Management Science current issue

Management Insights

2008-07-09

No abstract available.

Can They Take It With Them? The Portability of Star Knowledge Workers' Performance

Groysberg, B., Lee, L.-E., Nanda, A. — 2008-07-09

This paper examines the portability of star security analysts' performance. Star analysts who switched employers experienced an immediate decline in performance that persisted for at least five years. This decline was most pronounced among star analysts who moved to firms with lesser capabilities and those who moved solo, without other team members. Star analysts who moved between two firms with equivalent capabilities also exhibited a drop in performance, but only for two years. Those who switched to firms with better capabilities and those who moved with other team members exhibited no significant decline in short-term or long-term performance. These findings suggest that firm-specific skills and firms' capabilities both play important roles in star analysts' performance. In addition, we find that firms that hire star analysts from competitors with better capabilities suffered more extreme negative stock-market reactions than those that hire from comparable or lesser firms. These findings suggest that hiring stars may be perceived as value destroying and may not improve a firm's competitive advantage.

Learning and Knowledge Depreciation in Professional Services

Boone, T., Ganeshan, R., Hicks, R. L. — 2008-07-09

Organizational knowledge is a critical source of competitive advantage for professional service firms. Learning from experience and sustaining past knowledge are critical to the success of such knowledge-driven firms. We use learning curve theory to evaluate learning and depreciation in professional services. Our results, based on seven years of project data collected from an architectural engineering (A/E) firm, show that (a) professional services exhibit learning curves, (b) there is virtually no depreciation of knowledge and, (c) the rate of learning accelerates with experience.

The Red Queen, Success Bias, and Organizational Inertia

Barnett, W. P., Pontikes, E. G. — 2008-07-09

Why do successful organizations often move in new directions and then fail? We propose that this pattern is especially likely among organizations that have survived a history of competition. Such experience adapts organizations to their environment, through so-called "Red Queen" evolution, but being well adapted for one context makes moving into new contexts more hazardous. Meanwhile, managers in such organizations infer from their histories of competitive success a biased assessment of their organization's ability to change. Consequently, although surviving competition makes organizational change especially hazardous, managers in surviving organizations are especially inclined to such initiatives. We develop these ideas in an empirically testable model, and find supportive evidence in estimates of the model using data from the history of the U.S. computer industry.

Does It Matter Where Countries Are? Proximity to Knowledge, Markets and Resources, and MNE Location Choices

Nachum, L., Zaheer, S., Gross, S. — 2008-07-09

We suggest that the proximity of a country to other countries is a factor that affects its choice as a multinational enterprise (MNE) location. We introduce the concept of a country's proximity to the global distribution of knowledge, markets, and resources, and frame this concept as a function of both geographic distance and the worldwide spatial distribution of these factors. We test our location model on a data set comprising 138,050 investments undertaken by U.S. MNEs worldwide. Our findings show that the proximity of a country to the rest of the world has a positive impact on MNEs choosing that country as a location. Proximity to the world's knowledge and markets are stronger drivers of location choice than is proximity to the world's resources, after accounting for the country's own endowments. Larger firms are able to benefit more from remote locations than smaller firms are.

Learning, Knowledge Transfer, and Technology Implementation Performance: A Study of Time-to-Build in the Global Semiconductor Industry

Salomon, R., Martin, X. — 2008-07-09

Organizational growth and performance hinge upon the effective deployment of productive knowledge in new facilities. However, getting those facilities fully operational can be difficult and time consuming. Interestingly, we understand little about what determines the performance of that process. In this paper we help fill this gap by analyzing multiple determinants of time-to-build—i.e., the time it takes a firm to build and ramp up operations at a new manufacturing facility. Theoretically, we develop predictions regarding the effects of competitive, firm, and technology characteristics on time-to-build. Empirically, we test our predictions on a sample of plant construction projects in the memory segment of the global semiconductor industry. We find that competition from rivals with superior technology is associated with shorter time-to-build, at least up to a point. Firm and industry experience are associated with shorter time-to-build. International projects, and those that push the technological frontier, take longer. Findings from this study enrich the literatures on corporate growth, international expansion, and technology strategy. We discuss implications for research and practice.

Knowledge Sharing Ambidexterity in Long-Term Interorganizational Relationships

Im, G., Rai, A. — 2008-07-09

Although past research has investigated the impact of exploration and exploitation on firm performance, there is limited research on these effects in interorganizational relationships. We examine whether the boundary condition for ambidextrous learning can be extended from firms to long-term interorganizational relationships. Specifically, we focus on a particular aspect of learning—namely, explorative and exploitative knowledge sharing—and examine its impact on the performance of long-term relationships. We also theorize how ambidextrous management of the relationship and ontological commitment to span the syntactic, semantic, and pragmatic knowledge boundaries between partners enable knowledge sharing. Our theoretical predictions are tested using data collected from both account managers at customer firms responsible for the relationship with a leading supply chain vendor and account managers at the vendor firm responsible for relationships with customers. The findings suggest that both exploratory and exploitative knowledge sharing lead to relationship performance gains, that such sharing is enabled by the ambidextrous management of the relationship, and that such sharing is facilitated by ontological commitment. Interesting differences in the enablers and consequences of both forms of knowledge sharing are detected between customers and the vendor.

Effect of Delays on Complexity of Organizational Learning

Rahmandad, H. — 2008-07-09

We examine how delays between actions and their consequent payoffs affect the process of organizational adaptation. Formal conceptions of organizational learning typically include the assumption that payoffs immediately follow their antecedent actions, making the search for better strategies relatively straightforward. However, previous actions influence current organizational performance through their effects on organizational resources and capabilities. These resources and capabilities cannot be modified instantly, so delays—from actions to changes in resources and capabilities to altered organizational performance—are inevitable. Our computational experiments show that delays increase learning complexity and performance heterogeneity through two mechanisms. First, complexity of state-space and, therefore, of learning grows exponentially with delay length. Second, the time required to experience the benefits of long-term strategies means the intermediate steps of those strategies are initially undervalued, prompting premature abandonment of potentially fruitful regions of the strategy space. We find that these mechanisms often cause organizations to converge to suboptimal, routine-like cycles of actions, based on organizations' continually updated cognitive maps of how actions influence payoffs. Furthermore, the evolution of these cognitive maps exhibits path dependence, leading to heterogeneity across organizations. Implications for overcoming temporal complexity and the impact of initial cognitive maps are discussed.

Optimal Allocation of Risk-Reduction Resources in Event Trees

Sherali, H. D., Desai, J., Glickman, T. S. — 2008-07-09

In this paper, we present a novel quantitative analysis for the strategic planning decision problem of allocating certain available prevention and protection resources to, respectively, reduce the failure probabilities of system safety measures and the total expected loss from a sequence of events. Using an event tree optimization approach, the resulting risk-reduction scenario problem is modeled and then reformulated as a specially structured nonconvex factorable program. We derive a tight linear programming relaxation along with related theoretical insights that serve to lay the foundation for designing a tailored branch-and-bound algorithm that is proven to converge to a global optimum. Computational experience is reported for a hypothetical case study, as well as for several realistic simulated test cases, based on different parameter settings. The results on the simulated test cases demonstrate that the proposed approach dominates the commercial software BARON v7.5 when the latter is applied to solve the original model by more robustly yielding provable optimal solutions that are at an average of 16.6% better in terms of objective function value; and it performs competitively when both models are used to solve the reformulated problem, particularly for larger test instances.

An Empirical Test of Gain-Loss Separability in Prospect Theory

Wu, G., Markle, A. B. — 2008-07-09

We investigate a basic premise of prospect theory: that the valuation of gains and losses is separable. In prospect theory, gain-loss separability implies that a mixed gamble is valued by summing the valuations of the gain and loss portions of that gamble. Two experimental studies demonstrate a systematic violation of the double-matching axiom, an axiom that is necessary for gain-loss separability. We document a reversal between preferences for mixed gambles and the associated gain and loss gambles—mixed gamble A is preferred to mixed gamble B, but the gain and loss portions of B are preferred to the gain and loss portions of A. The observed choice patterns are consistent with a process in which individuals are less sensitive to probability differences when choosing among mixed gambles than when choosing among either gain or loss gambles.

Multiple Criteria Decision Making, Multiattribute Utility Theory: Recent Accomplishments and What Lies Ahead

Wallenius, J., Dyer, J. S., Fishburn, P. C., Steuer, R. E., Zionts, S., Deb, K. — 2008-07-09

This paper is an update of a paper that five of us published in 1992. The areas of multiple criteria decision making (MCDM) and multiattribute utility theory (MAUT) continue to be active areas of management science research and application. This paper extends the history of these areas and discusses topics we believe to be important for the future of these fields.

Interactive Coordination of Objective Decompositions in Multiobjective Programming

Engau, A., Wiecek, M. M. — 2008-07-09

To remedy challenges resulting from a high number of objectives in multiobjective programming and multicriteria decision making, this paper chooses to decompose the vector objective function and characterizes the relationships between solutions for the original problem and the collection of decomposed subproblems. In particular, it is shown how solutions that are found using this decomposition approach relate to solutions found by traditional scalarization techniques. For the selection of a final solution, two interactive coordination methods are proposed that allow to find any solution for the original problem by merely solving the smaller-sized subproblems, while integrating both preferences of the decision maker and trade-off information obtained from a sensitivity analysis. A theoretical foundation for the procedures is established, and their application is illustrated for portfolio optimization and a design selection problem.

The Distribution of the Sample Minimum-Variance Frontier

Kan, R., Smith, D. R. — 2008-07-09

In this paper, we present a finite sample analysis of the sample minimum-variance frontier under the assumption that the returns are independent and multivariate normally distributed. We show that the sample minimum-variance frontier is a highly biased estimator of the population frontier, and we propose an improved estimator of the population frontier. In addition, we provide the exact distribution of the out-of-sample mean and variance of sample minimum-variance portfolios. This allows us to understand the impact of estimation error on the performance of in-sample optimal portfolios.