Posts filed under ‘Management Theory’
Arrow on Microfoundations
| Peter Klein |
Michael Greinecker shares this illuminating comment by Kenneth Arrow, quoted in Colander, Holt, and Rosser, ed., The Changing Face of Economics: Conversations with Cutting Edge Economists, (University of Michigan Press, 2004):
I’ve never understood [macroeconomics]. What I mean by this is that my idea of understanding is having a model that captures what is going on. In macro we don’t have that; instead we have empirical generalization, and those generalizations tend to break down rather quickly. The question is, can you get some understanding of the empirical evidence from the models? One attempt has been to generate empirical work out of very simplistic models- essentialy they are micro models blown up. I don’t give much credence to those models. One of the things that microeconomics teaches you is that individuals are not alike. There is heterogeneity, and probably the most important heterogeneity here is heterogeneity of expectations. If we didn’t have heterogeneity, there would be no trade. But developing an analytic model with heterogenous agents is difficult.
This sounds a lot like our critiques of “macro”-level explanations in organization theory (1, 2, 3, 4, 5, 6). Macroeconomics, labor economics, and industrial organization have become increasingly “micro” in the last two or three decades. Will organization theory follow, or is the resistance to economics in some quarters strong enough to block the move?
Queen Bee Syndrome
| Peter Klein |
Everyone knows that males tend to be perceived more favorably for leadership positions than females. But did you know that this perception is stronger among females? A paper by Rocio Garcia-Retamero and Esther López-Zafra in the journal Sex Roles (vol. 55, nos. 1-2, July 2006) provides evidence that women are more prejudiced against women leaders than are men.
Participants evaluated a male or a female candidate for a leadership position in an industry that was congruent or incongruent with the candidate’s gender role. Participants showed prejudice against the female candidate, especially when she worked in an industry incongruent with her gender role. Female and older participants showed more prejudice against the female leader than did male and younger participants.
The London Times, reporting on the paper, calls this “queen bee syndrome.” Says businesswoman Nicola Horlick: “I have seen women in managerial positions discriminating against other women, possibly because they like to be the only female manager or woman in the workplace.” (HT: A&L Daily)
This evidence squares with a basic truth about stereotyping, or “statistical discrimination,” as economists call it. Under such discrimination, the strongest conflicts tend to result from within-group, rather than between-group, conflicts of interest. See Bryan Caplan’s illuminating discussion here.
The Golden Decade
| Peter Klein |
Our friends at orgtheory.net are discussing the year 1977, in which several classic works in organization theory were published. I can’t be that precise, but I can vouch for the 1970s — a “golden decade” for organizational economics research. Coase’s “Nature of the Firm” appeared in 1937, of course, but it remained — in Coase’s words — “much cited, little used.” It was only in the 1970s that the modern theory of the firm, or the new economics of organization, emerged. Consider this list: (more…)
Judgment, Luck, and Intuition
| Peter Klein |
Former guest blogger Lasse Lien asked recently how entrepreneurial judgment is different from luck. Harold Demsetz once asked the same thing about Kirzner’s concept of alertness (“The Neglect of the Entrepreneur, 1983”). In our work on entrepreneurship Nicolai and I have defined judgment in Knightian terms as decision-making when the range of possible future outcomes, let alone the likelihood of individual outcomes, is unknown. In Mark Casson’s formulation, judgment is needed “when no obviously correct model or decision rule is available or when relevant data is unreliable or incomplete.”
If judgment is more than luck, then what is it? How about “intuition,” another kind of decision-making without a formal rule or model? The January 2007 Academy of Management Review features Erik Dane and Michael Pratt’s “Exploring Intuition and Its Role In Managerial Decision Making.” Intuition is defined inconsistently across the literatures in psychology, philosophy, and management, and Dane and Pratt do a nice job summarizing and synthesizing these definitions. Their own concept of intuitions is “affectively charged judgments that arise through rapid, nonconscious, and holistic associations.” They write: (more…)
Top Posts of 2006
| Peter Klein |
As 2006 draws to a close we reflect on our most popular posts of the year. (Actually, we’ve only been in operation since April, so these are our most popular posts of all time, but you get the idea.) Here’s the list, followed by some commentary:
1. Is Math More Precise Than Words?
2. Intellectual Property: The New Backlash
3. Dilemmas of Formal Economic Theory
4. We Need Some Economics of Pomo
5. The New Bashing of Economics: The Case of Management Theory
6. Has Corporate Corruption Increased?
7. HRM in Heaven and Hell
8. Yale’s New MBA Curriculum: “Perspectives,” Not Functions
9. Malthus and the “Dismal Science”
10. Formal Economic Theory: Beautiful but Useless?
11. Why Do Sociologists Lean Left — Really Left?
12. The SWOT Model May Be Wrong
13. Multi-Culturality and Economic Organization
14. What Do We Really Know About Organizations?
15. Academic Insults: CCSM Edition
16. A Nobel for Entrepreneurship?
17. Price as a Signal of Quality
18. Economics: Puzzles or Problems?
19. Another Irritating Practice
20. Market-Based Management
Now, we’re talking small numbers here — the Drudge Report we ain’t — so the ranking is highly sensitive to random events, like an incoming link from Marginal Revolution. Nonetheless, some clear patterns emerge. (more…)
Yale’s New MBA Curriculum: “Perspectives,” Not Functions
| Peter Klein |
Several wire stories and bloggers are reporting on Yale’s new first-year MBA curriculum. Increased study-abroad requirements are getting the most attention, but the reorganization of the core curriculum may be more significant. Says Yale:
In the last thirty years, while the management profession has changed significantly, management education has not. Most business school curricula remain compartmentalized by discipline — Marketing, Finance, Economics, and so forth. This model made sense when a successful career was characterized by vertical advancement in a single field within a large, functionally divided corporate bureaucracy. But today, managerial careers cross the boundaries of function, organization, and industry, as well as cultural and political borders. Even managers in large organizations must be entrepreneurial in the sense that their success depends on their ability to synthesize disparate information, analyze competing functional priorities, and draw together and coordinate resources and individuals in a context that is often fluid and decentralized.
Now, [Yale’s School of Organization and Management] is breaking down traditional management disciplines just as contemporary organizations blur the distinctions among management functions. Rather than teaching management concepts in separate, single-subject courses like Finance or Marketing, Yale’s approach teaches management in an integrated way — the way in which most managers must function every day to achieve success.
Largest Non-Public Companies
| Peter Klein |
Last week’s Financial Times offers a list of the largest companies you know little about. The Non-Public 150 includes the world’s largest state-owned enterprises, private equity companies, partnerships, mutuals, cooperatives, and other non-publicly traded entities. State-owned energy and utility companies (Aramco, Pemex, Petróleos de Venezuela, etc.) top the list but private firms such as Sparkassen-Finanzgruppe (banking), the Nippon Life Insurance Company, and buyout specialist Kohlberg Kravis Roberts Co. are up there as well. (Thanks to the PSD Blog for the pointer.)
Leaving aside the SOEs, why do these firms choose to avoid the public markets? Many people have the impression that only small, local firms are established as cooperatives or mutuals, but the FT 150 list includes some of the world’s largest financial institutions. Organizational scholars have paid relatively little attention to coops and mutuals (Henry Hansmann being the most obvious exception). Private equity has well-known advantages (nicely summarized in Michael Jensen’s “Eclipse of the Public Corporation”) but there is relatively little empirical work on the choice between private and public equity. More work on family firms is needed as well.
Here is the Times’s analysis (framed as a fresh look at Jensen’s “eclipse” hypothesis).
Bruno Frey on Awards
| Nicolai Foss |
Bruno Frey is one of those economists who make economics fun. Like economists such as Yoram Barzel, Gary Becker, and, of course, Stephen Levitt, he has a great intuition for applying economics to new areas where nobody has hitherto thought of taking it.
Like George Akerlof, but unlike Barzel, Becker and Levitt, Frey is, however, not that satisfied with the behavioral core of mainstream economics, mainly because it tends to provide an impoverished treatment of human motivation. Thus, he is no Becker-style economic imperialist (or, at least, the charicature thereof), but on the contrary is quite attentive to relevant insights in, particularly, psychology. Whereas numerous economists have taken an interest in the cognitive dimensions of psychology research — as witness the recent explosion of interest in nanoeconomics — Frey’s interest in psychology has been more concerned with motivational issues. Thus, quite a lot of Frey’s enormous (and enormously impressive) production has been devoted to pushing the boundaries of economics by taking seriously psychology ideas on social comparison processes, intrinsic motivation, etc. His work with Margit Osterloh on the motivational foundations of knowledge sharing in organizations will be familiar to many readers of this blog.
Frey has recently started a new research program, namely research into the function of awards (see here and here). (more…)
Management Theory and the Social Sciences
| Peter Klein |
The theme for the 2007 meeting of the European Academy of Management (Paris, 16-19 May) is “Current Management Thinking: Drawing from Social Sciences and Humanities to Address Contemporary Challenges.”
Researchers in management are invited to join us in Paris to reflect on the roots of Management, both as a scientific discipline and as a practice. In particular, Management’s focus on organisational performance is one of the critical underpinnings that transform the discipline’s borrowings from established social sciences into an autonomous field of academic investigation. This raises questions about the degree of subordination vs. emancipation of Management vis-à-vis the basic disciplines from which it draws.
Of course, the relationship between management theory and its core academic disciplines — economics, sociology, and psychology, primarily, but also history, philosophy, and political science — are key themes of this blog.
Here is the call for papers. Submissions are due 2 January 2007.
Gourlay on Tacit Knowledge
| Peter Klein |
More on tacit knowledge: Steven Gourlay takes on Nonaka and Takeuchi in the current issue of the Journal of Management Studies (vo. 43, November 2006):
Nonaka’s proposition that knowledge is created through the interaction of tacit and explicit knowledge involving four modes of knowledge conversion is flawed. Three of the modes appear plausible but none are supported by evidence that cannot be explained more simply. The conceptual framework omits inherently tacit knowledge, and uses a radically subjective definition of knowledge: knowledge is in effect created by managers. A new framework is proposed suggesting that different kinds of knowledge are created by different kinds of behaviour. Following Dewey, non-reflectional behaviour is distinguished from reflective behaviour, the former being associated with tacit knowledge, and the latter with explicit knowledge. Some of the implications for academic and managerial practice are considered.
Management by the Numbers
| Peter Klein |
Many principles of “scientific management,” such as Harold Geneen’s concept of “management by the numbers,” are considered outdated, remnants of the Big Science era of the 1960s and early 1970s (the Cold War, the Apollo Project, conglomerates, etc.). Today’s management theorists and practitioners favor more holistic, less quantitative, and presumably more “dynamic” approaches. Organizations should be flexible, “lean and mean,” and focused on people and processes, not numbers.
The newest issue of Strategic Organization (4:4, November 2006) features a paper challenging this conventional wisdom. In “The Power of Numbers in Strategizing,” Jean-Louis Denis, Ann Langley, and Linda Rouleau defend the use of quantitative analysis.
This article draws on a detailed case study of a complex decision process in a public healthcare system to consider the role and potential power of numbers in strategizing. Because of their association with precision and accuracy, numbers may seem at first sight to be unlikely tools for decision making in contexts characterized by ambiguous goals and diffuse authority. Yet in the case described in this article, managers successfully mobilized a system of numbers to make an extremely controversial strategic decision. . . . Though contested, numbers can under certain conditions come to acquire and provide authority in organizations where power is diffuse. This is most likely when the number systems enable the reconciliation of diverse values and interests, when they are embedded in shared systems of meaning, and when they are coupled with and activated by particular micro-practices that support the legitimacy of their promoters as disinterested advocates for the collective good.
Despite references to “shared systems of meaning,” numbers as social constructs, power relations, “pluralism,” and the like — which might seem to warrant inclusion in our Pomo Periscope series — the paper provides a useful overview of the basic issues and some interesting case discussion.
NB: Watch out for some numbers.
Should Business Schools Be Like Medical Schools?
| Peter Klein |
Fabio Rojas at orgtheory.net suggests that business schools require more field work. You wouldn’t trust a doctor who graduated from medical school without working on a real patient, so why hire an MBA student who hasn’t performed any “rotations,” in companies or in the business school itself?
Of course, as Fabio acknowledges, this model doesn’t work if business education is primarily a signal, a la Spence. On the other hand, gradute school seems a highly costly and inefficient signaling mechanism — why not just give prospective employees an IQ test? Or, if social networking is important, put students in one-year MBA programs or even shorter mini-programs with tough admission requirements and a lot of social events with alumni and local executives. A much cheaper signaling + networking mechanism, presumably. Any thoughts?
ETP: Special Issue on Family Firms
| Peter Klein |
The latest issue of Entrepreneurship: Theory and Practice (30:6, November 2006) is a “Special Issue on the Theory of the Family Enterprise.” Plenty of fodder for the ongoing discussion of family firms. Here’s the table of contents: (more…)
Economics of Department Stores
| Peter Klein |
Speaking of diversification, decentralization, and the effective use of local knowledge, Lynne Kiesling offers some interesting commentary on the economics of department stores. Department stores have been doing well in the last few years. Notes Lynne:
A retail business model originating in the late 19th century, the department store for decades epitomized elegance, convenience, ubiquity of options. Then in the 1990s the department store fell on hard times as nimble, smaller retailers struck better production and/or procurement contracts, had more direct contact with the preferences of consumers, or were able to offer niche products to enable consumers to craft their own, individual, modern images. . . .
I am not convinced that the large department store that is managing many brands and a national image can be more nimble than a specialty store, and nimbleness is what a department store will require to become a successful complex adaptive system.
Again, we have a problem of selective intervention. Imagine a department store that operates like a shopping mall, providing space and transaction management for individual vendors, and centralizing particular functions (marketing, sales, customer support) only when doing so generates net gains. Amazon.com and Ebay have shown how such a model can work in virtual space. If equally decentralized, why can’t a department store be as good — as a complex adaptive system — as a set of specialty retailers?
Another Cost of Selective Intervention: Convincing the Market
| Peter Klein |
Nicolai blogged recently on Williamson’s concept of the “impossibility of selective intervention.” Williamson asks why a large firm cannot do everything a collection of small firms can do and more. In princple, a set of projects could be combined into a single firm, with the firm’s management promising not to interfere with individual projects unless doing so would generate net gains. In this way, a firm could have responsibility an almost unlimited set of projects, each of which would be at least as profitable as it would be as a standalone entity. What, then, explains the limits to the firm?
Williamson’s answer has to do with the difficulties of making such a commitment credible. Project managers will not believe the firm’s promise not to interfere and will take value-reducing actions to protect their own returns and asset values. (Williamson identifies “asset malutilization” and “accounting contrivance” as specific problems; see Nicolai’s post for details.)
A story in today’s W$J on Blue Moon beer raises another issue. Even if central managers can convince division heads or project managers that they will not engage in opportunistic behavior, they may be unable to convince buyers, suppliers, or other market participants. Here’s an example: Blue Moon is a popular “craft,” or niche, beer that appeals to high-end, quality-conscious consumers. Such beers are typically produced locally, in small quantities, and marketed as “micro-brews.” The Journal piece explains how Blue Moon’s marketing department goes to great lengths to hide the fact that the beer is actually made by Molson Coors, North America’s third-largest brewer. A similar example is Chipotle, a restaurant chain popular with the young and trendy (and the not-so-young and even-less trendy — I love it!), which before going public was majority owned by McDonald’s. The fact that such niche products would be regarded, by their target demographic, as “tainted” were their parentage known, suggests that market participants do not believe that corporate parents can manage small subsidiaries without interference. The market, it seems, agrees with Williamson that selective intervention is a “myth.”
Randomness and the Black Swan
| Peter Klein |
I’m on a private discussion list where the subject of resampling/bootstrapping techniques, and their application to empirical social science research, is being discussed. A commentator pointed to a 1988 New York Times article in which Stanford’s Jerome Friedman calls bootstrapping “the most important new idea in statistics in the last 20 years, and probably the last 50.” Murray Rothbard invoked bootstrapping, indirectly, in a 1989 article criticizing empirical methods in economics:
As improbable as this may seem now, I was at one time in college a statistics major. After taking all the undergraduate courses in statistics, I enrolled in a graduate course in mathematical statistics at Columbia with the eminent Harold Hotelling, one of the founders of modern mathematical economics. After listening to several lectures of Hotelling, I experienced an epiphany: the sudden realization that the entire “science” of statistical inference rests on one crucial assumption, and that that assumption is utterly groundless. I walked out of the Hotelling course, and out of the world of statistics, never to return.
The “crucial assumption” to which Rothbard refers is the assumption of normality. Of course, it is possible to do statistical inference without assuming data are normally distributed, and the central limit theorem tells us not to worry about distributional properties as samples become “large.” But how large is large? (more…)
Calligraphy by Committee
| Peter Klein |
The King James Bible, considered the greatest work of English prose, was composed a committee of 50 men.
Group projects, as any middle-school social-studies teacher can tell you, rarely produce inspiring results. But if you think writing by committee is hard, try drawing by one. That’s what Donald Jackson, the former official scribe for Britain’s Queen Elizabeth, signed up for when he agreed to create the first handwritten English Bible in 500 years.
Read the rest at OpinionJournal, and also visit the project’s home page.
I wonder how the 50 authors of the King James Bible got along? How did they control free riding? Were team members subject to peer review? How about 360-degree assessments? Did they work together on several projects or was this a one-shot game? (Sorry, a weekend of executive MBA teaching has left me unable to think like a regular human.)
Imagining the Company of the Future
| Peter Klein |
Gary Hamel and Harvard Business Review are conducting an open-ended, non-random-sample survey on the future of the company. “What will the company of the future look like? Will it be any different from today’s leading-edge businesses? What are the important ways in which today’s companies must change in order to thrive?” To participate, go here and answer the following two questions:
1. Twenty years into the future, what one characteristic — principle, process, practice, or structural feature — of the late twentieth-century industrial organization will appear to be the most antiquated or anachronistic?
2. Looking out a generation or two, what feature or characteristic — principle, process, practice, or structural feature — of leading-edge organizations will be most different from what we observe today? Use your imagination to describe this new feature or characteristic in detail and in a way that illustrates the difference it will make to organizational success.
Or, for even greater impact, add your comments below.
Prediction Markets and Corporate Governance
| Peter Klein |
Prediction markets have generated a lot of buzz (particularly in the econo-blogosphere). A new paper by Michael Abramowicz and Todd Henderson explores the potential role of prediction markets in corporate governance. The authors are enthusiasts:
Prediction markets can increase the flow of information, encourage truth telling by internal and external firm monitors, and create incentives for agents to act in the interest of their principals. The markets can thus serve as potentially efficient alternatives to other approaches to providing information, such as the Sarbanes-Oxley Act’s internal controls provisions. Prediction markets can also produce an avenue for insiders to profit on and thus reveal inside information while maintaining a level playing field in the market for a firm’s securities. This creates a harmless way around existing insider trading laws, undercutting the argument for the repeal of these laws. In addition, prediction markets can reduce agency costs by providing direct assessments of corporate policies, thus serving as an alternative or complement to shareholder voting as a means of disciplining corporate boards and managers.
For caveats and qualifications regarding the ability of prediction markets to replace entrepreneurial judgment, see this technical report and this non-technical, critical assessment.
What’s So Great About Tacit Knowledge? — Cont’d
| Nicolai Foss |
Peter asks, “what’s so great about tacit knowledge?”, pointing out that there is a tendency in the KM literature (and, I may add, parts of the strategic management literature as well) to exalt tacit above explicit knowledge. He correctly points out that tacit knowledge may well be errorneous, to which it may be added that errorneous tacit knowledge is usually more of a problem than errorneous explicit knowledge, since the latter is presumably easier to correct. In a comment on Peter’s post, JC Spender points out that “for the most part the discussion of tacit knowledge is sheer obscurantism.”
I agree with both Peter and JC. But I may want to be even more radical, and ask “What’s — analytically speaking — so great about tacit knowledge?” (more…)
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