Management scorecard
Managers’ External Social Ties at Work: Blessing or Curse for the Firm?
Leif Brandes, Marc Brechot & Egon Franck
Journal of Economic Behavior & Organization, January 2015, Pages 203–216
Abstract:
Existing evidence shows that decision makers’ social ties to internal co-workers can lead to reduced firm performance. In this paper, we show that decision makers’ social ties to external transaction partners can also hurt firm performance. Specifically, we use 34 years of data from the National Basketball Association and study the relationship between a team's winning percentage and its use of players that the manager acquired through social ties to former employers in the industry. We find that teams with “tie-hired-players” underperform teams without tie-hired-players by 5 percent. This effect is large enough to change the composition of teams that qualify for the playoffs. Importantly, we show that adverse selection of managers and teams into the use of tie-hiring procedures cannot fully explain this finding. Additional evidence suggests instead that managers deliberately trade-off private, tie-related benefits against team performance.
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Are Sunk Costs Irrelevant? Evidence from Playing Time in the National Basketball Association
Daniel Leeds, Michael Leeds & Akira Motomura
Economic Inquiry, forthcoming
Abstract:
We use playing time in the National Basketball Association to investigate whether sunk costs affect decision making. Behavioral economics implies that teams favor players chosen in the lottery and first round of the draft because of the greater financial and psychic commitment to them. Neoclassical economics implies that only current performance matters. We build on previous work in two ways. First, we better capture potential playing time by accounting for time lost to injuries or suspension. Second, we use regression discontinuity to capture changes when a player's draft position crosses thresholds. We find that teams allocate no more time to highly drafted players.
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Anthony Boyce et al.
Journal of Organizational Behavior, forthcoming
Abstract:
Prior research supports a link between organizational culture and performance but generally falls short of establishing causality or determining the direction of a culture–performance (C-P) relationship. Using data collected from 95 franchise automobile dealerships over 6 years, we studied longitudinal culture–performance relationships to determine whether culture or performance has causal priority, or alternatively, whether a reciprocal relationship exists. Results from cross-lagged panel analyses indicate that culture “comes first,” consistently predicting subsequent ratings of customer satisfaction and vehicle sales. Furthermore, the positive effect of culture on vehicle sales is fully mediated by customer satisfaction ratings.
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Experiential and Social Learning in Firms: The Case of Hydraulic Fracturing in the Bakken Shale
Thomas Covert
University of Chicago Working Paper, October 2014
Abstract:
Learning how to utilize new technologies is a key step in innovation, yet little is known about how firms actually learn. This paper examines firms’ learning behavior using data on their operational choices, profits, and information sets. I study companies using hydraulic fracturing in North Dakota’s Bakken Shale formation, where firms must learn the relationship between fracking input use and oil production. Using a new dataset that covers every well since the introduction of fracking to this formation, I find that firms made more profitable input choices over time, but did so slowly and incompletely, only capturing 67% of possible profits from fracking at the end of 2011. To understand what factors may have limited learning, I estimate a model of fracking input use in the presence of technology uncertainty. Firms are more likely to make fracking input choices with higher expected profits and lower standard deviation of profits, consistent with passive learning but not active experimentation. Most firms over-weight their own information relative to observable information generated by others. These results suggest the existence of economically important frictions in the learning process.
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Timing of Kindness – Evidence from a Field Experiment
Axel Ockenfels, Dirk Sliwka & Peter Werner
Journal of Economic Behavior & Organization, March 2015, Pages 79–87
Abstract:
We conduct a field experiment in a naturally occurring labor environment and track whether the performance of workers responds to unexpected wage increases. Specifically, we investigate how the timing of wage increases affects efforts. We find that workers’ performance is substantially higher for the same total wage when their wage is increased in two steps as opposed to a single increase at the outset. Moreover, workers are more honest and are more willing to do voluntary extra work after surprising wage increases compared to a baseline condition without increases.
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Hazhir Rahmandad & Nelson Repenning
Strategic Management Journal, forthcoming
Abstract:
The notion of capability is widely invoked to explain differences in organizational performance and research shows that strategically relevant capabilities can be both built and lost. However, while capability development is widely studied, capability erosion has not been integrated into our understanding of performance heterogeneity. To understand erosion, we study two software development organizations that experienced diverging capability trajectories despite similar organizational and technological settings. Building a simulation-based theory, we identify the adaptation trap, a mechanism through which managerial learning can lead to capability erosion: well-intentioned efforts by managers to search locally for the optimal workload balance lead them to systematically overload their organization and, thereby, cause capabilities to erode. The analysis of our model informs when capability erosion is likely and strategically relevant.
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Estimating Management Practice Complementarity between Decentralization and Performance Pay
Bryan Hong, Lorenz Kueng & Mu-Jeung Yang
NBER Working Paper, January 2015
Abstract:
The existence of complementarity across management practices has been proposed as one potential explanation for the persistence of firm-level productivity differences. However, thus far no conclusive population-level tests of the complementary joint adoption of management practices have been conducted. Using unique detailed data on internal organization, occupational composition, and firm performance for a nationally representative sample of firms in the Canadian economy, we exploit regional variation in income tax progression as an instrument for the adoption of performance pay. We find systematic evidence for the complementarity of performance pay and decentralization of decision-making from principals to employees. Furthermore, in response to the adoption of performance pay, we find a concentration of decision-making at the level of managerial employees, as opposed to a general movement towards more decentralization throughout the organization. Finally, we find that adoption of performance pay is related to other types of organizational restructuring, such as greater use of outsourcing, Total Quality Management, re-engineering, and a reduction in the number of layers in the hierarchy.
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Moneyball Revisited: Effort and Team Performance in Professional Soccer
Daniel Weimar & Pamela Wicker
Journal of Sports Economics, forthcoming
Abstract:
In Moneyball, the assumption was made that the baseball labor market undervalues specific player skills. This study investigates whether this is also the case for player effort in professional soccer which had no significant effect on players’ market values in previous research. Specifically, it examines the effect of effort on team performance in soccer using team-game day data from three seasons (N = 1,514) of the German Bundesliga. Two effort measures are applied: (1) total distance run and (2) number of intensive runs (>20 km/hr) per player and per match. The results of probit models show that both effort measures have a significant positive effect on whether the observed team won the observed match in separate estimations. In the full model, only the effect of running distance remains positive, while intensive runs become negative. Given the insignificant effect of effort on players’ market values in previous research, we suggest that there may be a Moneyball phenomenon in soccer in the sense that the soccer labor market undervalues running distance. The findings imply that decision makers in professional soccer should consult player statistics to a greater extent.
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The Distinct Effects of Information Technology and Communication Technology on Firm Organization
Nicholas Bloom et al.
Management Science, December 2014, Pages 2859-2885
Abstract:
Guided by theories of “management by exception,” we study the impact of information and communication technology on worker and plant manager autonomy and span of control. The theory suggests that information technology is a decentralizing force, whereas communication technology is a centralizing force. Using a new data set of American and European manufacturing firms, we find indeed that better information technologies (enterprise resource planning (ERP) for plant managers and computer-assisted design/computer-assisted manufacturing for production workers) are associated with more autonomy and a wider span of control, whereas technologies that improve communication (like data intranets) decrease autonomy for workers and plant managers. Using instrumental variables (distance from ERP’s place of origin and heterogeneous telecommunication costs arising from regulation) strengthens our results.
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Caspar Siegert & Piers Trepper
Journal of Economic Behavior & Organization, January 2015, Pages 41–55
Abstract:
We consider the problem of an employer who has to choose whether to reemploy agents with a positive track record or agents who were unsuccessful. While previously successful managers are likely to be of high ability, they have also accumulated wealth and will be harder to motivate in the future. It may hence be optimal to retain unsuccessful managers but not successful ones. The result that the optimal tenure of a manager may not be increasing in his success is consistent with empirical studies that find a low correlation between firm success and managerial turnover.
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The Promise and Problems of Organizational Culture: CEO Personality, Culture, and Firm Performance
Charles O’Reilly et al.
Group & Organization Management, December 2014, Pages 595-625
Abstract:
Studies of organizational culture are almost always based on two assumptions: (a) Senior leaders are the prime determinant of the culture, and (b) culture is related to consequential organizational outcomes. Although intuitively reasonable and often accepted as fact, the empirical evidence for these is surprisingly thin, and the results are quite mixed. Almost no research has jointly investigated these assumptions and how they are linked. The purpose of this article is to empirically link CEO personality to culture and organizational culture to objective measures of firm performance. Using data from respondents in 32 high-technology companies, we show that CEO personality affects a firm’s culture and that culture is subsequently related to a broad set of organizational outcomes including a firm’s financial performance (revenue growth, Tobin’s Q), reputation, analysts’ stock recommendations, and employee attitudes. We discuss the implications of these findings for future research on organizational culture.
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Rose colored webcam: Discrepancies in personality estimates and interview performance ratings
Joseph Castro & Richard Gramzow
Personality and Individual Differences, February 2015, Pages 202–207
Abstract:
Companies increasingly use computer-controlled interviews as a less expensive and more efficient way to screen job applicants. Despite these advantages, this interview format may prevent evaluators from accurately judging an applicant’s personality traits, which, in turn, may influence hiring decisions. Two traits in particular, agreeableness and conscientiousness, have been found to predict performance in many occupational settings. In the current research, participants randomly were assigned to either a face-to-face (FTF) or computer-controlled (CC) mock job interview. Interviewees were rated by external observers as higher in conscientiousness and agreeableness when the interview was CC rather than FTF. In addition, observers rated interview performance more positively than did the interviewees themselves – particularly when the interview was CC. Finally, the discrepancy between self and observer judgments of the interviewees’ personality (in terms of agreeableness and conscientiousness) mediated the relation between interview format and the discrepancy between self and observer ratings of interview performance. These findings suggest that CC interviews have the potential to yield overly positive evaluations of interviewees, thereby biasing personality judgments and estimations of ultimate job performance.
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Does Seeing "Eye To Eye" Affect Work Engagement and OCB? A Role Theory Perspective on LMX Agreement
Fadel Matta et al.
Academy of Management Journal, forthcoming
Abstract:
Despite meta-analytic evidence demonstrating that leader-member exchange (LMX) agreement (consensus between leader and subordinate perceptions) is only moderate at best, research on LMX typically examines this relationship from only one perspective (either the leader's or the subordinate's). We return to the roots of LMX and utilize role theory to argue that agreement in leader and subordinate perceptions of LMX quality has meaningful effects on employee motivation and behavior. In a polynomial regression analysis of 280 leader-subordinate dyads, employee work engagement (and subsequent organizational citizenship behavior [OCB]) was maximized (at each level of LMX quality) when leaders and subordinates were in agreement as to the quality of their LMX relationship, but these outcomes suffered when they did not see "eye to eye." Indeed, situations where leaders and subordinates both evaluated their relationship as low quality were associated with higher work engagement (and subsequent OCB) compared to situations of disagreement where only one member evaluated their relationship as high quality. Further, this effect was consistent regardless of whether leaders or subordinates evaluated the relationship highly. We conclude that to fully understand the implications of our only dyadic leadership theory, one must consider the perspectives of both members of the LMX dyad simultaneously.
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Revenue sharing and within-team payroll inequality in Major League Baseball
Nicholas Jolly
Applied Economics Letters, Winter 2015, Pages 80-85
Abstract:
Using data from the 2000 to 2012 Major League Baseball seasons, this article investigates how changes to revenue sharing in the 2007 collective bargaining agreement altered within-team payroll inequality. Results indicate that inequality within teams decreased after the 2007 bargaining agreement. This reduced inequity is concentrated among those teams that were already experiencing relatively higher levels of inequality. This indicates that changes to revenue sharing should help increase competitive balance within the league. Additionally, the reduction in inequality occurs only among hitters and not pitchers. These results highlight how collective bargaining can have heterogeneous effects on groups of workers despite there being no requirement of differential treatment.
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Risk-Averse Team Owners and Players’ Salaries in Major League Baseball
Anthony Krautmann
Journal of Sports Economics, forthcoming
Abstract:
This article looks at the role an owner’s attitude toward risk plays in his salary bids for free agents in Major League Baseball. We show that risk-averse owners will pay a premium for consistency on the field. Our empirical results are consistent with the hypothesis that a free agent’s contract terms are negatively related to the degree of variability in his performance. To the extent that our results carry over to all players, this suggests a heretofore unrecognized factor affecting the market for talent in professional sports.
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Predicting the draft and career success of tight ends in the National Football League
Jason Mulholland & Shane Jensen
Journal of Quantitative Analysis in Sports, December 2014, Pages 381–396
Abstract:
National Football League teams have complex drafting strategies based on college and combine performance that are intended to predict success in the NFL. In this paper, we focus on the tight end position, which is seeing growing importance as the NFL moves towards a more passing-oriented league. We create separate prediction models for 1. the NFL Draft and 2. NFL career performance based on data available prior to the NFL Draft: college performance, the NFL combine, and physical measures. We use linear regression and recursive partitioning decision trees to predict both NFL draft order and NFL career success based on this pre-draft data. With both modeling approaches, we find that the measures that are most predictive of NFL draft order are not necessarily the most predictive measures of NFL career success. This finding suggests that we can improve upon current drafting strategies for tight ends. After factoring the salary cost of drafted players into our analysis in order to predict tight ends with the highest value, we find that size measures (BMI, weight, height) are over-emphasized in the NFL draft.
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Are All Spillovers Created Equal? A Network Perspective on IT Labor Movements
Lynn Wu, Fujie Jin & Lorin Hitt
University of Pennsylvania Working Paper, November 2014
Abstract:
This study aims to understand how characteristics of a labor flow network affect firm productivity using an inter-firm hiring network constructed from individual job histories. We separate IT-labor from non-IT labor and use the network measures constructed from the two types of labor flow to evaluate how they affect firm performance. We find that hiring IT workers from a diverse set of firms can substantially improve firm productivity, which is likely due to the diverse and non-redundant information provided in a network with high diversity. Interestingly, we find that the opposite is true for hiring non-IT labor. Having a cohesive network of non-IT labor hires allows frequent and repeated exposure to a common knowledge base is instrumental for implementing complementary organizational practices that are often complex and tacit. Together, these results demonstrate the importance of incorporating a network perspective in understanding the full impact of spillover effects from organizational hiring activities.
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Annebel De Hoogh, Lindred Greer & Deanne Den Hartog
Leadership Quarterly, forthcoming
Abstract:
Autocratic leader behavior is often seen as negative for team morale and performance. However, theories on social hierarchy suggest that autocratic leadership may also positively affect morale and performance through the creation of a psychologically appealing, hierarchically-ordered environment of predictability and security. We propose that autocratic leadership can foster team psychological safety when team members accept the hierarchy within the team. In contrast, when members challenge the hierarchy and engage in intrateam power struggles, autocratic leaders' centralizing power behaviors will clash with team members' competition for power and frustrate members, impairing psychological safety and performance. We find support for these ideas in a study of 60 retail outlets (225 employees and their managers) in the financial services industry. As expected, when team power struggles were low, autocratic leadership was positively related to team psychological safety, and thereby indirectly positively related to team performance. When team power struggles were high, autocratic leadership was negatively related to team psychological safety and thereby indirectly negatively related to team performance. These effects were also found when controlling for leader consideration.
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Jia Hu et al.
Journal of Applied Psychology, forthcoming
Abstract:
Research has uncovered mixed results regarding the influence of overqualification on employee performance outcomes, suggesting the existence of boundary conditions for such an influence. Using relative deprivation theory (Crosby, 1976) as the primary theoretical basis, in the current research, we examine the moderating role of peer overqualification and provide insights to the questions regarding whether, when, and how overqualification relates to employee performance. We tested the theoretical model with data gathered across three phases over 6 months from 351 individuals and their supervisors in 72 groups. Results showed that when working with peers whose average overqualification level was high, as opposed to low, employees who felt overqualified for their jobs perceived greater task significance and person-group fit, and demonstrated higher levels of in-role and extra-role performance. We discuss theoretical and managerial implications for overqualification at the individual level and within the larger group context.
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Competitive in the lab, successful in the field?
Lars Ivar Oppedal Berge et al.
Journal of Economic Behavior & Organization, forthcoming
Abstract:
A number of lab experiments in recent years have analyzed people's willingness to compete. But to what extent is competitive behavior in the lab associated with field choices and outcomes? We address this question in a setting of entrepreneurship, where we combine lab evidence on competitiveness with field evidence on investment, employment, profit, and sales. We find strong evidence that competitiveness in the lab is positively associated with competitive choices in the field (investment and employment) and weaker, but suggestive, evidence of a positive link to successful field outcomes (profit and sales). Other non-cognitive skills measured in the lab, including risk- and time preferences and confidence, and cognitive skills are less consistently associated with the field variables. Our findings suggest that the willingness to compete in the lab identifies an important entrepreneurial trait that shapes the entrepreneur's field choices and to some extent also field outcomes.
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Multinationality and opaqueness
Tom Aabo, Christos Pantzalis & Jung Chul Park
Journal of Corporate Finance, February 2015, Pages 65–84
Abstract:
We investigate whether and how multinationality affects the opaqueness of the firm. We use multiple alternative measurements of multinationality and opaqueness. Spanning nearly three decades for a large sample of US non-financial firms, we find a statistically and economically significant, positive relationship between multinationality and opaqueness. We find that this positive relationship hinges on whether or not the degree of foreign involvement is compatible with the structure of the firm's foreign operations network. Our results imply that multinationality's impact on opaqueness is alleviated when there is harmony between the size of foreign involvement and the extent of the MNC network's geographic dispersion. Previous literature has implicitly assumed a simple, positive relationship. This is the first study to explicitly address the question in a comprehensive manner.
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Regulatory fit theory at work: Prevention focus' primacy in safe food production
Ernest Park, Verlin Hinsz & Gary Nickell
Journal of Applied Social Psychology, forthcoming
Abstract:
The food-processing industry emphasizes employee compliance to food-safety standards to prevent distribution of contaminated foods. Regulatory fit theory was tested to examine the applicability of self-regulation constructs as potential components of person-job fit. In contexts emphasizing safety, workers higher in prevention should experience greater person-job fit, thus prevention focus should relate to desirable outcomes. Poultry-processing workers (n = 180) completed a work-related regulatory focus scale as part of a survey including a set of outcome measures. Consistent with theory, prevention focus scores related to self-reported positive work outcomes (job effectiveness, satisfaction, efficacy, enjoyment, involvement), and relationships were statistically mediated by perceived regulatory fit. Results have implications for selection practices and suggest ways work can be structured to enhance job performance.