Tomasz Obloj

Dominant Logic and Entrepreneurial Firms‘ Performance in a Transition Economy:

Dominant logic is the manner in which firms conceptualize and make critical resource–allocation decisions, and over time develop mental maps, business models, and processes that become organizational recipes. This study compares and contrasts the dominant logic of Polish entrepreneurial firms. We find evidence that a dominant logic characterized by external orientation, proactiveness, and simplicity of routines significantly influences the performance of entrepreneurial firms in this emerging economy. These dominant logic characteristics of high performers serve as a key intangible resource in transition economies that are characterized by the absence of strong institutions and resource constraints. Future research in this critical domain should include how dominant logic needs in transition economies evolve over time as the institutional environment matures and market mechanisms become more solidified.

Organization Design, Proximity, and Productivity Responses to Upward Social Comparison

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.The online appendix is available at https://doi.org/10.1287/orsc.2016.1103 .

Ability, Adverse Learning and Agency Costs: Evidence from Retail Banking

The literature on incentive contracting suggests that the optimal performance pay contract depends on a tradeoff between productivity and agency costs. The effect of employee ability on this tradeoff is theoretically ambiguous, as the employee’s private gains (through more sophisticated gaming responses) may exceed the employer’s productive benefits. Similarly, employees’ “adverse learning” about how to game their incentives may outweigh their productive learning. Existing research has not examined these possible perverse effects. We observe branch managers of a large retail bank following the introduction of a new incentive plan. We use a novel empirical strategy to estimate the profits the bank loses through managers’ manipulation of loan sizes and interest rates, and find that these agency costs are between three and twelve percent of profits on average. Managers’ formal education (“book smarts”) has no impact on agency costs, but their ability to infer undisclosed information about the incentive plan (“street smarts”) does. More-able managers in the latter sense cost the bank an extra two percent of profits. Finally, agency costs are increasing over time, suggesting that adverse learning dominates productive learning. We find suggestive, but inconclusive, evidence that higher levels of “street smarts”are associated with a higher rate of adverse learning.

Better Safe Than Sorry: Subsidiary Performance Feedback and Internal Governance in Multiunit Firms

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.

Initial prejudices create cross-generational intergroup mistrust

The present investigation modeled the emergence and persistence of intergroup bias and discrimination in artificial societies. Initial unfair prejudices held by members of a dominant group elicit confirmatory behavior (diminished cooperation) from members of a subordinate group via a self-fulfilling prophecy. Further, when individual learning is tempered by conformity to peers, inaccurate beliefs about the stigmatized subordinate group persist long-term. Even completely replacing dominant group members with enlightened individuals through generational change is inadequate to break the cycle of intergroup distrust and non-collaboration. The longer the enlightenment of a society is delayed, the more intergroup trust is irretrievably lost.

Better to Have Led and Lost than Never to Have Led at All? Competitive Dethronement, the Endowment Effect, and Risk Taking

In this paper, we develop a theoretical model and offer a first empirical test of how competitive dethronement affects managerial risk taking. Drawing on the mechanism of endowment effect and reference-dependent utility theory, we predict that former market leaders take more risks compared to, otherwise identical, competitors. We empirically test this prediction using two contexts allowing us to use different methods to operationalize risk. The first setting draws on field data from a two-month banking sales contest. The second, quasi-laboratory, data comes from an educational game. Consistent with model’s prediction, we find that dethronement is associated with increased risk taking but that the endowment effect leading to such response decays over time. In contrast, a mere decline in performance ranking does not have the same effect.

Incentives, Social Comparison Costs, and the Proximity of Envy's Object

The authors investigate the mechanisms that shape social comparison in organizations and generate social comparison costs. Drawing on the notions of inequity aversion and envy, they argue that heterogeneity in the strength and type of incentives provides an impetus for envy, and that the resulting social comparison costs are shaped not only by the magnitude of this impetus, but the distance of envy’s objects. In other words, the more proximate socially, structurally and geographically are those one envies the larger the costly behavioral response. To test our predictions, the authors use a quasi-experimental event during which outlets of a retail bank, previously operating under homogenous incentives, were assigned to four distinct tournament groups with differing ex ante probabilities of winning a prize — an event that provides envy’s impetus. The authors then explore how, for each outlet, the proximity of those assigned to more advantaged outlets — objects of envy — shape productivity responses. They find that organizational units with more socially, geographically, and structurally proximate peers assigned to ‘better’ tournament groups decreased their productivity, when compared to peers whose objects of envy were more socially, geographically, and structurally distant. They also show that these effects are stable over time. They discuss implications of these results for organizational design and boundaries.