Management Practices, Relational Contracts and the Decline of General Motors

General Motors was once regarded as one of the best managed and most successful firms in the world, but between 1980 and 2009 its share of the US market fell from 62.6 to 19.8 percent, and in 2009 the firm went bankrupt. In this paper we argue that the conventional explanation for this decline – namely high legacy labor and health care costs – is seriously incomplete, and that GM’s share collapsed for many of the same reasons that many of the other highly successful American firms of the 50s, 60s and 70s were forced from the market, including a failure to understand the nature of the competition they faced and an inability to respond effectively once they did. We focus particularly on the problems GM encountered in developing the relational contracts essential to modern design and manufacturing. We discuss a number of possible causes for these difficulties: including GM’s historical practice of treating both its suppliers and its blue collar workforce as homogeneous, interchangeable entities, and its view that expertise could be partitioned so that there was minimal overlap of knowledge amongst functions or levels in the organizational hierarchy and decisions could be made using well-defined financial criteria. We suggest that this dynamic may have important implications for our understanding of the role of management in the modern, knowledge based firm, and for the potential revival of manufacturing in the United States

Public & Private Spillovers, Location and the Productivity of Pharmaceutical Research

While there is widespread agreement among economists and management scholars that knowledge spillovers exist and have important economic consequences, researchers know substantially less about the "micro mechanisms" of spillovers -- about the degree to which they are geographically localized, for example, or about the degree to which spillovers from public institutions are qualitatively different from those from privately owned firms (Jaffe, 1986; Krugman, 1991; Jaffe et al., 1993; Porter, 1990). In this paper we make use of the geographic distribution of the research activities of major global pharmaceutical firms to explore the extent to which knowledge spills over from proximate private and public institutions. Our data and empirical approach allow us to make advances on two dimensions. First, by focusing on spillovers in research productivity (as opposed to manufacturing productivity), we build closely on the theoretical literature on spillovers that suggests that knowledge externalities are likely to have the most immediate impact on the production of ideas (Romer, 1986; Aghion & Howitt, 1997). Second, our data allow us to distinguish spillovers from public research from spillovers from private, or competitively funded research, and to more deeply explore the role that institutions and geographic proximity play in driving knowledge spillovers.

Making the Numbers? "Short Termism” & the Puzzle of Only Occasional Disaster

Much recent work in strategy and popular discussion suggests that an excessive focus on “managing the numbers” --delivering quarterly earnings at the expense of longer term investments--makes it difficult for firms to make the investments necessary to build competitive advantage. “Short termism” has been blamed for everything from the decline of the US automobile industry to the low penetration of techniques such as TQM and continuous improvement. Yet a vigorous tradition in the accounting literature establishes that firms routinely sacrifice long-term investment to manage earnings and are rewarded for doing so. This paper presents a model that can reconcile these apparently contradictory perspectives. We show that if the source of long-term advantage is modeled as a stock of capability that accumulates gradually over time, a firm’s proclivity to manage short-term earnings at the expense of long-term investment can have very different consequences depending on whether the firm’s capability is close to a critical “tipping threshold”. When the firm operates above this threshold, managing earnings smoothes revenue with few long-term consequences. Below it, managing earnings can tip the firm into a vicious cycle of accelerating decline. Our results have important implications for understanding managerial incentives and the internal processes that lead to sustained advantage.

Making the Numbers? "Short Termism" & the Puzzle of Only Occasional Disaster

Much recent work in strategy and popular discussion suggests that an excessive focus on “managing the numbers” ―delivering quarterly earnings at the expense of longer term investments―makes it difficult for firms to make the investments necessary to build competitive advantage. “Short termism” has been blamed for everything from the decline of the US automobile industry to the low penetration of techniques such as TQM and continuous improvement. Yet a vigorous tradition in the accounting literature establishes that firms routinely sacrifice long-term investment to manage earnings and are rewarded for doing so. This paper presents a model that reconciles these apparently contradictory perspectives. We show that if the source of long-term advantage is modeled as a stock of capability that accumulates over time, a firm’s proclivity to manage short-term earnings at the expense of long-term investment can have very different consequences depending on whether the firm’s capability is close to a critical “tipping threshold”. When the firm operates above this threshold, managing earnings smoothes revenue and cash flow with few long-term consequences. Below it, managing earnings can tip the firm into a vicious cycle of accelerating decline. Our results have important implications for understanding managerial incentives and the internal processes that create sustained advantage

Making the Business Case for Environmental Sustainability

Can a business case be made for acting sustainably? This is a difficult question to answer precisely, largely because there is no generally accepted definition of the term “sustainability”. Is it acting sustainably to protect the human rights of the firm’s workforce? To invest in education in local communities? To switch to renewable power? All of these actions might improve social welfare, and some of them might improve profitability but they are very different, and the business case for each of them is similarly likely to look quite different. Here I begin to explore the issue by focusing on a more limited question, namely whether a business case be made for acting in an environmentally sustainable way, which I define as acting in any way that reduce a firm’s environmental footprint

The Real Effects of Relational Contracts

Does the soft side of management matter? Many managers assert that firm culture is strongly correlated with productivity, but there are few robust tests of this assertion. In a set of field experiments, we study driver productivity within a large US logistics company that is arguably transitioning from one relational contract to another, while leaving formal practices and incentives unchanged. We find that sites under the new contract are associated with 1/8 percent higher productivity. Our findings suggest that relational contracts have a first-order effect on productivity and that they can be altered over time

Creating an Interactive Guide to Support Health Disparities Competency

Authors share their educational resource developed for the health sciences, that guides users in awareness of health disparities, vulnerable populations, and social determinants of health, directing them to specific guidance and resources available through the library

Why Do Firms Have “Purpose”? The Firm's Role as a Carrier of Identity and Reputation

Why do so many firms publicly espouse a "purpose" beyond simple profit maximization? And why do so many managers and employees appear to care deeply about this purpose and to believe that it is critically important? In this paper we argue that the conventional answers to this question fail to account for the fact that employees usually care whether the pursuit of purpose is authentic and that the embrace of purpose often affects even employees whose own work is remote from the activities that put the purpose into action. In this paper we propose instead that firms may adopt a socially driven purpose because of how it affects—through the visibility of firm membership and through the visibility of the firm's actions—employee identity and reputation, where we define "identity" as our own beliefs about ourselves and "reputation" as others' beliefs about ourselves