Knowledge that Transforms

The recognition that better use of existing knowledge can enhance performance has spawned substantial interest in the replication of productive knowledge within organizations. An enduring belief is that when expanding by replication, organizations can and should strive to adapt to fit the salient characteristics of new environments. Yet some have argued that the exploitation of an established template for doing business by replication can be more successful when the template is copied precisely. Using unique longitudinal data, we report a large-sample empirical investigation of the survival consequences of accurate replication versus local adaptation by examining the effect that deviation from the template has on the survival chances of franchise units within a large franchise organization.

We use computer simulation to study how different allocations of decision rights give rise to different organizational abilities to maintain and act upon accurate maps of a changing environment. We compare the performance of three archetypal organizational forms as we vary the dynamism and complexity of the environment and the rates at which individuals can observe the environment and imitate each other. We find that teams in which actions are based on plurality votes excel when the task is relatively easy—that is, the ability of individual members to observe the environment is high compared to the environment's dynamism and size. Markets in which all agents act independently perform well when the task is difficult and the agents can easily imitate each other. Hierarchies in which agents in the upper echelons impose actions on their subordinates outperform the other two forms when the agents' abilities to observe the environment are heterogeneous, the task is difficult, and imitation among the agents is moderate. The analysis has implications for the relationship between centralization and the notions of exploitation and exploration in March's influential work [March JG (1991) Exploration and exploitation in organizational learning. Organ. Sci. 2(1):71–87].

Although research on corporate entrepreneurship (CE) has attracted increasing attention, risks of CE are not well examined. In this paper, we examine direct and indirect agency risks associated with providing middle and operational managers with autonomy in the hopes of encouraging CE. The key ideas behind our discussion involve two dilemmas of CE. (1) To solve the risk-averseness problem of middle and operational managers and unleash their entrepreneurial ideas, top management needs to encourage autonomous behaviors, which can also exacerbate a different type of agency problem: opportunistic behaviors. (2) Although the generation of new ideas to explore new strategic directions and/or opportunities is important, the very newness of the ideas make them difficult to evaluate, and thus the selection process may be perceived as unfair by some managers. We propose that (a) stock options, (b) passive monitoring, and (c) perceived procedural justice would attenuate the negative side effects associated with CE, such as opportunistic behaviors and perceived unfairness. Although research in CE often stresses autonomy of middle and operational managers for new idea generation as important, examining the whole process in terms of idea generation, selection, and implementation with respect to potential risks will extend the CE literature.

Which comes first—team social networks or emergent team states (e.g., team climate)? We argue that team members' social network ties and team members' climate perceptions coevolve over time as a function of six reciprocal and co-occurring processes. We test our conceptual framework in a 10-month longitudinal study of perceptions of team psychological safety and social network ties in 69 work teams and find considerable support for our hypotheses. Our main results suggest that perceptions of psychological safety predict network ties. The more psychologically safe team members perceive their team to be, the more likely they are to ask their teammates for advice and to see them as friends, and the less likely they are to report difficult relationships with them. At the same time, network ties predict psychological safety. Team members adopt their friends' and advisors' perceptions of the team's psychological safety and reject the perceptions of those with whom they report a difficult relationship. Our framework and findings suggest that conceptual models and tests of unidirectional or team-level effects are likely to substantially misrepresent the mechanisms by which network ties and emergent team states coevolve.

Although the literature on firm boundaries has been greatly influenced by transaction cost economics, strategy scholars often emphasize the importance of capabilities considerations in these decisions. This has led to a debate that, we suggest, has generated more heat than light. We argue that the two sets of considerations are in fact so intertwined dynamically that treating them as independent, competitive explanations is fundamentally misleading. We offer a theoretical synthesis of transaction cost and capabilities approaches to firm boundaries that seeks to overcome each approach's limitations and provides a unified and logically consistent understanding of boundary decisions.

We propose and test an argument in which the well-documented skew in supervisory performance appraisal ratings toward those with the same demography as themselves is better explained by the status contests than the reigning theory of homophily. We conduct the test in a field study of 358 supervisor–subordinate dyads in 10 organizations, using hierarchical linear modeling with various controls. We find that supervisors' ratings of subordinates' contextual and task performance only skew toward similar subordinates when supervisors' status is contested by a higher demographic status subordinate, as predicted by social dominance and status characteristics theories. None of the general homophily preference hypotheses is supported. This study provides a richer theory more consistent with the accumulating evidence about demography effects in organizations and demonstrates the value of head-to-head strong inference tests and status explanations for the field of organizational behavior.

We contribute to a growing focus on variation in diffusion processes by examining the ways in which contested practices are modified as they spread among adopters. Expanding on prior diffusion accounts, we argue that the extensiveness and similarity of a practice will vary in response to both population- and organization-level mechanisms. To examine these issues, we study variation in “golden parachute” contracts, a controversial corporate governance practice that emerged and spread widely during the hostile takeover wave of the 1980s. Using a concept network approach to analyze the composition of parachute plans, we find evidence of mechanisms that both increase and decrease extensiveness and variation of golden parachutes. Our findings hold implications for accounts of practice diffusion over contested terrain by revealing substantial variation in the course of diffusion.

The extensive academic literature on innovation has long recognized product users as a potentially important source of ideas. Although prior work has primarily focused on understanding the unique motivations and knowledge that allow users to generate their own innovations, we extend existing theory to investigate the contribution of users to corporate invention. We draw on the knowledge-based view of the firm, evolutionary theory, and the user innovation literature to theorize that corporate inventions that integrate user knowledge will be of greater importance, contribute to a broader set of follow-on technologies, and occur earlier in the product life cycle than other corporate inventions do. We test these propositions with a large data set of medical device inventions. We find support for our predictions and discuss the implications of our results for the theoretical and empirical literature on organizational innovation.

This paper examines conceptual issues and reviews empirical results bearing on the relationship between research approaches emphasizing organizational capabilities and those based in transaction cost economics (TCE)—or in organizational economics more generally. Following a review of conceptual fundamentals—what capability is and why organizations differ in capability—it assesses recent progress toward an integration of the capabilities and transaction cost approaches, primarily in the context of the analysis of vertical structure and related phenomena. This review suggests that progress has been substantial and that the key elements of a promising dynamic synthesis have been identified. The paper then considers issues that call for attention if further progress is to be achieved. The first of these is the role of agency, which must be seen in expansive terms (relative to standard economic rationality) if its evolutionary significance is to be fully appreciated. The second is the role of structure, or more specifically, industry architecture, which affects capability development by way of its effect on the feedback that firms receive. After drawing on the recent financial crisis for an illustration of these ideas, this paper considers the rise of interest in business models as a useful field of application, and it concludes with a discussion of the role of organizational economics (beyond TCE). We argue that, whatever the theoretical perspective at the level of the firm, analyses must reach beyond that level to grasp the important causal forces affecting capability development, firm boundaries, and structural features more generally.

How do critics enable producers and consumers to come to mutually agreeable terms of trade? We propose that critics offer more guidance to those who set prices when their quality assessments are structured by clearer evaluative schemas. Schema clarity enables producers to accurately anticipate the quality assessments that critics will disseminate to the market. This allows their posted prices to center more faithfully on prevailing conceptions of quality. We then argue that the position of a producer within the market's social structure—in terms of its prior coverage, reputation, and niche width—influences the degree to which it is guided by clear evaluative schemas. We test these predictions in the market for U.S. wines. After elaborating a novel approach to inferring the clarity of evaluative schemas within different varietal categories, we demonstrate that list prices are less variable around expected levels when the schemas used to evaluate quality are clearer. Moreover, this effect is stronger among more relevant and more focused producers in each category.