Knowledge that Transforms

Scholars have suggested that autonomy can lead to better entrepreneurial team performance. Yet, there are different types of autonomy, and they come at a cost. We shed light on whether two fundamental organizational design choices—granting teams autonomy to (1) choose project ideas to work on and (2) choose team members to work with—affect performance. We run a field experiment involving 939 students in a lean startup entrepreneurship course over 11 weeks. The aim is to disentangle the separate and joint effects of granting autonomy over choosing teams and choosing ideas compared with a baseline treatment with preassigned ideas and team members. We find that teams with autonomy over choosing either ideas or team members outperform teams in the baseline treatment as measured by pitch deck performance. The effect of choosing ideas is significantly stronger than the effect of choosing teams. However, the performance gains vanish for teams that are granted full autonomy over choosing both ideas and teams. This suggests the two forms of autonomy are substitutes. Causal mediation analysis reveals that the main effects of choosing ideas or teams can be partly explained by a better match of ideas with team members’ interests and prior network contacts among team members, respectively. Although homophily and lack of team diversity cannot explain the performance drop among teams with full autonomy, our results suggest that self-selected teams fall prey to overconfidence and complacency too early to fully exploit the potential of their chosen idea. We discuss the implications of these findings for research on organizational design, autonomy, and innovation. History: This paper has been accepted for the Organization Science Special Issue on Experiments in Organizational Theory.

We study how organizations use team selection and delegation of authority jointly to navigate uncertain environments. To do so, we model a managerial decision environment in which a manager both determines the skill heterogeneity of the workers and determines whether to retain or delegate the ability to allocate tasks. Delegation enables better-informed workers to allocate tasks more efficiently when uncertainty is high relative to the incentive conflict between manager and worker. Our novel approach allows us to illustrate that this conflict is endogenously determined by the team selection decision. Experimental data support—although not globally—the direction of our theoretical hypotheses and offer insight into how and why choices deviate from expected behavior. Notably, we identify behavioral characteristics that aid decisions along each dimension. Deliberative thinking improves all decisions under low uncertainty and improves team selection regardless of the level of uncertainty. Risk tolerance improves all decisions in highly uncertain situations and helps managers optimally delegate decision rights in all settings. The results highlight potentially costly ways in which managers seek to simplify their decisions but show how deliberative thinking and risk tolerance can improve performance in a complementary manner. History: This paper has been accepted for the Organization Science Special Issue on Experiments in Organizational Theory.

Does national culture influence entrepreneurship? Given that entrepreneurship and the economic, formal institutional, and cultural characteristics of nations are deeply intertwined and co-vary, it is difficult to isolate the effect of culture on entrepreneurship. In this study, we examine the self-employment choices of second-generation immigrants who were born, educated, and currently live in one country, but were raised by parents stemming from another country. We argue that entrepreneurship is influenced by durable, portable, and intergenerationally transmitted cultural imprints such that second-generation immigrants are more likely to become entrepreneurs if their parents originate from countries characterized by a strong entrepreneurial culture. Our multilevel analysis of two independent samples—65,323 second-generation immigrants of 52 different ancestries who were born, were raised, and live in the United States and 4,165 second-generation immigrants of 31 ancestries in Europe—shows that entrepreneurial culture is positively associated with the likelihood that individuals are entrepreneurs. Our results are robust to alternative non-cultural explanations, such as differences in resource holdings, labor market discrimination, and direct parent-child linkages. Overall, our study highlights the durability, portability, and intergenerational transmission of entrepreneurial culture as well as the profound impact of national culture on entrepreneurship.

Although recent research shows that there is mounting pressure on firms to achieve earnings expectations of securities analysts, firms are far from being passive conformers; many firms proactively manage such pressure, particularly with earnings management tools. Yet why does the pressure to meet analyst expectations persist despite firms’ efforts to reduce it? To address the question, we develop an intertemporal model of the mutually reinforcing relationships between analyst expectations and firms’ strategic response, combining the behavioral theory of the firm and the concept of expectations trap. We argue that firms’ efforts to meet analyst expectations strengthen their salience as a predominant performance benchmark and, in doing so, ironically put them under greater pressure from analysts in three sequentially related steps—escalating future earnings expectations, imposing more severe penalties for failure to meet heightened expectations, and generating compensatory action for missed expectations. Our analysis, using data on more than 700 of the largest listed U.S. firms between 1986 and 2015, supports our arguments. Our study expands the scope of the behavioral theory of the firm, by demonstrating the increasing importance of performance feedback based on analyst expectations. Our study also contributes to the research on earnings pressure, by illuminating why the pressure persists despite firms’ efforts to reduce or evade it, and finally to the literature on strategic management of external expectations, by elaborating its unintended, long-term consequences.

In this study, we examine how the prior experiences of decision makers systematically influence their assessment of and responses to negative performance feedback. We posit that, although greater and more specialized experiences enable managers to build relevant knowledge and expertise in specific domains, they also make them overconfident in their abilities and strategies. Such experience-induced overconfidence further leads to distortions in the performance assessment process, hindering a firm’s ability to recognize and respond to poor performance. We empirically test these arguments in the context of U.S. mutual fund managers making investment decisions in response to fund performance below aspirations. As hypothesized, we find that more experienced and more specialized fund managers change their investment decisions less when faced with negative performance feedback than managers who are less experienced and less specialized. In additional analyses, we further show that the lower responsiveness of more experienced (specialized) managers is associated with the fund’s lower future performance, supporting our proposed theoretical mechanism (overconfidence). This study augments existing performance feedback research by showing how decision makers’ prior experience can impede problem-solving behavior in organizations. It also contributes to the literature on human capital and organizational learning by documenting an unintended consequence of accumulated human capital on firm adaptive behavior.

This essay starts from a concern that many empirical researchers undermine their rigorous empirical work by coupling it to unclear and inconsistent theory. I suggest this is because we underestimate the difficulty of achieving theoretical clarity and consistency. I illustrate the problem in detail by cataloging common ways we violate clarity and consistency in the articulation of theoretical constructs and relationships and illustrating these violations with examples from unpublished manuscripts. In addition, I draw on the management literature on theory writing as well as on the dual-process theory of cognition and the philosophy of science to identify and unpack three challenges to clear and consistent theory: the taxing cognitive effort required to turn ambiguous, associative intuition into logical arguments; the impossibility of achieving perfect clarity; and the existence of trade-offs between clarity and other valued qualities of theory, particularly generalizability. The implication is that researchers need to invest not just in empirical rigor but also, in theoretical rigor.

This study examines how recombinant innovation is affected by member turnover and organizational learning within a corporate hierarchy. Prior work has overlooked the role of organizational structure in organizational learning, focusing instead on the knowledge provided by individual new hires or on the disruption caused by individual departures. We address this gap by applying March’s [March JG (1991) Exploration and exploitation in organizational learning. Organ. Sci. 2(1):71–87.] mutual learning model to a corporate hierarchy. In doing so, we theorize how the contributions of corporate staff to socializing new employees and to learning from the organizational code may differ from those of the organization’s subunit members. Empirically, we examine the learning effects of aggregate corporate and subunit arrivals and departures on novel recombinant innovation by subunits. Using 24 years of Motorola company directories, we construct membership turnover measures for corporate and subunit employees and exploit patent data to capture recombinant innovation. Our results suggest that, whereas the influx of new ideas through arrivals may be critical, breaking the pattern of inertial behavior through departures is more important for recombinant innovation. Corporate departures matter most for recombinant innovation, a result that reflects not only corporate staff’s slower individual learning from the organizational code but also its ability to update that code more quickly. In supplementary analyses, we find different effects for technical and nontechnical staff and internal and external arrivals, as well as demonstrate the mutual learning mechanism using internal corporate documents to capture code change. Our study has strong implications for theories of organizational learning, strategic human capital, organization design, and innovation.

Although previous research suggests that bringing attention to minority cultural identities in the workplace can lead to professional penalties, this research provides promising evidence that the opposite can occur. I examine how cultural minority employees engaging in rich and meaningful conversations about their racial, ethnic, and national backgrounds (referred to as rich cultural-identity expression) influences majority-group coworkers’ inclusive behaviors, such as majority-group employees’ willingness to socially integrate with and professionally support minority coworkers. Three experiments found evidence of majority-group employees behaving more—not less—inclusively toward minority coworkers who engaged in rich cultural-identity expression, as opposed to small talk that did not bring attention to a minority cultural background. Even when minority employees richly expressed negatively valenced cultural information that could provoke anxiety (such as issues with discrimination), this form of sharing had positive effects on most measures of inclusive behavior in Studies 2 and 3 (although one exception was found in Study 3). No benefits were observed when minority employees engaged in surface-level cultural-identity expression (Studies 2 and 3) and intimate, noncultural self-disclosure (Study 2). The power of rich cultural-identity expression is its ability to increase majority-group individuals’ status perceptions of, feelings of closeness to, and sense of learning potential from minority coworkers. This research provides promising evidence that minority employees may be able to express valued aspects of their cultural identities while gaining—as opposed to jeopardizing—inclusion.

Despite the well-known governance problems in public (state-owned) organizations, such as process rigidity, limited autonomy, and weak incentives, public organizations exhibit substantial performance heterogeneity, with some performing similarly to their private counterparts. In this paper, we scrutinize those sources of heterogeneous performance based on the interplay of management practices and resources. We argue that the governance constraints in public organizations inhibit the adoption of performance-enhancing practices. However, this negative effect is attenuated by the presence of distinct resources, such as human capital. We examine these effects in the context of over 9,000 public and private schools in Brazil. We find that private schools are more likely to use internal operational practices, such as planning and human resource management, as well as practices of engaging with external stakeholders. Differential adoption of these practices partially explains why private schools outperform their public counterparts in terms of student learning. Yet, access to highly educated teachers in public schools attenuates the negative association between public governance and the adoption of superior practices. In other words, schools with skilled teachers are more likely to adopt superior practices, thus reducing their performance gap compared with private schools. This result suggests that heterogeneous resource endowments—in our context, human capital—can soften governance constraints that inhibit performance-enhancing practices in public organizations. We thus show that heterogeneous practices and resources jointly explain not only performance differences across public and private organizations but also variations in the performance of organizations with the same governance form.

We study the connection between communication network structure and an organization’s collective adaptability to a shifting environment. Research has shown that network centralization—the degree to which communication flows disproportionately through one or more members of the organization rather than being more equally distributed—interferes with collective problem-solving by obstructing the integration of existing ideas, information, and solutions in the network. We hypothesize that the mechanisms responsible for that poor integration of ideas, information, and solutions would nevertheless prove beneficial for problems requiring adaptation to a shifting environment. We conducted a 1,620-subject randomized online laboratory experiment, testing the effect of seven network structures on problem-solving success. To simulate a shifting environment, we designed a murder mystery task and manipulated when each piece of information could be found: early information encouraged an inferior consensus, requiring a collective shift of solution after more information emerged. We find that when the communication network within an organization is more centralized, it achieves the benefits of connectivity (spread of novel better solutions) without the costs (getting stuck on an existing inferior solution). We also find, however, that these benefits of centralization only materialize in networks with two-way flow of information and not when information only flows from the center of the network outward (as can occur in hierarchical structures or digitally mediated communication). We draw on these findings to reconceptualize theory on the impact of centralization—and how it affects conformity pressure (lock-in) and awareness of diverse ideas (learning)—on collective problem-solving that demands adaptation. History: This paper has been accepted for the Organization Science Special Issue on Experiments in Organizational Theory.