Organizational Design and Resource Evaluation

A crucial problem of evaluating, discovering, and creating the value of resources remains at the center of the subject of business strategy. The present article draws on reliability theory to advance an analytical platform that can address part of this problem, the evaluation of resource value. Reliability theory offers a way to model managerial ability and to derive the evaluation properties of organizations, boards, teams and committees. It is shown how the problem of resource evaluation can be remedied by proper evaluation structures. An evaluation structure that is build out of a very few agents can achieve significant improvements. A simulation of the classical n-armed bandit problem shows how evaluation structures can help managers select innovations of better economic value.Reliability theory, resource value

Evaluation of Uncertain International Markets The Advantage of Flexible Organization Structures

The present article is concerned with organizational flexibility in transnational corporations (TNCs), i.e., larger firms that operate in multiple national markets. Contrasting prior research into entry modes (e.g. joint ventures, greenfield investments, or acquisitions), the present article examines the way the organization of evaluation teams can influence entry and exit decisions of business units. Empirical studies broadly support the claim that TNCs experiment with flexible organizational structures in response to increased levels of turbulence and uncertainty in international markets. However, these advances in the description of TNCs, and more generally in the literature on new organizational forms, have been largely ignored in our theories about evaluation of market opportunities in TNCs and multi-national corporations (MNCs). To address this gap in our knowledge, the present article examines the effects of flexible evaluation teams when TNCs assess the viability of international markets characterized by high levels of uncertainty. Remarkably, we show that TNCs employing flexible teams of (very) fallible evaluators can obtain profits at levels that asymptote optimality. Our main result supports the claim advanced in recent empirical studies. Structural flexibility can help TNCs employing (very) fallible evaluators achieve high levels of performance in conditions of turbulence and uncertainty.Multinational corporations, entry modes

The Human version of Moore-Shannon's Theorem: The Design of Reliable Economic Systems

Moore & Shannon's theorem is the cornerstone in reliability theory, but cannot be applied to human systems in its original form. A generalization to human systems would therefore be of considerable interest because the choice of organization structure can remedy reliability problems that notoriously plaque business operations, financial institutions, military intelligence and other human activities. Our main result is a proof that provides answers to the following three questions. Is it possible to design a reliable social organization from fallible human individuals? How many fallible human agents are required to build an economic system of a certain level of reliability? What is the best way to design an organization of two or more agents in order to minimize error? On the basis of constructive proofs, this paper provides answers to these questions and thus offers a method to analyze any form of decision making structure with respect to its reliability.Organizational design; reliability theory; decision making; project selection

Reference groups and variable risk strategies

The present article examines two important effects that have been given scant attention in prior studies of variable risk strategies. The first effect, reference group sensitivity, is the degree to which decision makers' aspirations are sensitive to their reference group. In this paper we compare the performances of decision makers with alternative levels of reference group sensitivity. Second, we introduce the novel concept of community effect. This relates to mobility among multiple segregated reference groups. The performance of decision makers residing in a world with one single population is compared with that of decision makers who have the possibility, which is more or less costly, to switch between multiple populations. The results support the findings from previous studies that variable risk strategies are preferred over fixed risk. The study of a community of populations provides additional insights that both support and complement previous research

From group selection to organizational interactors

This paper builds on previous work within the conceptual framework of a generalized Darwinism that clarifies such concepts as selection and replication. One of its aims is to refine the concept of the interactor. An overview of the conditions under which group selection may occur helps us identify factors such as structural coherence that are useful in defining the interactor. This in turn leads to the question of selection on multiple levels. An additional level of replication emerges when we consider routines within organizations and the social positions related to them. The analysis here establishes that social organizations including business firms are often interactors. Such organizations are more than simply groups because of the existence of routines and social positions. Accordingly, to understand firms and other organizations, we need more that a "dual inheritance" theory; we have to consider the replication of social positions and routines as well

Why Docility Evolves to Breed Successful Altruism

In light of the under-explored potential of Simon’s theory of altruism, the purpose of the present article is to review his explanation of altruism and to point out some of its implications for behavioural economics and theories of economic organization. In the course of the argument, this article relates Simon’s theory of altruism to Hamilton’s theory of kinship selection and then proceeds to examine a critical assumption of Simon’s model that social organizations know better than individuals. Within the parameters of Simon’s own model, the paper suggests how this assumption can be justified. The paper concludes by noting that Simon offered a new and so far under-explored mechanism for the emergence of altruism in biological populations and suggests a controlled experiment to test Simon’s explanation against Hamilton’s. Finally, it is noteworthy that Simon’s theory has immediate implications for the understanding of human nature that invites revision and development of behavioural economics and theories of economic organization

Cognitive Frames as Codeterminants of Persistent Performance Differentials

The present study extends the competence-based view by appealing to cognitive frames as codeterminants of persistent performance differentials. It is suggested that financial performance is influenced by a causal chain running from cognitive frames through constrained information processing and perceived uncertainty. The empirical test provides evidence from survey data and archival data supporting this assertion. We are aware of no previous work that explicitly states or tests this causal chain. Furthermore, we introduce a novel method to estimate path models when the usual approach is infeasible

Why Tacit Knowledge Protects the Firm's Evolutionary Potential (And Why Codification Doesn't)

The present article introduces the theory of cultural evolution as a possible basis for further development of a micro-evolutionary economic theory. Cultural evolution is Lamarckian and involves social transmission of explicit knowledge by choice or imposition. A possible complementary Darwinian principle operating in the social realm is defined in terms of social transmission of tacit knowledge. According to this principle, termed Local Emulative Selection, some forms of tacit knowledge are not adapted (those which cannot be reached by consciousness) by their carrier. I then identify a problem of adaptation that plagues any form of Lamarckian selection. This base-line problem implies that the evolutionary potential decreases as the possibility of adaptation increases. In consequence, the social transmission of tacit knowledge, which cannot be reached by consciousness, protects the evolutionary potential associated with any form of social evolution. By contrast, it is suggested that a systematic codification of tacit knowledge can potentially corrupt the evolutionary potential of any organisation

The Evolution of Cooperation in Structured Populations

How does population dynamics influence outcomes in situations with public good characteristics? The present paper answers this question by analysing the evolution of costly cooperation in a multi-group population. Building on insights first developed in modern biology the idea of viscous population equilibria is introduced (a population is said to be viscous when a (sub)population of players is spatially or genetically clustered). A simple model then analyses how the combined effect of viscosity within multiple subgroups and different levels of between-group segregation influences the evolution of cooperation. The results suggest that a key issue in the evolution of cooperation is the shifting balance between the need to protect cooperators and propagation of the tendency to cooperate