Posts filed under ‘Management Theory’
Mises and Mises (and Knight and Hoppe) on Probability
| Nicolai Foss |
O&M has featured a number of posts on uncertainty as a phenomenon that, in some sense, goes beyond risk. Contributors to these kind of discussions often delight in employing notions such as “Knightian uncertainty,” “genuine, real, true . . . uncertainty,” “the unlistability problem,” “surprise functions,” etc., and they debate whether so-called Knightian uncertainty really is inconsistent with a Bayesian perspective, whether Shackle’s notion of uncertainty is in some sense deeper than Knight’s, etc.
Much of the debate is, if perhaps not a quagmire, then certainly an area where conceptual clarification and some serious formal work would seem to be much needed (with respect to the latter, see this). Conceptual clarification may occasionally involve going back to important figures in the debates and consider what they (really) said. (more…)
Blogfest at Sundance
| Peter Klein |
The BYU Conference on Comparative Organizations at Sundance begins today. Your humble correspondent is here, along with Teppo, Brayden, Fabio, and Omar of orgtheory.net, Gordon Smith of Conglomerate, and luminaries from throughout the world of organization studies. I haven’t yet seen Robert Redford (but if he shows up I’ll ask him to clarify his views on property rights).
This is an interdisciplinary conference, though the participants are primarily sociologists (with a few outsiders, like yours truly, thrown in for comic relief). The purpose is to develop better frameworks for making comparisons across organizational types. From the conference blurb: “[C]ontemporary organizational scholarship can not provide a coherent answer to questions regarding how one might translate corporate data on the predictors of employee motivation into a hospital or military setting, or to what extent conclusions regarding the relationship between financial performance and socially responsible business practices based on studies of small, young, private firms hold for large, old, public firms.”
I think there is actually a fair amount of empirical literature in organizational economics and strategy making these kinds of cross-sectional comparisons (public versus private firms, venture-backed versus non-venture-backed startups, M-form versus H-form conglomerates, etc.). The analysis is not particularly “deep,” however; it relies generally on reduced-form models with performance as the only dependent variable. I’m looking forward to learning about more nuanced approaches.
Blogs versus Department Meetings
| Peter Klein |
A friend recently became economics department head at his university. He created a blog as a partial substitute for, and potential complement to, meetings.
I hate department meetings, which inevitably are scheduled at some time when most people are tired or distracted. Once there, much time is wasted by people who are slow in expressing themselves, or in discussing issues about which we haven’t had time to think or gather the information necessary to decide something. For any individual, some of the discussions are boring or irrelevant and a waste of time.
I have been trying to use the blog to handle most issues that do not require a quick decision or a real, face-to-face dialog. . . .
I am having at best moderate success because some of my colleagues refuse to visit the blog on anything like a regular basis. I am trying to make things easier for them. A successful change was to introduce a “recent posts” sidebar like you have on O&M, so my colleagues can quickly see what, if anything, is new since they last visited the blog.
I suggested setting up a “favorite posts” or “critical posts” section of the sidebar (somewhat like our “Most Popular” section). Of course, some departmental issues — personnel matters, for example — are too sensitive to discuss even on a private blog. But many of the usual items can perhaps be handled easily.
What suggestions would you offer? More generally, how can blogs, wikis, and similar tools increase office productivity by substituting for meetings? (Of course, some people will always prefer meetings.)
Knightian Uncertainty Workshop
| Peter Klein |
The authors of this blog find Knightian uncertainty a useful concept for understanding both entrepreneurship and the economic theory of the firm (e.g., here and here). So we were pleased to learn about a workshop on Knightian uncertainty organized earlier this month at Columbia University by and Daniel Beunza David Stark. Nassim Taleb was there, as were Douglass North, Anna Grandori, Bruce Kogut, Adam Branderburger, and others well known to readers of this blog. Buenza summarizes the discussion and offers some commentary at the Socializing Finance blog.
One problem with the treatment of Knightian uncertainty in the management literature (not necessarily in the presentations above) is that the concept itself is not always defined precisely and consistently. Terms like Knightian uncertainty, radical uncertainty, case probability, complexity, ambiguity, and plain old uncertainty are often used interchangeably. Sometimes what is meant is ignorance of the relevant probability distributions. Sometimes it is ignorance of one’s own ignorance. Sometimes it means simply the lack of common (Bayesian) priors. To move forward, more clarity is surely needed.
Corporate Venturing
| Peter Klein |
Here are presentation slides from a 2007 Academy of Management Professional Development Workshop (PDW) on corporate venturing. The presenters were Gary Dushnitsky, Thomas Keil, Riitta Katila, Suresh Kotha, Michael Lenox, Markku Maula, Corey Phelps, Shaker Zahra, and Rosemarie Ziedonis.
Don’t forget that slides from our PDW on Austrian economics are available as well.
Organization Theory en Français
| Peter Klein |
French-speaking readers may enjoy Nathalie Gardes’s blog Theories des Organisations. There’s a bit too much on pouvoir for my tastes, but the site looks interesting nonetheless.
More on Tacit Knowledge
| Nicolai Foss |
O&M has featured a number of posts that are critical of the hugely influential notion of tacit knowledge (e.g., here and here). The latest issue of the Journal of Economic Methology has as nice paper by Jonathan Perrant and Iona Tarrant, ‘What Does Tacit Knowledge Actually Explain?” (more…)
New Video and Audio
| Peter Klein |
Video and audio files that may intrest our readers:
- The 2006 and 2007 Allen Hamilton Eminent Scholar in International Management awards presentations. See lectures by C. K. Prahalad (with commentary by Yves Doz) and Ikujiro Nonaka (with commentary by David Teece).
- Economic history lectures from Brad LeLong: Marx, Rostow, Kuznets, Gerschenkron; The Slow Spread of Industrialization; Political Economy 101 .
- Original video from the 1962 Milgram experiment (via Max Raskin). As chilling today as 45 years ago. (See also the wiki.)
IT and Creative Destruction
| Peter Klein |
Information technology (IT) intensity is correlated with firm-specific performance heterogeneity, controlling for industry- and time-fixed effects and a host of strategic and financial control variables. Moreover, high rates of firm-specific performance heterogeneity are associated with subsequent increases in industry total factor productivity (TFP). In other words, IT can be interpreted as a general-purpose technology that unleashes a wave of innovation, leading to a shakeout followed by performance improvements — Shumpeter’s “gale of creative destruction.”
So say Hyunbae Chun, Jung-Wook Kim, Randall Morck, and Bernard Yeung in “Creative Destruction and Firm-Specific Performance Heterogeneity” (NBER Working Paper No. 13011, April 2007). (Non-gated version here.) There’s not much theory but the empirical exercise is interesting and worth a look.
9-11, Strategic Management, and Public Policy
| David Hoopes |
On this sad anniversary I find myself thinking about public policy and the field of strategic management. After six years, how well integrated are our intelligence agencies? A few management and strategic management scholars probably have a lot to say about such issues. Many more might struggle to apply what they work on to this problem or any other policy issue.
A few years back Bill Ouchi was commended by a panel at an Academy of Management meeting. Bill had long since forsaken traditional academic concerns and devoted his considerable intellect to public policy. His main target: public schools. Ouchi’s work has had a profound impact on a number of large and at one time largely dysfunctional school districts. Portions of the session were published in The Academy of Management Executive (recently renamed). I missed the session, but the account in AME had Bill’s talk followed by a number of notable management scholars opining about other applications of management research to public policy. I’ve met a few of the speakers. They are very nice people who are genuinely concerned about the field of management and about how we might be of service to a constituency beyond our students and the business world. Nevertheless, most of what these talented, hardworking, and successful scholars had to say about the field of management and its possible applications to public policy seemed far removed from a direct application to policy questions. (more…)
EBM Reconsidered
| Peter Klein |
Joe Mahoney, whose opinions are highly valued around here, thinks we are unfair to evidence-based management (EBM) (1, 2). Joe encourages readers to study Denise Rousseau’s 2005 Academy of Management Presidential Address and make up their own minds. Writes Joe:
Some of the leading folks in the evidence based-management (EBM) research program include past Academy of Management Presidents such as Jean Bartunek (Boston College), Jone Pearce (University of California, Irvine) and Denise Rousseau (Carnegie Mellon University). In the Strategy field, Ravi Madhavan (University of Pittsburgh), Alfie Marcus (University of Minnesota) and myself have recently become involved. The real leader of the Evidence-Based Management program is Denise Rousseau, who offers much of substance.
Joe reports that he attended a June 2007 workshop at Carnegie Mellon on EBM and came away much impressed. EBM, Joe writes, “means translating principles based on best evidence into organizational practices. Thus, organizational decisions are informed by social science and organizational research, which aid in solving organizational problems.” It’s hard to disagree with that.
Culture, Cognition, and Strategy
| David Hoopes |
Although managers frequently refer to their companies’ culture, culture’s influence on business strategy receives limited attention in the academy. Over the years, organizational culture has gone in and out of fashion. Currently, it remains out of fashion. Yet, strategy researchers often stress the importance of shared beliefs, shared values, administrative history, and other organizational characteristics presumably influenced by or reflecting an organization’s culture. A cogent theory of culture and organizational culture can better integrate organizational beliefs, values, and knowledge with current theories of strategy (and for my interests in competitive heterogeneity). Of particular interest to me is a branch called cognitive anthropology.
Most anthropologists include themselves in one of two traditions. One, generally associated with Ward Goodenough, considers culture to be knowledge necessary to get along in a particular society. The other, generally associated with Clifford Geertz, considers culture as something outside of any particular person. Thus Geertz (1973: 12) decries “…the cognitive fallacy [that] culture consists of mental phenomena.” Building on Goodenough’s work, cognitive anthropologists describe culture in terms of member’s schema or cognitive models (e.g. D’Andrade, Hollins, Quinn, Hutchinson). D’Andrade states that cultural schema are “Socially inherited solutions to life’s problems” (1995: 249). (more…)
The Best Business Book I’ve Read This Year
| Peter Klein |
It’s Phil Rosenzweig’s The Halo Effect (mentioned previously here). Rosenzweig systematically, but politely, demolishes the pretensions of best-selling management books and projects such as In Search of Excellence, Built to Last, Good to Great, and the Evergreen Project. These studies, Rosenzweig patiently explains, engage not in serious research — despite their pseudo-scientific pretensions (what Rosenzweig calls “The Delusion of Rigorous Research”) — but in storytelling.
The most common problems are sampling on the dependent variable (i.e., choosing a sample of high-performing companies and explaining what their managers did, ignoring selection bias) and using independent variables based purely on respondents’ ex post subjective assessments of strategy, corporate culture, leadership, and other “soft” characteristics. The latter is the “Halo Effect” of the book’s title. When a company’s financial or operating performance is strong, managers, consultants, journalists, and management professors tend to rate strategy, culture, and leadership highly, while rating the same strategies, cultures, and leadership poorly when a company’s performance is weak. It’s as if the authors of “guru” books have never taken a first-year graduate course on empirical research design. Or, as Rosenzweig puts it (p. 128): “None of these studies is likely to win a blue ribbon at your local high school science fair.” Ouch. (more…)
Economic Darwinism During Recessions
| Peter Klein |
Some version of the survivor principle, or “economic Darwinism,” underlies much economics and strategy research. While the term “survivor principle” was coined by Stigler (1968), the idea is usually attributed to Alchian (1950) and Friedman (1953). Alchian argued that even though theories about rational decision makers making “optimal” choices are clearly unrealistic, the predictions of such theories need not be. The quest for profit, combined with competitive selection forces, ensures that the average firm will tend to behave like those described by theories of rational behavior (Alchian, 1950). Friedman (1953: 22), defending the profit-maximization hypothesis, puts it this way:
[U]nless the behavior of businessmen in some way or other approximated behavior consistent with the maximization of returns, it seems unlikely that they would remain in business for long. Let the apparent immediate determinant of business behavior be anything at all — habitual reaction, random choice, or whatnot. Whenever this determinant happens to lead to behavior consistent with rational and informed maximization of returns, the business will prosper and acquire resources with which to expand; whenever it does not, the business will tend to lose resources and can be kept in existence only by the addition of resources from outside. The process of “natural selection” thus helps to validate the [maximization] hypothesis or, rather, given natural selection, acceptance of the hypothesis can be based largely on the judgment that it summarizes appropriately the conditions for survival.
The problem with Friedman’s strong version of the survivor principle is that we know little about how such competitive selection processes actually work. (more…)
SDAE Sessions
| Peter Klein |
Sessions from the SDAE section of the upcoming Southern Economic Association annual meeting (New Orleans, 18-20 2007) that may interest our readers:
- Peter Lewin (University of Texas at Dallas) and Howard Baetjer Jr. (Towson University),“Can Ideas be Capital? Can Capital Be Anything Else?”
- Per-Olof Bjuggren and Johanna Palmberg (Jönköpings International Business School), “Swedish Listed Family Firms and Entrepreneurial Spirit”
- Joseph T. Salerno (Pace University), “The Entrepreneur: Real and Imagined” (more…)
Knightian Financial Markets
| Peter Klein |
Frank Knight knew in 1921 what the world’s most sophisticated mathematical models could not capture today. That is, there is a fine line between risk with mathematical probabilities and uncertainty that cannot be measured. Although investors have no difficulty in pricing all sorts of risks, the “immeasurable” uncertainty and information asymmetries make them shy away from all forms of risk, especially in times of global anxiety. In our view, this is exactly what has happened in the past couple of weeks in financial markets, as credit risks linked to the US subprime-mortgage market spread out (through highly leveraged derivatives and structured instruments) and triggered a volatility wave across the world.
That’s Morgan Stanley’s Serhan Cevik and Katerina Kalcheva, writing in yesterday’s Global Economic Forum. Kudos to Cevik and Kalcheva for reminding investors (or, more likely, economists) that some risks cannot be measured and priced. But keep in mind that Knight treated uncertainty as ubiquitous, not some parameter that rises and falls with market conditions. “Profit arises out of the inherent, absolute unpredictability of things, out of the sheer brute fact that the results of human activity cannot be anticipated and then only in so far as even a probability calculation in regard to them is impossible and meaningless,” as he famously put it. (BTW you can get the full text of Risk, Uncertainty, and Profit online, courtesy of EconLib.)
Agency Theory in Management
| Nicolai Foss |
I believe that agency theory is one of the most informative, useful, and interesting theories coming out of economics ever. It is surely also one of the most influential econ theories in management. Agency theory is, however, fundamentally complicated, and difficult to teach. I find it impossible to teach without making use of at least some math (specifically, simple versions of the linear model). In particular, grasping the role that the risk premium plays in the theory, and, in this connection, what is really the source of the agency loss, is often very difficult for students.
However, not only students but also management academics have difficulties understanding the theory. (more…)
Economists and the Economy
| Peter Klein |
Chris Dillow, channeling yours truly, writes:
Economists are everywhere. Steve Levitt, Tim Harford and Steven Landsburg use newspaper columns and best-selling books to show how economics can account for why drug dealers live with their mums, why you can’t find space to park, why school teachers cheat, why people share umbrellas and why sexually transmitted diseases are so rife. Simple economics, it seems, can explain everything.
Everything, that is, except the economy. Although orthodox economics can do a good job of explaining why people get a divorce or the clap, it does a much worse job of accounting for what people think it should explain.
Dillow’s essay in the Times goes on to focus on the prediction problem. (more…)
State-Owned Firms: Still Inefficient
| Peter Klein |
Generalissimo Francisco Franco is still dead, and state-owned firms are still inefficient. A survey of over 12,000 Chinese firms finds that “even after a quarter-of-century of reforms, state-owned firms still have significantly lower returns to capital, on average, than domestic private or foreign-owned firms.” This from “Das (Wasted) Kapital: Firm Ownership and Investment Efficiency in China” by David Dollar (great name!) and my former Berkeley classmate Shang-Jin Wei. “By our calculation,” they write, “if China succeeds in allocating its capital more efficiently, it could reduce its capital stock by 8 percent without sacrificing its economic growth.”
The paper is light on theory and interpretation, but there is a substantial literature on the problems of state ownership to which one can easily refer (good starting points here, here, and here.)
Austrian Economics at the AoM
| Peter Klein |
Last week’s Academy of Management meeting featured a pre-conference workshop, “The Austrian School of Economics: Applications to Organization, Strategy, and Entrepreneurship,” organized by Nicolai and myself. I began with an overview of the Austrian approach and reviewed some of the key figures in its development. Panelists Joe Mahoney, Yasemin Kor, Dick Langlois, Nicolai, and Elaine Mosakowski each gave some prepared remarks about aspects of the Austrian tradition that apply to their work, followed by general discussion among the panelists and the audience. Here are copies of the prepared remarks and here are some photos (courtesy of Peter Hofherr).
We weren’t sure what to expect — a dozen or so participants, perhaps? — and were delighted when over 100 people showed up, leaving standing room only. This and other indicators suggest growing interest in Austrian economics among management scholars. Of course, a belief in the relevance of the Austrian approach to business administration is a core value here at O&M.
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