Posts filed under ‘Strategic Management’
Strategic Entrepreneurship Journal
| Peter Klein |
Teppo Felin offers some thoughts on the new Strategic Entrepreneurship Journal. (Of course, you read about it here first.)
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…)
New Evidence on Multinational Transfer Pricing
| Peter Klein |
The economic theory of the firm is ultimately about the differences between inter- and intra-firm transactions. How, for example, are employment contracts different from arms-length transactions with independent contractors? (Alchian and Demsetz, in the famous passage in their 1972 article about “firing the grocer,” say there is no difference; Coase and Simon argue otherwise.)
We know little about how intra-firm purchase and supply arrangements differ from those between firms. However, thanks to a new dataset, the Linked/Longitudinal Firm Trade Transaction Database (LFTTD) from the US Census and Customs Bureaus, we now know something about how such transactions are priced. A new paper by Andrew Bernard, Bradford Jensen, and Peter Schott, “Transfer Pricing by U.S.-Based Multinational Firms,” uses the LFTTD data to compare export prices for “related-party” and “arms-length” transactions among US multinationals. Bernard, Jensen, and Schott find that intra-firm transactions are priced significantly lower than sales of the same good to arms-length customers. (more…)
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.
Volleyball and Equilibrium
| Lasse Lien |
What exactly is the role of equilibrium in the competitive process? Believe it or not, I have found the answer. It plays the same role as gravity does in a volleyball match.
Think about it! The ball is continuously bounced in ways that direct it towards new states of rest (new equilibriums), but it hardly ever settles down in any of these, because it is subject to new bounces, sending it towards yet another equilibrium. Moreover, about half the time the ball is moving opposite of what gravity would dictate, i.e. it is moving upwards, but unless it is bounced again it will start falling downwards and settle in the position gravity dictates (operating on the last bounce). Of course, this never occurs because the ball is continuously bounced. So a theory of gravity alone would not provide a good prediction of where the ball is, nor where it is headed, or even how the game got started. But mind you, think about how absurd it would be to try to understand a game of volleyball without any notion of gravity!
The Costs of Family Succession in Firms
| Peter Klein |
Interesting new paper shows that keeping senior management positions within the family reduces firm performance:
Inside the Family Firm: The Role of Families in Succession Decisions and Performance, by Morten Bennedsen, Kasper M. Nielsen, Francisco Pérez-González, Daniel Wolfenzon
This paper uses a unique dataset from Denmark to investigate the impact of family characteristics in corporate decision making and the consequences of these decisions on firm performance. We focus on the decision to appoint either a family or external chief executive officer (CEO). The paper uses variation in CEO succession decisions that result from the gender of a departing CEO’s firstborn child. This is a plausible instrumental variable (IV), as male first-child firms are more likely to pass on control to a family CEO than are female first-child firms, but the gender of the first child is unlikely to affect firms’ outcomes. We find that family successions have a large negative causal impact on firm performance: operating profitability on assets falls by at least four percentage points around CEO transitions. . . . Overall, our empirical results demonstrate that professional, non-family CEOs provide extremely valuable services to the organizations they head.
The instrumental-variables technique reminds me of another paper on the value of top management that exploits a different source of exogenous variation in succession patterns: death. (more…)
Roundup of Interesting Working Papers
| Peter Klein |
Kathy Fogel, Randall Morck, and Bernard Yin Yeung, “Big Business Stability and Economic Growth: Is What’s Good for General Motors Good for America?” NBER Working Paper 12394. On the relationship between Schumpeterian competition and overall economic performance.
Thomas Malone, Peter Weill, Richard K. Lai, Victoria T. D’Urso, George Herman, Thomas Apel, and Stephanie Woerner, “Do Some Business Models Perform Better than Others?” MIT Sloan Research Paper No. 4615-06. Interesting attempt to classify all 10,970 publicly traded US corporations from 1998 to 2002 according to two dimensions, what asset rights are sold (Creators, Distributors, Landlords, and Brokers) and what type of assets are involved (Financial, Physical, Intangible, and Human). Finds that some types outperform other types on particular performance dimensions, though no single type dominates all other types on all dimensions.
Naomi R. Lamoreaux and Jean-Laurent Rosenthal, “Contractual Tradeoffs and SMEs Choice of Organizational Form, A View from U.S. and French History, 1830-2000,” NBER Working Paper 12455. Asks why partnerships, rather than corporations, were the dominant business structure before the twentieth century. Uses US and French data to argue that partnerships and corporations are complementary organizational forms.
Knowledge Governance: Call for Papers
| Nicolai Foss |
My co-blogger recently blogged (here) on the newly launched International Journal of Strategic Change Management which has a heavy O&M representation (i.e., Peter, I and former O&M guest blogger Joe Mahoney) on its editorial board . As Peter mentioned, Oliver Williamson has just joined IJSCM as consulting editor.
Joe Mahoney, I and the editor of IJSCM, Patricia Ordonez de Pablos, will edit a special issue of IJSCM on “Knowledge Governance.” (For an attempt to characterize knowledge governance as an emerging field in management, see this paper; forthcoming in a slightly revised version in Organization).
Here is the Call for Papers: (more…)
Interview with James March
| Peter Klein |
The October 2006 Harvard Business Review features an interview with James March, one of the most important organizational theorists of the twentieth century. Here’s an online version (possibly behind a subscription firewall). Here’s a summary from the Jackson Library Blog (which I’m finding more and more useful all the time):
The article is called ‘Ideas as Art’ (pp. 82-89). In the introductory part, the author quotes the University of Chicago professor John Padgett who once wrote: “Jim March is to organization theory what Miles Davis is to jazz.” In the interview, March elaborates on the distinction he makes between the practical managerial needs and concerns and scholarly approach to new ideas. He values ideas which contain “some form of elegance or grace or surprise — all the things that beauty gives you” and not being relevant to the immediate needs of an organization manager in a short run. He also explains the essence of his rather famous and colorfully named theories: “garbage can theory”, “technology of foolishness”, and “hot-stove effect”. The interview reveals not only a great and original scholar but also the multifaceted personality of Jim March, a man with appreciation for literature, a poet himself and an author of several books of poetry. In his own words: “What might make a difference to us, I think, is whether in our tiny roles, in our brief time, we inhabit life gently and add more beauty than ugliness.”
Aside from being a brilliant and original thinker, March is also one of the funniest people I have ever met, a brilliant after-dinner speaker who has as many Wisconsin jokes as Garrison Keillor has Minnesota jokes.
Here’s a longer interview from 2000 by Mie Augier and Kristian Kreiner.
Forgotten/Overlooked Pioneers of the RBV
| Nicolai Foss |
Pointing to intellectual precursors is an important rhetorical exercise in many fields and disciplines. There may be rational reasons for this practice. Perhaps it helps build identity and assists group cohesion, and other things that we know very little about at O&M. Of course, to some people (including this blogger), doctrinal history is inherently interesting, but people with this preference seem to be a small and vanishing minority (in all of social science; I doubt anyone in natural science does doctrinal history professionally). To the extent that doctrinal history issues enter management discourse, it seems to mainly serve a legitimizing purpose.
When strategy management scholars of the resource-based variety ponder the past of their approach one name invariable comes up, namely that of Edith Tilton Penrose who has acquired the status of pioneering matriarch of the RBV. Numerous papers have been written on Penrose as a precursor of the RBV (e.g., this, this, and this).
Although I have the greatest admiration for Penrose’s work, particularly her 1959 book, I have some difficulties with this interpretation. (more…)
Economics Nobel
| Peter Klein |
The Nobel Prize in Economics goes to macroeconomist Edmund Phelps. No award this year for organizational economics (Williamson, Hart, Holmström, Milgrom, Alchian, Demsetz) or the economics of entrepreneurship (Baumol, Kirzner).
Reaction from the econo-blogosphere is generally favorable, but subdued. “A safe pick” is the modal comment. Lynne Kiesling adds a little sizzle: “For my money, the value of his work is in dialing down the hubris of the government policymaker who thought that monetary and fiscal policy were dials that they could twiddle to control and manage the economy. Phelps’ work helped to introduce some humility to counter that control-oriented exuberance.” And here’s Tyler Cowen on What It All Means:
The big questions still matter. Unemployment, economic growth, labor markets, capital accumulation, fairness, discrimination, and justice across the generations are indeed worthy of economic attention. Phelps contributed to all of those areas. Normative questions matter. Relevance and breadth triumph over narrow technical skill.
Problems over puzzles, in other words. Three cheers for that.
Russ Roberts provies this list of dead economists who should have won the Prize: Peter Bauer, Frank Knight, Fritz Machlup, Ludwig von Mises, Oskar Morgenstern, Joan Robinson, and Julian Simon.
International Journal of Strategic Change Management
| Peter Klein |
The new International Journal of Strategic Change Management aims to join the Strategic Management Journal and Strategic Organization in the top tier of strategic management journals. IJSCM will focus on dynamics and change and on new developments in the economics of organization and in the applied fields of strategic management, industrial organization, and international business.
The journal’s leadership includes Editor-in-Chief Patricia Ordoñez de Pablos, Consulting Editors Anita McGahan and Oliver Williamson, and Executive Editor Margaret Peteraf. Former O&M guest blogger Joe Mahoney serves as Associate Executive Editor, and Nicolai and I are on the Editorial Board, so you know journal is in good hands.
Submissions can be sent by email to patriop@correo.uniovi.es. Instructions for authors are here. Submit a paper today!
MBA Students and Math
| Peter Klein |
My friend and former colleague Dwight Lee, along with Richard McKenzie, has produced a new textbook, Microeconomics for MBAs: The Economic Way of Thinking for Managers (Cambridge University Press, 2006). Lee and McKenzie have written more books than I’ve read (or colored) and, like all their books, Microeconomics for Managers is a delight — lively and engaging while also systematic, learned, and useful. I’ve been using Brickley, Smith, and Zimmerman’s Managerial Economics and Organizational Architecture for several years and have been quite satisfied, but am considering switching to McKenzie and Lee.
I noticed this plug in the dust-jacket blurb: “This is the first textbook in microeconomics written exclusively for MBA students. McKenzie/Lee minimizes attention to mathematics and maximizes attention to intuitive economic thinking.” I’ve taught undergraduates, MBAs, and PhD students, and haven’t noticed MBA students being more troubled by math than anyone else. Clearly many managerial economics texts, at any level, overemphasize technique over intuition and application. But many MBAs — especially those with an engineering background, which seems to be an increasing number — may actually prefer more math to less. Just a thought.
27 September 2006 at 11:17 am Peter G. Klein Leave a comment
New Papers: Chandler, Leijonhufvud, Phelps, Summers
| Peter Klein |
The current issue of Capitalism and Society (volume 1, number 2) features an all-star cast. Alfred D. Chandler, Jr., leads off with his newest article, “How High Technology Industries Transformed Work and Life Worldwide from the 1880s to the 1990s” (abstract below). Chandler recently celebrated his 88th birthday, so new Chandler paper — while perhaps not quite as significant as a new Coase paper — is a major event.
In the same issue is a piece by Foss hero Axel Leijonhufvud, “Understanding the Great Changes: A Comment,” which is a comment on Edmund Phelps’s “Understanding the Great Changes in the World: Gaining Ground and Losing Ground since World War II.” The journal also contains a comment on Chandler by Richard Sylla, a paper by Richard Zeckhauser on “Investing in the Unknown and Unknowable,” and a comment on Zeckhauser by Lawrence Summers. (more…)
26 September 2006 at 10:37 am Peter G. Klein Leave a comment
Call for Papers — Special Issue of Human Resource Management
| Nicolai Foss |
With my CBS colleague Dr. Dana Minbaeva and Professor Scott Snell from the School of Industrial and Labor Relations, Cornell University, I will be editing a special issue of the HRM field’s flagship journal, Human Resource Management (!), published by the UMichigan Business School. Here is the Call for Papers.
The subject of this special issue is “Human Resource Management and Knowledge Processes.” The aim is to build theory and conduct empirical work relating to how human resource management practices influence the sharing, building and integration of knowledge in firms. How “people” (and the organizational framework they interact in, including HRM practices) may contribute to the creation of competitive advantage is an increasingly important issue in strategic management. It is also a subject that transaction cost scholars should potentially be able to contribute significantly to. We hope to receive contributions from not only “traditional” HRM scholars but also from strategic management and other scholars with an interest in these issues.
To stimulate interest in the special issue, my Center organized a two-day workshop last week. The program and most of the papers are here.
Returns to University Biotech-Transfer Programs
| Peter Klein |
The Milken Institute has released a new study, “Mind to Market: A Global Analysis of University Biotechnology Transfer and Commercialization.” The study ranks the biotech-transfer programs of North American, European, and Asian universities by a variety of critera. Some general findings:
- Among U.S., Canadian and European universities, the United States leads in invention disclosures, patents filed and granted, licenses executed and licensing income. However, European universities surpass their U.S. counterparts in startups established.
- Research activity has a high rate of return. Each 10-point increase in our research papers score contributes an additional $1.7 million in annual licensing income.
- Investments into offices of technology transfer (OTT) also offer high returns. For every $1 invested in OTT staff, the university receives a little more than $6 of licensing income.
I’m not sure what explains the US-European differences. Incidentally, there are healthy and robust literatures on technology transfer from both transaction-cost and resource-based perspectives. I recommend in particular the work of Rachelle Sampson, Janet Bercovitz, and Joanne Oxley (all of whom were influenced by David Teece’s pioneering papers in this area).
First-Mover (Dis) Advantage
| Lasse Lien |
Whether you are interested in competitive advantage, entrepreneurship, innovation, regulation, or several other issues, the concept of first-mover (dis)advantage will probably be of considerable importance. The literature has, of course, supplied a number of important insights on what might account for both advantages and disadvantages from moving early. Nevertheless, browsing through this literature, I get a sneaking feeling that it tends to produce somewhat loosely structured lists of possible mechanisms. A possible avenue of attack for adding more structure to these insights might be to reduce the problem to the basic asymmetries between the first and later movers, and from there gradually introduce the effects of resource heterogeneity, asymmetric motivation, strategic interaction, etc. But what, then, might count as the basic asymmetries? (more…)
The Make-and-Buy Decision
| Peter Klein |
Two new papers address bi-sourcing: Why do some firms simultaneously produce their own inputs and purchase the same inputs from external suppliers? Julan Du, Yi Lu, and Zhigang Tao’s “Why Do Firms Conduct Bi-Sourcing?” (Economics Letters, August 2006) uses bargaining theory to show how simultaneously making and buying can mitigate the holdup problem associated with exclusive reliance on an external supplier. Daifeng He and Jackson Nickerson’s “Why Do Firms Make and Buy? Efficiency, Appropriability, and Competition in the Trucking Industry” (Strategic Organization, February 2006) tells a more nuanced story in which “the interaction of efficiency, appropriability and competition concerns” explains simultaneous bi-sourcing. He and Nickerson provide empirical analysis inconsisent with market-power, capacity-constraint, agency-theoretic, and property-rights explanations for the results.
Both papers contribute to a growing understanding that vertical relationships are frequently more subtle and complex than what can be captured by simple “make-or-buy” models. (Even our canonical examples deserve further scrutiny.)
Coase and the Myth of Fisher Body
| Peter Klein |
I vividly recall, at the inaugural meeting of the International Society for New Institutional Economics in 1997, a discussion about the best empirical strategy for that emerging discipline. Harold Demsetz stood up and said “Please, no more papers about Fisher Body and GM!” The Fisher-GM case had become the canonical example of holdup in transaction cost economics and was considered stale and even trite. Ronald Coase, who was at the podium, replied (I’m paraphrasing from memory) “Sorry, Harold, that is exactly the subject of my next paper!”
The GM-Fisher case was introduced into the transaction cost literature by Klein, Crawford, and Alchian in their 1978 paper “Vertical Integration, Appropriable Rents and the Competitive Contracting Process.” They cited the case as a classic example of vertical integration designed to mitigate holdup in the presence of asset specificity. As the story is told, Fisher refused to locate its plants near G.M. assembly plants and to change its production technology in the face of an unanticipated increase in the demand for car bodies. This led G.M. to terminate its existing ten-year supply contract with Fisher and to acquire full ownership of Fisher.
The basic facts of the account, and the interpretation of these facts, were challenged in five independently written papers, all appearing in 2000. Three of the papers, by Coase, Casadesus-Masanell and Spulber, and Freeland, are in the April 2000 Journal of Law and Economics. A fourth paper by Helper, MacDuffie, and Sabel appears in Industiral and Corporate Change and one by Miwa and Ramseyer is in the Michigan Law Review. These papers showed that nearly every detail of the canonical account is wrong. (more…)
Structure and Agency: A Response to Felin and Foss
| Nicolai Foss |
In 2005 Strategic Organization published a paper by Teppo Felin and me, “Strategic Organization: A Field in Search of Micro-foundations.” The paper has caused quite a stir, and the editor of SO! told me at the recent Academy Meetings that he had been contacted by several authors and author teams who wanted to write responses. Our argument? The — apparently provocative — one that notions of capabilities, routines, etc. are collective-level constructs that do not have any clear (and clean) micro-foundations (as well as definitions, measures, etc.). (more…)
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