Todd R. Zenger

Organizational demography: The differential effects of age and tenure distributions on technical communication.

Although previous researchers have proposed organizational demography as an important determinant of communication, no one has tested this relationship directly. Further, distinctions between the i...

Being Efficiently Fickle: A Dynamic Theory of Organizational Choice

A central proposition in organization theory is that discrete organizational forms are matched to environmental conditions, market strategies, or exchange conditions. This paper develops a contrary theoretical proposition. We argue that efficiency may dictate modulating between discrete governance modes (i.e., structural modulation) in response to a stable set of exchange conditions. If governance choices are discrete, as much of organization theory argues, then the consequent steady-state functionality delivered by these organizational forms is itself discrete. However, if the desired functionality lies in-between the steady-state functionality delivered by two discrete choices, then efficiency gains may be available by modulating between modes. We develop an analytical model of structural modulation and examine factors that influence when modulation is ef- ficiency enhancing, as well as the optimal rate of modulation. We conclude that under certain conditions structural modulation is efficiency enhancing. Further, contrary to theories that highlight the potentially destructive consequences of inertia on organizational survival, we identify important efficiencyyielding benefits of inertia.

The Small Firm Effect and the Entrepreneurial Spawning of Scientists and Engineers

Scientists and engineers in small firms are far more likely than their large firm counterparts to enter entrepreneurship. We label this phenomenon the small firm effect and explore its origins. In particular, we identify four classes of explanations for the small firm effect---preference sorting, ability sorting, opportunity cost, and the possibility that workers in small firms develop entrepreneurial human capital---and examine the empirical evidence for each. We find that preference sorting does play a role in generating the small firm effect: small firms attract those with prior preferences for autonomy who are similarly drawn into entrepreneurship. Similarly, ability sorting plays a role: those who ultimately become entrepreneurs may be drawn first to small firms because they offer tighter pay-for-performance links and can subsequently improve their expected earnings by becoming entrepreneurs, or because the skills required for success in small firms are also valuable in entrepreneurship. Evidence suggests that although those with the very least to lose do enter entrepreneurship with greater frequency, opportunity cost has at best a modest role to play in explaining the small firm effect. Finally, we interpret evidence that prior experience in small firms predicts positive performance outcomes in the early stages of entrepreneurship as suggesting that workers in small firms may develop entrepreneurial human capital that makes them better entrepreneurs. This effect may be largest among those of high ability.

Determinants of Incentive Intensity in Group-Based Rewards

Highly incentive intensive rewards have been linked both theoretically and empirically to higher effort. Nonetheless, historically the incentive intensity of individual rewards has been quite modest in most hierarchies. In an effort to escalate the incentive intensity of rewards, managers have increasingly implemented pay systems which reward individuals for group performance. While the determinants of incentive intensity for individual rewards have been widely examined, the determinants of incentive intensity for group- based rewards remain unexplored. In this paper, we draw upon literature in economics and social psychology to develop a theory of the determinants of incentive intensity in group rewards. Our derived hypotheses are tested using data from a large sample of 663 group pay plans in the US private sector.

Examining the Conditional Limits of Relational Governance: Specialized Assets, Performance Ambiguity, and Long-Standing Ties

Despite recognition of the benefits of relational governance in inter-organizational exchanges, factors that may erode its value have received little examination. We extend the literature by asking whether self-interested opportunities and long-standing ties erode the positive association between relational governance and performance. Consistent with transaction cost and moral hazard logics, exchange hazards, particularly asset specificity and difficult performance measurement, dampen the positive association of relational governance and performance. We further find, consistent with recent inquiries into the dark side of embedded ties that the performance benefits associated with relational governance decline when parties rely on repeated partnerships.

Capabilities, Transaction Costs, and Firm Boundaries

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 approachs limitations and provides a unified and logically consistent understanding of boundary decisions.

Informal and Formal Organization in New Institutional Economics

Exchanges are governed by a set of formal institutions (contracts, incentives, authority) and informal institutions (norms, routines, political processes) that we argue are deeply intertwined.However, for the most part, informal institutions are treated as exogenous forces changing the benefits to using in an alternative formal structures, and formal institutions are treated as mere functional substitutes for informal elements governing exchanges. As a result, scholars have not sufficiently explored the interactions between formal and informal institutions. We contend that the failure to integrate these concepts into a common theory has led to faulty reasoning and incomplete theories of economic organizations. In this paper, we highlight three potential areas of research exploring the interplay between formal and informal institutions: first, whether formal institutions support (complement) or undermine (substitute for) the contributions of informal institutions; second, how vacillation in formal organizational modes allows managers to efficiently alter the trajectory of informal institutions; and third, how certain informal institutions can lead to hierarchical failure, thereby requiring managers to constrain the boundaries of the firm.

Crafting Internal Hybrids: Complementarities, Common Change Initiatives, and the Team-Based Organization

Hybrid governance forms that seek to meld the virtues of both market control and traditional hierarchical control are alluring. Comparatively little research, outside of the M-form literature, has examined internal hybrids - hierarchical forms infused with elements of market control. This paper contends that common change initiatives, such as TQM, re-engineering, autonomous work teams, and group-based rewards, are appropriately viewed as attempts to craft internal hybrids by selectively infusing elements of market control within hierarchy. However, these change initiatives are often implemented in isolation and, as a consequence, violate patterns of complementarity that sustain traditional hierarchy or support the stable infusion of market control.The paper argues that these violations of complementarity often spiral hierarchies toward fundamental transformation. The clear trajectory of these transformations is to quite radically disaggregated organizations structured around teams. The paper presents both theory and evidence supporting the existence of complementarities among these common change initiatives.

Dealing With the Paradox of Embeddedness: The Role of Contracts and Trust in Facilitating Movement Out of Committed Relationships

In conditions of social uncertainty—i.e., when exchanges are subject to the hazards of opportunism—committed relationships promote both the shadow of the future and the shadow of the past necessary for cooperation. For this reason, some argue that exchanges can be selfgoverned without the need of legal enforcement and other formal controls. While this conclusion is correct when the value of a long-term relationship does not vary much over time, we provide new experimental evidence showing that it is invalid when individuals face high exchange value uncertainty—i.e., when there are constantly new opportunities to transact with more valuable partners outside committed circles. Under both social and exchange value uncertainty, a reduction in commitment can potentially increase exchange performance, at the cost of a potential reduction in cooperation. By creating safeguards in market exchanges, contract enforcement can make individuals more willing to move out of committed relationships and into relationships with higher exchange value.

Corporate Strategy, Analyst Coverage, and the Uniqueness Paradox

In this paper, we argue that managers confront a paradox in selecting strategy. On one hand, capital markets systematically discount uniqueness in the strategy choices of firms. Uniqueness in strategy heightens the cost of collecting and analyzing information to evaluate a firms future value. These greater costs in strategy evaluation discourage the collection and analysis of information regarding the firm, and result in a valuation discount. On the other hand, uniqueness in strategy is a necessary condition for creating economic rents and should, except for this information cost, be positively associated with firm value. We find empirical support for both propositions using a novel measure of strategy uniqueness in a firm panel data set between 1985 and 2007. This paper was accepted by Bruno Cassiman, business strategy.