear and Shaw:
In the not-too-distant past, the typical textbook on human resources management would often eschew generalization, arguing that each situation is different. The economist’s approach is the opposite. Rather than thinking of each human resources event as separate and institutionally driven, economists place a premium on identifying the underlying general principles, and on using specific institutional details to identify the causal sources of the general principles.
I’m not sure all our sociologically and psychologically inclined readers will be comfortable with this generalization. Anyway, Lazear and Shaw’s conclusion, which describes the growth of the field, is worth quoting in full: (more…)
My Pet Peeve
| Steve Phelan |
One of my pet peeves is when academics assume that people in industry are a little “dim.” For instance,
It would be churlish to point out that the fact that one should be extremely leery of arguments that diversification radically improves the safety of bond investments was well known back by Edgar L. Smith and others back in 1923.
This quote from Brad De Long here.
I’m not picking on Brad because it happens quite a bit in my experience. The “oh my gosh, we academics have known since 1923 that diversification of bonds does not reduce systematic risk that much, you dumbasses.”
Contrast this view with the fact that the brightest minds in a generation have been taking jobs on Wall Street. So the smartest people are the biggest dumbasses???
In these matters, I prefer to assume plausible deniability. Reducing systematic risk by combining geographically diversified BBB bonds sounds just plausible enough to avoid litigation for fraud and/or negligence. Now that’s smart!
A False Dichotomy?
| Steve Phelan |
John Mathews recently sent me a conference paper on Kirznerian, Schumpeterian, and Ricardian approaches to entrepreneurial dynamics.
Aside from questioning the resource-based theory of entrepreneurship, the paper also attempts to resolve the Kirznerian/Schumpeterian schism in entrepreneurship — namely whether entrepreneurs drive the economy towards equilibrium (Kirzner) or disequilibrium (Schumpeter). (more…)
Rent and Quasi-Rent
| Steve Phelan |
In a recent paper in the Journal of Business Venturing, Sharon Alvarez attempts to construct a theory of entrepreneurship and the firm. The central question is why new resource combinations are sometimes carried out by entrepreneurs starting new ventures rather than within established firms. (more…)
A Critique of Economics from an Unusual Direction
| Steve Phelan |
Charlie Munger, the second largest shareholder in Berkshire Hathaway after Warren Buffett (and a member of the Forbes Wealthiest 400) gave a speech at UCSB a few years ago. The full transcript of his speech can be found here. (more…)
Hawthorne Experiments Online Exhibition
| Peter Klein |
As part of its 100th anniversary HBS is featuring a number of online exhibitions, including this one on the famous Hawthorne Experiments from 1924 to 1933. A nice set of photos, documents, and commentary.
Here is Jeffrey Sonnenfeld’s 1985 article on the Hawthorne studies (JSTOR), emphasizing their role in challenging the Taylorite “scientific management” paradigm and laying the groundwork for the modern discipline of organizational behavior. “The prevailing notions of the time of the Hawthorne studies were that individual human behavior was to be corrected for and controlled. The study of purely formal static social structures all but disappeared with the publication of the Hawthorne research. . . . [T]he Hawthorne researchers were the first to emphasize the social complexities of organization life and what came to be called a systems approach (p. 115).”
Here is the Wikipedia entry on the Hawthorne effect, the phenomenon of subjects in a behavioral experiment changing their behavior in response to being observed (or, more generally, anyone behaving differently in response to attention). The section of the exhibit on the Hawthorne effect is slicker but less detailed.
JMS Special Issue on the Entrepreneurial Theory of the Firm
| Peter Klein |
In the Spring of 2005 I attended a terrific workshop on “The Entrepreneurial Theory of the Firm,” organized by Sharon Alvarez and Jay Barney and held at Ohio State University. Participants included Mark Casson, Dick Langlois, Sid Winter, Ulrich Witt, Ivo Zander, Simon Parker, Todd Zenger, Steve Michael, Bill Schultze, and several others. The papers and discussions explored a variety of approaches for linking the theory of entrepreneurship to the economic and strategic theory of the firm, a subject near and dear to our hearts here at O&M.
The workshop papers have now been published as a special issue of the Journal of Management Studies (volume 44, number 7, November 2007), edited by Sharon and Jay. A special contribution from Brian Loasby, who wasn’t able to attend the workshop, is included. And don’t miss this paper from an unusually structured joint-spousal team.
Deconstructing Bob and Jeff
| David Hoopes |
For better or worse the hard-hearted authors at O&M have hurt the feelings of our colleagues in other fields. In the spirit of being more specific about why the bloggers here are so harsh I’d like to take a look at an award-winning paper from the Academy of Management Review (Ferraro, F., Pfeffer, J., and Sutton, R.I., “Economics Language and Assumptions: How Theory Can Become Self-Fulfilling”). In this paper we are told how the language of economics (the assumptions that people are selfish cheats) encourages people to be selfish cheats. Aside: in my opinion sociologists have a much darker image of humankind than economists (if we must make careless generalizations).
As I note in an earlier post, the idea of self-interest is often grossly misrepresented. Perhaps economists can thank themselves for this. I don’t know. However, it is important to examine this component of price theory by looking at its roots. In developing public policy toward government intervention in the allocation of goods (mercantilists vs. free traders in Smith’s day) allowing people to make their own decisions is more efficient than having a handful of people making the decisions for everyone. And even if individuals focus on their own needs the result for society is better than having a few people guessing at what everyone else wants and imposing their guesses.
The starting point of the AMR critique is the ever-present complaint about the economics world telling us all that we need to be selfish and greedy (make decisions based on our own self-interest). From here, our friends in the org. theory camp state, “If people are relentless in the pursuit of their own self-interest and equally relentless in the their lack of concern for others’ interests. . . .” What? Where did that second part come in? A very important bridge theory has been added. If people pursue their own self-interest then they also cannot care about anyone else. Management scholars wonder why their (our) work is not used in public policy debates. Small wonder. (more…)
Individuals and Organizations at DRUID Redux
| Nicolai Foss |
There are few things more time-consuming than hustling for slush funds in the university system (as George Stigler once quipped, academic infights are particularly violent because the stakes are so low!) — which explains my very low blogging frequency over the last 4-5 weeks. However, I should have more time on my hands now, so here goes:
As I related earlier, this year’s D(anish) R(esearch) U(nit) (for) I(ndustrial) D(ynamics) conference highlighted methodological individualism in a panel debate between Peter Abell, Thorbjørn Knudsen, Sid Winter, and yours truly (here is the stream). Although the DRUID crowd didn’t wholeheartedly embrace methodological individualism, the broader theme of micro-foundations — explicitly promoted in a management context for some time now by Teppo Felin and I (eg., here, here, and here) — seems to have caught on.
Thus, Thorbjørn Knudsen organizes a one day event, a “DRUID Fundamental” back-to-back to next years DRUID conference on the subject of micro-foundations in strategy and organization. It takes place on June 17. Among the speakers are Rich Burton, Linda Argote, Ranjay Gulati, Sid Winter, and the present blogger. Check Thorbjørn’s call here.
The Organizational Implications of Creativity
| Peter Klein |
This paper, forthcoming in Organization Studies, asks how entrepreneurs can structure firms to encourage employee creativity and discovery while discouraging unproductive rent-seeking. The former requires delegation and the latter requires close monitoring and control; managing these trade-offs is a key to successful entrepreneurial performance.
In “The Organizational Implications of Creativity,” Richard Gil and Pablo Spiller examine a similar trade-off: the choice between internal and external procurement of creative activities. The nature of these activities makes them difficult to manage internally, but buying creative content on the market subjects the buyer to the winner’s curse. Here’s the abstract:
We develop a basic framework to understand the organization of highly creative activities. Management faces a fundamental tradeoff in organizing such activities. On the one hand, since creativity cannot be achieved by command and control or by monetary incentives, internal/contractual production of creative products is plagued by hazards arising from their fundamental characteristics: extremely high input, output and market uncertainty, and the inherent informational advantages of creative talent. Procuring highly creative products in the market place, though, exposes the distributor to a fundamental risk: independently produced creative goods are generic distribution-wise. Thus, in procuring creative products in the marketplace, distributors face the unavoidable winner’s curse risk. Since this risk is, to a large extent, independent of the creative nature of the product, the higher the creative content, the higher the relative hazards associated with internal or contractual production. Thus, internal/contractual production of creative goods will tend to be less prevalent the higher the creative content associated with its production. We apply this insight to the evolution of the U.S. film industry in the mid-XXth century. We exploit two simultaneous natural experiments — the diffusion of TV and the Paramount antitrust decision forcing the separation of exhibitors from distributors and prohibiting the use of block-booking. Both events increased the demand for creative content in movies. We develop empirical implications which we test by analyzing in detail the decision by distributors to produce films internally or to procure then in the market place, in the face of an increase in the demand for creative content.
Qualitative Comparative Analysis
| Peter Klein |
I learned about Qualitative Comparative Analysis (QCA) from Peer Fiss at last month’s Sundance conference on comparative organizations. QCA is a kind of cluster analysis that is said by its proponents to be superior to linear regression for identifying causal relationships among variables in small samples. Kogut, MacDuffie, and Ragin (2004) and Fiss (2007) apply QCA to organizational problems. If you’re interested in learning more you might drop by the EGOS Colloquium in Amsterdam next July for a special session on QCA and similar methods, “Comparing Organizations: New Approaches to Using Case Study, Small-N, and Set-Theoretical Methods.”
NB: I was reminded of the Sundance conference, and the relations between economists and sociologists, when I had dinner with a prominent labor economist at last weekend’s Kauffman symposium on entrepreneurship data. He said he was tired of labor economics meetings — “all anyone talks about is identification, identification, identification” — and was thinking about attending the Academy of Management conference to broaden his perspective. I responded that after a few days at the AoM he might be dying for someone to mention identification!
Waldfogel’s “Tyranny of the Market”
| Peter Klein |
Joel Waldfogel visited our campus last week to discuss his new book, The Tyranny of the Market. I wasn’t sure what to expect. Joel is a creative and original thinker, a careful empiricist, and a nice guy. He’s one of the small (but growing) number of accomplished economists (Steve Levitt, Austin Goolsbee, Greg Mankiw, Brad DeLong, Steve Landsburg, etc.) who take the time to write for a general audience, a particularly meritorious activity. On the other hand, while I haven’t read Joel’s book, I was underwhelmed by this summary in Slate, as was most of the econo-blogosphere (1, 2, 3, 4).
After hearing Joel’s presentation and discussing it with him afterwards I’m more sympathetic to his case, but only slightly. His basic argument is simple: Under increasing returns, if the number of potential users of a particular good or service is sufficiently small, and the fixed costs are sufficiently large, then the good or service will not be produced even though there exist users whose willingness to pay exceeds the marginal cost of production. This Joel characterizes as a market failure, a challenge to the view that market provision, unlike government provision, allows everyone to have his preferences satisfied. If the state provides one color of tie, selected by majority vote, then I may be stuck with a red tie even when I prefer blue, while under market competition we all get the color we want. Not so, says Joel; if only a few of us prefer blue and the fixed costs are high enough then blue won’t be offered for sale. (more…)
Maybe Taylorism Will Come Back
| Peter Klein |
The human race will one day split into two separate species, an attractive, intelligent ruling elite and an underclass of dim-witted, ugly goblin-like creatures, according to a top scientist.
It doesn’t happen for 100,000 years, so today’s management consultants are safe. Of course, my headline refers to the popular conception of “Taylorism,” not actual Taylorism. (HT: Uncommon Descent)
Contract Design Capabilities
| Nicolai Foss |
In his thoughtful appraisal of Milgrom and Roberts (1992), Brian Loasby pointed out that the ability to transact and exchange is itself a capability, that firms may differ in terms of such capabilities, but that organizational economics routinely assume that firms have perfect transacting capabilities. This insight has been curiously neglected in the lenghty debate on the relations between transaction costs and capabilities. Former O&M guest blogger Dick Langlois is one of the few scholars who have embraced the insight, mainly from the capabilities side of the debate and casting it in terms of his notion of “dynamic transaction costs.”
A recent line of research initiated by Nick Argyres and Kyle Mayer addresses the issue more from the organizational economics, mainly TCE, side. Thus, Nick and Kyle’s excellent 2004 Organization Science paper, “Learning to Contract,” makes the empirically grounded point that changes in the structure of the contracts that govern a relationship may (for complex contracts in uncertain environments) reflect joint learning rather than the risks of specific assets. (more…)
Economists and Sociologists: Can’t We All Just Get Along?
| Peter Klein |
I haven’t blogged much on the Comparative Organizations conference hosted by Dave Whetten, Teppo Felin, and Brayden King. It was a terrific conference and I enjoyed myself very much but, as the lone economist in a group dominated by sociologists, I found the experience a little disorienting. Teppo, Brayden, and Gordon Smith — another non-sociologist participant-observer — have posted their reflections and, when Teppo sent this picture of Gordon and me (riding the chairlift at Sundance and no doubt engaged in deep, philosophical conversation), I remembered that I wanted to write something. So here goes.
1. Organizational economists and organizational sociologists are generally interested in the same phenomena. What are the characteristics and performance attributes of various forms of organization? How do social and market conditions, formal institutions, government policy, culture, and the like affect organizations? How do organizations change through time?
2. We differ profoundly, however, in how we try to answer these questions. (more…)
Shameless Self-Promotion
| Nicolai Foss |
The European Management Review has started a series of portraits of innovative research environments in management in Europe. The first such environment to be portrayed was the Institute of International Business at the Stockholm School of Economics and Business Administration (here). The Winter 2007 issue will feature a narrative that focuses on the Center of Strategic Management and Globalization which I am heading here at Copenhagen Business School. You can read the paper, “Knowledge Governance in a Dynamic Global Context: the Center for Strategic Management and Globalization at the Copenhagen Business School” here. Oh, did I mention that I wrote the paper myself?
Why Are Markets So Scary? Some Things (Liberal) Academics Get Wrong
| David Hoopes |
Many people make incorrect assumptions about capitalism. Some would have us believe that capitalism is based on greed, selfishness, and promotes behavior that is completely self-centered. This is a common interpretation of Smith’s advice to allow people to make decisions based on self-interest. Examples are easy to find in the many organization theory-based papers complaining about economics and economists.
Two very good papers can aid in a deeper understanding of the invisible hand. First is James Q. Wilson’s “Adam Smith on Business Ethics.” A central point Wilson makes is that Adam Smith assumed people will behave with a moral sense. Wilson, “A moral man is one whose sense of duty is shaped by conscience; that is, by that impartial spectator within our breast who evaluates our own actions as others would evaluate it.” By suggesting people be allowed to make decisions based on their own self interest Smith was not advocating selfishness and greed. What then was he advocating?
This leads to the second paper, Harold Demstez’s “The Theory of the Firm Revisited.” In the third paragraph Demsetz notes that the debate between mercantilists and free traders was over the role of the government in the economic affairs of the state. “Is central economic planning necessary to avoid chaotic economic conditions?” The great achievement of the perfect competition model, what Demsetz argues should be called perfect decentralization, is its abstraction from centralized control of the economy.
Thus, the central element to capitalism is that decision making is pushed down as far as possible. (more…)
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