Here are two facts we have known for a long time. One is that a firm acquiring another firm combines their assets, and that can give synergies if they have something that works better together than apart. That something can be any kind of asset, by the way, including knowledge or intellectual property. The other is that firms establish and change interfirm networks through forming and dissolving alliances with other firms, and they use alliances to gain synergies too. So far everything sounds conventional and straightforward.
But these two facts don’t tell the whole story. A firm acquiring another firm also combines their networks, and that can create synergies when the combined network is better than the original ones. In fact, it can change a network much more radically than just forming and dissolving alliances one by one. This third fact is the start of an article in Administrative Science Quarterly by Exequiel Hernandez and J. Myles Shaver, but the article does not end there. It also checks whether firms are deliberately choosing acquisition targets based on these network synergies.
The question is important. It speaks to how smart firms are in maneuvering and modifying interfirm networks, which is useful to know, especially because people are not particularly smart in modifying interpersonal networks. But firms are not people, and acquisitions are not normal firm actions – they are analyzed carefully, and networks could be one of the factors taken into account. They could even be more important for acquisitions than some of the assets that researchers have long obsessed over. After all, alliances are observable in advance, like physical assets are, but they are unique and therefore more strategic. The other unique and strategic assets in play are often people with knowledge, but they are known to sometimes leave a firm after it has been acquired, so it is pretty risky to acquire to get people. Alliances usually stay.
Network synergies are especially potent if they make the combined firm a better broker of knowledge because they connect to firms that are not themselves connected and do not have other shared connections (that’s called gaining structural holes). Brokers of knowledge can help create novelty and can reap more of its benefits. Synergies are also potent if they make the combined firm more central in the overall network, giving it higher status. Pretty much any combination of firm networks will improve brokerage and status, however, so it is not enough to see that this happens after an acquisition. What we need to know in order to look for deliberate choice of network synergy is whether the increase from the firm network that got acquired was better than the increase would have been for other firms that could have been acquired. Strategy is about choices, so a choice has to be compared with what was not chosen.
This is where Hernandez and Shaver make a fully convincing case for network synergies as an important factor in acquisitions. They studied biotech, where networks are very important, and so are assets like people and intellectual capital. Their analysis is impressive and leaves no doubt that the opportunity to combine networks and gain network synergies was an important factor in the choice of acquisition targets. That means we now have a new way of looking at acquisitions, and we are better able to tell what firms may get acquired, and what they were acquired for.
Hernandez, E., & Shaver, J. M. Network Synergy. Administrative Science Quarterly, forthcoming.
Digital Divide Data (DDD) is a commercial enterprise doing data-entry work for profit. It is also a social enterprise that trains Cambodians to obtain better jobs than the ones they do for DDD. Is that a contradiction? Maybe it is not fully contradictory but instead just a tension—one that many social enterprises handle because they need to sustain themselves commercially, not just do good work. We have long known that the dual purpose of social enterprise is seen as a contradiction internally and can lead to various problems and coping strategies, but we have not known much about the long-term effects.
Now we know more, thanks to an article in Administrative Science Quarterly by Wendy Smith and Marya Besharov. They followed DDD for more than ten years, seeing it as a great example of the effects of how such contradictions are dealt with over a long time. It is a great example both because DDD has coped with them well, while many other organizations break apart or fail, and because it has faced a particularly difficult tension between its commercial and social work, as the commercial work has slim margins and some of the social activities can undermine it seriously.
What do we learn from DDD? As you might expect, the answer to such contradictions has more than one part, but here I want to describe just one: guardrails. Establishing guardrails is a way to set up the organization that follows some old organization theory almost to the book, although the DDD founders may not have been aware of it. In a hybrid organization like DDD, whose commercial and social activities are both important, one of the many possible solutions is to make sure that the organization holds strong advocates of each one and is not set up to let one type of activity dominate. That setup results in a battle for dominance between these advocates and between the coalitions they can muster for support whenever a critical problem arises.
That sounds like a noisy and costly way to organize, and it is. But its key feature is that the battles arise whenever one coalition sees the organization as going too far in one direction and neglecting the other, and the battles help to pull it back to the center. As long as the organization can balance its activities, it is peaceful. That’s why competing advocates and coalitions function as guardrails – they keep the organization from going off track and favoring one mission over the other.
The reason this is important is that hiring advocates for contradictory positions without giving priority to one looks like a way to generate problems for the organization. There is not one overriding mission, there is not a clear organizational identity, it is not possible to predict when conflicts will start, and it is hard to predict how they will end. But all these frightful sources of noise help stabilize the organization and resolve the tension between its contradictory goals and activities.
Smith, Wendy, K. and Marya L. Besharov . 2017. "Bowing before Dual Gods: How Structured Flexibility Sustains Organizational Hybridity." Administrative Science Quarterly: forthcoming.
There is a lot of research on how teams make disasters happen, and the answer is clear: teams use cues to make sense of the situation, and disasters happen when sensemaking differs from reality. That’s useful to know, but we would also like to know how it can be prevented. We know that expertise and experience do not help. Experienced commercial pilots, space shuttle subcontractor engineers, chemical plant operators, and fighter pilots have all been studied and found to do faulty sensemaking. The examples I just gave have led to a total of 4,000 confirmed deaths and more than 10,000 likely deaths.
Finally, an article in Administrative Science Quarterly by Marlys Christianson has some answers. She studied how medical teams went through an emergency room training procedure – treating a young asthma patient with increasing breathing failure – in a simulation designed to invite incorrect sensemaking in the beginning, so they would need to recover later. Fortunately, in simulations the patients are not real, because one quarter of them would have died. Even among the teams that managed to identify and correct the problem (replacing a piece of broken equipment), the speed of doing so varied a lot, so thanks to this research we now know a lot more about how sensemaking can recover.
Teams are in organizations for doing work, not for solving puzzles. Whenever a situation involves a puzzle that needs to be solved, such as faulty sensemaking that needs to be corrected, the regular work done by the team takes effort and attention away from the correction. This means that cues that may look obvious to someone outside the team are not at all clear to team members who are focused on the regular work and who do this work premised on their sensemaking. In an emergency room, the team will look for cues to how the patient is doing, but they spend much of their time treating the patient. Treating and observing clues are related, but they compete for time.
This means that emergency room teams can solve puzzles only if they manage two trajectories at once – the regular treatment and the interpretation of cues from the patient’s condition. The interpretation trajectory is how sensemaking is updated, and it is complex because it moves from noticing cues that suggest something is wrong, to interpreting them to indicate what the problem is, to acting to check the interpretation. Usually the actions involve changing the treatment, so treatment and interpretation need to be in sync. The trajectory management can fail in multiple places. For example, the treatment takes too much time so cues are not interpreted, or the treatment is based on current sensemaking so changing it to check interpretation does not make sense.
The emergency room teams had a sensemaking problem because the simulation was designed to involve treatment equipment that did not work correctly, so the usual sensemaking (“our equipment works, so all problems can be found in the patient”) was faulty. Similar sensemaking problems are found in many places. In the Black Hawk shooting incident, the fighter pilots saw helicopters without correct friend–foe identification signals and concluded they would be hostile because friendlies signal who they are. Any cues they could see were drowned out by the tasks of flying the aircraft low in mountainous terrain, keeping alert for possible threats, and going through a modified foe identification and engagement procedure while communicating with each other.
Trajectory management can easily fail, with tragic consequences. Now that we know more about the differences between teams that succeed and teams that fail, we may be able to work to make teamwork more reliable, especially when lives are at stake.
Christianson, Marlys K. 2017. More and Less Effective Updating: The Role of Trajectory Management in Making Sense Again. Administrative Science Quarterly, forthcoming.
On a personal note, I’ve experienced the benefits of the sort of updated sensemaking described in the article. When I was in the emergency room after an accident, the team scanned me to look for internal bleeding based on their experience of how body folding from being hit by a car while riding a motorcycle can break blood vessels. They found none. The cue of falling blood pressure after closing the external wounds made them re-scan over a broader range, and they found the broken vessel and fixed it. I am alive, thanks to the team’s updated sensemaking.
We are supposed to like innovations. They drive the world forward, with effects that range from the pleasant (like the camera on your phone) to the vital (like portable ultrasound in developing nations). In fact, many of the heroes in business are known because of their innovations. A classic example is Steve Jobs launching the multi-function iPhone, which relied on knowledge of music storage and playoff, as well as internet connectivity, that previously had not been part of mobile phone technology. This is one of the two classical stories on how to innovate: combine existing knowledge in new ways, or create completely new knowledge.
The only problem with the iPhone story is that it makes us think the world rewards innovation and that firms doing it get Apple-like fame and fortunes. That happens to be the exception. A research paper by Matt Theeke, Francisco Polidoro, and James Fredrickson in Administrative Science Quarterly has shown that firms using new kinds of knowledge for making innovations face a surprising form of risk: they may end up getting ignored.
The details of this research help us see exactly what happens. All kinds of firms want stock brokerage firms to issue analyst reports on them, because that means investors will pay attention to them, which helps them gain financing. This is especially important for firms that rely on innovations, because making innovations means paying money now to get money later, which is exactly what financing is used for. In fact, there are entire industries that are so dependent on innovations that analyst reports are essential. Theeke, Polidoro, and Fredrickson studied medical devices, which is a good example of an innovation-driven industry. Brokerage firms covering that industry need to understand research and knowledge use, because otherwise they cannot estimate future profits well.
So what is the problem? Well, the brokerage firms have expertise in the conventional use of knowledge, which means that use of new knowledge – innovative use of knowledge – is something they understand less well. As a result, firms incorporating new knowledge are more likely to be ignored, as brokerages drop them from their coverage. The newer the knowledge is, and the more expertise the brokerage firm has in covering other firms in the industry using conventional knowledge, the worse the situation is. Just as expertise makes some firms rigid in their knowledge use, it makes brokerage firms rigid in their knowledge valuation.
So our tales of heroic unconventional innovators are good examples of exceptions, because business rewards convention. Does that mean it is better to follow convention and just make minor improvements? Not really, because easier access to financing is very different from more successful product launches. It just means that firms planning to use new knowledge in making innovations should check their bank accounts first, because they may have to pay the cost themselves.
Theeke, Matt, Jr. Francisco Polidoro, and James W. Fredrickson. 2017. "Path-dependent Routines in the Evaluation of Novelty: The Effects of Innovators’ New Knowledge Use on Brokerage
Open innovation is heralded as a way to advance technology and product innovation quickly and cheaply. It is modeled on the open source software movement, which is based on computer programmers donating their time to build software components, check their own work, check others’ work, and correct mistakes. Among the famous software suites made through open source, Linux is a computer operating system that is used in everything from cellular phones to web servers, and is often involved when you are retrieving and reading blog posts like this one. Open innovation extends this model to innovations outside computer programming by organizations posting problems that anyone interested can help solve.
The idea is to use volunteer efforts to get innovations for free (almost a Dire Straits lyric), which sounds like a good deal. Unfortunately, this has proven difficult for many organizations, and research in Administrative Science Quarterly by Hila Lifshitz-Assaf has found out why. Her careful study looks at an open innovation initiative in a very innovative high-tech organization: NASA. In 2009, NASA tried an open innovation experiment that led to some speedy, inexpensive, and impressive solutions. But its relationship with open innovation since then has been inconsistent, with some NASA professionals using it to great success and some not. Why the difference?
In a word, the difference is identity. Innovations are typically done by highly educated people who are trained to follow careful processes specific to their organization and to their scientific and technological specialization. These people have a professional identity built around their unique skills as problem solvers for the organization. For people with such an identity, what does it feel like to have amateurs solve problems instead of them? Open innovation draws much of its strength from individuals who may lack formal education, don’t follow the predefined process, and aren’t even employees of the organization. Naturally there is an inherent conflict between the insiders and the open innovation use of outsiders, and some insiders are tempted to seal the organization off from the outside sources of innovations.
Why did some parts of NASA embrace open innovation? Again the answer is identity. Those who could redefine their professional identity to be a solution seeker, not a problem solver, became adept users of open innovation. For a solution seeker, the existence of a solution is what matters – not who made it, and not how it was made. It is a completely different way of thinking of oneself and of solving problems.
The division between problem solvers and solution seekers resulted in NASA professionals adopting various approaches to the open innovation initiatives advocated by their leadership. Problem solvers maintained boundaries, either explicitly or through the pretense of openness but actual closure. That way they could maintain their focus on their individual efforts and internal innovations. Solution seekers looked for outside solutions, sometimes simply embracing externally developed solutions, and sometimes adapting external solutions so that the final solution became a mixture of outside and inside effort. Problem solvers may hold tight to their identity, but open innovation is sure to continue gaining ground. “Get your innovations for nothing, get your praise for free” is an appealing tune.
Lifshitz-Assaf, Hila.2017. "Dismantling Knowledge Boundaries at NASA: The Critical Role of Professional Identity in Open Innovation." Administrative Science Quarterly, Forthcoming.
As you have seen in the “From the Editor” that Administrative Science Quarterly (ASQ) published in June 2017, the editors of ASQ strongly encourage that authors show the data in their manuscripts, by using graphical approaches to give an indication of the most important features of the data and their theoretical explanation before estimating models. Preferably this should be done as early as the introduction in order to spur the reader’s interest and give an indication of why the paper is valuable. Such use of graphical methods is rare in organizational theory and management research more generally, so we will gradually introduce methods of graphical analysis that can be used by researchers.
Graphical methods for showing the data are integrated into Stata, the most common software used by management researchers, and the Stata commands offer a good blend of simplicity and flexibility. Nevertheless, they need some training, especially because statistical training is model-focused in many schools, and highly variable in how well graphical methods are taught. Here are some resources that can be useful:
Here is a simple example do-file and data. The data are from published work (Greve and Song, 2016), but is only a small sample of the data in use. Here are the graphs produced by the do-file and the data.
Greve, Henrich R., and Seo Yeon Song. 2017. "Amazon Warrior: How a Platform Can Restructure Industry Power and Ecology." Advances in Strategic Management 37:299-335.
Here is a simple introduction to some important methods, including scatterplots, lineplots, bar graphs, box plots, and kernel (full distribution) plots.
Here is an example of more advanced programming, which is needed because stata does not (yet) have a simple way of showing a grouped bar graph with error bars, which is an important graph for taking a first look at group differences.
Displaying statistics on a map can be very helpful for any kind of research involving spatial relations. Here is an introduction to spmap, which is an add-on procedure for producing mapped data displays. Earlier such mapping required changing to different software and exporting data, which is both time consuming and a potential source of errors.
Here is an introduction to the coefplot function, which is a graphical display of coefficient magnitudes, and a very informative way of giving a comparative view of a full regression model, or parts of it, in a compact graph. The Greve and Song file above gives an example, but this function has an advanced set of options. An important issue in using it is that it is usually better to standardize the covariates (to a standard deviation of unity) for easy comparison of effect size. This was not done in Greve and Song because their covariates were counts, so unit changes were meaningful and comparable.
Here is an interesting contradiction: Some politicians say that relying less on foreign workers will make their nation more competitive, but in fact it makes the workers’ home country more competitive. Notice that I said contradiction, not paradox, because it is not a paradox at all. It is logical, and it is supported by recent research.
Here is how it works, as explained in an article by Dan Wang in Administrative Science Quarterly. Foreign workers are often used by highly advanced and competitive firms, because those firms are best positioned to take advantage of a worker’s skill wherever it is found, and to transfer it to wherever it is needed. They also have excellent production processes, advanced technologies, and knowledge on how to best operate these. Sometimes their foreign workers go back to their home countries (usually voluntarily). What happens then?
The start is quite simple. These workers may be holding knowledge of great value to firms in their home countries, so the key is whether they can make a knowledge transfer back home. The firms that hire them, or the new firms they form if they become entrepreneurs, will benefit from their knowledge. But the full story is not as simple as the start. These workers differ in how well connected they are to others, in the companies they worked with abroad, and in the companies they work with after returning. Their personal networks differ in how many people they know and how well they know them. It turns out that knowledge transfer depends greatly on these connections, because the greatest transfers happen when a worker is highly connected both abroad and after returning home.
The conclusion is clear. Playing the competitiveness card may be a good way to cater to xenophobia among voters, because those who prefer fewer foreigners around like to hear reasons for their dislike. (Even if the excuse isn’t true, it is nice to have an excuse.) But competitiveness is not a valid reason to send foreign workers home.
Wang’s research had one more important conclusion: it was not just personal networks that made knowledge transfers effective, but also an absence of xenophobia in the home country. Now the contradiction becomes even more interesting. Xenophobic policies of sending people home may be phrased as helping competitiveness, but they usually hurt it — except when the workers come from a country with xenophobic people, because then the knowledge they have won’t transfer back. Xenophobia is a lose–lose proposition.
2015 "Activating Cross-border Brokerage: Interorganizational Knowledge Transfer through Skilled Return Migration." Administrative Science Quarterly, 60: 133-176.
Managers are often given advice that combines research-based buzzwords with fundamental misunderstandings. Empowerment is a good example. The word contains “power,” and advice is usually given to those who feel a need to improve, so it was perhaps inevitable that empowerment should be associated with ideas of individuals becoming or feeling empowered through some action of their own, such as attending a course or a coaching session on how to become empowered. That’s not what empowerment means or how it works: people are empowered when someone else gives them power and authority to make their own decisions.
The distinction is important because if empowerment improves organizations, then we should start by looking at the person who empowers others. That’s exactly what was done in research published in Administrative Science Quarterly by Amy Ou and collaborators. They looked at how a CEO’s humility could empower others in the firm. Their central insight is simple and powerful: a CEO’s humility makes it easier for the top management team to work together, because each feels empowered and comfortable, and that effect on the top management team cascades down the organization.
They found that the humble CEO is the opposite of the showy CEO in two key ways. First, the humble CEO does not dominate but instead is understated and makes it easier for the closest executives to stand up and perform. For example, the humble CEO does not make public performances and speeches to the whole organization but instead lets the empowerment of the closest executives cascade down. Second, humble CEOs encourage communication to give shared understanding, which in turn lets subordinates feel motivated and confident about their decisions and helps their managers trust their judgment and commitment. This cascading down of shared understanding and trust can bring whole organizations together more effectively than inspirational speeches by showy CEOs.
There is much about that research that appeals to us, because most of us share the suspicion that showy, self-promoting, narcissist CEOs must be flawed in some way. Yet such CEOs are very common, and part of the reason is that it is easier to imagine people who make a big impression also having big effects on the firms they lead. Humility is such a low-key behavior and such (what else can I say?) humble thinking that it is hard to imagine it having a big effect. But it does. How?
The keyword is empowerment. Humble CEOs empower their top management teams. Empowered top management teams create an organizational climate that empowers workers all the way down. A top management team that has been empowered and in turn empowers others creates norms that are so strong that it is hard to be an authoritarian manager. That’s how humility has big effects on organizations: it creates an expanding circle of empowerment.
Ou, Amy Y., Anne S. Tsui, Angelo J. Kinicki, David A. Waldman, Xiao Zhixing, and Lynda Jiwen Song. 2014. "Humble Chief Executive Officers' Connections to Top Management Team Integration and Middle Managers' Responses." Administrative Science Quarterly 59(1):34-72.
Five years ago, I posted a blog on award-winning research showing that firms pay more and get less when hiring from the external labor market. The reason is that managers know more about their current employees, and they overestimate the value of external hires because they focus on their formal qualifications. When it comes to filling jobs internally in the organization, a manager still has to choose between placing a known worker into a job or posting the job and assessing applicants, who may or may not be familiar to the manager. With internal hiring, do managers still undervalue the workers they know?
Research in Administrative Science Quarterly by JR Keller answers that question. He looked at the difference in job performance and pay between jobs that were filled through posting and applying, and jobs that were filled through the manager picking someone (slotting). Managers could choose which way to fill each job, and naturally they used slotting when they knew someone who fit and posting when they were not so sure. This is the same as choosing between internal job mobility and the external job market, because managers pick internal candidates when they know someone who fits the job and hire externally when they are not so sure. They also have more candidates when posting, and they know less about the applicants because they are usually from other parts of the organization. In every way you can imagine, the choice between posting and slotting is similar to the choice between external and internal hiring.
So how wrong is it to fill an internal hire through posting instead of slotting? Here is the surprise: It is not worse to fill by posting, but better. Posting means higher job performance, both absolute and compared with others. It means lower chance of leaving the job, except for leaving for a promotion, which is more likely when filling through posting. Oh, and it also means higher pay for the employee filling the job. So, for the employee this looks like a good thing; more pay and better chance of a promotion. For the firm, it looks like paying more to get more, so the net effect depends on how much more the firm is getting. In this case the answer is easy because the lower turnover from the job alone shows that the firm benefits from using posting. The better job performance is icing on the cake.
But this raises the question of why markets work better inside an organization than outside it. What is it that the manager can see better when posting internally? The answer is, nearly everything. Organizations know a lot about their employees, and this knowledge is readily available when filling jobs through posting. Not only that, the posting process forces the hiring manager to think carefully about what information to use and how to weight it in the decision, giving a more systematic and higher quality choice. All the information is there, and posting gives more choices and a better choice process.
There is an important lesson in this that goes beyond filling positions. We often have beliefs about the benefit of markets relative to social arrangements like networks. We forget that there are many kinds of markets and many kinds of social arrangements, and ultimately decision making comes down to what to choose from and how to make the choice.
Keller, JR. 2017
Posting and Slotting: How Hiring Processes Shape the Quality of Hire and Compensation in Internal Labor Markets. Administrative Science Quarterly: forthcoming.
We live long lives with many new experiences, yet popular culture tells us to be the same. Be true to yourself, they say. Managers have long careers with many roles, yet researchers and self-helpers tell them to be the same. Be the authentic you, they say. It is said so many times that it must be true. Except that things said too many times by too many people need to be researched, because they might be wrong and in consequential ways.
A new article in Administrative Science Quarterly by Brianna Barker Caza, Sherry Moss, and Heather Vough looks at the connection between being authentic and being the same, and it finds that what everyone says is not quite true. They asked whether consistency (being the same) is the same as authenticity (being one’s true self) and found that the answer is no. The problem with saying that authenticity demands consistency is that one’s true self is not a unified whole. We can think multiple thoughts, have multiple beliefs, and take on multiple roles, and each of these can be fully ours even though they are not consistent with each other. People are smart enough that they don’t have to be only one thing, and they are flexible enough that they don’t force themselves to be only one.
To do the research, the authors followed the careers of people who had multiple jobs at once and in some cases also changed these jobs over time. This is a strict test of authenticity because we understand and accept that people can be different at work and privately – like the quiet student who is a very outgoing and improvisational musician. Not surprisingly, the demands of authenticity were a burden for these people with plural careers. They knew that they were asked to be authentic, and that this implied being the same always, but they also felt these demands to be unnatural. Being authentic according to others was the same as being inauthentic according to themselves. So who wins this battle?
There can be no winner, but the subjects of this study usually found a truce that worked well for them. On the one hand, they had to draw lines between who they were and who they presented themselves as, but these lines did not involve acting – they involved presenting the part of themselves that belonged to the specific job they were doing at the time. Sometimes they could even present the more complete self, but they were careful about when. On the other hand, they incorporated the multiple roles and identities that belonged to them as part of themselves, and they saw this incorporation as authentic and valuable. “There can be only one” was a demand they did not have to follow because they could shape their careers and benefit (and let others benefit) from the learning and flexibility that these multiple identities gave them.
Think about the people around you. Some may seem unusual because they simply do too many things, or too different things, and we sometimes suspect that some of it is inauthentic – they act for some benefit. But you could easily be wrong, and you could underestimate their commitment to each activity and the value they add to it.
Caza, Brianna Barker, Sherry Moss, and Heather Vough
2017 "From Synchronizing to Harmonizing: The Process of Authenticating Multiple Work Identities." Administrative Science Quarterly: forthcoming.
This blog is devoted to discussions of how events in the news illustrate organizational research and can be explained by organizational theory. It is only updated when I have time to spare.