Saturday, December 3, 2011

Where’s the Public Uproar? Why Banks Can’t Pay Back the Secret Bailouts

By Dr. Suhaib Riaz

Recent revelations on the secret loans by the US Federal Reserve to banks should cause massive public uproar, if reflected upon. That a lawsuit was needed to show the scale and no-strings attached nature of these bailouts, suggests the explosive potential of this information.

On one side these secret loans were saving the banks, on the other side bankers were assuring the world of their health – as detailed in an earlier study of bankers’ rhetoric during the crisis, co-authored by a team that I was part of (presented this year 
at the Academy of Management in San Antonio).

The key question these revelations should re-invigorate is this: How do you “pay back” a secret bailout that saved you – in human equivalent terms, saved your life?

Well, you could return the dollar amounts, once your health has been restored. Which is what the banks keep harping about – we’ve paid it all back, just leave us alone now – no need for any fundamental changes. Many are so confident about this “paid back” argument, that they believe anyone who protests on this count doesn’t understand Business 101. Such comments were common on a recent piece I co-authored (with Hari Bapuji) in the HBR blog network, suggesting the need to at least listen to arguments by protestors, including some by “Occupy Wall Street” protestors, who smell something rotten in today's business environment.

Agreed, the dollars might have been “paid back” in a narrow sense. But let’s look beyond that for a moment.

First, what price were these dollars, coming as they did at a time of severe crisis, when all other sources of loans, and that too on such a massive scale, were non-existent. Shouldn’t the “market” price be way higher than regular price at such a time? It turns out, of course, that these secret loans were below the market price.

Second, what’s the value of keeping the loans secret? How do you repay that – given that keeping loans secret certainly helped banks present themselves in better health, which has all sorts of additional symbolic and substantive benefits. Amongst these are the ability to be back in business faster - raise more loans – as well as resist tighter regulation that might have resulted from public uproar earlier. And one doesn’t have to connect too many dots to see how this secrecy and consequent impression of good health would help continue the outrageous executive compensations at banks that were in reality utter failures.

Third, what’s the value of the scope of these loans – not just the scale, but the fact that these were distributed across so many banks at the same time, effectively helping save them all: in a tide, all boats rise. Saving the system was what saved the individual banks. How can you pay back the value of the “tide”?

Fourth, what’s the value of the “future guarantee” offered by these loans – once the Fed has demonstrated the scale and scope of actions it is willing to take to save banks, this in itself endows banks with a legitimacy and “failure-proof” guarantee for the future. This perception (related to the idea of ‘moral hazard’) works in the background, and is not much talked about – but it certainly helps banks conduct their business. How do you pay that back?

Overall, these arguments call for a broader shift in the way banks look at their own roles in society. Banks do not exist in isolation, but are part of a complex socio-economic system that includes, amongst others, taxpayers and the general public. A complex systems perspective is essential to have any hope of seeing this bigger picture, which seems to be consistently eluding bankers. It was heartening to see much ongoing work on complexity at the annual MIT Systems Thinking conference a few weeks ago – yet much more is needed specifically on the financial system as part of society. 



Perhaps such a broader perspective will help banks understand why you can’t “pay back” someone who has just (secretly!) saved your life.

Monday, October 17, 2011

Corporate Power and Government Policy: Reflections from “Occupy Toronto”


By Sean Buchanan. 
This past weekend I was at the Occupy Toronto protest taking place in St. James Park in Downtown Toronto. Sparked by the Occupy Wall Street protests, Toronto is one of hundreds of cities staging their own version of the protest. The event received considerable attention in the media in the days leading up to it; as a budding academic researching power and institutional change, I was curious to see the protests in person. One criticism that has been made about the Occupy Wall Street movement is the apparent lack of a concise or unified message. So, I was particularly interested in hearing protesters’ motivations for attending the protest as well as their views on where they believe changes need to be made in society.  

There were over 2000 people in the park when I arrived. The media presence was also notable with reporters and cameras lining the exterior. I spoke with several individuals during my time at the protest, many of whom were aligned with different groups. Some were environmental activists; some were from the Marxist Party of Canada; others were union members; while others (though less so) were simply concerned citizens. Although the Occupy Wall Street movement is quite diverse, the protesters appeared to have one overarching concern in common: the powerful role of corporations in shaping government policy and the effects it has on representative democracies.  

Perhaps surprisingly, research in management has had relatively little to say on the issue of corporations influencing governments in comparison to other areas of social inquiry; and some researchers, like Herman and Barley have acknowledged it. Recently, Barley conducted a careful study of the ways in which corporations influence government policy in the United States. He found that through lobbying, peak organizations, political action committees, trade associations, think tanks, and public relations firms, corporations have substantial means to formally and informally influence government policies.  Furthermore, Ferguson, a political scientist, has shown how future policies of presidential candidates can be predicted by where their campaign dollars came from.

Given the enormous influence corporations potentially have, they also arguably have a political responsibility, whereby they should use their political power to promote social as well as economic well-being. This view advocates for a proactive role for business in addressing social issues.  For example, this view would argue, corporations are can be a potential solution to the grievances of the Occupy Wall Street protesters rather than simply part of the problem. This view is particularly relevant if you accept the argument that governments are largely ‘handcuffed’ by corporate interests. Yet, when I asked protesters what they thought business should do to address their concerns, they had little to say.  Rather, protesters argued that it was the government’s role to change the structures that allow corporations to have so much influence in policy (e.g. U.S. campaign financing laws). A paradox that arises is how is government to change these structures if they are constrained by the very interests they are trying to regulate?

This raises a lot of questions for management scholars.  First, what is the role of business in addressing social concerns, such as those raised by the Occupy Wall Street protestors?  Should business even have a role in addressing these concerns? Are the protestors correct to assume that business cannot play a productive role in addressing their grievances? How does government regulate corporations if they are controlled by corporate interests? These questions are going to become increasingly important if the relationship between business and government continues to grow fuzzier.

While researchers address the above issues, it is heartening to note evidence of corporations actively cooperating with government with regards to industry regulations. For example, in the Nordic European countries, many businesses have requested that governments actually increase national environmental regulations. The apparent rationale behind this is that strong government regulations will set a boundary for these companies to compete within, and thus, even the playing field.  Furthermore, companies with a strong environmental performance will have an advantage in this new regulatory environment, which provides significant incentives for companies to proactively address environmental concerns. Is it too far fetched to believe that financial institutions might also push for stricter regulations on their ability to influence government policies?  The protesters I met at Occupy Toronto certainly thought so. The way in which the ongoing Occupy Wall Street protests unfold will likely shed considerable light on questions of this nature.
---  
Sean Buchanan is a PhD Candidate at the Schulich School of Business at York University in Canada. 

Sunday, September 18, 2011

Teaching Strategy in Today's America

By Dr. Suhaib Riaz

The signs of a changing America are hard to miss. Two weeks into a new assignment in Boston, and one has seen people wearing "Hire US, America" T-shirts (claiming to be a "union of 31 million unemployed Americans"), campus events incomplete without a mention of the gloomy economy - often with references to budget cuts, students concerned about finding jobs, those with jobs genuinely concerned about getting laid-off, one's bank manager concerned about what the massive layoffs in a rival bank foretell, and so on.

One picks up a New York Times at a cafe to see on the front page that only 23% of Americans believe the country is headed in the right direction (NYT/CBS poll), and that most share a high degree of dissatisfaction with all branches of political administration and leadership. While those figures might not reveal the various colors of political persuasion underlying this dissatisfaction, clearly these are times of change.

This made me think: what about academics teaching courses deeply tied to the economy (such as strategic management)? Are we headed in the right direction?

Are our courses, and hence future managers graduating from them, headed in the right direction? Are we preparing future managers and leaders for a changed economy? Is there a need to shift our thinking from a focus on old, large and well-established organizations that just needed tweaking in a taken-for-granted bullish economy?

Instead, can we start with the larger economy issues and prepare future managers and leaders to be part of the solution? Part of a group that doesn't just say "Hire Me" but also "I'll hire myself, and you too...". Having lived and worked in other parts of the world, there are interesting parallels that come to mind. A few days ago, an old friend called me - from Singapore, where he was visiting his own business that now also extends across Mumbai and Delhi in India. I applauded his entrepreneurialism. "No one ever gave me a job," he laughed. The story was repeated countless times in an India in the early days of liberalization - opportunities had to be created, they just didn't exist yet.

To begin with, some serious assessment of the US economy will have to be built into our courses, such as Gerald Davis' diagnosis (.pdf, based on his book) of the financialization of society and economy, and related "end" of the society of (traditional) organizations (which I include as a challenging reading in my Strategy course). For example, this includes interesting thoughts on the decline in traditional jobs and rise of retailers as the largest US job providers, with associated deeper issues for job security, career growth, etc.

At a broader cultural level, perhaps this should also prompt a revisit of what needs to be celebrated - not just illusion (such as those created by Hollywood/Music celebrities), but also substantive contributions, including job creation - as just happened here in the Cambridge area with the Walk of Fame near MIT's Kendall Square dedicated to people like Thomas Edison, Steve Jobs, etc. This might, perchance, also inspire future managers by giving them something to celebrate that goes beyond making millions through massive fraud and elite entitlements, which are deeply tied to the financial crisis.

Again, political persuasions might suggest different solutions (at times extreme ones - both on the left and right - a fallout of the economic crisis, as I argued a while ago), but it's hard to deny that some sort of change is needed. Are we, as academics, willing to change before change is forced upon us by more severe conditions?

Friday, August 12, 2011

Fear, Anger and Power: The End of Ideology

By Dr. Suhaib Riaz.

While the looting continued in London's streets in the last few days, looting of a different type continued across financial markets. The UK has finally asserted that "those people who are responsible for this wrongdoing and criminality: you will feel the full force of the law and if you are old enough to commit these crimes you are old enough to face the punishment" (Prime Minister Cameron). At the same time, the SEC has started investigating who had prior insider knowledge of Standard & Poor's historic downgrade of the US credit rating (at least one thing to come out of this is the much needed focus on Debt underlying the current crisis, that I have been mentioning for a while). There seems little doubt that some had this very specific knowledge and cashed in on it, as seen from recent market behavior, and also as learned from observing recent high profile cases such as Galleon Group, which revealed the level of power abuse by elites having inside knowledge. 


There are strong parallels between the looting elites and the looting downtrodden, and one wonders if one is indeed inspired by the other (I leave it to your imagination: who inspires whom?). Both are driven by base instincts rather than by any clear ideology with political or social goals. Both focus simply on abusing their power as much as they can and appropriating what they can for themselves - the overall society be damned. But despite these similarities, is there any doubt which looters will be caught and which ones will likely escape?

Regardless, these trends reveal something profound about our age. All ideologies have failed and the basest instincts have taken over. Even those purporting to act under any ideology, whether political or religious, use it simply as an excuse for acting on base instincts, rather than for any 
societal benefit based on logical or intellectual conviction. Fear, anger and power-abuse capture the reality of the streets and the markets alike. 

No one is likely to be spared from this bout of base instincts sweeping the world. The problem is no longer a distant or abstract story on news channels, but rather, is crystallized into our everyday experiences, if we bother to think and reflect.

A single personal experience can sometimes help crystallize one's thoughts on where we are headed. Recently, crossing the border from Canada into another country, one is simply confused at the extraordinary power abuse on display. When you're asked what you do, and try to explain, you're met with an angry response shouted at you, "I know what a University professor does, I'm not an idiot!"...and this is just one of a string of similar expressions. Fear, anger and power-abuse feed on each other. Such senseless and out-of-place anger thrives in an environment marked by collective fear, which in turn sanctions such abuse of power. 

It seems everyone is angry at, or in fear of, everyone else, and is out to abuse one's power over others as much as possible. This is the absence of all ideology, and the  triumph of base instincts. Are we all condemned to live in such a world for the near future?

Monday, August 1, 2011

Journal Impact Factors and Rankings: How Categorization Influences a Journal's Rank


Management scholars publish their research in journals that fall into two broad categories: Business and Management. This category assignment is made by Thomson Reuters Journal Citation Reports (JCR). As I mentioned in an earlier post, JCR does not rank journals based on impact factors. But, the journals rank themselves in their own category. Depending on the category in which a particular journal is placed, the rank a journal receives can be quite different for the same impact factor. In particular, journals placed in the Management category receive a lower rank for the same impact factor than they would get if they were in the Business category.
As shown in this document, the number of journals by category is: Business – 101, Management – 140, Both combined – 203. However, 38 journals are common to both categories. These 38 journals get a lower rank in Management compared to their rank in Business category. For example, Organization Dynamics is ranked at 65 in Business Category and 90 in Management Category – a drop of 25 places. Combining the Business and Management categories, however, produces another different ranking, which is typically lower than the rank received in either of the category rankings. For example, Organization Dynamics gets a rank of 128 if both categories are combined.
Given this influence that category assignment has, the definitions of category and the criteria on which those assignments are made must be sound. JCR says that management covers “resources on management science, organization studies, strategic planning and decision-making methods, leadership studies, and total quality management.” The category of business “covers resources concerned with all aspects of business and the business world. These may include marketing and advertising, forecasting, planning, administration, organizational studies, compensation, strategy, retailing, consumer research, and management. Also covered are resources relating to business history and business ethics.” Although these definitions appear to be somewhat different, they are quite similar and many business management journals can fall into either category or both.
Not surprisingly, in practice, journals with similar mandate and focus are assigned to different categories. For example, Supply Chain Management is assigned to both the categories, while Journal of Operations Management is assigned to Management category alone. Asia Pacific Journal of Management is assigned to Management category, while Asian Business and Management is assigned to both categories. If APJM was assigned to Business category, then its rank would have been 10 – a better looking place compared to its place of 18 in Management category. 
In short, category assignments do not appear to be based on sound criteria and many journals in Business category can easily fit into the Management category, and vice versa. For the same impact factor, those journals in Business Category tend to get a better rank than those in the Management Category. Therefore, one needs to pay attention to the category and other journals in the category as one makes use of the impact factors. This also raises broader questions: If the category assignments are themselves not very sound, how meaningful are the journal ranks, and how sensible is the obsession with these ranks?

Wednesday, July 13, 2011

Management Journal Rankings: Looking Beyond the Impact Factor Ranks

Hari Bapuji

In a recent post on journal rankings, Suhaib Riaz reflects on the journals ranking and asks whether everything that counts can be counted. Rankings of all types are useful, but they provide just one perspective and are typically based on only one dimension that we need to consider. If a different and equally important dimension is brought into the analysis, the rankings change. I would like to illustrate this with the help of the recently published, well-known Thomson Reuters Journal Citation Reports (JCR). JCR itself does not rank journals, but its impact factor data is used by journals to ascertain their “intellectual superiority”. In this post, I will focus on the aspect of journal self-citations and use JCR data on journals in the Management category.

The issue of journal self-citations has recently gained attention because journal editors could influence impact factors by asking authors to include citations to articles published in their own journal. For example, during a recent review process, an editor’s letter said: “You need to provide five additional references from previously published articles in Journal XYZ (the journal where the paper was under review) and cite them in the references.” I am sure many of my fellow researchers face similar situations. In fact, a team of researchers recently began examining this issue. In short, journal self-citations could be used to influence rankings.

Fortunately, Thomson Reuters Journal Citation Reports (JCR) gives Impact Factors with and without self-citations. In the document here, I have provided the impact factors with and without self-citations. I then ranked the journals using impact factors without self-citations. The ranking now looks different. Sixteen journals lose by 10 or more spots because their self-citations are fewer than those used by other journals. Note that some of the journals in this list are aimed at practicing managers and tend to not use references or use fewer references. However, those pure academic journals that typically use references would be hurt more by this loss. While 16 journals lose, 17 journals gain positions by 10 or more spots.

While these gains and losses are disconcerting, these two rankings capture two different things. The first ranking (most commonly used) is based on simple impact factor (that includes self-citations). This captures the impact a journal had on the field, including itself. The second (using impact factor without self-citations) captures the impact a journal had on others in the field, excluding oneself. Which rank one would like to use depends on what one would like to value.

Beyond the issue of who gains and who loses, there is another important issue. The prevalence of self-citations. On average, nearly 22% of all citations are to articles published in the journal itself. Higher self-citations might reflect an inward focus and could thus impede learning and knowledge exchange. In addition, there could also be an impediment at the level of “category” of journals, such that management researchers draw from each other within the management category, but not from other categories, such as economics, psychology and sociology. Such inward looking bias could hamper the impact management researchers can make on broader knowledge beyond their field. These are deeper questions that management researchers need to consider, as we probe the issue of journal rankings in more detail from various angles.

Sunday, July 3, 2011

Ranking Knowledge: Can Everything That Counts Be Counted?

By Dr. Suhaib Riaz.
Can we “rank” knowledge? That is the real question underlying frequent debates in academia on the merits and demerits of journal rankings. A recent issue of Organization discusses this for the management field. The observation that most journal rankings are hardly scientific and yet somehow easily accepted by scholars has to be one of the most confounding and yet perhaps also revealing commentary on scholars themselves.

Joel Baum brings up an Albert Einstein quote to highlight the problem: 
Not everything that can be counted counts and not everything that counts can be counted.”

Baum suggests that the general problem of most social phenomena being subject to non-Gaussian distributions (as opposed to the frequent assumptions of normal bell curve distributions) applies to the phenomena of scholarly publications in management as well: 
“…for each journal, the distribution of citations per year is highly skewed, with articles receiving 0–1 citations the largest group for each journal…suggesting a Power Law distribution of article citations.”

As just one illustration, he notes that: 
“the most highly-cited article in a journal thus receives 10–20 times more citations than the average article in the same journal.”

The implications of these empirical observations are huge and worth thinking about. For example: 
"One implication of the variability in article citedness is that sparsely-cited articles published in high-IF (impact factor) journals will often attract fewer citations than highly-cited articles published in low-IF journals… for example, articles in the top quartile of citations in Organization Studies are as or more frequently cited than the median articles at Journal of Management Studies, Organization Science and Administrative Science Quarterly as well as bottom quartile articles at Academy of Management Journal."

In summary, Baum’s major concern is that: 
Attaching the same value to each article published in a given journal masks extreme variability in article citedness, and permits the vast majority of articles—and journals themselves—to free-ride on a small number of highly-cited articles, which are principal in deter­mining journal Impact Factors.”
  
A different angle on the skewness issue is taken up by Stuart Macdonald and Jacqueline Kam. Their main concern is that “the same few authors are published in the same top journals” through mechanisms that don’t quite lead to the best scholarship. They even go as far as comparing this “gaming” of the publication process to other examples with suboptimal outcomes: 
There is no shortage of examples of the really rotten becoming the accepted standard of quality. There is VHS, a second rate product that nevertheless came to dominate the market (Martindale, 1995), in large part because VHS camcorders could provide the spontaneity required by the pornography industry."

Their blame on academics stands out, particularly on what they call publishing “cartels” that try to “game” the system and have made citations little more than an economic exchange: 
“But spare the tears; the key players in this tragedy are not editors or publishers, universities or government. Heading the dramatis personae are academics themselves. They have allowed this situation to develop; the few have entrenched themselves, but the many have been complicit in the hope that they will profit from knowing the rules of the publishing game and from being unscrupulous in playing it.”
  
Hugh Willmott draws out a very interesting comparison with the Arts:
“Like middle-brow arts events that present few challenges to their audiences, arouse few passions, give little offence and so attract corporate sponsorship, middle-of-the-road scholarship is comfortably accommodated in business schools.”

He also draws out a rarely mentioned, but I believe crucial, connection between the problem of pursuing middle-brow scholarship and the lack of relevance of most management research:
"Middle-brow research is untroubling to executives; it ticks the boxes of funding agencies; and it saves benefactors embarrass­ment. Research that focuses upon narrow and trivial topics presented in a technically sophisticated manner is irritatingly impenetrable to practitioners, but also reassuringly inconsequential for them. 
The irrelevance of such scholarship is tolerated because it provides a veneer of academic respecta­bility while leaving the legitimacy of business unchallenged. If it had anything controversial to say that leaked from esoteric journals into media headlines, the accommodating velvet glove would soon be removed to reveal an iron fist of censorship, with threatening letters directed at Deans and Vice-Chancellors demanding sanctions for the transgressors of self-censorship."

A deeper analysis of the problem will undoubtedly have to dig into the historical roots and trajectory of today’s “top ranked” journals:
"They are products of a scholarly tradition fashioned in North America during the Cold War at a time when academic rigor was conflated with respectability gained from prostration before a Method ascribed to the natural sciences, irrespective of the ontology of the phenomena under investigation."
  
This triangular connection between relevance, philosophy and method is rarely brought up in our field. In particular, relevance rarely enters the discussion on the topic of journal rankings. And yet, we do know that some of the most cited and impactful scholars in management who have led in relevance (say, C.K. Prahalad, Henry Mintzberg) clearly chose paths that avoided slavish devotion to academic journal rankings. Should there at least be a separate ranking of journals/other publication outlets in management to account for an impact beyond the in-group of the academic journals themselves? Anyone?

Wednesday, June 1, 2011

Management and Natural Sciences


A thought that has been troubling me for a while now is the gradually diminishing interdisciplinary nature of intellectual sources in the field of strategic management, and more broadly in management. While management and related areas have come into their own as fields of academic inquiry, their connections with other areas, particularly with the natural sciences, have become tenuous. 

This should surprise us, given that pioneers in the field worked on frontiers of multiple disciplines. Perhaps the best example of this is Herbert Simon - his interests in artificial intelligence and human behavior helped advance both fields (and our understanding of both the limitations and uniqueness of computers vis-a-vis humans), and to him we owe our thoughts on "bounded rationality" of human beings, and its wider use in the behavioral theory of the firm, and other theories that came later.

Notice in contrast that interesting work on concepts such as "bounded self-interest" and social neuroscience is still on the fringes of the core domain of management, despite its potential for theories of organization and human behavior in organizations. I'm thinking of applications to stakeholder management, employee motivation, social networks, institutional theory, etc. How about connections with Ghoshal's long standing critique of certain elements of human behavior (assumptions of opportunism: self-interest with guile) in transaction cost theorizing.

In a similar vein, a while ago I was alerted to developments in research on mirror neurons, and neuroscience in general (at least the cognitive and behavioral branches of neuroscience). Imagine the possibilities for drawing connections to management areas, say, the actions, imitation and learning in organizations through observing actions of the Board members, CEO, and others in leadership positions.

While management has absorbed several research methodologies from the natural sciences (the appropriateness of certain borrowed methodologies for social science phenomena is and should be much debated), there seem to be few theoretical exchanges going on. Any examples of new interdisciplinary exchanges between management and the natural sciences? 

Friday, April 29, 2011

Canadian Elections and Strategy: Easy Solutions for Hard Problems...?

Dr. Hari Bapuji

Prof. Henry Mintzberg, one of the most respected strategy scholars, has been weighing in on the upcoming elections in Canada. I am pleased to see him speak on an issue that is relevant to all Canadians because I believe that academics have a responsibility to use their research and knowledge to inform public opinion. So, in the same spirit, I decided to think further about the strategy offered by Prof. Mintzberg.

Briefly, Prof. Henry Mintzberg suggests that Canada is at a danger in this elections and has offered a strategy to conserve Canada by keeping Conservatives from forming the next government. He recommends that voters consult the latest polls in their ridings to vote strategically against the Conservatives and in favour of any candidate (irrespective of party affiliation) who has the greatest chance of defeating the Conservative candidate. My intention is not to advocate for or against any political party, but only to reflect on the “anything, but the Conservative strategy” (ABC strategy) offered by Prof. Mintzberg and if it alone can achieve the goal of conserving Canada.

Although past polls might not be the best way to predict the outcomes in future elections, this data shows that the ABC strategy is unlikely to work. In the most ideal conditions, this strategy works well in those ridings where the Conservatives polled less than 50 percent votes. For obvious reasons, even pooling together all the non-Conservative votes in ridings where the Conservatives polled over 50 percent votes will not defeat them. Of the 143 seats the Conservatives won in 2008, their vote percentage was less than 50 percent in 63 seats. Of these 63, the number of seats that can be targeted are those where the vote percentage of the Conservatives was 45 percent or less and the winning margin is less than 10 percent. There are 25 such seats, which if wrested from the Conservatives through the ABC strategy would reduce their tally to 126. However, that is unlikely to happen given the difficulties of getting people to change their voting preferences and mobilizing all the non-Conservative voters to implement the ABC strategy. So, what is reasonably possible is that the seats the Conservatives won with less than 5 percent margin in 2008 can be won by others with the ABC strategy. The number of such seats is 17 across Canada. So, if all these seats are wrested from the Conservatives, then the tally of the Conservatives would reduce to 126. Whether the ABC strategy reduces the tally of the Conservatives to 126 or 118, that will be unlikely to keep the Conservatives from staking a legitimate claim to form the next government. Going by the past results (Liberal – 77; Bloc Québécois – 49, and NDP – 29), the Conservatives might still be the single largest party and might have a better shot at forming the government in a 308-seat parliament.

Another reason why the ABC strategy might not work is that it interacts with the strategy of the Conservatives. Let us for a moment, assume that the Conservative strategy is to win the seats they lost by less than 5 percent votes in 2008. The number of such seats is 15, which would be similar to the seats they would have lost if the ABC strategy becomes successful. In fact, of the 165 seats won by the non-Conservatives, 125 seats were won with less than 50 percent votes; thus, more non-Conservative ridings are theoretically at a greater risk of changing hands than the Conservative ones. As a result, the ABC strategy does not appear to be sound if the objective is to keep the Conservatives away from power. A number of things might change and the Conservatives might not form the next government, but that is a separate issue and is not borne out of the ABC strategy of defeating the Conservatives in their weak ridings.

As I thought about this, I felt that the real issue is not to keep one party or the other out, but to elect a government that is better representative of Canadians and truly respects their will. The only way to achieve it is by voting. In the last elections, only 59 percent of the electorate cast ballot. This percentage is small for the democratic process in a developed country; for example, in just concluded provincial elections in India, the voting was over 70 percent and even touched 85 percent in some provinces. A higher voter turnout would not only help to elect a government that represent the majority of Canadians, but will also let the governing parties know the will of all Canadians – thus preventing them from acting against the will of Canadians. At times, governments go against the will of people, but they do so at their own peril.

Dr. Hari Bapuji is Associate Professor of Strategic Management and International Business, Asper School of Business, University of Manitoba

Sunday, April 10, 2011

India Against Corruption or India Against Democracy?

Dr. Hari Bapuji

The last few days have seen an unprecedented action in India. Anna Hazare spearheaded a people’s movement seeking tougher legislation against corruption. Anna Hazare has been hailed as Gandhi 2.0, while the movement was dubbed as India’s second freedom struggle. No doubt, corruption in India is rampant. Definitely, Indians can do better without the all pervasive corruption. No doubt again, that tougher legislation is needed against corruption. The process through which this is sought to be achieved, however, can potentially undermine the very institutions of democracy.

Anna Hazare’s fast certainly galvanized many people in India, particularly given a number of recent scams. It received widespread support, with thousands of people rallying in several cities. Not surprisingly, the Government of India was ready to accept all the demands put forward by Anna Hazare, including formation of a 10-member committee (five nominees of Anna Hazare and five nominees of the government) that will draft a legislation. However, the government was not ready to provide legal status to that committee and also to not allow a non-elected representative to be the chairman of the committee. Bowing to the pressure, the government finally agreed to both these demands as well. These steps strike at the very roots of the democracy.

In a democracy, legislation is the responsibility of the legislature. Those who are not elected representatives of the people can provide input to legislation, prepare draft laws, pressure the elected representatives to create laws or change them in a certain way. However, those who are not elected representatives are not given the authority to make laws. In other words, the legislation is the prerogative of the elected representatives and the laws made by no other person (no matter what the person’s integrity and expertise is) can be made applicable to the larger population. The authority granted to the new committee essentially allows this.

Another way to look at this development is to see it as the elected representatives working with civil society in the true spirit of democracy. This is how the media and most of the movement’s supporters seem to view it as. If that be the case, then the makeup of the committee should have been more representative of the civil society, and not restricted to the five nominees of Anna Hazare. There is no doubt that the followers of Anna Hazare number in thousands, while those who silently support his cause might stretch into millions. Even then, they are not representatives of the 1.2 Billion Indians. They might very well represent the will of people, but we do not know that and in a democratic set up the only way to know that is through elections.

Essentially, this development has indicated that a sufficiently large group of people that cannot be ignored by the government can get an equal status as an elected government in making a legislation. This in a way compromises and delegitimizes the very institution of democracy. The danger of delegitimizing institutions will not be apparent in this case (at least not yet), but it has the potential to be used in the future by other groups seeking legislations in their favour. So, this development is a moment for celebration but is also a moment for reflection on what it means for Indian democracy. Also, it is a moment for those who brought this change and supported it by rising against the politicians to think about the role of non-politicians in the corruption.

Dr. Hari Bapuji is Associate Professor of Strategic Management and International Business, Asper School of Business, University of Manitoba

Sunday, April 3, 2011

The Dhoni Effect: How to Keep Your Cool Amidst a Billion Emotions

[Dhoni's winning shot].
By Dr. Suhaib Riaz

You don’t have to know anything about cricket as a sport to sense that there was something special about the way the winning team’s captain clobbered the ball out of the park to claim the Cricket World Cup 2011 (winning shot video here). Till a couple of days ago, some had suggested that the same man should just be a non-playing captain for the final, given his lack of form with the bat throughout the tournament. Well, he won the player-of-the-match in the final against a very formidable team!

Management scholars have often turned to sports contexts to understand leadership and teamwork. Despite a number of scholars with connections to cricketing countries, studies focusing on cricket are virtually non-existent. Perhaps it is time to change that, and consider adding a new word to the leadership lexicon: the Dhoni effect.

Mahendra Singh Dhoni, the captain of the Indian team, is the anti-thesis of what you would expect from a captain of a nation wildly passionate and emotional about cricket: he somehow manages to keep his head while a billion supporters are losing theirs, is able to handle both wins and losses with equanimity, and has led the team to quite a few major victories. How does he do it?

Dr. Glenn Rowe, who has studied leaders in sports for years (with whom I wrote a couple of pieces here and here), coined a term for a special type of leadership: Strategic Leadership. The idea could be a start to analyze some aspects of Dhoni’s leadership style

Strategic leaders believe in strategic choice i.e. that their choices make a difference. Dhoni has consistently displayed this belief - he has a track record of very actively getting engaged in making choices in both team selection and on-the-field decisions. He’s certainly not one to sit back and let things take their own course. 

Moreover, such leaders exercise both linear, and more importantly, non-linear thinking. Such thinking is often backed by use of non-explicit, or tacit knowledge. Dhoni’s non-linear thinking is often the subject of major controversies. He backed an out-of-form Yuvraj Singh for inclusion into the team by ignoring his explicit scores that year and focusing on the fundamentally tacit understanding that he shines in high pressure, big tournaments. While this worked out superbly as Yuvraj won player-of-the-tournament, many other risks didn’t work, yet Dhoni kept up a balance of risk-taking through non-linear thinking to complement the more obvious decisions made through linear thinking.

Another key attribute is that such leaders have strong, positive expectations of the performance they expect from their peers, juniors, superiors, and even themselves. While the entire team vouches for Dhoni’s leadership on this count, he proved a further point by expecting a major performance from himself in the world cup final, displayed non-linear thinking by promoting himself up the batting order, and delivered in style.
There’s a lot more to be said here, but overall, strategic leadership is about balance: balancing the “visionary” side (risk taking, non-linear thinking, long term orientation) with the “managerial” side (linear thinking, short-term orientation) – and that is the secret of Dhoni's success: he has displayed the balance well.

This balance can also be summed up in another way: such leaders "come to work, dream for an hour, and then do something about those dreams for the next several hours".

Even in post-match celebrations, Dhoni displays interesting leadership attributes: his sense of who he is, is not completely dependent on the situation – he works in, but is not fully taken-in by the environment around him. His calm remained as he walked across the field with the team in a lap of honour.

This is particularly noteworthy as captains from the South Asian subcontinent always have a difficult time: public opinion is fickle and turns from love to hate in a moment, as articulated by another captain who won the world cup for his country two decades ago: Imran Khan, who incidentally labeled Dhoni’s men as his favourites this time, and who has for long been a case study of leadership

But any such comparisons can wait for another time. Right now, it's all about the Dhoni effect that gripped the Indian team for a month and made them come out tops. Let the leadership scholars take note.

Wednesday, March 16, 2011

Japan's Earthquake: What's the role of business?

By Dr. Suhaib Riaz.

As the Japanese earthquake tragedy unfolds, much focus has inevitably been on the business side of the disaster. The nature of this focus raises several questions.

As early reports of the tragedy started pouring in, many in business media and even in regular mainstream media started focusing on the impact on business, revealing something about the nature of the world we live in: impact is increasingly measured in financial and business terms, and only peripherally or indirectly in other terms, such as human life and wellbeing. A counter argument would certainly be that business and finance do ultimately matter in human wellbeing – but the timing of concerns reveals our priorities in today’s world.
Financial and business pundits have been busy analyzing details of the impact on Japan’s economy, on the world economy, on specific industries (e.g. energy industry) and countries, etc.
Amidst these details, one question seems to have received hardly any attention: What is the role of business in this situation – in Japan’s earthquake in particular and natural disasters in general?

So far, the role of business can be summed up in one word: flee. All initial indications are that investors and businesses pulled the plug on Japan as fast as they could. But did they have any other responsibility, apart from avoiding uncertainty for investors/shareholders. What about other stakeholders, including those in Japan?

Perhaps it is instructive to look at a timely debate unfolding in the pages of the California Management Review (subscription required) on corporate social responsibility (CSR). Aneel Karnani of the Ross School of Business, University of Michigan, summarizes his views, some of which I’ve heard before at conferences and seen in other papers: CSR is a “grand illusion” and the role of business is to make profits. Period.

He claims that in an efficient market, a business fulfils its social responsibility simply by being profitable:
"In an efficient market, every profitable firm is doing good." 

However, what about market failures? Also, would one place natural disasters in ‘market failures’ – it seems the research on this topic is thin. Karnani argues that social roles in market failure conditions are to be fulfilled solely by the government or by individuals. He separates the roles of business and civil society when it comes to “doing well” (making profits) versus “doing good” (fulfilling social responsibility):
"People play multiple roles and behave differently in the context of each role…The point is that managers should do good in their capacity as citizens using their own money, not that of the shareholders. Berkshire Hathaway does well; Warren Buffet does good. Again, Microsoft does well; [Bill] Gates does good." 

Certainly, in the wake of natural disasters like Japan, individuals and governments are contributing in their own ways. However, in a time where corporate scandals at all levels reveal that some questioning of the roles of business in society is warranted, I wonder if some social responsibility by business in a natural disaster would be out of place.

Pietra Rivoli and Sandra Waddock argue back in favour of social responsibility, while recognizing the “grand misapprehension” against it:
"CR advocates would argue that “good” goes beyond economics to encompass wellbeing, health, equity, and sustainability, to name a few “goods.” That is, the societal perspective argues that things beyond (but including) economics are important goods for a wide variety of stakeholders, many of whom contribute to the wealth creation potential of firms (e.g., employees, customers, suppliers, and communities—in addition to investors)." 

It is perhaps too much to expect social responsibility from business in the context of a natural disaster. Yet, at least the question needs to be asked and the debate started. I wonder if other commentators will turn to this question at some point.

Saturday, March 5, 2011

Convergence - Next Practice in Management Research

By Dr. Suhaib Riaz.

There is an interesting problem increasingly visible across the real business world, if only we can find time to look beyond the closed world of traditional academic journals focused on specific academic disciplines and fields: most real business issues can only be tackled through multi-disciplinary approaches. Sustainability research is incomplete without considering International Business issues. International Business cannot ignore Sustainability issues. Strategic Management cannot ignore International Business and Sustainability. And all these are incomplete if Entrepreneurship is not part of the picture...and so on.

Weak signals of this convergence are already here. Strategic Management Society, publishers of the mainstream Strategic Management Journal (SMJ) since 1980, started to publish Strategic Entrepreneurship Journal (SEJ) just a few years ago in 2007, and are now launching Global Strategy Journal (GSJ) in 2011. Even in the traditional management journals, there have been works on fields such as “international entrepreneurship” for a few years now. Recently, there have been increasing calls for papers and attention to new areas such as, say, social entrepreneurship, which often involves entrepreneurship, sustainability, international issues and more. In fact, there are conversations even amongst the disciplinary roots of management, such as between sociology and economics leading to the Society for the Advancement of Socio-Economics (SASE), founded not too long ago in 1989. 

From these weak signals, at least one Next Practice can be clearly identified: Convergence. Those journals, departments, faculties and schools that break down silos or at least create bridges across silos, will have something important and meaningful to say to the practice unfolding in a very cross-disciplinary manner. Some that already follow this principle might have an advantage that they should leverage. Those that stick to the silos with the goal of promoting narrow academic disciplines will become increasingly irrelevant to practice, thus widening the gap between relevance and academia in management that is already a major concern.

I wonder how many of us will have the courage to embrace the cross-disciplinary world and how many of us will stay confined to, and defend, our narrow turfs...

Monday, January 31, 2011

Of Egypt and Complex Systems

By Dr. Suhaib Riaz

On hindsight, perhaps the “Butterfly Effect” metaphor I used for the Tunisian story was more apt than I imagined. The effect has spread to other countries in the region, most prominently Egypt, and all stakeholders, including businesses are scrambling to understand the implications as reflected in recent stock drops and oil price increases.

A time like this is perhaps the best illustration for the unfortunate lack of “complex systems” thinking that is characteristic of most policy makers and strategists. There is much to quote here and then reflect upon in the context of the current political and social crises. For starters, let me quote MIT's John Sterman to give a hint of the problem:
“As the world changes ever faster, thoughtful leaders increasingly recognize that we are not only failing to solve the persistent problems we face, but are in fact causing them. All too often, well-intentioned efforts to solve pressing problems create unanticipated ‘‘side effects.’’ Our decisions provoke reactions we did not foresee. Today’s solutions become tomorrow’s problems. The result is policy resistance, the tendency for interventions to be defeated by the response of the system to the intervention itself.” 
In other words, as Sterman says later, there are no “side-effects”: these are simply the result of our inability to see the complex nature - the non-linear dynamics- of the system. He lists several interesting examples of this problem, to which certainly the case of Egypt and much of that region will be a perfect addition in the future. 
“From California’s failed electricity reforms, to road building programs that create suburban sprawl and actually increase traffic congestion, to pathogens that evolve resistance to antibiotics, our best efforts to solve problems often make them worse.” 
For the policy makers across the world caught in the confusion of the Egypt crisis, is there any doubt that a lack of complex system thinking led to the support for political elites with heavily concentrated power, such as Hosni Mubarak, that ruled for decades. Little thought was given to how such support created non-linear and unpredictable reactions and outcomes, including radicalisms of various sorts which come back to haunt us. Let me throw in another pertinent quote to help reflect more. Lewis Thomas (late biologist, 1974): 
“When you are confronted by any complex social system, such as an urban center or a hamster, with things about it that you’re dissatisfied with and anxious to fix, you cannot just step in and set about fixing with much hope of helping. This realization is one of the sore discouragements of our century…You cannot meddle with one part of a complex system from the outside without the almost certain risk of setting off disastrous events that you hadn’t counted on in other, remote parts. If you want to fix something you are first obliged to understand…the whole system…Intervening is a way of causing trouble.” 
This problem of reductionist thinking, where our mental models are of linear cause-effect events related to simple parts of a system, permeates management research to a large extent. Instead of understanding the whole, we are increasingly focusing on analyzing and understanding the parts (whether focusing on resources as in the resource-based view, on transactions as in transaction cost theory, etc.). But what if the properties of the whole are different from the properties of the sum of the parts? (a characteristic of complex systems).

There are interesting possibilities for research here on business and strategy problems. One example, related to some of my work on the global financial crisis, is on how to see the issues related to the banking and finance industry as part of a complex system, as in an article by Andrew Haldane and Robert May in the latest issue of Nature (yes business research does get published there!).

It requires a whole new way of thinking, one which is difficult and often counter-intuitive for our mental models.

Thursday, January 20, 2011

Tunisia's Butterfly Effect

By Dr. Suhaib Riaz.

A curious social phenomenon unfolded in Tunisia over the past few weeks. A country that was hardly in the news for political instability, suddenly saw a mass street revolution resulting in the ouster of its political elite. From a social science perspective, there are two things worth nothing here. The first is the obvious lack of predictability. The second is the sequence of events – which are now well documented: It all started with one unemployed street hawker’s frustration, which first caught the attention of a few other individuals and relatives, and soon spun out of control into the capital and across the nation.

If ever there was a demonstration of the “butterfly effect”, this certainly is one. Crudely put, the argument goes that a butterfly fluttering its wings in one part of the world can ultimately set off a storm in another part. It sounds incredible, until one encounters the results of Ed Lorenz, who accidentally discovered the phenomenon. A very minor decimal place error that crept in due to his use of a printout to input values into a very basic computer simulation of the earth’s weather, resulted in massive irregularities over time. Just as the Tunisian revolution, the sequence of events seemed to have an extreme sensitivity to initial conditions – one decimal place rounding-off, or one individual set off the sequence. Others might have ignored the error, but Lorenz saw in the resulting irregularities the possibilities of a new science. As James Gleick puts it: where chaos begins, classical science stops.

What are the implications for strategy research? We are forever caught in a business world where irregularities, and therefore lack of predictability, are the nature of the phenomena. Who could have possibly predicted where two college kids tinkering with computer code as a hobby would take the world (Microsoft); or how a dropout would see amazing success, get fired, come back and take the company on another round of success (Apple) – or for that matter who can predict what his sick leave announced this week will lead to? The examples in the online world – Facebook, Youtube, etc. are even more astounding. Yet, irregularities and outliers are systematically ignored in most mainstream research. We seem to be in a strange dilemma: What is predictable is not interesting; what is interesting is not predictable - and hence not useful. Could the “new” science of chaos have something to add to our knowledge in the strategic management world - where products, leaders, firms, industries etc. all seem to emerge in highly irregular patterns with little predictability in the sense of classical statistics. There are the odd works that touch upon this, but the area is waiting for more.

Which brings us back to Tunisia's Butterfly Effect. Now that it has happened, can we say something about other similar contexts? Already, there have been attempts to emulate the Tunisian example and set off a similar effect in other countries in the region, yet it hasn’t had the same impact. But then, if it could be easily replicable (predictable), it wouldn’t be as interesting, would it?