Archive for the ‘entrepreneurship’ Category
I’ve recently finished Joel Mokyr’s The Englightened Economy, an economic history of Britain during the industrial revolution. The book is an exhaustive argument about the role of Enlightenment ideas on economic development. I won’t go into detail here, but I’ll summarize it by merely saying that the book is a thorough review of the literature on Britain through the eyes of economists and historians.
Today, I want to make a comment on an observation of Mokyr. In his review of research in higher education during British industrialization, he notes the following:
- Higher education was very rare
- Innovators and industrial leaders were mostly uneducated
- Individuals with elite education (e.g., Oxbridge) were fairly rare among the ranks of the industrial leadership
Mokyr raises this point in service of the argument that Britain’s economic expansion can’t be attributed to rising quality of education since most people were not well educated until well after the industrial revolution. My point: This is somewhat analogous to economic expansion today. Leading Silicon Valley firms aren’t always, or even usually built, from people who have advanced degrees. I can think of only one such major firm (Google). Microsoft, Facebook, and Apple were founded by college drop outs, albeit elite drop outs. Groupon was founded by a policy school grad school drop out (not computer science). Twitter’s founder was a computer geek in high school but went to un-glamorous Missouri Tech, then later went to NYU, not known as a computer science hub.
The conclusion: You need an educated work force to carry out ideas, but the leadership doesn’t need a lot of education. Rapid economic expansion seems to hinge on having a mix of smart people who get their “training” from a wide variety of sources, not just college. Colleges are more about educating the masses who compose the rest of the organization.
Howard Aldrich, a man who needs no introduction, has written a new book about entrepreneurship and evolutionary theory. He’s also written a blog post at the publisher’s website discussing some of the book’s key insights and detailing his own intellectual journey as a sociologist who has embraced entrepreneurship as a topic of study. It’s really interesting. Everyone should go read his blog post.
In addition to providing a really fascinating look into the mind of Howard Aldrich, in his post he offers some sage advice to young organizational scholars. It’s such good advice I thought I’d cross-post it here:
- Think in terms of long-term projects, especially if you are studying dynamic processes that take some time to unfold. Cross-sectional studies provide snapshots of the way things are at a moment in time, but most contemporary theorizing concerns mechanisms and emergent processes that must be studied over time. Many of my projects involved data collection that extended over 4 to 6 years, with analysis and writing requiring several more years. Luckily, I had a portfolio of projects, some of which came to fruition earlier than others and thus I never lacked things to do!
- Think in terms of cumulative work that builds one paper on top of another, as a project matures over its planned life. In this age of “salami-publishing” – chopping bigger projects into smaller chunks and then publishing the smaller bits as independent papers – scholars often forget that such behavior cannot go undetected. Independent observers of someone’s career take notice of suboptimal publishing patterns and are likely to discount a project’s worth, if its contributions are diluted by being parceled out in dribs and drabs. Instead, focus on establishing theoretical and empirical continuity across your work.
- Pay attention to what others are doing and find ways to link your work to theirs. With tools such as Google Scholar, citation alerts, table of content alerts, and other technologically-enhanced ways of keeping track of work in your field, you can enhance the impact of your own contributions by showing how it relates to the emerging state of the art.
- Most research projects in organization and management studies are multi-disciplinary, especially in entrepreneurship. Keep up with key work in other disciplines working on the same or similar issues, attend conferences, read their journals, and seek other people with diverse competencies to work with you on your long-term projects.
I really like his second point about the cumulative contribution of your work. One of the travesties of contemporary scholarly contribution metrics is that we have substituted quantity of publications for cumulative contribution. We assume that somebody with 5-6 publications in “A” journals has made a contribution, irrespective of the content of that work or how it aggregates into larger themes. Personally, I’d like to see more younger scholars who are actively laying out a theoretical and empirical agenda that builds on itself over time and who think less about how they can get their next AMJ paper published. Of course, making that a winning strategy is best done in a context where tenure committees actually read the work and make thoughtful assessments of quality rather than just counting lines on a CV.
From the Home Office in St. Gallen, Switzerland, Tim Lehmann sent me the following call for applications:
Well, here is your opportunity: The Schwab Foundation for Social Entrepreneurship, the Huffington Post and Student Reporter have teamed up to invite ten students to form a virtual team starting 1st of February 2013 for six months to contribute to Huffington Post’s Social Entrepreneurship section. Ideally, an inter-disciplinary team of students with strong disciplinary foci in sociology, psychology, anthropology, economics, entrepreneurship studies, and political theory would form this team. We also welcome applications from social entrepreneurs. Candidates must be enrolled in an educational program such as BA, MA, MBA, or PhD.
Organizing Entrepreneurial Judgment: A New Approach to the Firm is $99 at Amazon, and my library has not ordered a copy. I don’t own a Kindle since it won’t accept books, like the Grad Skool Rulz, from independent distributors. How might a man on a sociologist’s salary get a copy of this fine volume?
Guest blogging for Megan McArdle at the Atlantic, Garrett Jones summarizes a new paper in the American Economic Review showing that books sales predict business cycles:
She [Michelle Alexopoulous] found that books really do predict booms. In her paper looking at new books from 1955-1997, she found that new technical books predicted between 1/6 and 1/5 of all medium-term changes in business capital investment. Total GDP and (to a more modest extent) hours of work moved together with new tech books, usually with a lag of a couple of years.
Further, she found that a good economy didn’t predict more tech books, and a bad economy didn’t predict fewer. So reverse causation isn’t the story.
Finally, as a placebo, she checked to see whether years when lots of history books were published tended to precede economic booms. They didn’t. Alexopoulos made a good effort of kicking the tires on this hypothesis. And remember: She only looked at technical books: There are surely a lot of other new ideas in fields like management, biotech, and accounting that matter for business productivity, and they also seem to come in waves.
In other words, as people get ready to create wealth, they require new knowledge, a search indicated by book sales. Nice paper.
O&M’s Nicolai Foss delivering a lecture on Austrian Capital Theory. And, here’s O&M’s Peter Klein discussing their joint book “Organizing Entrepreneurial Judgment.”
I often think about the difference between the economic and sociological approaches to markets. If I were to summarize it, I’d say that contemporary economics views a market as a social domain where actors are achieving some sort of goal and everything else is treated as parameter in some sort of optimization problem. In contrast, sociologists are more interested in how people collectively define markets as social domains. Not incompatible, but these perspectives lead to different questions.
There’s a recent article by Dobrev and Gotsopoulos called “Legitimacy Vacuum, Structural Imprinting, and the First-Mover Disadvantage” in the AMJ that nicely illustrates my point about the sociological approach to markets. Using auto industry data, the authors show that first movers have a lower survival rate. As I’ve argued in the past, the ecological theory of markets makes a distinct prediction than standard IO approaches. In standard IO, first movers have a huge advantage. They have no competition. In ecological theories, first movers are bringing a product that consumers may not understand. Think about the first home computer (not the Apple) or the first social networking site (not Facebook or even Friendster). There’s a lot of learning. Consumers learn about new products, sellers learn to make a version people can afford and use. That’s why first movers don’t do well and it’s a sociological insight.
The coverage of Steve Jobs taught me a lot about Apple’s organization. For example, Steve Jobs did not believe in middle management. He believed in having divisions run by specialists. Advertising is run by people with a deep knowledge of advertising or graphics, not a generically trained manager:
Specialization is the norm at Apple, and as a result, Apple employees aren’t exposed to functions outside their area of expertise. Jennifer Bailey, the executive who runs Apple’s online store, for example, has no authority over the photographs on the site. Photographic images are handled companywide by Apple’s graphic arts department. Apple’s powerful retail chief, Ron Johnson, doesn’t control the inventory in his stores. Tim Cook, whose background is in supply-chain management, handles inventory across the company. (Johnson has plenty left to do, including site selection, in-store service, and store layout.)
Jobs sees such specialization as a process of having best-in-class employees in every role, and he has no patience for building managers for the sake of managing. “Steve would say the general manager structure is bullshit,” says Mike Janes, the former Apple executive. “It creates fiefdoms.” Instead, rising stars are invited to attend executive team meetings as guests to expose them to the decision-making process. It is the polar opposite of the General Electric-like (GE) notion of creating well-rounded executives.
Also, apparently, Jobs didn’t believe in human resources, until very recently.
Two comments: First, Jobs, as Kieran noted, was a charismatic leader. He also had an amazingly deep set of skills, derived from having worked in high tech in some capacity since age 13. He also managed a company that produced highly related products. These issues obviate the need for generic managers.
Second, there’s little evidence that having a flat structure is necessary. In high tech, we see a wide range of business models that are highly successful – even revolutionary. Google is wildly successful and seems to have a very different culture and structure. I wouldn’t draw general lessons from Jobs’ disdain for management. Apple’s structure flows from Jobs’ personality and his specific career (e.g., after returning to Apple, Jobs ejected all the old school management).
As you probably have heard, Steve Jobs died. People with more knowledge of Jobs and the tech industry will have lots to say. Click here to read all the Steve Jobs posts on orgtheory. I still love the Mad TV satires, which poked fun at Jobs himself while being smart political satire. Great people, apparently, inspire great satires.
This tribute will be about my experience with Apple products over the last thirty years, the ups and the downs. My very first experience was sometime in the early 1980s. My father was a math teacher and he was all hot under the collar about these new computer thingies. At first, he got a Texas Instruments computer. Made sense since TI had a solid track record with scientific calculators. But as with most early home computers, the TI 99-4A had issues. Only so much you could do with it, not a whole lot of software, and it cost a whole lot of money. I loved the games, but that was it.
I test drove a Nissan Leaf this weekend. It’s a nice little car. It’s also the future of cars in America because the Leaf is an all electric car. For years, people have been promising that electric cars would be here. But now it’s happened. The technical issue was making a battery that was cheap, light weight enough, and didn’t take forever to charge. The problem is now solved. Also, there is now an incentive to create charging stations. Major firms, like Walgreen’s and Ikea, have ordered tons of chargers. While you are shopping, you can charge the car for free.
Now, I want to discuss the long term consequences of electric cars for the auto industry. Currently, there’s an iron triangle that defines the auto world: manufacturers and the people who make specific parts; the oil industry; and dealers. The electric car will revolutionize how this triangle works.
The oil companies will take a big hit. Electricity is extremely cheap. Charging a car costs about 10% of the price of gas. It’s so cheap that, as I noted above, that merchants will give you electricity for free if you promise to shop at their store.
The real change, though, is in the nature of auto sales and the dealerships. Electric cars are made very differently than gas powered cars, which will upend the system of dealerships. Right now, dealers and auto manufacturers make their money off of maintenance. The price of a new car is subsidized pay all the repairs done by dealers.
Electric cars will change the system because electric cars have very few parts. The Nissan Leaf is essentially a big stack of batteries, which spin the axles. There are no belts, no injectors, no spark plugs, no gaskets, no oil. It’s like a kid’s toy car. That means there is almost no later maintenance. Thus, you can charge more at purchase (which the auto firm soaks up) because you will pay a lot less on gas and parts. The result? Dealerships will massively shrink.
This new system will take about 10 years to fully take hold. Once a few major cities have a bunch of charging ports, the model will be viable. Gas powered cars will be old cars or cars reserved for long distance trips where you are time sensitive and need to gas up quickly. Bottom line: The engineers have solved the battery problem and now the rest of the industry is set to change.
Other than financial measures (like ROA) I can’t think of another firm-level variable that is more commonly used in organizational studies than patent activity. Patents are used to track everything from innovation to technological niches to social networks among scientists. Patents are an all-purpose measure because we think they are tightly linked to creativity and knowledge production, the engine that drives both science and capitalist enterprise. But what if this is increasingly not true? What if patent use is becoming decoupled from creativity?
This is one of the questions posed made by last week’s This American Life, my favorite NPR show and one of the most consistently interesting programs of journalism out there. The show talked about patent trolls – companies or individuals who acquire patents for the primary purpose of suing other actors who might use technology that potentially infringes on that patent. The show focused on the firm, Intellectual Ventures, and its founder Nathan Myhrvoid. Through a couple of interesting vignettes and sly investigations, they showed how the company uses lawsuits, brought by a number of shell companies, to get large settlements out of technology companies, some of which are struggling enterpreneurial groups. The show demonstrates how, rather than protect and promote innovation, increasingly patents are being used to stifle innovation by wiping out or financially weakening companies that are actually trying to bring innovation to the marketplace. Meanwhile, patent trolls sit on those patents and do nothing to advance the innovations.
This must have some implications for our current understanding of patents as indicators of creativity and innovation. One of the startling revelations in the program was just how much redundancy there is in the patent system. The number of patents issued that cover the same basic function is often in the thousands, especially in the software industry. Patents may be more indicative of turf wars than they are of real innovation.
Even if you’re not a technology scholar, I highly recommend that you listen to the podcast of the show.
Martin Ruef’s The Entrepreneurial Group won this year’s Max Weber award as the best book in the Organizations, Occupations, and Work section of the ASA. (Notably, the books of two former orgtheory guest bloggers, Katherine Chen and Celeste Watkins-Hayes, received honorable mentions.) Diane Burton also reviewed Ruef’s book in the most recent issue of ASQ. The review, while generally positive about Martin’s conceptualization of entrepreneurship as a product of collective action and group formation, has some pointed criticisms of Martin’s approach.
On the book jacket, Arthur Stinchcombe, a distinguished organizational sociologist, describes this book as a “drop of sanity in an ocean of fraud about entrepreneurship, especially in teaching positions financed by corporations.” In describing what is distinctive about his approach, Ruef makes a similar— although less polemically charged—claim in chapter 2 when he contrasts “business management” studies of entrepreneurship and “social science” studies of entrepreneurship. According to Ruef, “Scholars in the business field tend to focus on group performance in high-growth and high-capitalization enterprises. This sampling approach may appeal to an audience of practitioners and business school students, but limits the external and internal validity of empirical conclusions” (p. 36). But by dismissing the related work that has been done by others, Ruef risks alienating the largest audience for his work, some of whom have done valuable research on “enterprises” that are not necessarily highgrowth or high capitalization, and others who have a clear theoretical rationale for studying a non-representative sample.
Throughout the book, Ruef drives home his distinctive perspective. In doing so, he avoids in-depth engagement with the extant literature. Rather than relying on existing scholarship, he invents constructs and measures and redefines terms to suit his purposes. Readers steeped in the entrepreneurship and management literatures are likely to be surprised by this approach. For example, Ruef describes his theoretical framework as “relational demography” but does not connect it to the extensive literature on this topic. His group-level approach is inconsistent with both the traditional dyadic approach (Tsui and O’Reilly, 1989) and the emerging multilevel approach (Riordan and Wayne, 2007). While his expositional style highlights his own theoretical creativity and empirical ingenuity, its disconnection from related work may limit its potential to influence the broader community of entrepreneurship scholars. This is unfortunate, because there are many valuable insights and ideas in this book.
Princeton University Press categorizes the subject areas of the book as sociology, economics, and finance. Although the topic of entrepreneurial groups is clearly relevant to each of these fields, this is a sociology book written by a sociologist for other sociologists.
This is a nice review that is not afraid to speak to the bigger intellectual issues circulating around the book, not unlike a recent review published in ASQ by Martin Ruef. Having recently finished the book myself, I agree with Diane that The Entrepreneurial Group is quite original. But I would argue that the book is able to push boundaries precisely because it extracts itself from the literature on entrepreneurship. If Ruef had tried to rely on current measures/operationalizations and had spent more time engaging with existing scholarship, the book would have lost some of its freedom of thought and would have been less original, I think. Positioning himself as the outsider frees Ruef from constraining conventions. Rather than reading the book as a (mere) sociological account of entrepreneurship, I would hope entrepreneurship scholars would read it as a unique theoretical perspective with lots of seeds for future research in the entrepreneurship field.
There’s a certain resistance to dichotomizing: the truth is somewhere in between, it’s more nuanced, processual, interactional etc — both “x” and “y” need to be considered — so we’ll call it “z” (say, “structuration”). But, as I’m preparing for an entrepreneurship-related PhD class tomorrow, most of the papers we read indeed tend to set up a dichotomous relationship between two things. Despite problems with these types of contrasts (it’s usually pretty easy to see where the argument is going), I still find the exercise of extremes very valuable. Theories, after all, idealize and need to focus on something (usually in reaction to its opposite, sorta).
So, here are some of the entrepreneurship-related dichotomies that popped up:
- structure versus agency
- macro versus micro
- exogenous versus endogenous
- observation versus theory
- experience versus thought
- supply versus demand
- backward- versus forward-looking
- discovery versus creation
- something versus nothing
- actual versus possible
(The truth can be found on the right-hand side.)
Many of the above dichotomies — in one way or another — hearken to classic debates in philosophy: rationalism versus empiricism, realism versus constructionism, etc. I don’t think that organizational scholars will solve any of these classic problems, though obviously there are comparative opportunities vis-a-vis the things that we study: collective action, social process and interaction, value creation and so forth.
Below the fold you’ll find some of the (somewhat eclectic) readings that somehow relate to the above dichotomies of entrepreneurship: Read the rest of this entry »
This morning I listened to an interesting interview on one of Dan Benjamin’s shows. He was talking to Erin Kissane about her new book, The Elements of Content Strategy. Say you are using a website to communicate something to someone, or enable communication between a group of people, or both. The something you are conveying or facilitating is your content. According to Kissane, the job of a “content strategist” is to figure out how best to make sure that content is assembled, presented, and maintained in a way that’s appropriate to its audience.
You might think that the term “Content Strategist” is evidence that the job market in the online sector must be picking up, because as an occupational title it’s got a slight buzzing sound around it. However, Kissane turned out to be a very thoughtful interviewee—one of those rare people who thinks about and then answers the questions they are asked. The book (which I bought and read over lunch: it’s short) is a handbook for this new occupation (or, as the author calls it, discipline). Despite a denial at the outset, it’s also implicitly a manifesto for it. Content strategists, she argues, live at the intersection of editing, curation (the dread online phrase of 2010), and marketing. They help you decide who your site is for, and what it’s for, and then develop a framework that lets you choose, care for, and publicize your content. The Elements of Content Strategy is an elegant argument for some principles to bear in mind, and a useful summary of a few heuristics you might use, while executing that task. I could have done with it to back me up at more than one meeting I’ve suffered through on the topic of Redesigning Our Website or Why Don’t We Start A Blog About That, or Perhaps The Twitter Will Excite The Kids, or what have you.
Brayden’s post resonated with me. There is something rotten in the state of entrepreneurship studies. Brayden thinks that the field has a serious definitional problem. Of course, he’s not the first to raise this issue. It’s one of the first things you notice when you start reading in the area.
His post has prompted me to articulate an even more radical position that I’ve been mulling over for a while. I don’t claim originality, I’m sure someone else must’ve said it. So here it goes:
There is no such thing as an entrepreneur. That is, there is no cogently defined group of people whose actions can easily and clearly be defined as “entreprenuerial” because there is no collection of behaviors that can be grouped together as all being “entrepreneurial.” Many of the behaviors that might considered “entrepreneurial” are logically independent of each other and their link to innovation, firm creation, risk bearing, or profit taking are highly context dependent.
There are two claims here. First, if you look at all the people that might intuitively be called “entreprenuers,” you’ll just get too much variation. The craziest example I can think of is from one of Kirzner’s texts, when he claims that anyone who exploits an opportunity is in some sense “entreprenuerial.” Just too broad. Another bizarre example is defining entreprenuers by personality traits (e.g. risk seekers). That’s like defining the class of athletes by height!
Second, I claim that if you define entrepreneurs by a set of actions, then you run into more problems. That list of actions is itself vague, context dependent, and the behaviors don’t logically have much to do with each other. Example: one famous paper (Garthner 1981) argues that firm creation is a useful framework. One can stick with that, but you can quickly see some problems. Some are purely definitional: for example, if firms split, does that count? What about franchises? New firms appearing from mergers? Shell corporations? For-profits emerging from non-profit forms? Are these really all “entreprenuerial?”
That’s small potatoes compared to a bigger problem. Firm creation involves such a wide range of economic activities that it seems hard to get a grasp on it all. Do the local taco truck, Facebook, and a new auto manufacturer deserve to be together? The article sticks with firm creation because new firms are often innovative, but who says new firms are innovative? Some are, some aren’t. And innovation itself is hard to define. Facebook was highly innovative in some ways (GUI), but not others (the social network concept). This is an example of how the traits that supposedly define entrepreneurship are hard to bundle to together.
I think a lot of this comes from a romantic idea about the heroic profit seeker. The Austrian approach to entreprenuership certainly has this tinge to it. But this also applies, in a more moderate form, to other entrepreneurship researchers. These endless debates over definitions by generations of scholars indicates to me that there is a pointless search for a special class of individuals who are responsible for economic growth. You might call them “Schumpeter’s men.” And entreprenuership studies is defined by this secret army of economic geniuses.
That leads me Schumpter’s fallacy: the false belief that economic growth and the development of markets is driven by one particular profile of person or one particular organizational form. My alternative is this: markets are complex ecosystems of people, ideas, markets, rules, and organizations. Markets probably do have trajectories, or patterns of growth, that require different types of people over time. But even in the early stages, you’ll need a heterogenous group of people and skill sets. And the degree to which need a particular type of person varies by the product sold or the institutional environment.
What should come after the end of entreprenuership studies? I’d like to think of it as “market formation research.” Instead of focusing on these mysterious, undefinable entreprenuers, why not simply say that markets requires certain things, like firms and products, in particular combinations? Then management researchers would use their various tools to discover what kinds of people are needed for activity X, which could be starting firms of a certain types or inventing a new product? No need to collapse all these people and actions into one concept. You avoid the need to ever define entreprenuers and each discipline can focus on its own version of market formation studies. Economists could study, for example, the pay-off to starting a firm, while sociologists could study how firm starters use their networks and psychologists could study tolerance for risk.
I think the field is already well in this direction. There are tons of empirical studies on various aspects of “entrepreneuship.” All that researchers need to do is simply drop the entreprenuer concept and switch to a more ecological framework. Then you can start the much more productive process of figuring out which traits, skills, and people fit together in the economic process.
I’m in Gainesville, Florida attending a retreat for law and entrepreneurship scholars.* I am not an entrepreneurship scholar myself, but my work, which is related to collective action processes underlying radical organizational and legislative change, is of interest to entrepreneurship scholars. This is the second entrepreneurship workshop I’ve attended. I was struck that at both workshops the participants spent a lot of time discussing the question, what is entrepreneurship? What makes entrepreneurship a distinct concept? Just as was the case at the last workshop I attended, there is very little consensus about the definition. Not only was there no consensus, but there are stark differences in their definitions.
Why is entrepreneurship so hard to define?** The discussions about this concept seem to be more than just your typical academic fretting over definitional issues; entrepreneurship seems genuinely difficult to nail down as a thing. One reason for this may be that entrepreneurship, as an area of study, brings together people who are actually interested in completely different, but related, phenomena. Entrepreneurship underlies new business start-ups, small businesses and self-employment, founding and failure rates, innovation and creativity, and new market emergence. People who are interested in any one of these topics find their way to the realm of entrepreneurship scholarship. (Someone who gets invited to enough of these conferences may start wondering if he actually is an entrepreneurship scholar.) But what motivates their interest in the topic is very different. And because there is no overarching theoretical framework, it’s easy to get lost in what is going on here.
I think the reason that entrepreneurship is such a slippery concept is because most scholars who study it are really interested in the manifestations of entrepreneurship and less in the thing that makes entrepreneurs really distinct - identity. Some people self-identify as entrepreneurs, which motivates them to be innovative, found new businesses, or do other things that bring about change. However, the outcomes of being an entrepreneur vary quite a bit and so if you merely study the outcomes, you’re really just studying the manifestation of entrepreneurship (and not all of the people involved in the outcomes even see themselves as entrepreneurs).
That said, does it really matter how we define a field of research as long as we can agree on operationalization issues? As long as we can agree that the new venture start-up rate is a good measure of something related to entrepreneurship, then it shouldn’t matter at all what entrepreneurship is really about.
*If you’re interested, here are the slides to my presentation.
**Of course, entrepreneurship scholars have nowhere near the definitional problems that institutional scholars have, which is why the term “institutional entrepreneurship” is perhaps the most imprecise concept we have in organizational theory.
A recent topic in economic sociology is the effect of cultural schema on markets. The argument, put forward by multiple scholars, like our friend Ezra and Hannan/Hsu/Polos, is that buyers and sellers punish products/firms that don’t conform to type. That brings me to the George Foreman Grill (GFG).* A student and I got into a discussion of products like the GFG, which are sold through infomercials. We observed that the GFG seems to be an exception to the rule that products sold on informercials remain low status. Given the theory, you’d expect low status informercial products to be punished by consumers if it were to appear in mainstream venues. However, unlike its infomercial fellow travelers, the GFG seems to have “migrated” from TV ghetto to mainstream product. So, when can a product can “jump” from the informercial category to “legitimate product?”
A few hypotheses:
- The product resembles other high status products.
- The product is obviously and clearly superior, which explains why the kind-of useful Shamwow remains in the informercial ghetto.
- Endorsed by a high status celebrity.
Any other guesses? What other infomercial products have gone mainstream?
*Disclaimer: I own a GFG and use it frequently.
Behavioral games are abstract situations in which individuals have to allocate resources between themselves and other players and allow to study strategic interdependence in decision making: participants have to take into account the objectives and strategies of the other players. For instance, in the Public Goods game each player is allocated an endowment (i.e., 10 coins, generally corresponding to a consistent proportion of a daily wage), and must decide how much of his endowment to keep in his personal pocket and how much to put in a group pot. The total amount donated to the group pot is then doubled and redistributed evenly among all the players. For the individual, the optimal strategy is to give nothing and “free-ride” on other players’ contributions to the collective fund, while the most profitable outcome for the group is that all players contribute everything.
Differently from what a rational choice model would predict, experimental results have shown that in the first round of a public goods game players contribute, on average, between 40 to 60% of their endowment. Although cooperation in real life occurs more often than a rational choice approach would suggest, most economists did not consider observational evidence sufficient to assess between egoistic and altruistic models of human behavior, because in real life (seemingly) altruistic/non-selfish behavior can always be explained as covertly oriented to increase one’s reputation, psychological well-being or being enforced by internalized social norms and fear of social sanctions. Indeed, it was experimental evidence coming from behavioral games to put in jeopardy the micro-foundation of the rational choice approach by documenting people’s predisposition to reciprocity, cooperation, and altruism in completely anonymous settings.
I have to admit that my first reaction to experimental literature was: “only an economist would need laboratory experiments to realize that selfish motives are not the only drive in human behavior.” Nonetheless, I am grateful that these games have been developed, since they represent an extremely useful tool for social science research, as I had the chance to experience first-hand in my current research on farmer organizations in rural Uganda.
In collaboration with Guy Grossman, a graduate student in political science at Columbia University, I conducted a quite innovative research that combines experimental evidence from behavioral games played in the field with social networks information and observational data. The research involved more than 3,000 farmers and local leaders from 50 farmer cooperatives through Uganda. Goal of the research was to understand how producer organizations in development countries solve classic problems of collective action. The study focuses on the role of social and spatial networks, associational capital, and leadership accountability in affecting economic and social outcomes.
To give you a sense of how behavioral games added to our study consider the following example. One of our hypotheses was that leaders’ accountability and their willingness to monitor and sanction non-cooperative behavior greatly influences group outcomes. Unfortunately, this hypothesis is hard to test relying exclusively on observational data, because of selection and measurement issues. Thus, to capture the role of legitimacy and the effects of a centralized sanctioning system we designed a novel adaptation of the public goods game in which players were randomly assigned to three different conditions. The first condition (baseline), simply replicates 6 rounds of a conventional public goods game. In the two other conditions, after two preliminary rounds of play, one of the players was selected out of the session to become a monitor endowed with sanctioning power. The monitor could spend 1 coin to take away 3 coins from players whose contribution level he disapproves. In the second condition (random monitor), the monitor was selected through a random lottery, while in the third condition (elected monitor) the monitor was elected by the players using a secret ballot. Results, reported in the figure below, suggest that in the presence of a centralized sanctioning system, players significantly increase their contribution to the public good: in both elected and random monitor conditions players contribute more, on average, than in the baseline. Moreover, the process of monitor selection is consequential: elected monitors are perceived as more legitimate and thus exert a greater authority.
Interestingly, we find that behavior in games is related to real life economic performance: the more productive members of the farmer organizations (namely, those who sell their crop in bulk through the organization) give higher contributions in the elected monitor condition, thus suggesting that centralized sanctioning and leader legitimacy are relevant factors in explaining organizational outcomes. This finding shows that behavioral games can be used not only to capture underlying behavioral tendencies common to all human beings (or profound cultural differences across societies) but also to measure differences between individuals (or groups) that derive from their individual and group experiences. In this respect I think lab in the field experiments that incorporate behavioral games into socially meaningful settings are an interesting addition to the social science research (out of the lab) tool-kit.
Russ Roberts had a nice podcast with Johanna Blakley, a scholar at USC who studies technology, fashion, and entertainment. In the middle of the talk, Blakley makes a very interesting point about fashion and intellectual property. The fashion world has virtually no property rights. You can copyright patterns, but you can’t copyright or patent clothes. Basically, anyone can reproduce any piece of clothing ever made. The consequences:
- The lack of intellectual property has not led to a demise of creativity in fashion.
- The opposite is true. If you can recycle the entire history of fashion, you get an amazing amount of creativity. There’s no limit to mixing and matching.
- People maintain their status by doing things in very, very specific ways in clothes. In the same way that singers make their mark by tone and delivery, designers make clothes that are hard to reproduce.
- Knock-offs: There are knock-offs. Firms will quickly create cheap knock-offs of famous people and intentionally make it look off – think “almost Mizrahi.”
- Famous designers copy from people off the street. May firms send trend spotters to hip neighborhoods.
What I learned from the podcast is that you don’t need intellectual property rights to have a booming industry. The fashion world example seems to support intellectual property right critics who think intellectual property actually suppresses economic growth. What do you think?
Fred Block, over at UC Davis, forwarded me this announcement about a recent conference on relational sociology. The papers look exciting and I hope to see the special issue soon. Two came from our good friends Nina Bandelj and Fred Wherry. Here’s the announcement:
“Relational Work Conference, UC Davis
On May 1st, 2010, a workshop was held at UC Davis under the sponsorship of Politics & Society and the Graduate School of Management on the concept of relational work in economic sociology. The idea was to explore using the concept of relational work as developed by Viviana Zelizer and Charles Tilly as a tool for analyzing a wide range of different market situations. The papers explored performance circuits, egg donation, university-industry collaborations, governance of internet commons, the government’s role in the commodification of land, and sub-contracting relations in heavy industry. The plan is to revise the papers for subsequent publication in Politics & Society. The following papers were presented:
- Nina Bandelj, UC Irvine, “What Work Can Relational Work Do For Economic Sociology?”
- Viviana Zelizer, Princeton, “How I Became a Relational Economic Sociologist and What Does that Mean.”
- Dina Biscotti, UC Davis, William Lacy, UC Davis, Leland Glenna, Penn State University, and Rick Welsh, Clarkson University, “ Constructing ‘Disinterested’ Academic Science: Relational Work in University-industry Agricultural Biotechnology Research Collaborations.”
- Aaron Shaw, UC Berkeley, “Relational Work as commons governance: distributed informational production, moderation, and filtering at Daily Kos.”
- Frederick Wherry, University of Michigan, “Zelizerian Performance Circuits in the Marketplace.”
- Jennifer Haylett, UC Davis, “One Woman Helping Another: Family and Motherhood in Egg Donor Narratives.”
- Nathaniel Freiburger, Nicole W. Biggart, and Thomas D. Beamish, UC Davis, “Hidden in Plain Sight: Toward an Understanding of the Relational State.”
- Sarah Quinn, UC Berkeley, “Securitizing Social Relations.”
- Josh Whitford, Columbia University, “Waltzing, relational work and the construction (or not) of collaboration in manufacturing industries.”
Other participants included Nicole Biggart and Fred Block, UC Davis, Matthew Keller, Southern Methodist University, Magali Sarfatti Larson, Temple University, Stephanie Mudge, UC Davis, Marian Negoita, UC Davis, Leslie Salzinger, Boston College, Andrew Schrank, University of New Mexico, Michael Peter Smith, UC Davis, Valery Yakubovich, University of Pennsylvania.”
There is now a company in Lansing, Michigan that teaches you how to legally grow and sell medical marijuana. There’s also a medical marijuana grower’s school in California. From the HydroCollege web site:
Welcome to HydroCollege, here at HydroCollege we teach Michigan residents who are interested in useing or growing marijuana for medicinal purposes how to become legal to do so or possibly become a Michigan caregiver and be able to grow from 12 to 60 plants in your house and also be able to carry 2.5 ounces to 12.5 ounces and provide marijuana to others. My name is Danny Trevino and i am the instructor of HydroCollege. I started HydroCollege on Jan 12th 2009 and i am the first medical marijuana college in Mi and was in the television news for it www.myspace.com/hydroworldlansing if you want to view the video.
I started HydroCollege because people kept coming in to HydroWorld Hydroponics my medical marijuana store and they didnt know how to grow effectively even though they bought a book they still needed to know some hands on approach.
There are important questions for the half-baked institutionalist. 1. How did the Federal gov’t prevail over the states for so long on medical marijuana when the regulation of medical practices resides with the states and voters supported it? 2. What governance mechanisms had to loosen up so that HydroCollege could legitimately operate? 3. How long will it take for mom ‘n’ pop medical marijuana dealers to be run out of town by medical professionals?
Maybe it’s because they never watched Sesame Street, and we did. After all, with a simple song (One of these things is not like the other, one of these is not the same…), this seemingly wholesome bastion of public television edutainment taught a generation of kids to spot categories and reject misfits, and quickly! (Watch it on YouTube.)
Lately, the Apple iPad has made me think about these issues and, of course (!), about org theory. It leads to some questions for org theory readers, which are stated at the end of this post.
Jumping into the org theory part takes me to Ezra Zuckerman’s (1999) “categorical imperative.” Roughly speaking, this is the idea that non-conformists pay a price for their deviance, which includes, but is not limited to, being overlooked, dismissed or discounted, especially by third-party evaluators that try to make a living as critics, analysts or experts. Similar findings have been shown in, to name just a few studies I like, actors (Zuckerman; Hsu), wine (Negro, Hannan and Rao), and markets for professional services (Leung). So, for everyone 10 tries at creating a new market category, we can all probably find 9 or so failures. Furthermore, for each success, I bet I can find a situation where a few deviants started to find each other and somehow find themselves part of what they had tried to leave behind–a crowd that gives them legitimacy, even as it also makes them compete. (I say something along these lines in articles in Poetics, ASR, and in a working paper probably getting brutalized by reviewers somewhere right now.)
Still, this isn’t the whole story, is it?
In the technology world, engineers and entrepreneurs have this crazy idea that it’s somehow a good thing to come up with new things that don’t fit existing categories. They’re so drunk with enthusiasm for this that they seem to want to do it all the time. Probably to make it sound like it isn’t just ill-advised gambling, they call it “innovation”, like giving it a name makes it more real, or something. (See Rosa et al., 1999.) Of course, they still mostly fail at it. I’m not sure, but I think this obsessive rush to deviate could be related to the history and lore of computers. It is replete with stories of misfits–computers that didn’t fit established categories of their day–that somehow caught on and siphoned demand away from dominant markets. Everybody seems to want to make that list as inventors of the “next big thing.” There is even a wacky museum dedicated to all this. I can’t say if the whole innovation thing will catch on, but it certainly makes for interesting studies.
Kidding aside, you can also see this in several things Ezra has written about how actors escape the pressures of conformity. There is the idea that what economists call “abnormal returns” tend to go to innovators, a la Schumpeter (see Zuckerman 1999: 1402-1403). Also, in his paper with Damon Philips, there is the point that high and low status actors feel greater pressures for conformity than middle-status actors. Even so, I’m definitely with Ezra on the conformity pressures that categories produce, but I’m also puzzled by the question of how new categories arise. As my wife and kids would testify, this puts me on the lookout for misfits or category-blenders or misfits that seem like they might make get recognized as belonging to new categories, even if they initially strike many as ungainly hybrids. You can hear nastily critical comments to that effect about the iPad, netbook computers, or before that, the smartphone. Even before that, the same goes for the minicomputer, the PC, the workstation, and so on. (Gordon Bell has a nice little paper on this that boils a lot of this history down into a single diagram–see Figure 1. For engineers: there really is a Figure 1 in Bell’s paper.)
In the technology context, it is clear that being the prototype for today’s established category may not translate into being the prototype for the next big thing. Since being a perfect fit for the slide rule category just isn’t worth what it used to be, it’s useful to think about the currency of a category, the topic of a paper I”m revising for RSO with student Jade Lo and Mike Lounsbury.) Because a picture’s worth a thousand words, here’s an admittedly non-artistic collage that combines some well-accepted categories with misfits aiming for currency of their own.
So here are some questions for you:
- In addition to the categorical imperative, what else affects the dynamics of market categories?
- Any predictions about whether the iPad will take off or fizzle out?
- Or, should org theorists leave all this super-macro “organizations and markets” stuff to other fields?
To start the discussion, here are few ideas about #1 that are already out there:
- luck (path dependence),
- product features (rational choice in marketing),
- producers’ perceptions of threat and opportunity (I have a piece with Peer Fiss about this in AMJ),
- audience judgments and critics’ opinions (as in the growing ecological literature on categories),
- the social psychology of comparison processes and similarity judgments (in the spirit of Brayden’s recent post).
At least to me, what makes all this an interesting topic–and fair game for org theorists–is that it requires looking beyond the effects of institutionalized categories to the processes and institutions that contribute to institutionalizing them. Yuck, that’s a mouthful, I know. The point is that categories have histories in which organizations, entrepreneurs and innovators interact with critics, distributors, key customers and other arbiters of taste to try to influence their intended audience to see their misfit products as deserving categories of their own–and all the rights and privileges pertaining thereto, as the saying goes.
From the Chicago Reader, an article on the growing underground sausage and bacon scene:
The charcuterie resistance is growing. Professional restaurant chefs without legal licensing or dedicated facilities cure their own meats out of view of the health inspectors all the time. And Erik and Ehran aren’t the only ones making and selling outside of those professional kitchens: A former restaurant chef is currently curing two dozen duck breasts in a south-side warehouse; they’ll end up on restaurant menus sometime around the holidays. Personal chef Helge Pedersen cures and ages lamb legs for the Norwegian salted meat fennelar, along with guanciale, soppressata, and pancetta, in a dedicated refrigerator in his Humboldt Park apartment and another in a garage space on Western Avenue. He sells them to friends as he hones his craft in anticipation of the day he opens his own retail space.
This is pure Hayek:
“The regulations are written for industrial food operations,” says Mate [an amateur charcuterist]. “And if you apply them to small-scale local producers, no one’s gonna do it. It’s legislating local food out of the market. Unfortunately, the health departments don’t appreciate that. But that food is actually safer. It’s easier for someone on that small scale to move things more quickly and be more careful. Local markets are self-regulating. If there’s anything wrong with your products and someone gets sick from it, then you’re out of business.”
Yup, the invisible ham of the market.
But there is some serious economic sociology to be hatched here. First, this is clearly the sort of producer activism that Huggy Rao, Klaus Weber, and others have written so much about. Second, there is an institutional story to be told here. The state regulation of food is, as these amateurs claim, designed with mass industry in mind. These people seem to want to work with the law, but the current system isn’t designed with them in mind. Isomorphism at work. Third, there is a story of culture to be told here. What does it say about current American food culture when people set up an alternative ham scene? This is part of a re-emergence of artisnal food and “local” consumption.
The current financial crisis has brought out a fatal flaw in the foundations of the economic theories that guided economic agents and regulators: the unwarranted claim to precision and robustness. In this article I try to diagnose this flaw and discuss possible remedies. I argue that actual agents are intrinsically less sophisticated than the models assume they are, and that the various proposals to sustain the models by appealing to “as-if rationality” all fail. I next consider behavioral economics as an alternative to the standard models, claiming that while they may allow for successful retrodiction, they do not hold out much promise for prediction. I also discuss the use of statistical models, arguing that they are subject to so many traps and pitfalls that only a handful of elite practitioners can be trusted to use them well. Finally, I offer some speculations to explain the persistence in the economic profession and elsewhere of these useless or harmful models.
President Obama has been invoking the phrase “New Foundation” when he talks about the economy. The term implies that there was an “old foundation” and that we are now in need of something to take its place. I think that is exactly right. But what that vision is or should be has so far not been articulated. That’s particularly true when it comes to growing, maintaining and rebuilding the country’s innovation and manufacturing capabilities. Its time we start giving it some serious thought.
One of the big issues in Austrian economics is entrepreneuship. It goes something like this:
Capitalist economies depend on cycles of creativity and destruction. Markets settle into rigid patterns, then creative individuals see something that others don’t. They organize to gather resources so they can take risks. If successful, the entrepreneurs topple incumbent industries by drawing away customers with innovative products and services.
It’s a cool idea. It’s likely Schumpeter’s enduring legacy in the wider intellectual world. But there’s a few problems with Austrianism’s focus on entrepreneurs. What’s so special about the Austrian account? Does it add anything to what a standard search theory already has? Why should we accord any special role to entrepreneurs other than being first in line?
I think a better account of entrepreneurs can be hatched from recent work in institutional theory. A key idea in organizational institutionalism is the “field” – all the social junk that constitutes the population of organizations. One important element of the field are framings. These are the commonly shared perceptions and beliefs among people within the field. Frames are just beliefs about the “way we do things in this business.”
Most folks have a fairly well developed status quo bias. Most folks tend to accept what is already done in the industry. They accept the frames that are out there. Seeing what is not done can be hard. It is also cognitively and organizationally complex. Even if you understand what is inadequate by current standards, formulating an alternative can require deep cognitive skills and getting a firm together requires social skills.
But even this account is incomplete. How do entrepreneuers actually get people to cooperate? Doesn’t everybody else suffer from status quo bias? Why would anyone work for the crazy entrepreneur? Wouldn’t investors just run off? Well, recent work in organizational theory has a solution here: institutional work. According to this view, there’s a class of actions aimed at defending or supporting the ways we see things. Some people are good at framing issues, pointing out contradictions, and getting people to invest in new rules. The emerging institutional work lieteraure builds on ideas about leadership, rhetoric, and agenda setting.
Here’s the contrast. In Austrian economics, entrepreneurs just pop out of the woodworks and transform the world. Anyone, anywhere can be entrepreneurial. But entrepreneurial research has consistently shown that entrepreneurs are distinctive people. Organizational sociology shows why this must be the case. To see opportunities requires people who can’t accept the institutional framework of their organization or market that everyone else accepts. Then, you have to actively work to reframe things so people will go along with you. That requires a special personality or biography that will allow you to see what others, literally, can’t. In this account, you retain the “creative destruction” aspect of entrepreneurs, but you also get a sense of what the work of entrepreneurship is all about and why only certain kinds of people can do it.
If you buy this argument, you’ve got a new twist to an old economics joke: An economist, a sociologist, and entrepreneur walk into a room. An economist sees a $20 bill on the floor. He says: “That money can’t be there. If there were really money on the floor, somebody would have taken it already!” The sociologist says, “Hold on, the money is actually there – nobody took it because we’ve been socialized not to see it.” The entrepreneur says, “while you guys have been arguing, I’ve just made myself twenty bucks!” Ok, maybe not a great joke, but you get my point.
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I enjoy reality shows that focus on skills, such as cooking or fashion design. A favorite is “Kitchen Nightmares.” Gordon Ramsay, a world class chef, goes to failing restaurants and tries to fix them up. Unsurprisingly, this show is rich in orgtheory:
- Identity matters: As if he were reading the latest Hsu and Hannan article, Ramsay is obsessed with simplifying the identity of a kitchen. Sushi and tandoori? Hogwash! Mexican tofu? Blahh!!!
- Vertical organizations: No flat hierarchies here. Problems are solved when owners and managers start telling people to do their %$^$ing jobs.
- No globalization: The cuisine may be global, but the ingredients have got to be local.
- It’s about habitus: Cooking is not just a job for Ramsay. He insists that workers work in kitchens because they love food and the hospitality business. It’s much more than a way to make a buck.
- Groupiness: The best food comes when everyone works together. Weak links are a disaster.
I strongly recommend this show to undergrads interested in org behavior. Much food for thought. According to the wiki, 50% of the restaraunts closed despite Ramsay’s intervention. That’s marginally better than the 60% rate at which most restaraunts close.
Corporate managers are often derided for acting unethically. Some attribute the corporate scandals of Enron and WorldCom as well as the more recent financial crisis to greedy, unethical behavior by managers. As Teppo noted in a post last year, the finger of blame is also being pointed at business schools for failing to educate students about their moral and social responsibilities and, instead, giving them purely technical skills that can be abused to advance their own self-interest at the expense of stakeholders.
In the October issue of the Harvard Business Review, Rakesh Khurana and Nitin Nohria propose that one solution would be to professionalize management. (This is an argument advanced in Khurana’s book, From Higher Aims to Hired Hands; see these past orgtheory posts). Professionalization would give management a greater sense of responsibility and duty because, presumably, members of the profession would be sanctioned or expelled if they didn’t live up to its standards (like a lawyer being debarred or a doctor losing his medical license).
Professionalizing management would require a couple of conditions. 1) They would need some kind of code that would allow managers to decide appropriate behavior and 2) they would need to be able to control who belongs to the profession. This latter aspect of professionalization, closure, is essential to self-regulation. The more open an occupation is, the easier it is for newcomers to enter and undermine collective efforts to control adherents. Without closure, any code of ethics of values, no matter how persuasive, wouldn’t be normative. It is this condition of closure that seems the most problematic when thinking about how to professionalize management. Khurana and Nohria tackle the problem this way:
Our friend and hip hop expert Jenn Lena has an article in the most recent American Sociological Review that is a must read for organizational scholars who give a darn about culture. The paper, coauthored with Richard Peterson, is about how people create new music genres, a process generalizable to the construction of symbolic classification systems. Given the recent interest in the linking of organizations to identities, categories, and audiences, the paper has clear implications for a number of research areas.
One area that could benefit from the insights of this paper is the crowd who studies organizational form creation and categorical emergence. While much of the ecology-based research is focused primarily on the structural dynamics that enable the creation of new identities, etc. (and I heard a really interesting talk about this very topic by Elizabeth Pontikes yesterday), Lena and Peterson are more interested in ground-level behavior resembling collective action.* They create a typology of different genre forms: Avant-garde, Scene-based, Industry-based, and Traditionalist. Each form is associated with a different kind of collective action taken by people promoting their musical vision and involves the creation and maintenance of boundaries that allow the members to distinguish between genres.
I received a flyer for a new lecture series at the UNC soc dept.The Carolina Entrepreneurship Initiative has some very cool sociologists coming to lecture. January 15, Brayden will give a talk on charter schools, work done with Lis Clemens. My good friend and colleague Tim Bartley will speak on Oct 24, and orgtheory favorite Michael Lounsbury spoke on the emerging nanotechnology industry. 271 Hamilton Hall @ noon. Check it out!