Stephan Billinger

Designing the Boundaries of the Firm: From Make, Buy, or Ally to the Dynamic Benefits of Vertical Architecture

The concept of vertical architecture defines the scope of a firm and the extent to which it is open to final and intermediate markets; it describes the configurations of transactional choices along a firms value chain. A firm can make or buy inputs, and transfer outputs downstream or sell them. Permeable vertical architectures are partly integrated and partly open to the markets along a firms value chain. Increased permeability enables more effective use of resources and capacities, better matching of capabilities with market needs, and benchmarking to improve efficiency. Partial integration promotes a more dynamic, open innovation platform and enhances strategic capabilities by linking key parts of the value chain. This permeable vertical architecture, accompanied by appropriate transfer prices and incentive design, facilitates resource allocation and guides a firms growth process. Our longitudinal study of a major European manufacturer suggests that to understand how firm boundaries are set and what their impacts are, we need to complement the microanalytic focus on transactions with a systemic analysis at the level of the firm. It also shows how, over and above transactional alignment, decisions about boundaries and vertical architectures can transform a firms strategic and productive capabilities and prospects.

Search on Rugged Landscapes: An Experimental Study

This paper presents findings from a laboratory experiment on human decision making in a complex combinatorial task. We draw on the canonical NK model to depict tasks with varying complexity and find strong evidence for a behavioral model of adaptive search. Success narrows down search to the neighborhood of the status quo, whereas failure promotes gradually more exploratory search. Task complexity does not have a direct effect on behavior but systematically affects the feedback conditions that guide success-induced exploitation and failure-induced exploration. The analysis also shows that human participants were prone to overexploration, since they broke off the search for local improvements too early. We derive stylized decision rules that generate the search behavior observed in the experiment and discuss the implications of our findings for individual decision making and organizational search.

Private virtues, public vices: social norms and corruption

Purpose - – Corruption has traditionally been associated with an absence of pro-social norms such as trust and altruism. This paper challenges this view by examining market corruption – one-shot exchange transactions between strangers in the shadow of the law. The paper aims to propose that in the absence of repeat interactions and legal remedies to prevent contractual violations, acts of market corruption will require strong norms of generalized trust and altruism. As such, pro-social norms facilitate, rather than mitigate, market corruption. Design/methodology/approach - – The paper utilizes meta-analysis to examine the relationship between pro-social behavior in economic experiments and prevailing corruption levels. Findings - – The results from meta-analyses of both trust- and dictator game experiments show positive, significant relationships between pro-social norms and prevailing corruption levels. Research limitations/implications - – The findings of the paper suggest the need for further research into the relationship between societal norms and different types of corruption. Practical implications - – Policymakers should be wary about attempting to combat corruption through bottom-up policies designed to strengthen pro-social norms. Such policies may be counter-productive in that they are likely to provide the breeding ground for more acts of market corruption. Originality/value - – Conventional wisdom suggests a negative association between pro-social norms and corruption levels. The paper proposes that the relationship is not that simple. Indeed, the meta-study findings suggest the reverse relationship in the case of petty (market) corruption.

Safeguarding common-pool resources in transition economies: Experimental evidence from Central Asia

Abstract Empirical evidence suggests that the propensity to cooperate in common pool resource dilemmas is higher for small, homogeneous groups with efficacious monitoring and sanctioning mechanisms. Given that transition from socialist to market economies is associated with larger, more heterogeneous groups with diluted opportunities for monitoring and sanctioning, individuals in later-stage transition economies may be expected to be less cooperative than their early-stage counterparts. However, evidence from experiments conducted with subjects in two economies at different stages of transition suggests that this may not be the case. These findings have implications for both theorists and practitioners alike.

Organizational Trade-Offs and the Dynamics of Adaptation in Permeable Structures

Organization design has a critical impact on how firms adapt to the business environment. In our case study, we show how organization design increases a firm’s ability to sense and seize business opportunities by making its organizational boundaries more permeable. Our findings reinforce and substantiate prior work on organization design and organizational adaptation. They also suggest how insights from organization design theory may help better understand the dynamic capabilities of firms. We find that disintegration and the creation of a permeable corporate structure require decision-makers to consider four organizational trade-offs: specialization, interdependencies, delegation, and incentives. We discuss how these organizational trade-offs provide a useful complementary perspective to the dynamic capability approach by highlighting the structural properties that shape organizational adaptation across time.

Organizational Tradeoffs and the Dynamics of Search and Coordination

We analyze the interactions and tradeoffs that result from organizational search and coordination. Our analysis suggests an antagonistic relationship between organizational search and coordination. The more an organization searches, the higher is the demand for coordination. However, meeting the demands for increased coordination constrains organizational search. Based on a case analysis and insights from existing theory, we identify four fundamental organizational tradeoffs in the coordination of interdependent search processes that give rise to the antagonistic relationship between the two. These are (1) the specialization of tasks, (2) the interdependencies between tasks, (3) the delegation of tasks and the constraints placed on organizational members to carry out these tasks, and (4) the incentives for organizational members. Our findings may be useful for the analysis of organizational strategies and structures, interorganizational modes of coordination, and industry architectures.

Income inequality and cooperative propensities in developing economies: Summarizing the preliminary experimental evidence

Purpose The purpose of this paper is to examine the influence of income inequality on cooperative propensities, and thus the ability of individuals to resolve collective action dilemmas. Design/methodology/approach The paper presents a meta-study of 32 developing country lab experiments correlating cooperative behaviour with prevailing Gini coefficients. Furthermore, the paper conducts standard dictator- and public goods game (PGG) experiments with culturally and demographically similar subject pools in two West African countries characterized by high and persistent variation in national income inequality. Findings The meta-study findings of a significant negative relationship between income inequality and contribution levels in the PGG are corroborated by the own laboratory experimental findings that participants in more unequal Nigeria are significantly less altruistic and exhibit significantly lower propensities to cooperate than their more egalitarian Ghanaian counterparts. Moreover, the latter findings are robust when controlling for personal income levels. Practical implications The findings have nontrivial implications for collective action theorists and practitioners seeking to elicit tacit cooperation in developing countries. Originality/value The major contributions of this paper are the novel meta-analysis and the first attempt to examine the influence of personal income levels on cooperative behaviour in societies characterized by differential levels of income inequality.