Posts filed under ‘Strategic Management’
Taxis and Limos
| Peter Klein |
Murray Rothbard told a story about his first encounter with the terms taxis and cosmos, used by Hayek to distinguish “planned” from “spontaneous” orders. Upon seeing a lecture announcement Rothbard’s wife Joey exclaimed, “Look, Hayek’s giving a lecture on taxis!” As life-long New Yorkers they naturally assumed Hayek meant the yellow ones with lights on the roof.
Even Rawley, a PhD Candidate in strategy at Berkeley, is doing interesting work on taxis (the yellow ones). I recently read his paper “Diversification and Adaptation: How Organization Drives Taxi Firm Performance,” which exploits a change in taxicab regulation to perform a natural experiment on the effects of related diversification on firm performance. Until the mid-1990s US taxi firms were prohibited from entering the market for limousines (the airport kind, not the stretch kind). As those restrictions were relaxed, taxi firms began to diversify into the limo market. Rawley uses Census data to show that diversifying taxi firms were less efficient and less likely to adopt computerized dispatching systems than non-diversifiers, which he interprets as a story of costly organizational adaptation. (more…)
What’s In a (University) Name?
| Peter Klein |
An organization’s name is an important part of its identity. Names can also be valuable signals to market participants about mission, values, and strategy. Certainly, names seem to matter: a 2001 paper by Michael J. Cooper, Orlin Dimitrov, and Raghavendra Rau, “A Rose.com by Any Other Name,” documented a positive and significant stock-price reaction to announcements of adding “dot-com” to company names. (No word on the reaction to the reverse, as when Monster.com changed its name to Monster in 2003.)
Two universities in my state have gotten into the act. In 2005 Southwest Missouri State University changed its name to Missouri State University to reflect a more national orientation. (In most US states the “University of XYZ” is the original state university and “XYZ State University” is the newer, land-grant institution; in Missouri, however, the land-grant designation was given in 1870 to the already-existing University of Missouri, officials of which strongly opposed giving the name Missouri State to a rival institution.) Now the University of Missouri system has announced that the University of Missouri-Rolla, one of four campuses in the state system (and home of guest blogger Chihmao Hsieh), will change its name to Missouri University of Science and Technology. The name change is “is part of chancellor John S. Carney III’s goal of making UMR one of the nations top 5 technological research universities by 2010,” according to a news release. But will it smell as sweet?
Update: My old college classmate Jim Surowiecki, author of The Wisdom of Crowds, wrote about corporate name changes for Slate back in 1997.
Fabio Chaddad to Join Missouri Faculty
| Peter Klein |
I’m pleased to announce that Fabio Chaddad of IBMEC is joining the Division of Applied Social Sciences at the University of Missouri. Fabio’s research deals with networks, supply-chain management, cooperatives, corporate finance, and other aspects of strategy and organization. He may even be worthy of a guest-blogger spot at O&M!
Has Strategy Forgotten About Rivalry?
| Nicolai Foss |
Austrian economists and other “process economists” have often argued that what is (or at least was) called “competition” in mainstream/neoclassical/orthodox/etc. economics has rather little to do with the real phenomenon. Hayek made the point famously and forcefully in his 1946 essay, “The Meaning of Competition,” and several Austrians have echoed him since then. (The best study of the transformation of “competition” (particularly, “perfect competition”) into the opposite of competition is Frank Machovec’s 1995 book, Perfect Competition and the Transformation of Economics).
It seems that strategy scholars may also have forgotten about rivalry. (more…)
CORI’s Contracts Database: More Documents, Faster
| Peter Klein |
Researchers in organizational economics and strategy who rely on CORI’s online contracts database — and c’mon, who doesn’t? — will be happy to know that the collection is growing faster than ever before:
SEATTLE — (BUSINESS WIRE) — QL2 Software today announced that the Contracting and Organizations Research Institute (CORI), one of the world’s leading research organizations on contracts, has deployed QL2’s flagship product, WebQL. CORI will leverage the on-demand power of WebQL to automate the Web data extraction process from the Securities and Exchange Commission’s (SEC) database, EDGAR, to enhance the Institute’s knowledge base of contract information (K-Base). As a result of the implementation, CORI has been able reduce the document upload process to CORI’s K-Base from 15 hours to two hours; a productivity increase of 750% per day.
Based at the University of Missouri-Columbia, CORI’s goal is to build upon its collection of more than 250,000 contracts and other documents of interest to support studies conducted by academic researchers and professional clients focused on best practices as well as economic enterprise structure. Prior to QL2, document search and collection was being performed manually by students at the University, a process of copying and pasting new filings which often took more than 15 hours per EDGAR-filing day. Students also served as taxonomists, responsible for assigning each document to a particular category or associating it with certain search terms.
“WebQL allowed us to replace a slow, tedious and costly process with an automated solution that dramatically improves the speed, quality and consistency of the data extracted from EDGAR,” said Dr. Michael Sykuta, Associate Professor of Agribusiness and Director of CORI. “The solution has also helped reduce the drain on our network bandwidth, processing capacity and archival storage, and allowed the students to focus on processing and categorizing the documents downloaded by the WebQL-enhanced system. With nearly 50,000 documents waiting to be reviewed, we are certainly ahead in our data extraction and downloading.”
We hope users will enjoy the increasing breadth of the collection (and appreciate our contribution to the Marxist process of labor displacement). And if you haven’t seen CORI’s new search interface, you’re in for a treat.
Utility Strategy
| Steven Postrel |
Skeleton of a Harvard Business Review article:
How do you get sustainable advantage in a service business today? One approach: Become a new-wave utility. Think about Google or Yahoo, eBay, Amazon, etc. on the Internet; think about UPS or FedEx, Grainger, Ryder, Public Storage in logistics; think about McDonald’s, Starbucks, 7-Eleven, in convenience food consumption. (more…)
Ben Klein’s Reply to Coase
| Peter Klein |
Ben Klein’s new paper, “The Economic Lessons of Fisher Body – General Motors,” appears in the February 2007 issue of the International Journal of the Economics of Business. He is not about to give Ronald Coase the last word. Indeed, Klein writes, the newest evidence on the history of the relationship between Fisher and GM confirms his earlier claim that GM’s acquisition of Fisher in 1926 was a response to opportunistic behavior by Fisher. This evidence
sheds new light on the conduct underlying these events, most importantly on how Fisher Body accomplished its holdup of General Motors in 1922. . . . The analysis presented in this paper reconciles [my] previous evidence of Fisher Body’s reluctance to locate its body plants adjacent to GM assembly facilities and Fisher Body’s reduction in its capital to sales ratio with [Coase’s] new evidence regarding contract restrictions on the use of inefficient production technology and the lack of mis-located plants. In the process we not only more fully explain what happened in the Fisher Body-General Motors relationship but also provide significant insights into the economics of holdup behaviour. The conclusion that Fisher Body held up General Motors not only stands, but is substantially strengthened by the analysis because Fisher’s conduct is shown to be consistent with what we would expect from economics.
What of Coase’s contention that there was no holdup, and that the entire case illustrates economists’ tendency to disregard the facts? (more…)
ACAC 2007 — Submission Deadline Approaching
| Nicolai Foss |
I have attended only two truly excellent conferences. The first one was the 1997 inaugural conference for the International Society of New Institutional Economics. For me much of the excitement of that conference was seeing Ronald Coase, Oliver Williamson, Harold Demsetz, Mancur Olson, and other luminaries for the first time. To keep flight costs, my wife and I had to stay for 10 days in St. Louis, but it was worth it ;-)
The second truly excellent conference I have experienced was the 2005 ACAC which had an equally impressive line-up, only from strategic management, (e.g., Jay Barney, Kathleen Eisenhardt, Pankaj Ghemawat, etc.) as well as great papers and discussions. (more…)
CBS Workshop on Knowledge Sharing
| Nicolai Foss |
The Center for Strategic Management and Globalization hosts a workshop on “The Barriers to Intra- and Inter-firm Knowledge Transfer” at the Copenhagen Business School June 15. Keynote Speeches will be given by Linda Argote and Gabriel Szulanski. Paper proposals must be submitted prior to April 10 to the arranger, Dr. Koen Heimeriks at kh.smg@cbs.dk Here is the Call for Papers.
Risk, Uncertainty, and Baseball
| Peter Klein |
Frank Knight meets Abner Doubleday in this this item from the Hardball Times.
When we try to predict the outcome of a baseball season, whether as fans or pretend-general managers, there’s a whole lot of stuff we just don’t know. In fact, if you want certainty, we don’t know anything: any player in major league baseball could blow out his arm, crash into a teammate, or just plain lose the skills necessary to hit a slider.
Of course, most of those things won’t happen. When guessing the outcome of a team’s season, it’s a safe bet that somebody will get hurt, some players will underperform expectations, and others will overperform. One mark of a good general manager is identifying the situations in which those are most likely to happen, and then providing the best insurance he can.
Invoking the Knightian distinction between risk and uncertainty, baseball analyst Jeff Sackmann continues:
In a game of Strat-O-Matic, baseball is risky — you could calculate the likelihood of every event before you roll the dice. In real life, baseball is uncertain — no number of dice (or spreadsheet) is going to tell you Chris Snelling’s 2007 OPS. However, when it comes to the game on the field, there’s a continuum between risk and uncertainty, and that’s what I’m interested in. [Links added by PK for the benefit of our non-baseballophilic readers.]
Returning to Steve Postrel’s thoughts on the value added of management, one can perhaps conceive the problem in Knightian terms. In a world of probabilistic risk, “management” is, in principle, a simple problem of contract design. Nor would there be a reason for entrepreneurs to own assets. In a world of Knightian uncertainty, however, there is a role for managerial skill and for entrepreneurial judgment. Indeed, as Sackman notes, baseball “statheads don’t always agree with general managers” on personnel matters.
NB: If you think this is a rather silly example, you haven’t been keeping up with the literature. The academic analysis of sports is a rapidly growing field. Check out the Journal of Sports Economics, for example. Here is a short sportometric piece by yours truly.
Toyota at the Crossroads
| Steven Postrel |
The recent NYT article (not the Sunday Magazine story but an earlier business sectiion piece by Martin Fackler) describing Toyota’s struggle to transmit its methods and culture to large numbers of foreign workers, in the face of unprecedented recalls and quality problems, provokes a number of thoughts about the company’s past successes and its current problems. (more…)
Why the Strong May Be Late
| Nicolai Foss |
One of the favorite cases of technology strategy classes is the innovation of the CAT scanner. The first such commercially viable scanner was introduced in 1972 by EMI, by no means a major player in the diagnostic-imaging market. The EMI scanner was leapfrogged by General Electric in 1977. GE dominates the market today along with Siemens. EMI exited already in 1979.
Why was EMI the first to commercialize CAT scanners and not the more established players with the relevant core competencies? Typical explanations of this kind of pattern where strong players avoid pioneering a market involve “stupidity” (because of various biases the strong do not see it coming) or “lock-in” (for various reasons, the strong cannot respond effectively). (more…)
Open Innovation Site
| Peter Klein |
For something serious on “open” architecture and innovation, see Henry Chesbrough’s Open Innovation site (named for his 2003 book). There’s a nice bibliography, research page, and the official site for Chesbrough’s edited volume (with Wim Vanhaverbeke and Joel West) Open Innovation: Researching a New Paradigm (Oxford, 2006).
The Wikified Firm
| Peter Klein |
Openness is surely the prevailing fetish of our times. In the tell-all memoir, in the airiness and transparency of modern architecture, in the porousness of national borders and, lately, in the flashier theories of business, the overwhelming appeal of openness is nearly a closed question.
Thus opens Daniel Akst’s review of Don Tapscott and Anthony D. Williams’s Wikinomics: How Mass Collaboration Changes Everything from the Saturday W$J. It’s actually a pretty good review considering the book’s underlying flakiness. “Firms that cultivate nimble, trust-based relationships with external collaborators are positioned to form vibrant business ecosystems,” write Tapscott and Williams. “For individuals and small producers, this may be the birth of a new era, perhaps even a golden one, on par with the Italian renaissance or the rise of Athenian democracy.” Notes Akst: “Somehow it seems a little premature for Botticelli to roll over and tell Demosthenes the news.”
The basic problem with Wikinomics, and others in this genre, is the failure to take a balanced, comparative approach to the effect of technology on transaction costs. Of course, information technology has the potential to lower the costs of transacting between firms. But it can also lower the costs of organizing activities within firms (through improved communication, better monitoring, more effective coordination, and so on). The net effect on firm size and vertical integration is ambiguous. (See more discussion here.)
Does anyone else think that “wiki” and its derivatives should be added to the banished words list?
Update: Tapscott published an op-ed on Viacom’s tiff with YouTube in Monday’s WSJ.
HBR’s Breakthrough Ideas for 2007
| Peter Klein |
The February 2007 issue of Harvard Business Review features the annual breakthrough ideas list. Duncan Watts says viral ideas are spread by everyone (like me!), not just “influentials” (contra Malcolm Gladwell). Eric von Hippel likes Denmark’s national innovation policy (Nicolai? Bo?). Michael Schrage says firms need to recover their Old Math. (“As computing gets ever faster and cheaper, yesterday’s abstruse equations are becoming platforms for tomorrow’s breakthroughs.”) Geoffrey B. West says innovation isn’t really modular (“the existence of superlinear scaling that links size and creative output . . . challenges the conventional wisdom that smaller innovation functions are more inventive, and perhaps explains why few organizations have ever matched the creativity of a giant like Bell Labs in its heyday”). Lots of interesting stuff.
Built to Regress to the Mean
| Peter Klein |
Of 35 “Excellent” companies studied in In Search of Excellence, 30 declined in profitability over the 5 years after the authors’ study ended in 1979. . . . Similarly, of 17 of the 18 “Visionary” companies studied in Built to Last, only 8 outperformed the S&P 500 market average for the 5 years after the authors’ study ended in 1990.
This is from Phil Rosenzweig’s The Halo Effect (Free Press, 2007) (I’m quoting this summary in CFO Magazine). Rosenzweig’s book reads like a primer on research methods for producers (and consumers) of popular management literature. Rosenzweig, a management professor at IMD, explains the problem of selection bias, the difference between correlation and causality, the need to compare rival explanations, the difference between absolute and relative performance, and more.
“Some of what I talk about in The Halo Effect is Research Design 101,” Rosenzweig tells CFO. “You gather your independent variables, independently of the thing you’re trying to explain. You don’t confuse correlation with causality, and you don’t confuse ends with means. You control for other variables. It’s basic stuff.”
But that basic stuff is hard to translate into a BusinessWeek best-seller.
Thanks for the link to Gary Peters, who notes that the book might be good reading for a doctoral seminar on research methods.
Peter Abell’s Organization Theory Textbook
| Peter Klein |
Peter Abell’s textbook Organisation Theory: An Interdisciplinary Approach is available on the web for free. (Technically it’s not a textbook, but a London School of Economics “subject guide.”) Congratulations to Peter for his fine work. (HT: Teppo)
Syllabus Exchange
| Peter Klein |
As a new semester begins professor-bloggers are sharing their notes and class syllabi. We previously mentioned Thom Lambert’s opening lecture in his Business Organizations class. Here are some syllabi that might interest O&M readers:
- Kieran Healy’s Economic Sociology (Arizona)
- Teppo Felin’s Microfoundations of Strategic Organization (BYU)
- Pete Boettke’s Austrian Theory of the Market Process II (George Mason)
- Cory Doctorow’s Is Everyone on this Campus a Copyright Criminal? (USC)
- Henry Farrell’s Institutions and Politics (George Washington)
Night Thoughts of a Strategy Instructor
| Steven Postrel |
1. Exactly what is accomplished by teaching (present or future) managers the five forces framework? It’s useful for investment and diversification decisions, but otherwise isn’t very actionable, unless you’re engaged in cartel management.
2. It’s a good bet that the term “barriers to entry” adds zero (or worse) to student understanding of when an incumbent has advantage over a new player (and when the anticipation of that advantage deters entry). Also, students are rightly confused about the distinction between entry and rivalry because realized entry contributes to future rivalry. At least in logical terms, I can avoid this confusion by stressing the “threat of entry” as a force separate from rivalry, but then we’re supposing individual firms coordinate their price and capacity decisions to keep out entrants, a view of industry collaboration and statesmanship that was musty in the 1980s (and often involves incredible threats). Maybe it would be better just to talk about the elasticity of long-run supply and not worry too much about whether new capacity comes from incumbents or from entrants.
3. Is it a good idea to teach positioning analysis using cost drivers without having a cost function that combines all the drivers together? Scale, learning, scope, product features, etc. — shouldn’t we worry a lot more about how they reinforce or conflict with one another in a given case?
4. Does it matter that it’s really hard to find good examples that fit the technical definition of economies of scope? Is it OK if I just keep passing off multiproduct scale as if it were scope since the students don’t know the difference?
5. Am I just getting old and curmudgeonly, or does it seem like the newer Harvard cases are more pre-digested than the classics? What’s up with constructing all the pro forma tables for the students instead of scattering the information around in the text and exhibits?
6. Will I be able to teach effectively tomorrow if I don’t fall asleep soon?
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