Henrich R. Greve INSEAD Chair of Organization and Management Theory Professor of Entrepreneurship Being in the Right Place: Communities and Organizations
Dec 30, 2015
Henrich R. GreveINSEAD Chair of Organization and Management Theory Professor of Entrepreneurship
Being in the Right Place: Communities and Organizations
Overall Agenda
•Firm and Community
• The community as a node connecting information flows
• The community as a birthplace of firms
• The community as a supporting structure for firms
Node Connecting Information Flows
• Industrial cluster model
• Each industry involves a set of information flows useful for founders and those operating firm
• Suppliers similarly involve information flows• Communities with the greatest intersection of these
information flows become clusters with competitive advantage
• Is this old-fashioned? Is it contrary to smooth information flow assumptions in some of our theoretical views, like resource based view?
Figure 2a: Post-panamax Container Ship Adoption
0
0.02
0.04
0.06
0.08
0.1
0.12
jan.87 okt.89 jul.92 apr.95 jan.98 okt.00 jun.03
Date
Pro
port
ion
A hard-to-find innovation?
Post-Panamax Container Carrier: Not a subtle way to save 30+ % of total unit costs per journey
Container Network 1994
China
Dalian
Roland
Fincant
Hanjin
Howaldt
Hudong
101
Hyundai
IHI
Sietas
Kawasaki
KoyoMHI
OdenseSamsung
Teraoka
Teraoka
Kvarner
Mitsui
104
106
109
112
115
118
121123
124
127
131
Evergreen
136
141143
American
152
16
161
173
178
182
184
Hanjin
199
200
202
206
213
214
218
Hyundai
222
226
229
231
232
233235
236
J ahre
239
24
245
251
260
262
264
265
27
278
279
28
288
290
292
293
294
299304
308
315
318
319
MISC
322
323
Moller
333
338
Neptune
348
35
355
36
361
365
366
371
378
379
382
OOCL
387
388
389
391397
401
403
407
41
416
417
426
428
43
432
438
44
442
443
444
446
451
453
456
458
460
466
50
51
514
518 530
534
540
558
564
566
572
574582588
60
603
605
606
607
609
612
613
620
621
622
623
626
627
628
632
636
638
64
640
642
643
647649
65
651
657
66
665
Zodiac
67
68
69
71
73
74
75
76
82
Cosco
84
8694
97
Overall Agenda
•Firm and Community
• The community as a node connecting information flows
• The community as a birthplace of firms
• The community as a supporting structure for firms
Birthplace of Organizations
• Start with observations on community organization:
• Santa Clara, CA the resort town versus Ventura, CA the oil town (but both had oil)• Molotch et al AJS 2000: Community organizations “harbor memory
traces … through something like a social structure can transpose itself from one time to the next and one institutional realm to the next”
• Northern Italy versus Southern Italy• Putnam et al. 1993: “one could have predicted the success or failure of
regional government in Italy in the 1980’s with extraordinary accuracy from patterns of civic engagement nearly a century earlier”
Community Organizing Capability?
• Early organizational founding leaves traces:
• Exemplar organizations• Network of individuals trained in founding and running
them• Cultural elements (stories, justifications)
• Polya urn: Subsequent foundings draw on the same background
• More nodes in network• Tighter connections between network• Stronger cultural background
• But only in communities with early start – so divergence
Mutual Organizations in Norway, 19th and 20th century
Savings bank foundings Cooperative foundings
Some Evidence: Financial Mutuals Create Retail Coops, 50+ Years LaterRegression of Cooperative foundingEarly Founding:
Village Fire Insurers 0.096**
Savings Banks 0.174**
Insurers 0.039
Average Treatment EffectsYear Coefficient
1915 0.372***
1925 0.490***
1935 0.484***
1945 0.524***
1955 0.532***
The Extension: Commercial Firms
• Is there a generalized founding capability in communities?
• If so, it should be shown by foundings having spillovers across forms of organizations, rather than within
• Argument has been made based on general institutional conditions:
• North (1990), Putnam et al (1993), Krugman (1991) • Argument has been made in negative direction:
• Acemoglu et al. (2002) on disease, Kitchelt and Bustokova (2009) on clientele states, Kuran (2011) on corporate role in law
• Our argument is specifically organizational
Overall Agenda
•Firm and Community
• The community as a node connecting information flows
• The community as a birthplace of firms
• The community as a supporting structure for firms
Supporting Structure for Firms
• Close link of trust between firm and customers often overlooked; easier to notice when it is broken
• Earlier work on stigmatization showed how it can unravel and create a crisis when firm breaks community norms
• Jonsson, Greve, Fujiwara-Greve ASQ 2009: Skandia insurance firm broke community norms by giving relatives of managers cheap apartments to rent --> Loss of customers in mutual funds owned by other insurance firms, as well as other firms with characteristics resembling Skandia.
• Fujiwara-Greve et al.: Skandia also suffered significant losses from scandal; was sold in the end.
Bank runs don’t happen anymore
Greece 2011
Bank runs don’t happen anymore
Korea 2011
Bank Runs and Communities
• Bank runs are contagious: often occur as a reaction to bank runs elsewhere
• Empirics: Most banks do not experience runs; runs are not predicted by bank characteristics
• So look outside bank, to community:
• Demographically diverse communities lack internal networks that drive spread of the “problem” – safer
• Economically unequal communities have spread of problem plus distrust in others - riskier
Sources of fragmentation, 1893 USA
• Heavily agrarian especially in Mid-West and West, much immigration
• Race • Religion• Wealth inequality
• These are community characteristics “outside” organization; cannot easily select away
• Religion especially important because of congregation and communication / networks
Some Evidence: Communities Turn on Banks
Variable All runs
Runs to failure
Runs to reopen
Ethnic Diversity -6.690*** -5.775** -5.775**
Religious Diversity -1.337* -1.023† -2.498**
Wealth Inequality 2.962*** 1.931* 3.598**
The Extension: Exit, Voice, Loyalty
• We have heard this before: Hirschman
• Two modern updates:
• Take seriously the structure of the community side: how are they linked in the communication side, and the mobilization structures? See them as potential social movements, for or against.
• Take seriously the structure of the firm side: how are they linked in stigmatization structures? Who will be blamed when something happens? See them as linked subjects of social control agents.
The Big Picture: Firms in Linked Communities