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Research Summary We explore the performance consequences of the simultaneous pursuit of multiple objectives in organizations. Taking advantage of a unique dataset covering both the objectives pursued and performance outcomes, we t...
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Research Summary We explore the performance consequences of the simultaneous pursuit of multiple objectives in organizations. Taking advantage of a unique dataset covering both the objectives pursued and performance outcomes, we test the hypothesis that is the cornerstone of multiple objectives theory: performance on a given metric increases when it is pursued as an objective but decreases with the number of other objectives pursued simultaneously. We find overall support for this hypothesis, which holds for most, but not all, objectives. We further unpack the link between multiplicity of objectives and performance, investigating the moderating effects of organization design choices. This study suggests that multiple objectives impose a cost on organizations, but also provide a benefit of alleviating tradeoffs in achieving higher performance in multiple dimensions. Managerial Summary Most organizations simultaneously follow multiple goals, rather than focus on a single, well-defined objective. For example, manufacturing firms often concurrently strive to decrease costs, increase revenues, and enhance margins. We study the consequences of such pursuit for firm performance. We show that explicitly setting objectives plays an important role in driving performance improvements. We also show that performance on any given dimension decreases with the number of other, simultaneously, followed goals. This regularity holds across different types of organizations, from simple to complex. Finally, we show that setting goals in multiple dimensions can play a beneficial role in forcing firms to actively manage tradeoffs inherent in their strategic choices. Our findings point to how managers could balance the costs and benefits of multiple objectives.
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This paper explores the link between subsidiary performance feedback and internal governance mechanisms in multiunit firms. A central premise of performance-feedback models is that performance below aspirations is associated with ...
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This paper explores the link between subsidiary performance feedback and internal governance mechanisms in multiunit firms. A central premise of performance-feedback models is that performance below aspirations is associated with increased risk tolerance and thereby with a higher likelihood of taking excessive risks in resource allocation decisions. Building on this observation, we contend that the headquarters of multiunit firms take this association into account in the design of internal (i.e., headquarters-subsidiary) governance mechanisms. Accordingly, a subsidiary's performance-aspiration gap (below aspirations) is positively associated with the headquarters' oversight of its resource allocation decisions and negatively associated with the provision of incentive schemes that promote risk taking. Regression results, using data on subsidiaries in France between 1998 and 2004, support our hypotheses and show that subsidiaries performing below historical and social aspirations are less likely to be given discretion in investment decisions and incentivized by cash bonuses. In the supplementary analyses, we also provide suggestive evidence that subsidiary performance problems in multiunit firms trigger structural adaptation in the internal governance mechanisms in pursuit of regaining fit.
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Research Summary In this paper, we develop and test a behavioral theory of lost leadership. Using insights from the literature on goals as reference points and goal-setting theory, we predict that former leaders exert more effort ...
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Research Summary In this paper, we develop and test a behavioral theory of lost leadership. Using insights from the literature on goals as reference points and goal-setting theory, we predict that former leaders exert more effort compared to otherwise identical competitors. We test this prediction using two contexts. The first data comes from an educational business simulation game. The second setting draws on field data from a 2-month banking sales contest. We find that provision of effort increases following the loss of leadership. We also explore whether past leaders exert more effort in general or shift effort from other, potentially less-salient goals. We find evidence of both mechanisms. Finally, investigating the temporal effects, we find that having been a leader has an attenuating effect on subsequent behavior.Managerial Summary Many competitions-such as sports championships, sales contests, idea-sourcing challenges, and competitions for promotions-can be understood as dynamic tournaments, in which rivals rise and fall in the provisional rankings as they compete over time for a terminal prize. This performance volatility can have important consequences for contestants' behavior. Focusing on the event of lost leadership, we show that former leaders try harder: those that are displaced from a prize-eligible position exert more effort in subsequent rounds, compared with identically placed rivals who have never led. Former leaders provide more effort overall, and also shift attention away from other tasks. Our results, which suggest that setbacks can be motivational, have implications for the optimal design of dynamic competitions.
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A growing number of companies choose to pursue financial and social goals simultaneously. These dual-purpose companies face inherent trade-offs as they are caught between the competing expectations of different stakeholders. We bu...
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A growing number of companies choose to pursue financial and social goals simultaneously. These dual-purpose companies face inherent trade-offs as they are caught between the competing expectations of different stakeholders. We build a theory predicting the intensity of such trade-offs faced by dual-purpose organizations located in different institutional settings and adopting different governance mechanisms. We theorize that the intensity of the financial/social trade-offs experienced by dual-purpose companies increases with the level of economic liberalism of the institutional setting in which they operate. We further theorize that the influence of the institutional setting on the intensity of the financial/social trade-offs experienced by dual-purpose companies is filtered by their governance arrangements. We conclude by discussing changes in the surrounding ecosystem that could help to reduce the intensity of the trade-offs that companies experience, thereby paving the way for a new formof capitalism.
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We study the behavioral drivers of market entry. An experiment allows us to disentangle the impact on entry across different types of markets of two key behavioral mechanisms: overconfidence and attitude toward ambiguity. We theor...
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We study the behavioral drivers of market entry. An experiment allows us to disentangle the impact on entry across different types of markets of two key behavioral mechanisms: overconfidence and attitude toward ambiguity. We theorize and show that the causal effect of overconfidence on entry is limited to skill-based markets and does not appear in those that are chance based. Moreover, we also find that, independent of confidence levels, individuals exhibit ambiguity-seeking behavior when the result of the competition depends on their skills, which, in turn, leads to higher levels of entry. This preference for ambiguity thus can explain results that have previously been attributed to overconfidence. Our results challenge existing literature that has inferred overconfidence from differential entry levels across types of markets.
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We investigate the mechanisms that shape social comparison in organizations and generate social comparison costs. In particular, we focus on heterogeneity in the strength and type of incentives and argue that, from an efficient de...
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We investigate the mechanisms that shape social comparison in organizations and generate social comparison costs. In particular, we focus on heterogeneity in the strength and type of incentives and argue that, from an efficient design perspective, such variance in rewards is a double-edged sword. While the sorting and incentive effects that result may increase productivity, the social comparison processes that arise may dampen it. We posit that the mechanisms underlying these behavioral costs are shaped not only by the magnitude of reward variance, but by the formal and informal design elements shaping the distance of advantaged peers. In other words, the more proximate socially, structurally, or geographically are those to whom one socially compares, the larger the behavioral response. Empirically, we use an unanticipated event during which outlets of a bank, previously operating under essentially homogenous incentives, were assigned to tournament groups with differing ex ante probabilities of winning a prize-an event that increases variance in awards and hence generates an impetus for social comparison. We find that units with more socially, geographically, and structurally proximate peers assigned to "advantaged" tournament groups decreased their productivity. We discuss implications of these results for organizational design and boundaries.
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We combine the formalism of a principal-agent framework with a value-based analysis in order to investigate the micro-foundations of business partner selection and the division of value in contracting relationships. In particular,...
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We combine the formalism of a principal-agent framework with a value-based analysis in order to investigate the micro-foundations of business partner selection and the division of value in contracting relationships. In particular, we study how the key contracting parameters such as efficiency, transactional integrity, incentive alignment, and gaming affect outcomes when buyers face competing suppliers. We show that integrity and efficiency increase value creation and capture for all parties and are complements. While incentive gaming is unambiguously bad for value creation, and reduces buyers' value capture, it can benefit some suppliers. For alignment, we find that neither party has an incentive to use fully aligned performance measures that maximize total value creation. We conclude by analyzing buyers' and suppliers' incentives to invest in integrity. Copyright (c) 2014 John Wiley & Sons, Ltd.
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