Posts filed under ‘Management Theory’
Happy Hierarchies
| Peter Klein |
Nicolai and I have tended to be skeptical about the new wave of happiness research, particularly as applied to intrinsic motivation, empowerment, and other trendy organizational issues. Economists Tyler Cowen and Arnold Kling agree. Corporate law professor Stephen Bainbridge, in his latest column, attacks the idea that participatory management increases worker happiness (and, presumably, productivity). On the contrary, says Bainbridge, workers often prefer hierarchy, for a variety of reasons (risk aversion, resistance to change, preference for standardized rules and procedures, and so on). “Whether the taste for participation or for hierarchy is more common is hard to say from the evidence to date, but at the very least the history of participatory management has taught us that not everyone wants more autonomy, challenge, and responsibility.”
Further details are provided in Bainbridge’s Williamsonian paper “Privately Ordered Participatory Management: An Organizational Failures Analysis.”
How Bad Is Academic Writing, Really?
| Peter Klein |
Few social scientists are known for their lucid and elegant prose. Frank Knight or Joseph Schumpeter, perhaps. Most academic writing, however, is just plain awful: dull, pedantic, full of jargon and unnecessarily complex words and phrases, generally painful to read. Most manuscripts in organizational economics and strategy should come with a warning: “Do not operate heavy machinery after reading.”
How bad is it, exactly? Can bad writing be quantified? Yes, according to a new (to me, anyway) feature from Amazon.com. For some books — those for which Amazon offers the “Search Inside” feature — Amazon now provides several objective measures of readability. (more…)
Myths and Fallacies in Strategic Management — Part I
| Nicolai Foss |
Here is the beginning of what may become a regularly occurring post on http://www.organizationsandmarkets.com: An identification of common myths, mistakes, fallacies, non sequiturs, etc. in the strategic management field (I am sure my co-blogger will be happy to participate). Most of them have been picked up from conversations with colleagues, from listening to presentations in seminars and at the Strategic Management Society Meeting, and so on. Most relate to the resource-based view (i.e., Wernerfelt, Barney, Rumelt, Peteraf, etc.). OK, here goes: (more…)
The SWOT Model May Be Wrong
| Nicolai Foss |
One of the basic, indeed foundational, frameworks of strategic management, the SWOT model, may be fundamentally flawed. The “model” advises managers to align their Strengths of their company to the Opportunities of the environment, while simultaneously safeguarding the company’s Weaknesses from the Threats of the environment.
This very basic idea — it is only in B Schools that it is called a “model” — is no doubt the most universally used planning tool in companies and is often used in the public sector. Students (and, one suspects, managers) love it on account of its extreme simplicity. Many textbooks are written on a SWOT formula: The first part deals with the external environment — i.e., industry analysis — and the second part then deals with the firm level, i.e., competitive advantage. I myself have always used the SWOT framework intensively in my strategic management teaching, and I have endorsed countless student papers and theses that argued that resource-based and industry analysis approaches are, after all, consistent because they can be aligned under the SWOT umbrella.
A recent paper by Richard Makadok of Emory University, “The Competence/ Collusion Puzzle and the Four Theories of Profit: Why Good Resources Go to Bad Industries,” suggests that the SWOT framework (at least in its usual interpretation) gets it wrong. How can something so simple, even trivial, as the SWOT framework be wrong? (more…)
The Nature of the (Family) Firm
| Peter Klein |
Brayden King at orgtheory.net has a nice post today about family-owned firms. He summarizes a recent sociology paper on the transformation of the Scottish [hooray!] shipbuilding industry from one of mostly family firms to one dominated by corporate firms. Writes Brayden: “Family businesses and corporations are clearly different creatures, but we [organizational scholars] usually just take the word of legal scholars in this matter. . . . My take-away is that, besides temporal continuity established through lines of heredity, the distinguishing feature of family firms is that affective relationships serves as the glue holding together various components of the business. This affect, which translates into close identification with the organization, is a distinctive competency of the family firm.”
I have a footnote. One industry, unlike virtually every other mature industry in the developed world, continues to be populated by small, family-owned firms: agriculture. Why? Public policy is surely part of the explanation, but not all. The best analysis of the puzzle, in my view, is the pioneering work by Doug Allen and Dean Lueck, appropriately (and wittily) titled “The Nature of the Farm” (article version here, book version here). They argue that family ownership results from agriculture’s unique combination of seasonality and random variation, which makes it difficult to design and enforce effective incentive contracts that mitigate moral hazard. Instead, sole proprietorships, with the farmer or farm family as residual claimant, outperform joint ownership arrangements, such as corporations.
I provide some further information on organizational characteristics of agriculture here.
Heavily Cited, But Wrong
| Nicolai Foss |
Here is an example of the apparent irrationality of citation practices. The example concerns the paper “Production, Information Costs, and Economic Organization,” by Armen A. Alchian and Harold Demsetz (American Economic Review 62, 1972, 772-95). This is the famous “team-production” paper, one of the first to try to revitalize the Coasian agenda of explaining the “nature” of the firm (why firms exist, what explains their scope and internal organization). It is also one of the first agency theory papers (in what is sometimes misleadingly called “positive agency theory”).
However, the analysis in the paper is flatly errorneous. Here are some points where the paper gets it wrong: (more…)
The New Bashing of Economics: The Case of Management Theory
| Nicolai Foss |
Where is the place to go for real, hardcore economics-bashing? Anthropology? Sociology? Hardly. At least for the outside observer (i.e., this blogger), these disciplines seem to have become so absorbed in terminological nitty-gritty, paradigm proliferation, and pomo excesses that they seem to have lost much interest in neighbouring disciplines. No, the answer is, management theory.
Cases in point? Check out any of these rather recent papers by management heavyweights: (more…)
Market-Based Management
| Peter Klein |
I first heard the term “market-based management” (MBM) in 1994 or 1995, attatched to the now-defunct Program on Social and Organizational Learning at George Mason University. The theory was described in a few papers (one example here) and, as I recall, a monograph. My impression was that the principles of MBM were unobjectionable, but unremarkable: strong mission, values, and culture statements combined with decentralized decision-making and incentive compensation. The main innovation seemed to be the addition of an “Austrian” gloss (e.g., “Taylorism suffers from a fatal conceit….”).
This weekend’s Wall Street Journal profiles Koch Industries’s Charles Koch, who not only practices market-based management but actually trademarked the term. Writer Stephen Moore notes, somewhat delicately: “Some of the ideas that undergird Market Based Management seem fairly commonsensical to me, and I’m not entirely sold on the notion that this program somehow represents a seismic breakaway from what is taught at Harvard Business School.” Indeed, the idea that organizations can sometimes exploit “market-like incentives” would hardly surprise Chester Barnard, Alfred Chandler, or Oliver Williamson, let alone Alfred P. Sloan.
A more fundamental problem is that while decentralization provides benefits (more effective use of specific knowledge, conservation of central managers’ time, and so on) it also brings costs (agency problems, rent-seeking, coordination failure, etc.). To my knowledge the MBM literature has yet to identify or analyze the relevant tradeoffs. Jensen and Meckling’s (underappreciated) 1992 paper represents one attempt to grapple with these problems; this recent Foss-Foss-Klein paper suggests a slightly different approach. In short, all organizations represent a blend of market and hierarchy. The trick is to find the appropriate mix. Simply describing the virtues of “market” doesn’t get us very far.
We Got a Contract, We Got a Contract!!
| Nicolai Foss |
Peter and I have been working for some time on an idea for a book volume, entitled The Theory of the Firm: Emergence, Synthesis, Challenges, and New Directions.
There are several textbooks that present or make extensive use of the theory of the firm (e.g., Paul Milgrom and John Roberts, Economics, Organization, and Management; George Hendrikse, Economics and Management of Organizations; James Brickley, Clifford W. Smith, and William Zimmerman, Managerial Economics and Organizational Architecture; etc.). There are also lots of readers and reference collections (e.g., Louis Putterman, The Economic Nature of the Firm and Jay Barney and William Ouchi, Organizational Economics).
There is no need for yet another textbook or reader/reference collection. What the literature lacks, however, is a critical synthesis of the various streams in the theory of the firm, one that places these streams in a historical and methodological context, discusses the various controversies that have stimulated internal development in the theory of the firm, and assesses the many critiques that have been leveled at the theory by scholars in sociology, psychology and management.
Peter and I think we can write such a book. Luckily, Cambridge University Press agrees with us, and will offer a contract. (more…)
Can Kogut Do It? The New European Management Review
| Nicolai Foss |
The only-two-years-old European Management Review has just changed its editorship. The main change is that Bruce Kogut has taken over as new editor. In his editorial statement he proclaims that "The European Management Review has the ambition of being the journal of first choice for scholars interested in the theory and empirical study of management."
Kogut goes on to mention established top-journals such as Administrative Science Quarterly and Academy of Management Journal — without, however, directly implying that these are the direct competitors. It is clear that Kogut wants to position the EMR as an "ideas journal." How then does it differ from the intended competition? (more…)
orgtheory.net
| Peter Klein |
Our initial post below noted the dearth of good management blogs. A happy exception is orgtheory.net, written by Brayden King and Teppo Felin, both of Brigham Young University. (King teaches sociology, while Felin teaches organizational leadership and strategy at the Marriott School.) Their masthead promises coverage of "all things organizational," and they deliver so far, writing on organization theory, strategy, human resource management, scientific method, and more. We look forward to learning from them as we populate the blogosphere together.
Organizations and Markets 
Recent Comments