Profit and loss
Management Practices, Relational Contracts, and the Decline of General Motors
Susan Helper & Rebecca Henderson
Journal of Economic Perspectives, Winter 2014, Pages 49-72
Abstract:
General Motors was once regarded as the best-managed and most successful firm in the world. However, between 1980 and 2009, GM's US market share fell from 46 to 20 percent, and in 2009 the firm went bankrupt. We argue that the conventional explanation for this decline — namely high legacy labor and healthcare costs — is seriously incomplete, and that GM's share collapsed for many of the same reasons that many highly successful American firms of the 1960s were forced from the market, including a failure to understand the nature of the competition they faced and an inability to respond effectively once they did. We focus particularly on the problems GM encountered in developing the relational contracts essential to modern design and manufacturing, and we discuss a number of possible causes for these difficulties. We suggest that GM's experience may have important implications for our understanding of the role of management in the modern, knowledge-based firm and for the potential revival of manufacturing in the United States.
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Hengchen Dai et al.
University of Pennsylvania Working Paper, August 2013
Abstract:
In order to deliver high quality, reliable, and consistent services safely, organizations develop professional standards. These standards may be adopted from external agencies (e.g., professional industry groups, external regulators) or developed through the internal documentation and proliferation of best practices. Despite the communication and reinforcement of these standards, they are often not followed consistently. Although previous research suggests that high job demands are associated with declines in compliance over lengthy intervals, we argue that the impact of job demands might accumulate more quickly – even within the course of a single day. We tested this hypothesis using longitudinal field observations of over 4,157 caregivers in the healthcare industry whose compliance with hand hygiene guidelines was recorded in 35 hospitals on 13.7 million separate occasions. Consistent with our theoretical arguments focused on depletion and fatigue, we found that hand hygiene compliance rates dropped on average by 7.2 percentage points from the beginning to the end of a typical, 12-hour work shift. This decline in compliance was magnified by increased work intensity. Further, longer breaks between work shifts increased subsequent compliance rates, and such benefits were more significant for individuals when they had ended the preceding shift with lower compliance rates. The implications of these findings for patient safety and job design are discussed.
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A study of expressive choice and strikes
Christa Brunnschweiler, Colin Jennings & Ian MacKenzie
European Journal of Political Economy, June 2014, Pages 111–125
Abstract:
The conventional explanation for strikes is that they are caused by an asymmetry of information about the profitability of the firm – union members are uninformed whereas management are informed. Instead, this paper builds a model of strikes where a perception of unfairness provides an expressive benefit to vote for a strike. The asymmetry of information is now reversed such that management are uninformed about the emotionality of union members. The model predicts that larger union size increases both wage offers and the incidence of strikes. An empirical test using UK data provides support for the predictions. In particular, union size is positively correlated with the incidence of strikes and other industrial actions, even when asymmetric information regarding profitability is controlled for.
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Volume Flexibility in Services: The Costs and Benefits of Flexible Labor Resources
Saravanan Kesavan, Bradley Staats & Wendell Gilland
Management Science, forthcoming
Abstract:
Organizations can create volume flexibility — the ability to increase capacity up or down to meet demand for a single service — through the use of flexible labor resources (e.g., part-time and temporary workers, as compared to full-time workers). Although organizations are increasingly using these resources, the relationship between flexible labor resources and financial performance has not been examined empirically in the service setting. We use two years of archival data from 445 stores of a large retailer to study this relationship. We hypothesize and find that increasing the labor mix of temporary or part-time workers shows an inverted U-shaped relationship with sales and profit while temporary labor mix has a U-shaped relationship with expenses. Thus, although flexible labor resources can create volume flexibility for a firm along multiple dimensions, it is possible to have too much of a good thing.
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Dynamic Incentive Effects of Relative Performance Pay: A Field Experiment
Josse Delfgaauw et al.
Labour Economics, forthcoming
Abstract:
We conduct a field experiment among 189 stores of a retail chain to study dynamic incentive effects of relative performance pay. Employees in the randomly selected treatment stores could win a bonus by outperforming three comparable stores from the control group over the course of four weeks. Treatment stores received weekly feedback on relative performance. Control stores were kept unaware of their involvement, so that their performance generates exogenous variation in the relative performance of the treatment stores. As predicted by theory, we find that treatment stores that lag far behind do not respond to the incentives, while the responsiveness of treatment stores close to winning a bonus increases in relative performance. On average, the introduction of the relative performance pay scheme does not lead to higher performance.
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Rebecca Kehoe & Daniel Tzabbar
Strategic Management Journal, forthcoming
Abstract:
Do star employees enhance or constrain the innovative performance of an organization? Using data from 456 biotechnology firms between 1973 and 2003, we highlight the duality of the effects that stars have on firm performance. We show that while stars positively affect firms’ productivity, their presence constrains the emergence of other innovative leaders in an organization. We find that firm productivity and innovative leadership among non-stars in a firm are greatest when a star has broad expertise and collaborates frequently. We offer cross-disciplinary insights into the role of human capital as a source of competitive advantage, suggesting that the value of human capital in a firm is contingent on the mutual dependence inherent in high-status employees’ relationships with other individuals in a firm.
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Better not look too nice? Employees' preferences towards (un)likeable managers
Benny Geys
Leadership Quarterly, forthcoming
Abstract:
Recent research shows that, all else equal, most people prefer likeable colleagues. In this article, two experiments are employed to analyze preferences with respect to (un)likeable superiors. We thereby focus on perceptions of likeability based on appearance rather than as a behavioral characteristic, which allows us to concentrate on the impact of quick, unconscious evaluations in zero-acquaintance situations. The results indicate that, all else equal, managers of higher perceived likeability are less preferred than managers of lower perceived likeability. Such likeability-aversion emerges among male and female respondents, affects male and female managers, and holds both for preferences expressed from the perspective of employees (Experiment 1) or a HR department (Experiment 2).
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Does Performance Consistency Pay Off Financially for Players? Evidence From the Bundesliga
Christian Deutscher & Arne Büschemann
Journal of Sports Economics, forthcoming
Abstract:
The purpose of the current study is to investigate how consistency of professional soccer players’ performance affects salaries in the German Bundesliga. Using game-level data for five consecutive seasons (n = 34,413 player–match day observations), we find empirical evidence for a salary premium to players showing volatility in performance. Applying ordinary least squares, fixed-effects as well as quantile regression analyses, this effect remains robust.
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Are two interviewers better than one?
Mario Fifić & Gerd Gigerenzer
Journal of Business Research, forthcoming
Abstract:
How many interviewers per job applicant are necessary for a company to achieve the highest hit rate? Are two better than one? Condorcet's Jury Theorem and the “wisdom of the crowd” suggest that more is better. Under quite general conditions this study shows, surprisingly, that two interviewers are on average not superior to the best interviewer. Adding further interviewers will also not increase the expected collective hit rate when interviewers are homogeneous (i.e., their hits are nested), only doing so when interviewers are heterogeneous (i.e., their hits are not nested). The current study shows how these results depend on the number of interviewers, their expertise, and the chance of free riding, and specify the conditions when “less is more”. This analysis suggests that the best policy is to invest resources into improving the quality of the best interviewer rather than distribute these to improve the quality of many interviewers.
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The Effect of High-Performing Mentors on Junior Officer Promotion in the US Army
David Lyle & John Smith
Journal of Labor Economics, April 2014, Pages 229-258
Abstract:
Military assignment mechanisms provide a unique opportunity to estimate the impact of high-performing mentors on job advancement of their subordinates. Combining US Army administrative data with officer evaluation reports, we find that high-performing mentors positively affect early junior officer promotion and that early promotion probabilities rise as the duration of the high-quality mentorship increases. These effects are largest for high-ability protégés. Junior officers who were exposed to multiple high-performing mentors did not experience an additional increase in promotion rates.
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Beginning the workday yet already depleted? Consequences of late-night smartphone use and sleep
Klodiana Lanaj, Russell Johnson & Christopher Barnes
Organizational Behavior and Human Decision Processes, May 2014, Pages 11–23
Abstract:
Smartphones have become a prevalent technology as they provide employees with instant access to work-related information and communications outside of the office. Despite these advantages, there may be some costs of smartphone use for work at night. Drawing from ego depletion theory, we examined whether smartphone use depletes employees’ regulatory resources and impairs their engagement at work the following day. Across two studies using experience sampling methodology, we found that smartphone use for work at night increased depletion the next morning via its effects on sleep. Morning depletion in turn diminished daily work engagement. The indirect effects of smartphone use on depletion and engagement the next day were incremental to the effects of other electronic devices (e.g., computer, tablet, and television use). We also found some support that the negative effects of morning depletion on daily work engagement may be buffered by job control, such that depletion impairs work engagement only for employees who experience low job control.
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Jan Alexander Häusser et al.
Journal of Organizational Behavior, forthcoming
Abstract:
People frequently have to work in high repetitive jobs. Previous research has focused exclusively on the effects of task repetitiveness on well-being, while neglecting effects on work performance. In the present study, we aimed to fill this void by conducting two workplace simulations with experimental manipulations of task repetitiveness. Participants worked for about 5 hours at either a computer workstation, compiling computer hardware packages according to customer requests (Experiment 1, N = 160), or at an assembly line, piecing together equipment sets for furniture (Experiment 2, N = 213). Both experiments provide consistent evidence that high repetitiveness has a detrimental effect on well-being, whereas work performance increases under conditions of high repetitiveness. On a practical level, our study hence shows that high task repetitiveness is a double-edged sword for both employees and organizations. On a conceptual level, our findings emphasize the necessity to account for both mental strain and work performance when examining the effects of task repetitiveness.
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Social Comparison and Effort Provision: Evidence from a Field Experiment
Alain Cohn et al.
Journal of the European Economic Association, forthcoming
Abstract:
Social comparison has potentially far reaching consequences in many economic domains. We conducted a field experiment to examine how social comparison affects workers' effort provision if their own wage or that of a co-worker is cut. Workers were assigned to groups of two, performed identical individual tasks, and received the same performance-independent hourly wage. Cutting both group members' wages caused a decrease in performance. But when only one group member's wage was cut, the affected workers decreased their performance more than twice as much as when both workers' wages were cut. This finding indicates that social comparison among workers affects effort provision because the only difference between the two wage-cut treatments is the other group member's wage level. In contrast, workers whose wage was not cut but who witnessed their group member's pay being cut displayed no change in performance relative to the baseline treatment in which both workers' wages remained unchanged. This indicates that social comparison exerts asymmetric effects on effort.
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Supercenters, Unionized Labor, and Performance in Food Retail
Richard Volpe
Industrial Relations, April 2014, Pages 325–355
Abstract:
This study examines the impact of unionized labor on supermarket performance, as measured by profit and sales, accounting for the competitive presence of supercenters. The results confirm prior research that shows that supercenters have negative effects on supermarket performance. Unionized supermarkets generally outperform nonunionized supermarkets. However this effect disappears when accounting for supercenters, largely because unionized stores are less likely to compete with supercenters. I find no evidence for a significant union effect on supermarket performance. The deleterious effects of supercenters are stronger for unionized stores. Unionized supermarkets utilize less full-time labor and more labor-saving technology than do nonunionized ones.
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Span of Control and Span of Attention
Oriana Bandiera et al.
Harvard Working Paper, February 2014
Abstract:
Using novel data on CEO time use, we document the relationship between the size and composition of the executive team and the attention of the CEO. We combine information about CEO span of control for a sample of 65 companies with detailed data on how CEOs allocate their time, which we define as their span of attention. CEOs with larger executive teams do not save time for personal use, or to cultivate external constituencies. Instead, CEOs with broader spans of control invest more in a “team” model of interaction. They spend more time internally, specifically in pre-planned meetings that have more participants from different functions. The complementarity between span of control and the team model of interaction is more prevalent in larger firms.
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Robert Lount & Steffanie Wilk
Management Science, forthcoming
Abstract:
The current paper examines how posting performance — an act that triggers increased social comparisons between workers — influences employees' motivation when working in groups. In the study, posting employee performance moderated the relationship between groupwork and employee motivation. When individual performance was publicly posted in the workplace, employees working in a group performed better than when working alone (i.e., social laboring); however, when individual performance was not posted, employees working in a group performed worse than when working alone (i.e., social loafing). The findings shed light on how social comparisons can have positive implications for employee performance in groups.
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Are Referrals More Productive or More Likeable? Social Networks and the Evaluation of Merit
Uri Shwed & Alexandra Kalev
American Behavioral Scientist, February 2014, Pages 288-308
Abstract:
Scholars and practitioners agree that referrals provide firms with better workers. Economists and sociologists debate whether the underlying mechanism behind such relations is a better match between workers and firms or an advantage conferred by social relations. Building on insights from network theory and cognitive psychology, we offer a new approach to the debate, arguing that network relations can also create evaluative bias. We reexamine the connection between social ties and workers’ performance using unique data on the actual productivity of sales employees and their evaluations in a large global firm. Results suggest that the preexistence of ties between an incoming employee and insiders in the firm creates an evaluative advantage — an advantage that is unrelated to workers’ concrete performance. We discuss the implications of these results for a relational approach to social stratification, organizations and work, as well as social networks.
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Signaling in Secret: Pay for Performance and the Incentive and Sorting Effects of Pay Secrecy
Elena Belogolovsky & Peter Bamberger
Academy of Management Journal, forthcoming
Abstract:
Although the vast majority of U.S. firms follow a policy of pay secrecy, research provides a limited understanding of its overall utility to organizations. Building on signaling theory, we develop and test a model of the incentive and sorting effects of pay secrecy -- a pay communication policy that limits employees' access to pay-related information and discourages the discussion of pay issues - under varying pay-for-performance (PFP) system characteristics. Results of a multi-round laboratory simulation largely support the proposed moderated-mediation model. They indicate that pay secrecy has an adverse impact on individual task performance that is mediated by PFP perceptions and amplified when pay determination criteria are relative (as opposed to absolute) and attenuated when performance assessment is objective (as opposed to subjective). They also indicate that pay secrecy has a similar adverse effect on participant continuation intentions (mediated through PFP perceptions, amplified when pay determination criteria are relative and attenuated when performance assessment is objective), particularly among high performers. These findings suggest that weak signals associated with a particular managerial practice may become salient when interpreted in the context of other practice-based signals, and that under such conditions, even weak signals may drive negative-oriented inferences having important behavioral implications.
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More Stars Stay, But The Brightest Ones Still Leave: Job Hopping In The Shadow Of Patent Enforcement
Martin Ganco, Rosemarie Ziedonis & Rajshree Agarwal
Strategic Management Journal, forthcoming
Abstract:
Competitive advantage often rests on the skills and expertise of individuals that may leave for rival organizations. Although institutional factors like non-compete regimes shape intra-industry mobility patterns, far less is known about firm-specific reputations built through patent enforcement. This study formally models and empirically tests how a firm's prior litigiousness over patents (i.e., its reputation for IP toughness) influences employee mobility. Based on inventor data from the U.S. semiconductor industry, we find that litigiousness not only diminishes the proclivity of inventive workers to ‘job hop’ to others in the industry, it also shifts the distribution of talent released to the market. The study contributes new insights linking firm-level reputations as tough legal enforcers to the ‘stay versus exit’ calculus of knowledge workers.