Successful Entrepreneurs Minimize Risk

Many scholars see entrepreneurs as action-oriented individuals who use rules of thumb and other mental heuristics to make decisions, but who do little systematic planning and analysis. In this new article, Deepak Sardana and I argue that what distinguishes successful from unsuccessful entrepreneurs is precisely that the former vary their decision-making styles, sometimes relying on heuristics and sometimes relying on systematic analysis. In our proposed framework, successful entrepreneurs assess their level of expertise and the level of ambiguity in a particular decision context and then tailor their decision-making process to reduce risk. Download the article here.

The co-development of industrial sectors and academic disciplines

A model that conceptualizes the development of academic disciplines and related industries as intimately linked is presented. It predicts that the relative strength of a national industry which has a significant input on science or engineering knowledge is causally related to the strength of the nation’s relevant science or engineering discipline and vice versa. At national level, the model predicts that, over longer periods a nation cannot remain weak in one domain and strong in the other. It identifies the conditions under which government intervention is likely to be effective. A case study of synthetic dyes in the period 1857–1914 illustrates how these positive feedback processes led Germany and Switzerland to become strong in both organic chemistry and the dye industry, while the UK and France declined in both domains and the USA remained relatively weak in both. A shorter case study of biotechnology supports the predictions made by the model. Download Article in pdf. Read article on web in html.

Marrying History and Social Science in Strategy Research

Strategy research at its core tries to explain sustained performance differences among firms. This article argues that one, out of the many, ways to create a productive marriage between strategy research and historical scholarship is to carry out historically informed comparative studies of how firms and industries gain and lose their competitive position. While much of current strategy research adopts a large N hypothesis testing mode with the implicit assumption that one discovers generalization just like a Newtonian law such as F=m*a that applies across all space and time, an historically grounded methodology starts from the opposite direction. It assumes that a process or event may be idiosyncratic and therefore seeks to establish with detailed evidence that a 2nd (and later 3rd, 4th, ...nth) process or event is indeed similar before generalizing across observations. The article argues that the field of strategy would benefit from allocating more effort on building causal generalizations inductively from well-researched case studies, seeking to establish their boundary conditions. It articulates a comparative research program that outlines such an approach for the arena of industry and firm evolution studies.  Download Article.

Lack of Replication in Management Studies

Tim Devinney and Donald Siegel write in their recent editorial of the Academy of Management Perspective (Feb 2012, Vol. 26 Issue 1, p 6-11):

Hubbard and Vetter (1996) estimated that fewer than 5% of management studies are subject to any published form of replication, and when this occurs it invariably refutes the initial research. (p.7)

Reference: Hubbard, R., & Vetter, D. E. (1996). An empirical comparison of published replication research in accounting, economics, finance, management, and marketing. Journal of Business Research, 35(2), 153–164.

Herb Simon on Numbers in Social Sciences

In Herb Simon’s obituary, the Pittsburgh Post-Gazette reports:

He had hoped to use mathematics to give the social sciences the same rigor as such hard sciences as physics and chemistry, but found that a frustrating experience; even with the new machine called a computer that was available at Carnegie Tech, it seemed that something was always missing when human factors were translated into numbers.

Maria Konnikova rearticulates this point in Scientific American.

Reflections on the 30th Anniversary of Nelson & Winter (1982)

The 9th Atlanta Competitive Advantage Conference had a panel to celebrate the publication of Nelson and Winter’s 1982 landmark book. The panel included Sid Winter, Connie Helfat, L.G.Thomas III, and myself. As part of my reflections, I offered a citation analysis to demonstrate the influence of the book with data. I went on to explain that there is a tension between the goals of IO economics and strategic management and argued that Nelson & Winter’s focus on firms doing innovations is a way to resolve this tension. Finally, I called for more research that examines the the relative role of population level selection versus firm-level adaptations in industrial change.

Download: Slides from Presentation

List of firms how superior performance cannot be explained by randomness

Andy Henderson and his coauthors have done us a great service. They are analyzed last decades to find a list of firms whose superior performance cannot be explained by randomness.

Although sustained superior firm performance may arise from skillful management or other valuable, rare, and inimitable resources, it can also result from randomness. Studying U.S. companies from 1965–2008, we benchmark how long a firm must perform at a high level to be confident that it is something other than the outcome of a time-homogeneous stationary Markov chain defined on the state space of percentiles. We find (a) the number of sustained superior performers in Compustat, measured by ROA and Tobin’s q, exceeds the number of false positives we would expect to be generated by such a process; yet (b) the occurrence of false positives is often enough to fool many observers, so (c) the identification of sustained superior performers requires particularly stringent benchmarks to enable valid study.

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Click on More to see the list of firms.

The Coevolution of Industries and Important Features of Their Environments

As the rate of innovation increases, organizational environments are becoming faster and more complex, posing greater challenges for organizations to adapt. This study argues that the concept of coevolution offers a bridge between the prescient adaptationist and ex post selectionist perspectives of organizational change to account for the increasing rates of change. The mutual causal influences in a coevolutionary relationship help explain why competing sets of firms or individual firms can capture dominant shares in product markets. Using a comparative historical method and drawing on evidence from five countries over a 60-year period, this paper inquires how precisely coevolutionary processes work in shaping the evolution of industries and important features of their environments. It identifies—in the context of the synthetic dye industry—three causal mechanisms (exchange of personnel, commercial ties, and lobbying) and suggests how they acted as levers on the fundamental mechanisms of evolution. Understanding the levers is important for managing change in a world that is increasingly becoming coevolutionary, requiring managers to focus more on the emergent, system-level properties of their environments. Download Article.

Regional institutions, ownership transformation, and migration of industrial leadership in China

Scholars have emphasized the gradual ownership transformation of enterprises as a key driver of the Chinese economy’s unprecedented growth. However, little work has been done on the issue of whether this transformation process takes place evenly across the various regions in China. This article describes the important role of regional institutions in shaping the ownership-based competitiveness of local enterprises and the migration of industries across regions. In the case of the Chinese synthetic dye industry, the passing of leadership from state-owned enterprises (SOEs) to collectively owned enterprises (COEs) and then to private enterprises (PEs) was accompanied by a concurrent leadership migration from one region to another. The article contends that this simultaneous occurrence was not accidental. Four institutional constraints—the degree of central supervision, the local labor arrangements, the local social welfare provision, and the degree of ambiguity in property rights—retarded the rise of new ownership forms in the previously dominant regions. This gave other regions the opening to take over leadership positions by providing a more favorable institutional context for new ownership forms. These findings are likely to apply to all of the Chinese manufacturing industries that existed prior to 1978 and that subsequently did not experience significant technological changes and were not highly protected by the government. Download Article

A Conversation with Malcom Gladwell

Peter Capelli recently interviewed Malcolm Gladwell for Knowledge@Wharton. Gladwell talks about the relationship of what he does to academic research and makes this interesting observation.

The sad fact about being a writer is that in a good year, you have five good ideas. It is not like it is every day; it is more like every two months. But you do become alert to that theme. When you are writing a book, you are assembling little bits of evidence and then figuring out which ones are relevant and which ones are secondary.

Read full conversation here.