"LONGEVITY OF BUSINESS FIRMS:A FOUR-STAGE FRAMEWORK FOR ANALYSIS"

by

Robin HOGARTH,*Claude MICHAUD,**

Yves DOZ***and

Ludo VAN DER HEYDEN****

N° 91/55/EP/SM

Graduate School of Business, The University of Chicago, Chicago, U.S.A.

** Professor of Economics and Deputy Director of CEDEP, Boulevard de Constance,Fontainebleau, 77305 Cedex, France.

*** John H. Loudon Professor of International Management, Associate Dean for Researchand Development, INSEAD, Boulevard de Constance, Fontainebleau 77305 Cedex, France.

**** Dean of INSEAD and Professor of Operations Research and Operations Management, INSEAD,Boulevard de Constance, Fontainebleau 77305 Cedex, France.

Printed at INSEAD,Fontainebleau, France.

Longevity of business firms:A four-stage framework for analysis*

Robin M. Hogarthl , Claude Michaud2, Yves Doz3 & Ludo Van der Heyden3

October 1991

* This work was funded by a grant from CEDER

1 Graduate School of Business, The University of Chicago2 CEDEP and INSEAD, Fontainebleau

3 INSEAD, Fontainebleau

Abstract

A four-stage framework is presented for analyzing the activities of businessfirms with a view to understanding how these impact long-term viability. Thestages are: 1, privileged access; 2, transformation; 3, leverage; and 4, regeneration.Stage 1 activities result from privileged access to primary resources and/or markets(e.g., to natural resources, capital, labor, product markets). At stage 2, firmstransform resources into products. This may be achieved by superior processesinherited from the past. However, firms operating at this stage lack the capacity forchanging processes which must eventually become imitable thereby excluding thepossibility of long-run, excess returns. In contrast, at stage 3 firms are able to changeprocesses and can generate excess returns over longer periods of time. Theydemonstrate capacities for both adaptation and evolution. Stage 4 activities permitthe generation of new stage 3 activities across time. At this stage, firms are not onlyable to change their routines but the processes by which they search for and developnew routines. Because business firms operate in continuously changingenvironments in which longevity is the exception rather than the rule, the efficacyof their processes inevitably erodes across time. Thus, for example, stage 3 activitieseventually become stage 2 activities as other firms acquire or learn to imitate theseprocesses. Firms can therefore only achieve a long-term competitive edge throughactivities that generate streams of stage 3 activities across time, that is throughactivities at stage 4. Three key features of firms with significant stage 4 activities areidentified. These are (a) a long-term orientation, (b) a core-group of managers, and(c) high levels of "collective goods." Several management processes that supportstage 4 activities are outlined and contrasted with those prevailing at other stages ofthe framework. These processes include mechanisms for information sharing, theallocation of attention, the explicit generation of tensions and contradictions, andexperimentation. Issues related to features of organizational structures andcompetitive strategies are also examined. Finally, we select seven issues to which

firms should address attention in order to acquire stage 4 activities.

Longevity of business firms:

A four-stage framework for analysis *

This paper discusses questions that have already been the subject of much

research, namely: What allows some firms to be successful over long periods of

time whereas others fail? What can managers do to enable firms to be successful

over long periods of time?

The scope of these questions, as well as the fact that satisfactory responses

have yet to be found, means that there is little probability that we shall provide

definitive answers here. Our goals are accordingly modest. They are to expose for

critical comment the conceptual framework we have developed for considering

these questions and which we have also been using as a basis for observation in

several European corporations.

We note, first, that long-term survival is the exception rather than the rule.

among business firms. One important reason is that long-term survival is

contingent upon a stream of financial returns over sustained periods of time as well

as appropriate use of those returns. Indeed, it is a firm's ability to generate financial

returns over time that exceed those of its competitors that allows it to survive

longer than the latter.

Economic theory, however, immediately presents us with an objection: in the

long run, competitive markets reach equilibria with the consequence that no firm

can consistently earn above-average returns. This statement actually provides the

cornerstone of our thinking. Stated briefly, this is that to maintain long-term

success, firms must continually develop new activities (processes or routines) so

that these are not all in markets that have reached equilibria (cf. Schoemaker, 1990).

* This work was funded by a grant from CEDEP.

1

Because perfect forecasts do not exist, surprises are unavoidable, appropriate

responses time-consuming, and both companies and industries can be out of

equilibrium during long periods of time (Nelson & Winter, 1982). Moreover, during

periods when the rate of innovation is accelerating, most firms will be permanently

out of equilibrium. A theory of successful longevity necessarily requires a dynamic

component.

The paper is organized as follows. We first link our concerns briefly to the

literatures in economics and organization theory. Second, we present our

framework for characterizing the nature of a firm's activities and, in particular, the

sources of its present and future earnings. This is inspired by notions originally

used by the historian Fernand Braudel for describing different levels of activity in

an economy and leads us, like Braudel, to think in terms of four types of activities.

Third, we specify characteristics of these types of activities and thus how firms can be

analyzed using this typology. In particular, we draw implications of our analysis

concerning the structure of firms, processes within firms, and competitive strategies.

Fourth, we address the issue of how firms might acquire characteristics that increase

chances of long-run success.

I. Links with economics and organization theory

Both economists and organizational theorists have written extensively about

firms, why they exist, their structural forms, and so on (for overviews, see, e.g.,

Holmstrom & Tirole, 1989; Tirole, 1988; Williamson, 1990).

First and foremost, scholars within both traditions emphasize technical

reasons as motivating the need for cooperation between individuals and thus forms

of organization. Without cooperation, economies of scope and scale cannot be

achieved. Moreover, the benefits of such cooperation can be far-reaching because

goods and services become available at prices consumers could otherwise not afford

2

(cf. Piore & Sabel, 1984). This in turn affects not only demand for those goods and

services but others as well thereby pervading the very fabric of society. As an

example, consider the effects of the mass production of automobiles.

Whereas the exploitation of economies of scope and scale requires

cooperation, this does not explain why economic organizations need to take the

form of firms or corporations that dominate Western economies. Nor does it

explain the types of cooperation, the nature of organizational forms, nor the

varieties of processes observed within firms. Why, for example, are some firms

organized as partnerships, whereas others are joint stock companies? Why are the

decision-making processes of some firms highly centralized whereas others are

decentralized? To explain these kinds of questions, one needs to adduce further

assumptions.

In the economic literature, two seminal contributions to understanding the

firm in the context of market economies are works by Coase (1937) and Alchian and

Demsetz (1972). Coase argued that firms exist when costs of organizing by way of

market mechanisms are too high. In short "firms will tend to expand until the

costs of organizing an extra transaction within the firm become equal to the costs of

carrying out the same transaction by means of an exchange on the open market or

the costs of organizing in another firm" (p.341.) In addition, Coase -- echoing ideas

of Frank Knight (1921) -- emphasized that organization was a response to

uncertainty.

Coase's work was subsequently elaborated by Williamson (1975; 1985) whose

approach is distinguished by two important behavioral assumptions. The first is

Herbert Simon's (1957) concept of bounded rationality, i.e., people do not have the

cognitive decision-making capacities assumed by the neoclassical model. The second

is to impute motives of self-seeking opportunism to individuals that are "of a

3

deeper and more troublesome kind" than typically assumed in microeconomics.

(For an excellent summary, see Kreps, 1990, Ch. 20.)

Alchian and Demsetz (1972) addressed issues of employment, monitoring,

and ownership. For these authors, as well as many subsequent scholars using the

economic framework, issues of organization within firms have been conceptualized

by considering how these affect the incentives of individual, rational actors. Thus,

in considering the form of simple organizations where a monitor is supervising the

work of others, Aichian and Demsetz argued . that the monitor had appropriate

incentives when endowed with a bundle of rights that included, inter alia, that of

being a residual claimant, i.e., ownership. Agency theory, as elaborated by Jensen

and Meckling (1976) (see also Fama & Jensen, 1983), further stressed the importance

of incentives placing great weight on how firms arrange "contracts" between

different parties to organizations, e.g., in regulating relationships between managers

and stockholders. (For an excellent review, see Eisenhardt, 1989a.) More recently,

this work on contracting has been supplemented by considerations of legal concepts

such as property rights (see Holmstrom & Tirole, 1989; Hart, 1989).

In summary, economists looking at firms have tended to concentrate

attention on two issues. These are (a) the costs and benefits of different forms of

organizing transactions, e.g., by way of markets or within firms, and (b) incentives

that affect the behavior of individual actors, e.g., relationships between principals

and agents. This approach has had the advantage of allowing use of the rigorous

tools and concepts of neoclassical microeconomics. However, the ratio of theory to

data is heavily stacked in favor of the former (cf. Holmstrom & Tirole, 1989) and it is

not clear that insights gleaned to date are helpful to the task of managing firms)

In contrast, whereas the literature in organization theory is rich in observations,

anecdotes, case-studies and even quantitative analyses of organizational features

and structures, the development of theory can be described as fragmentary at best.

4

Several reasons can be suggested. One is that the study of organizations has been

approached from many disciplinary approaches, e.g., sociology, political science,

social-psychology, business policy, systems dynamics, and anthropology. 2 In looking

at complex phenomena, each discipline highlights different, partial, and sometimes

conflicting images (for an instructive illustration, see Allison, 1971).

A second, related issue is the variety of phenomena examined, as well as the

different levels of detail at which these have been researched. Thus, for example,

although issues concerning incentives are important in the organizational literature

(see, e.g., Barnard, 1938; Simon, 1976), this topic receives much less attention than in

economics. What does distinguish the organizational literature from economics is

concern with process (cf. Nelson & Winter, 1982). Organizational outcomes are not

simply functions of inputs but depend heavily on underlying conditions and

processes. One consequence is that predictions within this tradition are highly

context-specific thereby making it very difficult to generate abstract principles.

A third reason is that much empirical work has centered on organizations

that allow access to researchers. From our viewpoint, this has entailed a

disproportionate sampling of non-profit institutions such as universities the

characteristics of which may differ significantly from business firms.

In this paper, however, our viewpoint is neither that of economics nor

organization theory. Whereas we recognize that both disciplines have generated

important insights into various aspects of business firms, their performance, and

the behavior of their agents, our task is different. We address ourselves to the

survival of the business firm as an entity and are specifically interested in

managerial prescriptions for increasing chances of survival.

5

II. The framework

The unit of analysis. A major problem in studying phenomena as complex as

business firms is to find an appropriate unit of analysis. Moreover, theorists have

differed concerning what they consider most illuminating. For example, in Simon's

(1976) influential work, the decision premise is the focus of attention; in

Williamson's (1975) attempt to marry economics and organization theory, it is

transaction costs; and in agency theory (Jensen & Meckling, 1976), it is contracts

regulating incentive schemes. Whereas each of these approaches has merit, we take

the view that firms should be studied at the level of actions -- in other words, what

managers and employees perceive and do. We do not attempt to justify this position

here but will show, by the force of the implications to which this leads, why this is a

judicious choice.

Given the vast number of actions taken within a firm, it might, at first blush,

seem unwise to choose actions as the appropriate unit of analysis. However, we

overcome this difficulty by mainly analyzing types of activities that take the form of

processes or routines (cf. Nelson & Winter, 1982) rather than individual actions per

se. We also note that because actions are what people do, these can be observed (cf.

Katz & Kahn, 1978, p. 13). Finally, to clarify terminology, we note here that by

"processes and routines," we include all activities ranging from explicit

manufacturing mechanisms to ill-defined managerial practices.

The four-stage framework. Inspired by the writings of Fernand Braudel (see,

e.g., Braudel, 1979) and, in particular, the way in which he described different levels

of economic activity,3 our framework consists of classifying the activities of firms at

four stages. In presenting these stages, we emphasize two features. The first is that

the stages are distinguished by the manner in which they produce financial returns

and thus how they do or do not contribute to long-run success (more on this below).

6

Second, firms differ in the extent to which their activities can be classified at the

different stages. Basic elements of the four stages are summarized in Table 1.

Stage 1: Privileged access. The first stage refers only to the fact that a firm has

privileged access to resources and/or product markets (this .could include finance,

goods, human resources, particular groups of customers, and so on). Privileged

access could be fairly simple in nature as when a small farmer has inherited land

(and therefore has not had to finance ownership). Moreover, others may be able to

obtain access to these productive assets, albeit at a price (e.g., someone could buy the

land inherited by the farmer). On the other hand, a firm may have privileged access

to scarce resources, e.g., diamond mines, oil fields, vineyards in controlled areas in

France. In this case, the privileged access is to "positional goods" in the sense of

Hirsch (1976). The effects of privileged access on both a firm's longevity and

financial viability can vary considerably.

We note that it is not important how people come to acquire privileged

access, i.e., through inheritance, as a result of their own labors, by establishing a

patent, or by chance (e.g., having access to customers whose primary goal is to trade

with a neighbor).

Privileged access can be a source of competitive advantage. For example,

firms located in countries with high levels of general education are better placed to

recruit skilled employees than firms where standards of education are poor. Indeed,

an important part of a firm's strategy can be to maintain privileged access. This can

be achieved, for example, by lobbying governments to protect the "name" of goods

(e.g., certain wines), for improvements in the educational system, to prohibit

imports of competing products, and so on.

From our viewpoint, what distinguishes stage 1 is that income derived from

privileged access does not depend on how resources are employed. In other words, a

firm with most of its activities at stage 1 would use quite ordinary or banal processes

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Table 1

Key features of the four stages

Stage 1 Privileged access Rents only fromownership ofprivileged access

Stage 2

Stage 3

Stage 4

Transformation

Leverage

Regeneration

No capacity for changingprocesses or routines

Capacity for changingprocesses or routines

Capacity for changingprocesses or routines andmeans for changing waysfor changing processes orroutines

and routines so that its profit can be considered mainly as a rent (in the Ricardian

sense) generated by assets that are not easily reproducible.

Stage 2: Transformation. Stage 2 differs from stage 1 in that firms largely earn

returns through processes and routines that transform factors of production into

marketable products. The critical feature of stage 2 vis-à-vis stage 1 is that, in the

short run, processes and routines can be unique and difficult to imitate so that the

firm may gain an above average profit rate (but, this is not necessarily the case).

However, because these routines and processes are the result of the past, profit has

to be considered a rent (Gabel, 1984). Moreover, contrary to stage 3 (see below), firms

operating at stage 2 have not learned how to change and adapt their processes so that

rents can only be temporary in nature.

The above does not mean that different firms will continually enter and

leave stage 2 activities. Needs for investment to recoup economies of scope and

scale can deter possible entrants. For example, a steel producer or automobile

manufacturer could remain at stage 2 for many years without necessarily facing

serious competition. However, should stage 2 activities start to earn "excess"

profits, competitors will be attracted such that returns will erode for all. If, for

instance, the production of automobiles proved to be very profitable in one part of

the world, this would soon attract foreign competitors. In many cases, stage 2

activities come closest to approximating market conditions as described in

microeconomics and, in this sense, capture much of economic activity.

Parenthetically, we note that the above arguments do not preclude the use of

sophisticated processes at stage 2. Many complex, computer-aided manufacturing

devices, for example, can be easily imitated. Stage 2 activities are adapted to

particular environments and do not change in significant ways. In the long run,

therefore, they can be acquired and used by others.

8

Stage 3: Leverage. Stage 3 activities involve changes in established processes

or routines. These can lead, for example, to higher quality products, lower

production or distribution costs, innovations in product lines (thereby capitalizing

on economies of scope), improvements in management practices, or perhaps factor

substitution involving, say, use of better materials, information, and so on.

It is important to note that level 3 activities can have different origins. On

the one hand, innovations may be the result of capitalizing on chance occurrences,

e.g., a firm accidentally discovers a new manufacturing process. Alternatively,

firms may be able to create climates which increase the probability of effective stage

3 activities as a result of specific, planned efforts (see stage 4 below).

Activities at this stage earn above-average returns. The key is the acquisition

of competitive leverage through continual adaptation of processes or procedures

that cannot be easily imitated. For example, a firm may have a stage-1 competitive

advantage in that it has unique access to a natural resource, e.g., agricultural land

protected by government legislation. However, its activities may also be classified at

stage 3 in that over time it has changed processes by developing distinctive

competencies in production or marketing. It has invented, for instance, ways to

exploit technology better than its competitors and/or established a distribution

network that allows testing new products and serving consumers more rapidly.

Because these differences cannot be easily imitated, the firm's activities are at stage 3

whereas competitors with similar stage 1 endowments only operate at stages 1 or 2.

The results of these stage 3 activities are akin to what the strategy literature

refers to as "invisible assets" (Itami, 1987) or stocks of competencies (see, e.g.,

Dierickx & Cool, 1989). That is, over time firms build up competencies in particular

areas such as marketing or production know-how. Deployment of these assets then

allows firms to create markets and/or capture market share at the expense of their

competitors. As an example, consider a firm that has invested heavily in quality

9

control methods over, say, a decade and has reached a level of operating efficiency

unrivaled in its industry. These routines have become embedded in the firm --

often through trial-and-error -- and can not be easily copied by other firms with the

same level of success.

An important dimension of stage 3 activities is that, by changing processes,

firms avoid some constraints of limited lifetimes. However, we emphasize erosion

of activities across stages is a critical aspect of our framework. Thus stage 3 activities

eventually become stage 2 activities once other firms have been able to imitate

(develop or buy) the successful processes. For example, it is inevitable that a firm's

current stage 3 quality control activities will become stage 2 activities in the future

once they are standard in the industry. One way of conceptualizing this is to say that

firms operating at stage 3 are either "further down" the learning curve than others

or even on different learning curves that are more favorable in terms of costs and

benefits. Another is to conceive of stage 3 activities as involving the creation and

exploitation of short-term monopolies that result from deploying firm-specific

competencies.

Stage 4: Regeneration. Firms operating at this stage are able to sustain long-

term above-average returns. Because of the dynamic aspects implied by the

framework, this means that stage 4 is an ability to generate a stream of stage 3

activities over time. In other words, because the nature of stage 3 returns is

temporary, firms can only gain long-term returns (and thus be at stage 4) by

generating a succession of short-term monopolies. It is this ability that characterizes

a firm operating at stage 4. Another way of stating the differences between stage-3

and stage-4 activities is that whereas stage 3 involves an ability to invent and exploit

new routines or processes, stage 4 requires the more difficult ability to invent ways

of searching for new processes. In this sense, activities at stage 4 involve the ability

to establish new paradigms such that the appearance of stage 3 activities is not left to

10

chance. Stage 4 activities can therefore also involve the capacity to redesign or

reinvent the organization. (For a discussion of the need for this within firms, see

Brown, 1991.)

We note that the capacity for "regeneration" implied . by stage 4 activities

belies the conception of survival espoused by population ecology models of

organizations (see, e.g., Hannan & Freeman, 1977) in which longevity depends more

on chance than design.

A further way of considering stage 4 activities is to note that many firms are

able to change and develop new processes when challenged by external stimuli, for

example, a change in technology that requires reconceptualizing the way products

are produced. As a specific example, consider the Swiss watch industry in the late

1970's where the introduction of the quartz technology revolutionized the

manufacturing process. Subsequently, this industry changed. But the change was

discontinuous and one could argue that today there is a new, and different Swiss

watch industry. Firms with significant stage 4 activities, on the other hand, are able

to change routines as a result of their own internal processes, e.g., by being able to

scan and interpret the environment actively as well as organizing appropriate

resources. This means, therefore, that the market-creating nature of stage 4 activities

can provide considerable competitive advantages.

Some remarks about the stages. As noted above, there is a dynamic nature to

the classification by stages. For example, processes developed at stage 3 will later

become stage 2 activities. In other words, activities can be thought of eroding

continuosuly across time.

In addition, the same activities within a firm can be at different stages

simultaneously across geographical regions. For example, a firm's activities could be

at stage 3 in one area (e.g., a developing country) but at stage 2 elsewhere (e.g., in a

11

more advanced economy). Erosion of a firm's activities can therefore take place

across space as well as time (cf. Krugman, 1979).

Second, a firm's activities will not necessarily all be at one stage. Indeed,

successful firms will probably have a mix of stages.4

Third, the analysis by stages highlights the different sources of revenues that

can be earned by a firm. This is important because, on the assumption that earnings

are necessary for long-term success, it is essential to understand how earnings are

generated across time. Do these, for example; emanate from the ownership of

certain strategically located assets or the manner in which other assets (or

competencies) are employed? Dierickx and Cool (1990) provide instructive examples

of how failure to identify appropriately sources of earnings can lead to

misinterpretations concerning one's current position as well as the bases for

strategic choices. For example, they argue that unless different options are

envisaged concerning how scarce assets are to be used, firms may have a "bias

toward captive use" that is not in their best interests. To illustrate, they cite the case

of EMI who, despite lack of appropriate skills, decided to manufacture and market its

CAT scanners instead of considering other options such as licensing or sale of its

patent.

In our framework, activities at stages 1 and 2 generate returns from the

deployment of assets and/or transformation processes that do not depend on

whether they are owned or managed by a particular firm. Thus, at stage 1 it is the

mere fact of ownership that generates returns and not the fact that this lies in the

hands of someone with particular skills. For example, income earned from the

ownership of a lease in a shopping mall does not depend on the identity of the

owner. Indeed, the lease could be bought or sold without affecting its income-

generating properties. Similarly at stage 2, because the processes used to transform

12

primary resources are imitable, they too could be bought or sold and exploited

independently of the identity of the owners.

Activities at stages 3 and 4 generate returns from activities that are unique to

the firm. In the short run, the processes or "competencies" used at these stages

cannot be easily imitated or applied by competitors. Stage 4 activities typically do

not produce earnings in a given time period; however, they are the source of future

returns through their impact on stage 3 activities.

Extending the above reasoning, one can state the following hypothesis: Profits

are always the outcome of a rent. The origin of the rent, however, can be physical

assets (such as location, stage 1) or intangibles (such as skills, organizational

processes, and so on, stages 2, 3, and 4). The key characteristic of stages 3 and 4 is the

capacity to design and manufacture continuously the foundations of future rents.

Finally, the present framework may provide a framework for different

conceptions maintained in "business" and "economics." In the latter, for example, it

is held that in the long run every source of rent will disappear in a competitive

market. However, if a firm is able to invent new sources of rents (new processes,

new processes, new ways of search) it will always maintain above average profits

from its rents thereby staying permanently "out of equilibrium."

III. Characteristics of firms by stages of the typology,

Our framework implies that the activities of firms can be classified according

to four different stages. Moreover, for firms to be successful in the long term, it is

necessary that they maintain activities at stage 4 (in order to produce a stream of

outcomes at stage 3). This analysis therefore leads to reframing the questions posed

at the beginning of this paper by asking "What enables firms to create and maintain

activities at stage 4?"

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Given the complexity of the phenomena relative to our knowledge, it would

be presumptuous to state the conditions necessary for firms to create and maintain

activities at stage 4. On the other hand, to be useful our framework must propose

hypotheses concerning these issues. Briefly, our argument is the following. To

create and maintain stage 4 activities firms need a long-term orientation, a core

group of managers, and the continued existence of "collective goods" (to be

explained below). Moreover, these will be enhanced by specific types of

management processes. These processes, in turn, have implications for how firms

are structured and the types of competitive strategies they employ. We therefore

now outline what we mean by (a) a long-term orientation, (b) a core group of

managers, and (c) collective goods. We then go on to specify (d) management

processes that support the former as well as implications for (e) how firms are

structured and (f) distinctive aspects of their competitive strategies. The outcome of

this analysis is a means of characterizing a firm's activities by stages.

A. Long-term orientation. We believe that the existence of a long-term

orientation is necessary for a . firm's longevity. Management needs to understand

current events in the light of long-term issues so that decisions taken with short-

term horizons do not jeopardize the existence of the firm. On the other hand, a

long-term orientation does not require the formulation of specific goals (see also

below). For example, long-term goals might exist only in the form of loosely-worded

strategic "intent" (cf. Hamel & Prahalad, 1989).

There is nonetheless a relation between a long-term orientation and

agreement on higher-order goals by key managers within the firm. However, the

existence of such goals does not imply a long-term orientation. For example, if

partners in an investment banking firm agree that their goal is to maximize

personal wealth (within their own lifetimes), they will be motivated to "cash in"

their shares when the opportunity arises. This behavior, however, can destroy the

14

firm that created the wealth, see, e.g., Auletta's (1986) account of the destruction of

Lehman Brothers.

A long-term orientation is typically explicit in the goals of not-for-profit

organizations like the Catholic Church or universities (e.g., to excel in the creation

and transmission of knowledge). Compared to not-for-profit organizations,

however, firms in market economies can have difficulties in maintaining a long-

term orientation for extended periods of time if there are discontinuities in

ownership. For example, firms that are largely owned by single individuals face

problems of succession as is also true of family-owned firms where inter-

generational conflict can focus on the firm's objectives. In addition, firms with

shares quoted on public stock exchanges can be bought and restructured by new

owners whose objectives differ significantly from those of previous managers and

owners. Finally, an interesting case is presented by firms that are state-owned where

policies and goals can be affected by short-term political considerations.

The form of legal ownership of firms can vary. What is essential to the

longevity of firms is continuity in the relations between owners and the core groups

of managers (see below) across time.

Related to the necessity of a long-term orientation is an ability to understand

the differences between processes that are slow to evolve and those where actions

have to be rapid. As an example of the former, consider how a firm conceives of its

inventory of human resources. For firms that develop high levels of collective

goods (see below), young managers hired today will be in leading positions within,

say, 15 to 20 years. The development of these managers, however, can take both

time and patience and particularly when their future value depends heavily on

learning firm-specific knowledge and processes. A long-term orientation is

therefore necessary to discriminate between processes that evolve slowly -- and

must be managed as such -- and those requiring short-term responses.

15

We emphasize that the ability to manage different time horizons is crucial.

Any cumulative process and cultural adaptation requires mastering long periods of

time. Market timing (in the traditional competitive framework), however, is

generally short-term in nature. Thus, research, development, and long-run market

penetration are not easily managed in short time periods. The management of

products and markets, however, is more short-run oriented. One strength of several

Japanese and German companies, for instance, has been the ability to isolate parts of

their organizations from the effects of short-run market timing in order to allow the

development of core competencies, skills, and other facets of industrial uniqueness

(Delmas, 1991).

Core group of managers. To have a long-term orientation, the goals of a firm

must be maintained across time. Perhaps the only mechanism of achieving this is

by establishing a core group of managers who have a strong sense of identification

with the goals and culture of the organization. Moreover, the continued existence

of the core should not depend on particular individuals even though managers will

differ in the amount of power and influence they exert within it. An important

issue therefore arises as to how such groups are constituted and maintained across

time.

There are several possibilities. From an economic principal-agent perspective

it is typically assumed that managers and stockholders do not have identical

preferences or risk attitudes. Means must therefore be found to reward managers in

ways that encourage acting in the longer-term interests of stockholders. These can

include, for example, providing managers with a stake in the firm's survival in

terms of, say, share options or pension plans. However, we do not believe that

economic incentives are sufficient to explain the creation of such core groups. In

particular, if managers only respond to economic incentives, competitors should

always be able to hire away talent provided they offer greater incentives.

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In the managerial literature, it has long been recognized (cf. Barnard, 1938)

that people's preferences are not immutable and that firms can do much to mold

managers' preferences over time so that they become aligned with those of the firm.

Managers will then act in the best interests of the firm. To achieve this, firms need

to pay particular attention to how managers are recruited, socialized, and regarded

within the firm. For example, a practice we have noted in one highly successful

corporation concerns the manner in which senior managers are treated. Even

though they might not be as "productive" as younger managers, they are

nonetheless accorded special respect. Moreover, job titles or status within the firm

do not necessarily depend on current job functions.

An interesting analysis of these issues has been provided by Gilson and

Mnookin (1985) in the context of large law firms. Large law firms, it is argued, face

the problem of being able to predict which legal specialties will become important

and profitable in the future. To respond to this uncertainty, an economically

rational strategy is to establish a portfolio of skilled specialists so that the firm will

have the resources to adapt efficiently to changes in demand for legal services. To

achieve this, however, a variety of individual specialists must be induced to

commit themselves to the firm before the final demand for their life-time services

can be known, or even forecast with accuracy. In return for this commitment,

individuals are made partners with guarantees of receiving good shares of future

profits. However, remuneration will not necessarily be tied directly to individual

contributions. Those partners whose specialties subsequently turn out to be in poor

demand will receive more than their contributions would otherwise merit; those

whose specialties are in high demand will receive somewhat less than their "true"

shares. However, if it is assumed that (at the time they commit themselves)

individuals are risk averse, making the commitment is both rational for the

individuals and protects the long-term viability of the partnership. Critical to these

17

kinds of arrangements, of course, is the need to create an atmosphere of trust

whereby partners respect their earlier engagements and also hold senior members of

the partnership in respect (see comments above). If partners start to demand that

individual remuneration only reflect individual contributions, or there are

problems of shirking, the long-term viability of the firm will be endangered.

Parenthetically, similar arrangements have been observed among

populations of vampire bats (Wilkinson, 1990). Although these animals must have

a certain intake of blood every few days to survive, individual bats can not always

guarantee obtaining adequate supplies by themselves. Observations reveal that if a

member of an in-group has not been able to obtain blood on a particular occasion, a

fellow group member will provide some. There appears to be a simple rationale

underlying this system. The act of sharing with a needy in-group member increases

the probability that sharing will be reciprocated in the future.

To summarize, several features appear to underlie the existence of core.

groups of managers. These are similarity of values, acceptance of a common fate

(i.e., everyone shares in outcomes), strong norms of loyalty and reciprocity, and

respect for senior members of the group. In many ways, it is the core that provides

the motor for the generation of collective goods (see below). Thus the practices used

by firms to identify, socialize, and remunerate its members are critical.

C. Collective goods. By this term we mean firm-specific assets/competencies

that reside in the fact that the firm is a "collectivity" as opposed to a number of

different individuals. Collective goods can be (a) physical, (b) organizational, or (c)

cultural. As an example of a physical collective good, consider a research laboratory

equipped with state of the art equipment some of which has been developed in the

firm itself (and is thus inaccessible to other firms). At the organizational level,

collective goods can reside in the nature of processes or routines established by, say,

a sales force or production units; at the cultural level, collective goods exist when

18

organizational actors have interiorized certain values and beliefs that are functional

for the firm (cf. Schein, 1985). A specific example would be the existence of trust

among the core group of managers.

A key feature about collective goods is that they can only be created through

the joint actions of members of a collectivity. As a prototypical example, consider a

soccer team that has developed a unique way of playing that facilitates

communication and tacit understanding concerning short-term tactics when

reacting to difficult situations. Implementation resides in the collectivity in that, for

the team to undertake specific actions successfully, it does not have to rely on one

particular player (different players could fill key roles). Similarly, if a player were to

leave the club, he would not be able to rely on his new team having the same

reactive capacity. Nor would his presence in the new team ensure this capacity.

One feature of collective goods is that they create positive value for

individuals, and yet, cannot be exhausted by private use on the part of individuals.

As an example, consider an employee who obtains a bank loan because she works

for a firm with a good reputation. 'The employee benefits -- she might not have

obtained the loan had she been self-employed -- but it is unlikely that her individual

acts can destroy the reputation of the firm.

Remarks. Although we have discussed long-term orientation, core groups,

and collective goods in linear fashion, these characteristics are not distinct but

mutually self-reinforcing. For example, young managers will invest in firm-specific

capital if, by perceiving continuity, they develop long-term orientations and can

observe the future advantages of commitment to the core group. This will help

develop collective goods which, in turn, will make that manager's contributions

even more valuable within the firm, and so on. Parenthetically, an attitude of

respect for senior managers is very important because this is a positive, concrete

19

signal to younger managers of the value of committing themselves to the firm, and

so on.

One implication of becoming a core group member is that of profiting from

collective goods at the individual level. This could be by way of specific material

gains (e.g., a good salary) as well as in the form of intangibles (e.g., pride in being

associated with a good firm). Moreover, the essence of a system that generates

collective goods is that individuals both generate and receive more value within the

firm than on the open labor market. For example, a manager whose individual

effectiveness depends to a large extent on being able to tap into knowledge and

processes that are unique to a firm, would be far less effective in an environment

where these are lacking. Moreover, the firm would have difficulty in replacing that

manager with an outsider. This fact has positive impacts on both the manager's

loyalty to the firm, and that of the firm to the manager, as well as on the manager's

long-term orientation.

Because many collective goods and processes are handed down tacitly from

one generation of managers to the next, it is necessary that firms find ways of

allowing different generations of managers to rise smoothly through the hierarchy.

If there is too large a gap, in years, between generations, or the system becomes

blocked, i.e., there is no throughput of managers, collective goods can decay. A real

problem for many firms, therefore, is how to arrange a smooth transition of

managers through the ranks and across the years. This is easier for firms that are

continually growing but more problematic if stable or even declining.

The existence of a core group of managers creates conditions for

experimentation and its corollary, learning. Organizational knowledge, tacit

procedures, and other intangible assets are created by day-to-day actions and

learning. However, to achieve this, it is necessary to have both stability and trust.

The latter, it should be noted, is one of the most important organizational assets

20

because it economizes on many transaction costs including control. It also favorises

the taking of risks that would not be undertaken without the assurance of being

protected in case of major problems.

Risk-taking is essential to learning and also reveals, through actions,

preferences, effects of different contexts, and so on. It is an important source of both

individual and collective learning.

In theory, collective goods can be generated inside the firm or purchased.

However, if one buys a company with a unique organization and competencies, one

draws on collective goods that were formerly manufactured by the acquired

company. Thus, whereas it is possible to renew collective goods within the firm in

which they were originally generated, it is not evident that this process can be

replicated by the purchaser. Collective goods are typically generated by cumulative

processes within firms in a manner that is protected from the direct effects of the

market.

We further note that collective goods need continuity in both space and time.

Spatial continuity means that the various parts of the organization are related to

each other through various forms of organizational "glue" (see below). Temporal

continuity implies dynamic overlapping processes of culture, different generations

of managers, and so on.

Finally, the existence of collective goods does not imply centralized

management. For example, it is sometimes held that the existence of a

decentralized company prevents the accumulation of sets of core competencies and

skills. The challenge, however, is to build a core system within a decentralized

organization that is able both to respond to local needs and build an efficient

network of core assets. One mechanism is to distinguish the types of decisions that

are taken in centralized and decentralized manners. For example, in two firms that

we have investigated that are rich in both collective goods and core groups of

21

managers, certain critical decisions on, for example, major investments, are always

taken in a centralized fashion. However, once taken, responsibility is assigned

quickly to the operational units that will implement the decisions.

We now discuss processes, structures, and strategies that are associated with

different stages of our typology and are related to the three key issues discussed

above. Table 2 provides a summary.

D. Specific management processes.

1. Mechanisms for sharing information. These are important for several

reasons.

First, for the efficiency of daily operations, information needs to flow freely

within the organization so that it can be used by those who can make best use of it.

Second, access to and sharing of information has the function of solidifying

the core group of managers. That is, information sharing not only serves the

manifest function (cf. Merton, 1957) of keeping managers better informed, but also

serves latent functions of (i) maintaining contacts between managers, (ii) enabling

participation in decision making processes, (iii) reinforcing managers' sense of

identity with the collectivity, and (iv) ensuring that "organizational memory" is

widely distributed throughout the firm and is thus not dependent on particular

individuals. It is important to stress that daily activities such as the results of sales

calls, contacts between managers, discussions with workers, and so on, provide the

sources of information that can be shared. As such, the origins of stage 4 activities

lie in the daily work routines of people within the firm; stage 4 is not reserved for

the priveleged few.

Third, in order for a firm to align its activities with the realities of the market

place, it is critical that information not be censored. Firms need to be open to

information that has negative implications as well as to the opinions of dissenters

and minorities within the core group of managers (cf. the dysfunctional effects of

22

Clan and market orientation Clan-like

Much use of concrete and abstract Great level — transparent organization;

information use of abstract and concrete information

Short and long-term.

Market rates plus "bonus"

Precise/loose

Uncertainty exogenous but alsogenerates uncertainty forcompetitorsCreative restructunng — proactive

Consciously used

Long-term. Firm as "family"

Long-term: high fixed rate for coremanagers

Loose

Uncertainty for others (created byones own possible actions) is astrategic weaponCreative restructuring — proactive

Consciously used — capitalize on chance

Table 2

Characteristics by Stages

Charecterinics

Key features

A. Long-term orientation

B.Coro-group of managers

C. Collective goods

D. Processes

I. Information sharing

4. Continuous incremertalism

S. Experimentation

6.Mechanisms for change

7.Working at the edge

E Organizational features

1.Boundaries

2.Leadership

Stage 3

Short /long

Yes/No

High level with respect tospecific &divines

Can be extensive

Bounded and unboundedgoalsManaging tensions andcontradictionsChange by continuousincrernentalism; focus on processand outcomes.Yes - but focussed

Continuous (but could also bediscontinuous)Sometimes

Stage 4

Long — mastery of both slow andfast processesYes

High level

Extensive

Unbounded goals with "gyroscope"

Generation of tensions andcontradictionsChanges by promise, of continuousincrementalism; heavy focus onprocess as opposed to outcomes.Yes - over wide range

Continuous

Always

Stage 1

Short

None

None

Little

Discontinuous changeFocus on outcomes

None

None

Never

Stage 2

Short

None

None

Little

Bounded goals

Conflicts

Discontinuous changeFocus on outcomes

None

Abrupt anddiscontinuousNever

2. Attention allocation — Unbounded goals Bounded goals

3. Tensions and contradictions Conflicts

Encompass whole Can encompass whole Special emphasis on "above average" Activities of "core" separatedorganization organization profit-making activity from others

Dependence on leader Dependence on leader Dependence on leader weaker than Little dependence on single leaderat Level 2

3.Hierachical arrangements Vertical

Vertical (tasks Vertical and horizontal

Vertical and honzontal

routinized)4.Organizational "glue; i.e., means

Little integration Functions performed in Cross-functional activties and

Inter-functional; multi-disciplinary

of integrating different activities relatively"spectalized" coordination mechanisms teams

isolation

5.Organizational culture

6. Information accessibility

7.Personnel policies

S. Remuneration practices

F. Competitive strategies

1.Goals

2.Use of uncertainty

3.Catch-up vs. creativerestructuring

4. Incrementalism, luck, and timing

Sense of endowment Simeon pay at marketrates

Little concrete use of Little (task specific);information concrete use of

informationShort-term view Personnel as market-

rate factors ofproduction

Short-term Market rates

Precise Precise

None None: uncertainty isexogenous; must betolerated

No real strategy — Best that can be done isreactive to catch up with

competition (high cost)-reactive

No conception No conception

"Groupthink" described by Janis, 1982). One way of achieving this is to have modes

of communication that are independent of the content of the messages transmitted

(cf. Kojeve, 1962). An advantage, for example, of very stylized forms of

communication is that this facilitates the transmission of messages that may bring

bad news to the receiver (and yet one does not "shoot the messenger").

Related to the above is the notion of having "content-free" methods of

decision making. By this is meant procedures for decision making where managers

agree on a common methodology or rules by which issues are discussed and

evaluated. This is similar to the notion of having agreement on "scientific

method," i.e., whereas scientists may not agree about certain theories, they still

agree about the rules to be used in deciding between theories on the basis of

evidence. Moreover, these rules transcend the content of scientific dispute.

Parenthetically, one advantage of having a "well-socialized" core group of

managers with common goals -- and thus little by way of internal politics -- is that it.

is easier to share information without fear of distortion.

2. Attention allocation -- Unbounded goals. There is a long literature that

attests to the fact that humans suffer from "bounded rationality" (Simon, 1957), i.e.,

the complexity of most decision tasks is such that humans lack the cognitive

capacity to make rational decisions. Although important, a more severe problem

from our viewpoint is that of bounded goals or the tendency to adopt a specific,

narrow perspective on why one engages in an activity.

To illustrate this concept, consider the activities of a salesperson during a

transaction. If the salesperson takes as his or her goal simply the consummation of

the transaction, this would involve a bounded goal. The reason is that the specificity

of the goal limits the possibility that the salesperson can use the sale for multiple

purposes. For example, the salesperson could also use the sale as an opportunity to

elicit the customer's wishes concerning other products, future needs, or even

23

reactions toward competitors. In other words, by widening the scope of the goals for

the action (i.e., making them less "bounded"), the salesperson can gain more for the

firm than achieved by the sale alone.5

Because activities at stages 1 and 2 involve processes that are imitable, it

follows that goals for those actions can be specified and articulated such that they are

bounded.6 However, the essence of activities at stage 4 -- and to a lesser extent stage

3 -- lies in the fact that actions can serve multiple goals which people may not be

able to specify in advance. For example, many actions will be taken at stage 4 simply

to generate feedback without precise objectives for learning. What becomes critical,

however, is the ability to recognize the significance of the outcomes of these

"chance" occurrences (cf. Campbell, 1975, on the importance of "random variation"

and "selective retention" for successful adaptation).

The lack of bounded goals could imply an undesirable state of anarchy where

managers set all kinds of goals for themselves. To counter this when goals are not

bounded, managers need a sense of direction or "gyroscope." This, in turn, raises the

question of how this is achieved. 'One important mechanism for coordinating

multiple goals and actions is the cultural dimension of collective goods. In firms

where these exist, over time managers will have learned what goals are or are not

legitimate, the extent of their individual authority, and even when they might

exceed their apparent authority with impunity. To do so, however, requires an

atmosphere of trust, continuity, and confidence.

By their nature, unbounded goals are facilitated to the extent that managers

and employees have wide spans of attention and the firm encourages viewing

problems and activities from multiple perspectives. The major effect of bounded

goals is that attention is allocated in specific, goal-directed ways.? Thus, activities at

stages 1 and 2 will involve attention being focused on particular outcomes. Moving

24

to stages 3 and 4, however, attention needs to be allocated more broadly. What

processes can affect this?

First, attention -- and thus goals -- can be made less bounded if concern is

centered on processes rather than outcomes. This implies that questions should

center less on what has or is happening and more on why. Noting and acting on

discrepancies between budgets and outcomes are therefore less important

management activities than controlling and adjusting ongoing processes (Imai,

1986). To do the latter, however, requires extensive, real-time data bases that can be

accessed to provide the necessary information (cf. Rodgers, 1990). (We also note that

these are the conditions that favor management by "continuous improvement.")

3. Tensions and contradictions. The notion that firms must learn to

recognize and manage tensions and contradictions (sometimes referred to as

"paradoxes" or "dualities") is not new (see, e.g., Cameron, 1986; Evans & Doz, 1989;

Goold & Campbell, 1987). Our reasoning, however, extends beyond this idea. We

argue that without internal tensions and contradictions, firms have insufficient

stimuli to ensure a continual flow of new ideas, product- and process

improvements that permit stage, 3 and stage 4 activities. Thus, not only must firms

be able to recognize and manage tensions and contradictions in order to function

effectively in their present environments, they need to create 'tensions and

contradictions to ensure longer-term survival.8

The rationale is simple. Lack of both tensions and contradictions must imply

that a firm is perfectly adapted to a particular market or environmental niche.

However, in time the environment will change in unpredictable ways and survival

will depend on the ability of the firm to adapt to these changes. But, a firm that is

perfectly adapted lacks the abilit y to change and can therefore become the victim of

its own competencies (cf. Levitt & March, 1990). The existence of tensions and

contradictions permits the capacity to respond to changes in a functional manner.

25

Consider a biological analogy. Over time species adapt to their local,

environmental circumstances. However, the fact is that the vast majority of species

that has existed to date became extinct precisely because they adapted so well. The

problem was that their environments changed. On the other hand, those species

that survive have maintained sufficient variation in their gene pools (i.e., tensions

or contradictions) such that functional adaptation to changing circumstances can

still occur.

We also emphasize that the process of competition is not what is sometimes

popularized as Darwinism. Even though the process of selection may appear brutal

in its daily consequences, successful adaptations are the result of an interactive

process that involves many tests, errors, and small changes (Henderson, 1990/91).

Another way of understanding tensions and contradictions is to note that all

organizations need to face the dual tasks of "internal integration and external

adaptation," i.e., to find ways of organizing themselves internally as well as being

able to handle the external environment (Schein, 1985). Thus, whereas some

processes may be effective for internal tasks, they could be ineffective externally or

vice-versa. For example, the promotion of internal harmony might be achieved by

ignoring threatening changes in the environment. When considering specific

management processes, therefore, it is instructive to ask if they are functional or

dysfunctional for both internal and external purposes and whether, say, external

functionality outweighs internal dysfunctionality, or the reverse.

More generally, we claim that there are both positive and negative aspects of

tensions and contradictions and that firms have to manage and create these in order

to maintain them at functional (if not optimal) stages.9

A number of different tensions have been identified in the literature. In the

context of managing multi-divisional firms, Goold and Campbell (1987), for

example, focussed on: (i) clear responsibility versus cooperation; (ii) detailed

26

planning versus quick response; (iii) strong leadership versus business autonomy;

(iv) short-term versus long-term; and (v) tight controls versus flexible strategies.

Our analysis also suggests the following:

i. Continuity through chaos. The key notion here is that, for continued long-

term profitability, firms have to accept that the environments in which they operate

are chaotic or, at least, highly uncertain. However, continuity of purpose and

operating procedures are essential if firms are to avoid the dangers of over-reacting

to all signals they perceive in the environment. This point relates to a firm's ability

to recognize the difference between processes that are short and long in duration

(see above). Events in the market place, for example, typically require fast reactions,

e.g., when a competitor changes a price or introduces a new product. Processes

within a firm, however, often require considerable time for implementation and

must not be sacrificed for short-term considerations. Consider, for example, the

establishment of an R & D program.

ii. Breadth through depth. 1 ° To be successful (particularly in technological

areas) firms need the best specialists, e.g., in R & D as well as the different functional

areas. However, there is a need for coordination between these experts -- in

bringing products to market, for example.

iii. Long-term survival through short-term profitability. As noted above,

short-term profitability cannot be an all-encompassing goal. However, our 4-stage

conceptual model suggests that the source of long-term profitability is the

exploitation of short-lived situations (i.e., temporary short-term monopoly

positions). Once again, this stresses the need to be able to manage processes that are

long in producing their effects as well as those that bring quick returns.

iv. Creativity through operational efficiency. It is sometimes thought that an

organization that holds operational efficiency as an important goal would not be

fertile ground for creative, imaginative personnel. However, if a firm does achieve

27

high operational efficiency, this can liberate time to engage in more creative

activities.

v. Autonomy through community. As noted above, firms should try to create

a core group of managers. However, these managers need to show strength of

character and autonomy as opposed to being "identical" company-people. How then

do firms create a system of values that allows the existence of a cohesive core that is

composed of largely autonomous individuals?

vi. Harmony through dissent. This is similar to the point above. How do

firms gain harmony and cohesion of purpose and action by actively encouraging

dissent? One way firms may exhibit this behavior is by distinguishing two stages in

the decision-making process. The first is characterized by encouraging dissent in that

many employees take part in discussing both assumptions and data brought to bear

on the decision. At this stage, dissent is welcomed in order to gain a better

comprehension of the situation. However, in the second stage, once a decision has

been taken, all agree to abide with and act upon it. Moreover, this includes those

who might otherwise disagree with the action to be taken.

vii. Competing through cooperation. How do firms see their competitors, as

enemies to be eradicated at the first opportunity or as mechanisms to increase their

profitability? In some cases, firms may not be able to exploit a market by themselves

but need competitors. For example, one could argue that cola wars between Pepsi

and Coca-Cola are in both firms' best interests. By engaging in such public wars, they

increase public awareness and create a larger overall market from which they both

profit.

viii. Hypocrisy and authenticity. Our image of stage 4 activities conjures up

an organization with a high degree of trust. However, even in such organizations

there is a need for discourse in which people experiment with different ideas and

even ideologies. This, however, can lead to "hypocrisy" or gaps between what is

28

espoused and what is done (Brunsson, 1989). On the other hand, in an organization

where experimentation is important (see below), it is difficult -- if not impossible --

to maintain complete coherence between ideas and actions. Thus, whereas there

may be hypocrisy between espoused • words and actions, this does not imply lack of

agreement concerning actions. Moreover, it is at the level of actions that agreement

is most important.

4. Continuous incrementalism. The nature of stage 4 activities is that

uncertainty cannot be defined precisely (see above). It is therefore not possible for

firms to define optimal actions (e.g., investments in new products) on an a priori

basis. Instead, they must use adaptive, "trial-and-error" processes that generate quick

feedback and are incremental in nature.

Stage 4 firms recognize that improvements of products and processes are

more likely to result from continuously introducing small changes than attempting

sudden, discontinuous changes. There are many advantages to continuous

incrementalism: people are better able to handle and incorporate continuous small

changes than sudden and large ones; continuous incrementalism brings about a

process of change within the organization that is accompanied by a minimum of

breakdown; people learn to adapt to change as a normal occurrence; over time, the

cumulative effects of small changes can become large; the continual ,presence of

small changes facilitates learning and experimentation; continuous incrementalism

leads to a focus on processes as opposed to outcomes (Imai, 1986); and so on. We

consider continuous incrementalism further below.

5. Experimentation. An important implication of our framework is that firms

should adopt different procedures for dealing with "uncertainty" at stages 2 and 4.

Stage 2 uncertainty is of the "decision analysis/operations research" type. One

assesses a probability distribution over demand (based on past data and subjective

experience). Stage 4 uncertainty is characterized by "chaos," ambiguity, lack of

29

understanding of the decision making environment, and even "procedural

uncertainty" (Hogarth, Michaud & Mery, 1980). Conventional means of handling

uncertainty do not suffice (cf. the Shell experience on scenario planning, Wack,

1985). Instead, firms must use a more incremental strategy for understanding. This

puts a premium on information gathering,intelligence(i.e.,interpretation), and

experimentation. In an important sense, stage 2 uncertainty is dealt with as a

known problem; stage 4 involves adaptive learning.

To illustrate the above, consider the difference between traditional ways of

forecasting and planning and a more adaptive, experimental approach. In the

"traditional" way, one prepares a demand forecast and then derives production

estimates based on estimated demand. For stage 4 activities, this strategy is

inappropriate. Instead, one must first experiment by bringing a series of test

products to the market and then getting behind those that seem to do better than the

others. (This is a strategy adopted by many book publishers. Its implementation

depends on having technology that allows the production of a diversified array of

products all based on a "standard" model. Flexible manufacturing systems can play

a big role here.)

Another way to state the above is that activities at stage 4 involve "working at

the edge" of what is known rather than applying knowledge and procedures that

have been proven. Managers therefore need to be in constant touch with quite

detailed data in order to experience feedback from their actions. Thus when engaged

in stage 4 activities, managers must also be able to tolerate the ambiguity of these

kinds of tasks. This, in turn, raises again the question of how managers are trained.

An issue raised by this discussion centers on the extent to which firms should

attempt to "understand" the environments in which they are operating.

Conventional wisdom suggests that you will do better the more complete your

understanding. But, how do you gain an understanding of a chaotic environment --

30

for stage 4 activities? Developing a model of a chaotic environment that assumes

conventional deterministic or even stochastic notions could be counter-productive.

How then does one plan to take action in the face of great complexity?

When thinking of the above, one can postulate the following two forces: (1)

as the complexity of the environment increases, one gains more from

understanding. Therefore one should invest in understanding as complexity

increases. But (2) as complexity increases, the cost of understanding also increases (in

cost we include the cost of making errors based on incomplete understanding).

Thus, the benefits of investing in understanding are a single-peaked function of

complexity. 11 Up to a point, one invests more as complexity increases; after that,

one invests less. The implications of these notions are that firms should develop

good systems for understanding where complexity is low and they can control what

is going on -- stages 2 and 3. However, in the face of large complexity (stage 4), they

should act but not invest too much in understanding.

How should they achieve the latter? Presumably, high complexity should be

handled by trial-and-error learning strategies. Implicit in this is the evolutionary

process of adaptation discussed by Campbell (1975) (see also the work by Heiner,

1985). At stage 4, firms should engage in activities that essentially involve sampling

the outcomes of "random variations" in their activities. However, this needs to be

backed up by methods of "selective retention" to capitalize upon ideas that seem to

work. (See also previous comments on unbounded goals.)

Another way at looking at these issues is to use an analogy with the way the

human information processing system learns to deal with an environment that is

more complicated than itself. It would be foolish (not to say impossible) for humans

to try to learn unique responses to all possible stimuli they meet. Instead, humans

have to accept that knowledge can only be "probabilistic." The implication is that

actions taken in the face of new situations will always be error prone (you need to

31

"accept error to make less error," Einhorn, 1986). How then do people handle this?

The principle mechanisms are (1) not committing everything to particular actions,

and (2) using feedback. In most cases, actions are not taken in a discrete, optimizing

kind of world. Instead, each action is part of a continuous flow of experience. What

is important is that humans -- and thus firms -- think in terms of continuous

activities and coordinate their activities so that they can utilize the corrective nature

of feedback (Toda, 1962; Hogarth, 1981).

Consider also implications of the "law of requisite variety" in cybernetics

(Ashby, 1956). This says that a response system should have sufficient variety of

response to match the variety in the environment. Note that this does not say that a

response system needs to be able to understand the system it is controlling. (A

thermostat, for example, doesn't understand the forces that affect the temperature in

a room.) At stage 4, therefore, the key variable is not necessarily an ability to achieve

a good causal understanding of the environment, but to be able to take actions that

are responsive to changes in the environment. For example, it is improbable that

anyone could gain a comprehensive' understanding of the underlying situation in

the Middle East. However, firms should analyze what actions they can take to

handle different possible types of discontinuities. Because, as noted above, actions

can often accommodate a wide range of objectives and circumstances, firms should

take actions in uncertain situations that are robust across different possible scenarios

rather than attempting to find the most appropriate (i.e., optimal) action.12

In summary, success at stage 4 is action-experiment-response based rather

than purely cognitive or intellectual. At stage 2, however, tasks have been made

explicit such that intellectual understanding can be complete.

6. Mechanisms for change. In addition to the process differences implied by

varying boundedness of goals across stages, we emphasize again the importance in

stage 4 activities of continuous incrementalism. Mechanisms for change at stage 2

32

are typically abrupt and discontinuous whereas change processes at stage 4 are

continuous. As noted above, this has many advantages.

E. Organizational features

1. Organizational boundaries. The boundaries of a firm can be considered to

exist at two levels, the physical and the psychological. The physical boundaries are

those defined by legal ownership of assets. This corresponds to use of the term

boundaries for activities at stages 1 and 2. For example, at these stages we define an

activity as being outside the boundaries of the firm if the assets used are not the

property of the firm, as when an activity is sub-contracted (see, e.g., Hart, 1989)

Moving to stages 3 and 4, it is the psychological boundaries of the firm that

become important because these are the activities to which the core group of

managers pays most attention. Thus, whereas many activities involve assets that

are owned by a firm, it does not follow that all are within the firm's psychological

boundaries. For example, consider a firm where the core group of managers pays

special attention to Marketing and R & D activities and tends to ignore the

Production function even though it owns and operates its own manufacturing

facilities. In this case, the Production function lies outside the psychological

boundaries of the firm and, whether the firm chooses to continue or sub-contract

these activities is a stage-2 type economic decision. The important point for our

analysis is to determine those activities that are within the psychological boundaries

of the core managers for it is these that will receive the attention necessary to

develop stage 3 and stage 4 activities.

An interesting empirical issue is to map managers' perceptions of the

psychological boundaries of a firm. To what extent do these coincide with activities

at different stages of our framework? For example, we hypothesize that the

boundaries of a firm will be affected b y two factors: the speed at which processes are

managed, and whether they are produced internally or externally. Processes that are

33

slow to manage and specific to the firm, such as the accumulation of know-how,

must be nurtured and managed within the boundaries of the core. On the other

hand, processes that require instantaneous actions in dealing with the external

world, such as some aspects of customer relations, can be handled at the periphery.

This does not mean that the latter are unimportant. Typically, however, they are

handled by processes that require no specific competencies.

2. Leadership. If a firm has a well-established core group of managers and a

high level of collective goods, the importance of leadership residing in a particular

individual is considerably reduced. Thus, although such firms do have chief

executives or leaders, these persons exercise their roles in the collective style of

primus inter pares. The consequence is that the leadership role within the firm is

not dependent on the continuing presence of particular individuals. We therefore

hypothesize that this style of leadership is more likely to prevail in firms having

significant stage 4 activities.

Parenthetically, we note a possible exception to our hypothesis. Firms that are

still under the influence of their founders are likely to be dependent on single

leaders." For these firms, therefore, an interesting question centers on the capacity

to develop a collective leadership style once the founder has ceased being active.

3. Hierarchical arrangements. We argue that tasks that are well understood,

and thus imitable in the sense that the y can be routinized, will typically involve

vertical hierarchical arrangements where responsibility can be delegated, results

evaluated against specific goals, and so on. However, as tasks become more

unstructured, and as goals become more unbounded, routinization and control are

both less possible and desirable. Therefore, although we expect to observe vertical

hierarchical structures for stage 1 and 2 activities, the nature of activities at stages 3

and 4 should result in a greater preponderance of horizontal structures.

34

4. Organizational "glue." One consequence of tasks becoming imitable and

understood is that they can be performed in relative isolation by specialists. This

means that stage 1 and 2 activities require little integration across different

functional specialties. For stage 3 and stage 4 activities, however, there is a strong

need for integrative mechanisms and dialogue across the firm. Thus, at stage 3 one

would expect to observe cross-functional activities and even more so at stage 4

which should be characterized by multi-disciplinary teams that would also cut across

hierarchical levels of the firm.

5. Organizational culture. As noted above, the existence of an organizational

culture does not guarantee the longevity of a firm. However, we expect that

organizational culture will differ by the the stages of our framework. At stage 1, we

anticipate cultures that emphasize a sense of endowment. For example, the

corporate culture of a small landowner would revolve around the assets of the

farm. The owner of positional goods, an authenticated Champagne producer for

instance, would build a culture around the exclusivity of the product.

The environment for stage 2 activities is that of mature or imitable products

and processes. This therefore makes it difficult to maintain firm-specific cultures

and has implications for employee loyalty. In particular, because there are few

collective goods, organizational actors can transfer allegiance across firms without

penalty and may do so when the occasion arises. The culture of stage 2 activities are

characterized by a "market mentality."

By definition, stage 4 activities imply high levels of both collective goods and

unbounded goals. Also, as noted above, stage 4 activities involve much interaction

and flow of information between organizational actors. To maintain activities at

stage 4, firms need to develop cultures that support these kinds of activities. In

many cases, this leads to the development of "clan-like" cultures that foster a strong

35

sense of loyalty to the long-term goals of the organization (cf. Ouchi, 1980) -- see also

below.

The culture at stage 3 would be expected to be "intermediate" between stages 4

and 2, i.e., a mix of "clan" and "market" orientations.

The existence of a core group of managers may often imply a strong corporate

culture (see, e.g., Schein, 1985; Barney, 1986). However, we emphasize that the

existence of a distinctive corporate culture -- or even of a core group of managers –

does not guarantee the longevity of a firm. By definition, corporate cultures are a

function of a firm's past activities. However, practices embedded in a firm's past will

not necessarily continue to be functional in the future. Firms must therefore be

open and prepared to question the practices that embody the expression of their

underlying assumptions. Collective "goods" should not be permitted to degenerate

into collective "bads" (see also Dierickx & Cool, 1990).

6. Information accessibilit y . Coordination of activities can be described as one

of the key factors that affect the efficiency of organizations. Central to this is the

question of how information reaches' the persons who can make the best use of it.

Indeed, a plausible argument can be made that "information accessibility" should be

the key principle of organizational design (cf. Galbraith, 1973).

We hypothesize that information accessibility will differentiate activities at

different stages of our framework. At stages 1 and 2, people receive information that

is specific to their tasks and that corresponds to their bounded goals. At stages 3 and

4, however, because goals are less bounded, the need for access to all kinds of

information increases. Indeed, stage 4 activities are characterized by a great level of

information accessibility or transparency.

Second, use of different types of information will vary across the stages. At

stage 2, the only information that can be used is concrete and specific. For stages 3

and 4, however, managers need to be able to interpret (in the sense of react to, see

36

below) information that might be quite abstract. For example, managers need to be

able to interpret the significance of long-term social changes or trends that may not

appear, at first sight, to have any relation with current business.

7. Personnel policies. Above we outlined the conditions hypothesized as

necessary for the maintenance of activities at stages 3 and 4. These have significant

implications for how firms manage their human resources.

We have already noted the need for a core group of managers who have been

socialized into thinking in terms of the long-term goals and survival of the firm.

These are the managers who are responsible for stage 4 activities and, as such, are

key to generating collective goods. Some key personnel policy issues center on: How

are core group managers identified and recruited? How are they socialized into the

values of the firm? (We do not believe that values are immutable; instead they

typically evolve across time.) How are core group managers trained within

functional specialties? How are they trained in order to work in multi-disciplinary

teams and across hierarchical levels? Despite strong socialization processes, how

does the firm maintain sufficient variation and autonomy amongst individual

managers? How is the performance of core group managers evaluated and

remunerated?14

In addition to the core group managers, personnel policies are also important

for other employees and particularly in respect of activities at stage 2. As noted

above, the culture of stage 2 has an inevitable component of a "market mentality."

Personnel practices, however, can do much to combat this trend in order to ensure

that firms do not incur, inter alia, the costs associated with high employee turnover.

8. Remuneration policies. Although part of personnel policies, we treat this

separately. We hypothesize that firms with significant stage 4 activities need to

remunerate their core group managers in a manner that provides incentives for a

long-term orientation. In other words, there must be some mechanisms by which

37

core group members eventually share the surplus generated by the firm. Typically,

we imagine that this will involve a mix of a reasonable, guaranteed level of annual

salary, high benefits (e.g., health, pension, schooling for children, etc.), an increasing

salary profile over time, and little or no variation in pay due to market

circumstances. In other words, the remuneration policy needs to foster a mindset of

longevity, stability, and support for innovative activities. Evaluation of short-term

results should play little or no part in remuneration.

An additional point is that core-group managers should both understand and

accept that if the firm needs to buy external expertise lacking within the firm, e.g.,

hire specific functional experts, such experts may well be remunerated at higher

levels than members of the core if the experts are able to produce desired results.

This does not mean, however, that the experts will become members of the core.

Moving down stages (from 4 to 1), we expect that remuneration policies will

inevitably become more market-driven. At stage 2, in particular, firms must follow

what markets dictate. At stage 3, firms may well need to pay certain kinds of short-

term bonuses in order to maintain competitive positions (see, e.g., the point about

hiring specific expertise noted above).

F. Competitive strategies

How do strategies used by firms differ across stages of our framework? We

consider several implications.

1.Goals. First, the nature of the underlying goals driving strategies differ on

two dimensions. These are length and precision. Roughly speaking, goals for

activities at stages 1 and 2 are short-term in nature. At stage 4, they are quite long.

Similarly, whereas goals at stages 1 and 2 are precise, at stage 4 they can be described

as "loose."

For the longevity of a firm, the importance of loose, strategic goals should not

be underestimated. The implications of adopting precise short- or medium-term

38

strategic goals can be illustrated by considering the case of an organization, for

example a business school, that adopts the precise goal of becoming the best within a

5-year period. 15 Now assume that, by focussing its activities, the school achieves this

goal. Although laudable, the disadvantage of this success is that the organization

now has to generate new goals, e.g., to remain the best, in order to direct its future

activities. However, this latter goal may be impossible to achieve because success

does not only depend on actions taken by the school but also chance events in the

environment (e.g., some new and influential theories are discovered in another

school). Conversely, consider the scenario where the school fails to achieve its goal

within five years. Now the organization must find a means of rationalizing a

failure.

The advantage of loose organizational goals, e.g., " be one of the undisputed

leaders in management education," should be clear. First, the goal can be achieved

incrementally across time and will always remain a "moving target" in front of the

organization. Second, by not defining success and failure in precise terms, the

organization does not have to face a dichotomous success-failure realization at a

particular time. Furthermore, astute managers will realize that if measurements of

"who is best" are made from time to time, the effect of chance environmental

factors alone will be such that the organization may be ranked first on occasion

provided it remains in the top group of schools. The important strategic goal,

however, is not to seek that first-place ranking within a specified time, but to stay in

the top group. (See also the role of strategic intent described by Hamel & Prahalad,

1989).

2. Using uncertaint y . For activities at stages 1 and 2, uncertainty is

exogenous (see also above). This means that uncertainty must be estimated, e.g., in

the form of probability distributions, and actions taken in the light of these

distributions. At stage 4, although uncertaint y is experienced in the form of "chaos,"

39

it also becomes a weapon in the firm's arsenal. This is because the firm's actions

increase the uncertainty experienced by others. In other words, the firm's

innovations (that are known to itself) generate uncertainty for others. It is not clear,

however, that all firms are aware of the advantages this . gives them (see, e.g.,

Camerer, Loewenstein & Weber, 1989, on the "curse of knowledge").

3. Catch-up versus creative restructuring. Firms operating at stages 1 and 2

must always react to what is going on in the market. When operating at stages 3 and

4, however, firms can be proactive thereby allowing greater scope for action (see also

point above).

A further related point is that firms at stages 1 and 2 are continually faced

with "catch-up situations." Consider, for example, the case of Western automobile

manufacturers whose lead-times from inception to manufacturing of an automobile

lag some two years behind their main Japanese rivals. Even if the Western

companies go on "crash" programs to reduce lead-times, they will still only be

playing "catch-up." 16 From a strategic viewpoint, one could argue, that crash

programs to reduce the lead-time lag are not worth the cost. Instead, effort would be

better allocated to finding some other activities that could provide competitive

advantages over the Japanese competition thereby leapfrogging to stages 3 and 4 on

some other dimensions, i.e., to become involved in what we term "creative

restructuring." Attempts to catch up on reducing lead-times should be left to a more

progressive, long-term strategy. We note, parenthetically, that this is a variation on

the well-known military strategic advice which is only to engage battle on one's

own grounds or terms.

4. Incrementalism, luck, and timing. We believe that incrementalism is an

important strategic advantage accruing to firms operating at stage 4. As noted above,

luck probably plays a bigger role in fortunes at stage 4 than most would like to

believe. But there are other factors. An important one is timing. Critical questions

40

therefore center on how firms decide when to time certain critical actions such as

the launch of a new product.

Perhaps some analytics can help. Assume that the benefits of waiting (in

terms of information gain) are a concave, increasing function of time. Assume

further that the costs of waiting (missed opportunities etc.) are a non-concave,

decreasing function of time. The timing decision is maximized by finding the time

for which the positive difference between benefits and costs is greatest. Our

assumptions imply that {benefits - costs} will be a single-peaked function of time

such that some delay is appropriate before action.17

A further related point is that of "waiting strategies." By waiting strategies,

we mean placing small investments that are not expected to bear fruit within a short

period of time but that can eventually bring large returns. An example is provided

by the way some Japanese firms set up foreign subsidiaries. These are simply

"placed" in different locations and are not expected to earn large returns at first.

However, with time they become accepted in their host countries, their managers

learn how to do business in local conditions, and they essentially wait until the time

is propitious to increase the size of their operations. 18 Waiting strategies are easy to

describe in this kind of geographical context, but one could also think of them being

applied within an industry in a given country. For example, one suspects that a

given type of activity could become important but you are not quite sure when. You

therefore set up a small business to monitor that environment and learn. The

ability to implement waiting strategies inevitably requires a long-term orientation

and an ability to manage the fact that some processes are slow.

41

N. Strategies for developing competencies at stage 4

Above we have described the way in which the activities of firms differ

according to the four stages of our conceptual framework. At any given time, firms

will differ in the proportion of their activities that can be classified at the given

stages. Our working hypothesis is that successful longevity requires significant stage

4 activities. This raises the question of how these can be created and maintained. We

suggest seven major issues to which attention should be paid.

First, we argue that firms must be aware of the dynamics that generate rents

and profits across time. Today's stage 3 activities are to-morrow's stage 2 activities,

and so on. The sources that generate profits can not do so indefinitely even though

there may be differences in the duration of stage 3 activities by industries,

geographical regions, or periods of history.

Second, managers need to think of themselves as guiding or managing

processes across time in attempts to reach a horizon that is always just beyond their

reach. Focussing only on performance achieved within specific time periods should

be discouraged because short-term 'results frequently reflect factors that are not

within the control of management (i.e., "luck"). By taking a longer-term

perspective, managers can capitalize on successes gained in those periods where the

firm is "lucky" and ride-out periods when it is "unlucky."

Third, the motor of activities at stages 3 and 4 is the generation of collective

goods. This emphasizes the importance of establishing a core group of managers

with common goals and a high degree of mutual trust that permits the sharing of

information. This in turn points to examining the processes used by firms for

socializing, training, and rewarding their managers. We emphasize that although it

is important to create a core group, it is imperative that the core group have

mechanisms that allow it to remain in touch with the external environment. The

42

core should not become a "shield" that prevents the firm from facing up to the

realities of the market place.

Fourth, we stressed the importance of unbounded goals as a mechanism both

for managing the firm and contributing toward the creation of collective goods.

Unbounded goals have the virtues of focussing attention on processes (cf. Imai,

1986) rather than outcomes, and of widening the range of information that can be

assimilated. They may also provide the stimulus for exploratory or experimental

behavior and, as such, are a stimulus to learning. Firms therefore need to

encourage mechanisms that allow managers to approach their activities with

unbounded goals. At one level, these can include the use of suggestion forums,

quality circles, and so on. At another level, they might involve the use of multi-

functional and multi-hierarchical teams that question the meaning of the firm's

activities. At a third level, it may require training individual managers in the self-

discipline necessary to have unbounded goals.

Fifth, it is critical to develop ' content-free" mechanisms for communication

and decision making. It is hard to support the view that biased information

provided either to top managers and/or for decision making is in the best long-term

interests of the firm. The content of information must therefore be separated from

channels so that attention can be paid to even potentially threatening information

("Don't shoot the messenger"). Similarly, decision processes require procedures in

which all relevant information can be accorded weight. To ensure this, it is

important to institute procedures that protect the organization from human foibles

and, in particular, to depersonalize decision processes.

Sixth, not only must firms manage the tensions and contradictions that are

inherent in running any organization (e.g., reconciling the contributions of

specialists and generalists or facing centralization versus decentralization tradeoffs),

we argue that firms should also create tensions and contradictions. Without these, a

43

firm can not maintain sufficient organizational variation that will allow it to adapt

to changing circumstances. Like living organisms, firms adapt to their

environments — but with some lags. There is therefore a need for counterweights to

the forces of adaptation. This means that firms should deliberately seek out and

encourage a variety of different activities even if these are considered marginal or

somewhat counter-productive (their size can always be controlled). We emphasize,

however, these activities should not be equated with the notion of organizational

"slack." On the contrary, they should be used to challenge and confront the

prevailing wisdom of the firm.

Seventh, we stress the importance of incremental processes in implementing

desired goals. There is little evidence to suggest that attempts to make changes in

discontinuous fashion are successful. In addition, they are based on the dubious

assumption that one knows the consequences of such changes. The world of stage 4

activities is characterized by "chaos." Incremental strategies provide the means of

achieving continuity through chaos.

44

Footnotes

Note by this statement we are not saying that economics is irrelevant tomanagement (the work of Porter, 1980, for example has been widely cited as usefulin tasks of competitive analyses). What we are saying is that economics has hadrelatively little to say about the internal workings and processes of businessenterprises.

2 We have avoided the temptation of citing references to exemplify each of thedifferent approaches to the study of organizations.

3 Braudel described the growth of different levels of economic activity ranging from

small, one-person enterprises operating in limited, local areas to large firms engagedin international commerce.

4 The notion of characterizing a firm's activities by stages is reminiscent of themetaphorical scheme pioneered by the Boston Consulting Group that consisted ofcharacterizing parts of firms as "cash cows," "stars," "dogs," and so on. It would be amistake, however, to translate the Boston Consulting Group scheme into ours.

5 See also the 3M story of the development of Scotch tape as recounted by Schon(1983, p.245). For an experimental demonstration of the positive effects of"unbounded goals," see Sta • and Boettger (1990).

6 Note that an action could involve multiple goals but still be bounded.

A theoretical point of interest is Herrnstein's (1990) melioration hypothesis thatdescribes the way people allocate effort to different goals (to equate average returns)rather than maximizing. How do firms at stage 4 overcome this tendency? Onemechanism could be in the way that the y subdivide work. This, in turn, againsuggests high levels of co-operation and trust between co-workers. Note also thatmanagers who appear to be acting with short-term interests, i.e., who discount thefuture heavily, may be better characterized as having bounded goals.

8 It should be noted that tensions differ from conflicts in that they do not resultfromn differing objectives of groups or individuals within the firm. Conflict occurswhen people have different objectives. With tension, people may still disagree; buttheir objectives are the same. This means that disagreement under tension istypically more concerned with means (how to act) than with ends (why particularactions should be taken).

45

9 We further claim that the probability of long-term survival is an inverted U-shaped function of the level of tensions and contradictions. This conclusion followsmathematically if one assumes that the probability of survival is an increasing,concave function of the positive aspects of tensions and contradictions, but adecreasing, convex function of the negative aspects (cf. Coombs & Avrunin, 1977).

10 We are grateful to Harry Davis for this expression.

Consider, once again, the conditions analyzed by Coombs and Avrunin (1977).

12 One is reminded here of the finding by Eisenhardt (1989b) that firms that evaluateparticular actions in depth are less successful than firms that evaluate many actionsalbeit in lesser depth. For comments on limitations of optimal actions, see Einhornand Hogarth (1981).

13 By the term founder we also include the persons responsible for building up afirm even if they were not the actual founders themselves. For many firms,therefore, the founder-figure is a second or even third-generation leader.

14 We note that we do not believe that there is "one best way" for answering theseand similar questions.

15 We assume that "best" can be defined operationally by, for example, rankings in aspecified survey.

16 "Catch-up" strategies can be expensive and seriously reduce a firm's resources.Consider an analogy from long-distance running. A runner who falls behind theleaders can catch up by making a great effort over a fairly short period of time.However. this effort can exhaust the runner such that performance lags for the restof the race. A better strategy is to attempt a smooth, incremental catch-up strategythat takes much longer to achieve.

17 See Coombs and Avrunin (1977), yet again.

18 See article from The Times,"How the tide turned in Japanese firms' favor," July11, 1990.

46

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Schon, D. A. (1983). The reflective practitioner: How professionals think in action.New York: Basic Books.

Simon, H. A. (1957). Models of man. New York: Wiley.

Simon, H. A. (1976). Administrative behavior (3rd ed.). New York: Free Press.

Staw, B. M., & Boettger, R. D. (1990). Task revision: A neglected form of workperformance. Academy of Management Journal, 33 (3), 534-559.

Tirole, J. (1988). The theory of industrial organization. Cambridge, MA: The MITPress.

Toda, M. (1962). The design of a fungus-eater: A model of human behavior in anunsophisticated environment. Behavioral Science, 7, 164-183.

Wack, P. (1985, Sep-Oct). Scenarios: Uncharted waters ahead. Harvard Business

Review.

50

Wilkinson, G. S. (1990). Food sharing in vampire bats. Scientific American, 76-82.

Williamson, 0. E. (1975). Markets and hierarchies: Analysis and antitrustimplications. New York: Free Press.

Williamson, .0. E. (1985). The economic institutions of capitalism. New York: FreePress.

Williamson, 0. E. (1990). (Ed.) Organization theory: From Chester Barnard to thepresent and beyond. Oxford, UK: Oxford University Press.

51

88/12 Spyros MAKRIDAIUS "Business firms and managers in the 21st

century", February 1988

88/13 Manfred KETS DE VRIES "Alexithymia in organizational life: the

organization man revisited", February 1988.

88/14 Alain NOEL "The interpretation of strategies: a study of

the impact of CEOs on the

corporation", March 1988.

88/15 Anil DEOLALIKAR and "The production of and returns from

Lars-Hendrik ROLLER industrial innovation: an econometric

analysis for a developing country", December

1987.

88/16 Gabriel HAWAWINI "Market efficiency and equity pricing:

international evidence and implications for

global investing", March 1988.

88/17 Michael BURDA "Monopolistic competition, costs of

adjustment and the behavior of European

employment", September 1987.

88/18 Michael BURDA "Reflections on "Wait Unemployment" in

Europe", November 1987, revised February

1988.

88/19 M.J. LAWRENCE and "Individual bias in judgements of

Spyros MAKRIDAKIS confidence", March 1988.

88/20 Jean DERMINE,

Damien NEVEN and

"Portfolio selection by mutual funds, an

equilibrium model", March 1988.

J.F. THISSE

88/21 James TEBOUL "De-industrialize service for quality", March

1988 (88/03 Revised).

88/22 Lars-Hendrik ROLLER "Proper Quadratic Functions with an

Application to AT&T", May 1987 (Revised

March 1988).

INSEAD WORKING PAPERS SERIES

1988

88/01

Michael LAWRENCE and

"Factors affecting judgemental forecasts and

Spyros MAKRIDAIUS confidence intervals", January 1988.

88/02

Spyros MAKRIDAKIS

"Predicting recessions and other turning

points", January 1988.

88/03

James TEBOUL

"De-industrialize service for quality", January

1988.

88/04

Susan SCHNEIDER

"National vs. corporate culture: implications

for human resource management", January

1988.

88/05

Charles WYPLOSZ

"The swinging dollar: is Europe out of

step?", January 1988.

88/06

Reinhard ANGELMAR

"Les conflits dams les canaux de

distribution", January 1988.

88/07

Ingemar DIERICKX

"Competitive advantage: a resource based

and Karel COOL

perspective", January 1988.

88/08

Reinhard ANGELMAR

"Issues in the study of organizational

and Susan SCHNEIDER

cognition", February 1988.

88/09

Bernard SINCLAIR- "Price formation and product design through

DESGAGNE

bidding", February 1988.

88/10

Bernard SINCLAIR- "The robustness of some standard auction

DESGAGNE

game forms", February 1988.

88/11

Bernard SINCLAIR- "When stationary strategies are equilibrium

DESGAGNE

bidding strategy: The single-crossing

property", February 1988.

B. Espen ECKBO and

Herwig LANGOHR

Everette S. GARDNER

and Spyros MAKRIDAKIS

Sjur Didrik FLAM

and Georges ZACCOUR

Munigappa KRISHNAN

Lars-Hendrik ROLLER

Sumantra GHOSHAL and

C. A. BARTLETT

Naresh K. MALHOTRA,

Christian PINSON and

Arun K. JAIN

"Information disclosure, means of payment,and takeover premia. Public and Private

tender offers in France", July 1985, Sixth

revision, April 1988.

"The future of forecasting", April 1988.

"Semi-competitive Cournot equilibrium in

multistage oligopolies", April 1988.

"Entry game with resalable capacity",

April 1988.

"The multinational corporation as a network:

perspectives from interorganizational

theory", May 1988.

"Consumer cognitive complexity and the

dimensionality of multidimensional scaling

configurations", May 1988.

88/24

88/25

88/26

88/27

88/28

88/29

88/30

Catherine C. ECKEL

"The financial fallout from Chernobyl: riskand Theo VERMAELEN

perceptions and regulatory response", May

1988.

88/31

Sumantra GHOSHAL and

"Creation, adoption, and diffusion of

Christopher BARTLETT

innovations by subsidiaries of multinational

corporations", June 1988.

88/32

Kasra FERDOWS and

"International manufacturing: positioning

David SACKRIDER

plants for success", June 1988.

88/33

Mihkel M. TOMBAK

"The importance of flexibility in

manufacturing", June 1988.

88/34 Mihkel M. TOMBAK "flexibility: an important dimension in

manufacturing", June 1988.

88/35 Mihkel M. TOMBAK "A strategic analysis of investment in flexiblemanufacturing systems", July 1988.

/36 Vikas TIBREWALA and "A Predictive Test of the NBD Model thatBruce BUCHANAN Controls for Non-stationarity", June 1988.

88/37 Murugappa KRISHNAN "Regulating Price-Liability Competition To

Lars-Hendrik ROLLER Improve Welfare", July 1988.

88/38 Manfred KETS DE VRIES "The Motivating Role of Envy : A Forgotten

Factor in Management", April 88.

88/39 Manfred KETS DE VRIES "The Leader as Mirror : ClinicalReflections", July 1988.

88/40 Josef LAKONISHOK and "Anomalous price behavior around

Theo VERMAELEN repurchase tender offers", August 1988.

88/41 Charles WYPLOSZ "Assymetry in the EMS: intentional or

systemic?", August 1988.

88/42 Paul EVANS "Organizational development in the

transnational enterprise", June 1988.

88/43 B. SINCLAIR-DESGAGNE "Group decision support systems implement

Bayesian rationality", September 1988.

/44 Easam MAHMOUD and "The state of the art and future directionsSpyros MAICRIDAIUS in combining forecasts", September 1988.

/45 Robert KORAJCZYK "An empirical investigation of internationaland Claude VIALLET asset pricing", November 1986, revised

August 1988.

88/46 Yves DOZ and "From intent to outcome: a processAmy SHUEN framework for partnerships", August 1988.

/47 Alain BULTEZ,

Els GUSBRECHTS,

"Asymmetric cannibalism between substitute

items listed by retailers", September 1988.

88/23 Sjur Didrik FLAM

"Equilibres de Nash-Cournot dans le marchdand Georges ZACCOUR europden du gaz: un cas oil les solutions en

boucle ouverte et en feedback coincident",Mars 1988.

Philippe NAERT andPiet VANDEN ABEELE

88/48

Michael BURDA

88/49

Nathalie DIERKENS

88/50

Rob WEITZ andArnoud DE MEYER

88/51

Rob WEITZ

88/52

Susan SCHNEIDER andReinhard ANGELMAR

88/53

Manfred KETS DE VRIES

88/54

Lars-Hendrik ROLLERand Mihkel M. TOMBAK

88/55

Peter BOSSAERTSand Pierre HILLION

88/56

Pierre HILLION

88/57

Wilfried VANHONACKERand Lydia PRICE

88/58 B. SINCLAflt-DESGAGNÈand Mihkel M. TOMBAK

"Reflections on 'Wait unemployment' inEurope, II", April 1988 revised September1988.

"Information asymmetry and equity issues",September 1988.

"Managing expert systems: from inceptionthrough updating", October 1987.

"Technology, work, and the organization:the impact of expert systems", July 1988.

"Cognition and organizational analysis:who's minding the store?", September 1988.

"Whatever happened to the philosopher-king: the leader's addiction to power,September 1988.

"Strategic choice of flexible productiontechnologies and welfare implications",October 1988

"Method of moments tests of contingentclaims asset pricing models", October 1988.

"Size-sorted portfolios and the violation ofthe random walk hypothesis: Additionalempirical evidence and implication for testsof asset pricing models", June 1988.

"Data transferability: estimating the responseeffect of future events based on historicalanalogy", October 1988.

"Assessing economic inequality", November1988.

88/59 Martin KILDUFF

88/60 Michael BURDA

/61 Lars-Hendrik ROLLER

88/62

Cynthia VAN HULLE,Theo VERMAELEN andPaul DE WOUTERS

88/63

Fernando NASCIMENTOand Wilfried R.VANHONACKER

88/64

Kasra FERDOWS

88/65

Arnoud DE MEYERand Kasra FERDOWS

88/66

Nathalie DIERKENS

88/67

Paul S. ADLER andKasra FERDOWS

1989

89/01

Joyce K. BYRER andTawfik JELASSI

89/02 Louis A. LE BLANCand Tawfik JELASSI

"The interpersonal structure of decisionmaking: a social comparison approach toorganizational choice", November 1988.

"Is mismatch really the problem? Some

estimates of the Chelwood Gate II modelwith US data", September 1988.

"Modelling cost structure: the Bell Systemrevisited", November 1988.

"Regulation, taxes and the market forcorporate control in Belgium", September1988.

"Strategic pricing of differentiated consumerdurables in a dynamic duopoly: a numericalanalysis", October 1988.

"Charting strategic roles for internationalfactories", December 1988.

"Quality up, technology down", October 1988

"A discussion of exact measures ofinformation assymetry: the example of Myersand Majluf model or the importance of theasset structure of the firm", December 1988.

"The chief technology officer", December1988.

"The impact of language theories on DSSdialog", January 1989.

"DSS software selection: a multiple criteriadecision methodology", January 1989.

89/03 Beth H. JONES andTawfik JELASSI

89/04

Kasra FERDOWS and

Arnoud DE MEYER

89/05

Martin KILDUFF andReinhard ANGELMAR

89/06

Mihkel M. TOMBAK and

B. SINCLAIR-DESGAGNE

89/07

Damien J. NEVEN

89/08

Arnoud DE MEYER andHellmut SCHOTTE

89/09

Damien NEVEN,Carmen MATUTES andMarcel CORSTJENS

89/10, Nathalie DIERKENS,Bruno GERARD andPierre HILLION

89/11

Manfred KETS DE VRIESand Alain NOEL

89/12

Wilfried VANHONACKER

"Negotiation support: the effects of computerintervention and conflict level on bargainingoutcome", January 1989.

"Lasting improvement in manufacturingperformance: In search of a new theory",January 1989.

"Shared history or shared culture? Theeffects of time, culture, and performance oninstitutionalization in simulatedorganizations", January 1989.

"Coordinating manufacturing and businessstrategies: I", February 1989.

"Structural adjustment in European retailbanking. Some view from industrialorganisation", January 1989.

"Trends in the development of technologyand their effects on the production structurein the European Community", January 1989.

"Brand proliferation and entry deterrence",February 1989.

"A market based approach to the valuationof the assets in place and the growthopportunities of the firm", December 1988.

"Understanding the leader-strategy interface:application of the strategic relationshipinterview method", February 1989.

"Estimating dynamic response models whenthe data are subject to different temporalaggregation", January 1989.

89/13 Manfred KETS DE VRIES

89/14

Reinhard ANGELMAR

89/15

Reinhard ANGELMAR

89/16

Wilfried VANHONACKER,Donald LEHMANN andFareena SULTAN

89/17

Gilles AMADO,

Claude FAUCHEUX andAndre LAURENT

89/18

Srinivasan BALAK-RISHNAN andMitchell KOZA

89/19

Wilfried VANHONACKER,Donald LEHMANN andFareena SULTAN

89/20

Wilfried VANHONACKERand Russell WINER

89/21

Arnoud de MEYER andKasra FERDOWS

89/22

Manfred KETS DE VRIESand Sydney PERZOW

89/23

Robert KORAJCZYK andClaude VIALLET

89/24

Martin KILDUFF andMitchel ABOLAFIA

"The impostor syndrome: a disquietingphenomenon in organizational life", February1989.

"Product innovation: a tool for competitiveadvantage", March 1989.

"Evaluating a firm's product innovationperformance", March 1989.

"Combining related and sparse data in linearregression models", February 1989.

"Changement organisationnel et rOalitesculturelles: contrastes franco-americains",March 1989.

"Information asymmetry, market failure andjoint-ventures: theory and evidence",March 1989.

"Combining related and sparse data in linearregression models", Revised March 1989.

"A rational random behavior model ofchoice", Revised March 1989.

"Influence of manufacturing improvementprogrammes on performance", April 1989.

"What is the role of character inpsychoanalysis?" April 1989.

"Equity risk premia and the pricing offoreign exchange risk" April 1989.

"The social destruction of reality:Organisational conflict as social drama"zApril 1989.

89/25 Roger BETANCOURT and

David GAUTSCHI

89/26

Charles BEAN,

Edmond MALINVAUD,

Peter BERNHOLZ,

Francesco GIAVAllI

and Charles WYPLOSZ

89/27

David KRACKHARDT and

Martin KILDUFF

89/28

Martin KILDUFF

89/29 Robert GOGEL and

Jean-Claude LARRECHE

89/30 Lars-Hendrik ROLLER

and Mihkel M. TOMBAK

89/31 Michael C. BURDA and

Stefan GERLACH

89/32 Peter HAUG and

Tawfik JELASSI

89/33 Bernard SINCLAIR-

DESGAGNE

89/34

Sumantra GHOSHAL and

Nittin NOHRIA

89/35

Jean DERMINE and

Pierre HILLION

"Two essential characteristics of retailmarkets and their economic consequences"March 1989.

"Macroeconomic policies for 1992: the

transition and after", April 1989.

"Friendship patterns and culturalattributions: the control of organizationaldiversity", April 1989.

"The interpersonal structure of decisionmaking: a social comparison approach toorganizational choice", Revised April 1989.

"The battlefield for 1992: product strengthand geographic coverage", May 1989.

"Competition and Investment in flexibleTechnologies", May 1989.

"Intertemporal prices and the US tradebalance in durable goods", July 1989.

"Application and evaluation of a multi-criteria decision support system for thedynamic selection of U.S. manufacturinglocations", May 1989.

"Design flexibility in monopsonisticindustries", May 1989.

"Requisite variety versus shared values:managing corporate-division relationships inthe M-Form organisation", May 1989.

"Deposit rate ceilings and the market valueof banks: The case of France 1971-1981",May 1989.

89/36 Martin KILDUFF

89/37 Manfred KETS DE VRIES

89/38 Manfred KETS DE VRIES

89/39 Robert KORAJCZYK and

Claude VIALLET

89/40 Balaji CHAKRAVARTHY

89/41 B. SINCLAIR-DESGAGNE

and Nathalie DIERKENS

89/42 Robert ANSON and

Tawfik JELASSI

89/43 Michael BURDA

89/44 Balaji CHAKRAVARTHY

and Peter LORANGE

89/45 Rob WEITZ and

Arnoud DE MEYER

89/46 Marcel CORSTJENS,

Carmen MATUTES and

Damien NEVEN

89/47 Manfred KETS DE VRIES

and Christine MEAD

89/48

Damien NEVEN and

Lars-Hendrik ROLLER

"A dispositional approach to social networks:the case of organizational choice", May 1989.

"The organisational fool: balancing aleader's hubris", May 1989.

"The CEO blues", June 1989.

"An empirical investigation of internationalasset pricing", (Revised June 1989).

"Management systems for innovation andproductivity", June 1989.

"The strategic supply of precisions", June

1989.

"A development framework for computer-supported conflict resolution", July 1989.

"A note on firing costs and severance benefitsin equilibrium unemployment", June 1989.

"Strategic adaptation in multi-businessfirms", June 1989.

"Managing expert systems: a framework andcase study", June 1989.

"Entry Encouragement", July 1989.

"The global dimension in leadership andorganization: issues and controversies", April

1989.

"European integration and trade flows",August 1989.

89/49 Jean DERMINE "Home country control and mutual

recognition", July 1989. 89/62 Arnoud DE MEYER

(TM)

89/50 Jean DERMINE "The specialization of financial institutions,

the EEC model", August 1989. 89/63 Enver YUCESAN and

(TM) Lee SCHRUBEN89/51 Spyros MAKRIDAK1S "Sliding simulation: a new approach to time

series forecasting", July 1989. 89/64 Enver YUCESAN and

(TM) Lee SCHRUBEN

89/52 Arnoud DE MEYER "Shortening development cycle times: a

manufacturer's perspective", August 1989. 89/65 Soumitra DUTTA and

89/53 Spyros MAKRIDAKIS "Why combining works?", July 1989.

(TM,

AC, FIN)

Piero BONISSONE

89/54 S. BALAKRISHNAN "Organisation costs and a theory of joint 89/66 B. SINCLAIR-DESGAGNE

and Mitchell KOZA ventures", September 1989. (TM,EP)

89/55 H. SCHUTTE "Euro-Japanese cooperation in information 89/67 Peter BOSSAERTS and

technology", September 1989. (FIN) Pierre HILLION

89/56 Wilfried VANHONACKER

and Lydia PRICE

"On the practical usefulness of meta-analysis

results", September 1989.

1990

89/57 Taekwon KIM,

Lars-Hendrik ROLLER

and Mihkel TOMBAK

"Market growth and the diffusion of

multiproduct technologies", September 1989. 90/01

TM/EP/AC

B. SINCLAIR-DESGAGNE

89/58 Lars-Hendrik ROLLER "Strategic aspects of flexible production 90/02 Michael BURDA

(EP,TM) and Mihkel TOMBAK technologies", October 1989. EP

89/59

(OH)

Manfred KETS DE VRIES,

Daphna ZEVADI,

Alain NOEL and

"Locus of control and entrepreneurship: a

three country comparative study", October

1989.

90/03

TM

Arnoud DE MEYER

Mihkel TOMBAK

89/60 Enver YUCESAN and "Simulation graphs for design and analysis of 90/04 Gabriel HAWAWINI and

(TM) Lee SCHRUBEN discrete event simulation models", October FIN/EP Eric RAJENDRA

1989.

89/61 Susan SCHNEIDER and "Interpreting and responding to strategic 90/05 Gabriel HAWAWINI and(All) Arnoud DE MEYER issues: The impact of national culture",

October 1989.

FIN/EP Bertrand JACQUILLAT

"Technology strategy and international R&D

operations", October 1989.

"Equivalence of simulations: A graph

approach", November 1989.

"Complexity of simulation models: A graph

theoretic approach", November 1989.

"MARS: A mergers and acquisitions

reasoning system", November 1989.

"On the regulation of procurement bids",

November 1989.

"Market microstructure effects of

government intervention in the foreign

exchange market", December 1989.

"Unavoidable Mechanisms", January 1990.

"Monopolistic Competition, Costs of

Adjustment, and the Behaviour of European

Manufacturing Employment", January 1990.

"Management of Communication in

International Research and Development",

January 1990.

"The Transformation of the European

rmancial Services Industry: From

Fragmentation to Integration", January 1990.

"European Equity Markets: Toward 1992

and Beyond", January 1990.

"Integration of European Equity Markets:Implications of Structural Change for KeyMarket Participants to and Beyond 1992",January 1990.

"Stock Market Anomalies and the Pricing ofEquity on the Tokyo Stock Exchange",January 1990.

"Modelling with MCDSS: What aboutEthics?", January 1990.

"Capital Controls and International TradeFinance", January 1990.

"The Impact of Language Theories on DSSDialog", January 1990.

"An Overview of Frequency DomainMethodology for Simulation SensitivityAnalysis", January 1990.

"Structural Change, Unemployment Benefitsand High Unemployment: A U.S.-EuropeanComparison", January 1990.

"Approximate Reasoning about TemporalConstraints in Real Time Planning andSearch", January 1990.

"Visual Interactive Modelling and IntelligentDSS: Putting Theory Into Practice", January1990.

"The Internal Technological Renewal of aBusiness Unit with a Mature Technology",January 1990.

"Tax-Driven Regulatory Drag: EuropeanFinancial Centers in the 1990's", January1990.

90/17

Nathalie DIERKENSFIN

90/18

Wilfried VANHONACKERMKT

90/19

Beth JONES andTM

Tawfik JELASSI

90/20 Tawfik JELASSI,TM Gregory KERSTEN and

Stanley ZIONTS

90/21

Roy SMITH andFIN

Ingo WALTER

90/22

Ingo WALTERFIN

90/23

Damien NEVENEP/SM

90/24

Lars Tyge NIELSENFIN/EP

90/25 Lars Tyge NIELSENFIN/EP '

90/26 Charles KADUSHIN andOB/BP Michael BRIMM

90/27 Abbas FOROUGHI andTM Tawfik JELASSI

90/28 Arnoud DE MEYERTM

"Information Asymmetry and Equity Issues",Revised January 1990.

"Managerial Decision Rules and theEstimation of Dynamic Sales ResponseModels", Revised January 1990.

"The Effect of Computer Intervention andTask Structure on Bargaining Outcome",February 1990.

"An Introduction to Group Decision andNegotiation Support", February 1990.

"Reconfiguration of the Global SecuritiesIndustry in the 1990's", February 1990.

"European Financial Integration and ItsImplications for the United States", February1990.

"EEC Integration towards 1992: SomeDistributional Aspects", Revised December1989

"Positive Prices in CAPM", January 1990.

"Existence of Equilibrium in CAPM",January 1990.

"Why networking Fails: Double Binds andthe Limitations of Shadow Networks",February 1990.

"NSS Solutions to Major NegotiationStumbling Blocks", February 1990.

"The Manufacturing Contribution toInnovation", February 1990.

90/06 Gabriel HAWAWINI andFIN/EP Eric RAJENDRA

90/07

Gabriel HAWAWINIFIN/EP

90/08

Tawfik JELASSI andTM/EP

B. SINCLAIR-DESGAGNE

90/09

Alberto GIOVANNINIEP/FIN and Jae WON PARK

90/10

Joyce BRYER andTM

Tawfik JELASSI

90/11

Enver YUCESANTM

90/12

Michael BURDAEP

90/13

Soumitra DUTTA andTM

Shashi SHEKHAR

90/14

Albert ANGEHRN andTM

Hans-Jakob LUTHI

90/15

Amoud DE MEYER,TM

Dirk DESCHOOLMEESTER,Rudy MOENAERT andJan BARBE

90/16

Richard LEVICH andFIN

Ingo WALTER

90/40 Manfred KETS DE VRIES "Leaders on the Couch: The case of Roberto90/29 Nathalie DIERKENS "A Discussion of Correct Measures of OB Calvi", April 1990.FIN/AC Information Asymmetry", January 1990.

90/30 Lars Tyge NIELSEN "The Expected Utility of Portfolios of90/41

FIN/EP

Gabriel HAWAWINI,

ltzhak SWARY and"Capital Market Reaction to theAnnouncement of Interstate Banking

FIN/EP Assets", March 1990. Ik HWAN LANG Legislation", March 1990.

90/31 David GAUTSCHI and "What Determines U.S. Retail Margins?", 90/42 Joel STECKEL and "Cross-Validating Regression Models inMKT/EP Roger BETANCOURT February 1990. MKT Wilfried VANHONACKER Marketing Research", (Revised April 1990).

90/32 Srinivasan BALAK- "Information Asymmetry, Adverse Selection 90/43 Robert KORAJCZYK and "Equity Risk Premia and the Pricing ofSM RISHNAN and

Mitchell KOZA

and Joint-Ventures: Theory and Evidence",Revised, January 1990.

FIN Claude VIALLET Foreign Exchange Risk", May 1990.

90/33 Caren SIEHL, "The Role of Rites of Integration in Service 90/44 Gilles AMADO, "Organisational Change and CulturalOB David BOWEN and Delivery", March 1990. OB Claude FAUCHEUX and Realities: Franco-American Contrasts", April

Christine PEARSON Andre LAURENT 1990.

90/45 Soumitra DUTTA and "Integrating Case Based and Rule Based90/34

FIN/EP

Jean DERMINE "The Gains from European BankingIntegration, a Call for a Pro-Active

TM Piero BONISSONE Reasoning: The Possibilistic Connection",May 1990.

Competition Policy", April 1990.90/46 Spyros MAKRIDAKIS "Exponential Smoothing: The Effect of

90/35 Jae Won PARK "Changing Uncertainty and the Time- TM and Michele HIBON Initial Values and Loss Functions on Post-EP Varying Risk Premia in the Term Structure

of Nominal Interest Rates", December 1988,Revised March 1990. 90/47 Lydia PRICE and

Sample Forecasting Accuracy".

"Improper Sampling in NaturalMKT Wilfried VANHONACKER Experiments: Limitations on the Use of

90/36 Arnoud DE MEYER "An Empirical Investigation of Meta-Analysis Results in BayesianTM Manufacturing Strategies in European Updating", Revised May 1990.

Industry", April 1990.90/48 Jae WON PARK "The Information in the Term Structure of

90/37

TM/OB/SM

William CATS-BARIL "Executive Information Systems: Developingan Approach to Open the Possibles", April

EP Interest Rates: Out-of-Sample ForecastingPerformance", June 1990.

1990.90/49 Soumitra DUTTA "Approximate Reasoning by Analogy to

90/38 Wilfried VANHONACKER "Managerial Decision Behaviour and the TM Answer Null Queries", June 1990.MKT Estimation of Dynamic Sales Response

Models", (Revised February 1990). 90/50 Daniel COHEN and "Price and Trade Effects of Exchange RatesEP Charles WYPLOSZ Fluctuations and the Design of Policy

90/39

TM

Louis LE BLANC and

Tawfik JELASSI"An Evaluation and Selection Methodologyfor Expert System Shells", May 1990.

Coordination", April 1990.

90/51 Michael BURDA and "Gross Labour Market Flows in Europe: 90/63 Sumantra GHOSHAL and "Organising Competitor Analysis Systems",EP Charles WYPLOSZ Some Stylized Facts", June 1990. SM Eleanor WESTNEY August 1990

90/52 Lars Tyge NIELSEN "The Utility of Infinite Menus", June 1990. 90/64 Sumantra GHOSHAL "Internal Differentiation and CorporateFIN SM Performance: Case of the Multinational

Corporation", August 1990

90/53 Michael Burda "The Consequences of German Economic

EP and Monetary Union", June 1990. 90/65 Charles WYPLOSZ "A Note on the Real Exchange Rate Effect of

EP German Unification", August 1990

90/54 Damien NEVEN and "European Financial Regulation: A

EP Colin MEYER Framework for Policy Analysis", (Revised 90/66 Soumitra DUTTA and "Computer Support for Strategic and Tactical

May 1990). TM/SE/FIN Piero BONISSONE Planning in Mergers and Acquisitions",

September 1990

90/55 Michael BURDA and "Intertemporal Prices and the US Trade

EP

90/56

Stefan GERLACH

Damien NEVEN and

Balance", (Revised July 1990).

"The Structure and Determinants of East-West

90/67

TM/SE/FIN

Soumitra DUTTA and

Piero BONISSONE

"Integrating Prior Cases and Expert Knowledge In

a Mergers and Acquisitions Reasoning System",

September 1990

EP Lars-Hendrik ROLLER Trade: A Preliminary Analysis of the

Manufacturing Sector", July 1990 90/68 Soumitra DUTTA "A Framework and Methodology for Enhancing the

TM/SE Business Impact of Artificial Intelligence

90/57 Lars Tyge NIELSEN Common Knowledge of a Multivariate Aggregate Applications", September 1990

FIN/EP/ Statistic", July 1990

TM 90/69 Soumitra DUTTA "A Model for Temporal Reasoning in Medical

TM Expert Systems", September 1990

90/58 Lars Tyge NIELSEN "Common Knowledge of Price and Expected Cost

FIN/EP/TM in an Oligopolistic Market", August 1990 90/70

TM

Albert ANGEHRN "'Triple C': A Visual Interactive MCDSS",

September 1990

90/59 Jean DERMINE and "Economies of Scale and

FIN Lars-Hendrik ROLLER Scope in the French Mutual Funds (SICAV) 90/71 Philip PARKER and "Competitive Effects in Diffusion Models: An

Industry", August 1990 MKT Hubert GATIGNON Empirical Analysis", September 1990

90/60 Peri IZ and "An Interactive Group Decision Aid for 90/72 Enver YUCESAN "Analysis of Markov Chains Using Simulation

TM Tawfik JELASSI Multiobjective Problems: An Empirical TM Graph Models", October 1990

Assessment", September 1990

90/61 Pankaj CHANDRA and "Models for the Evlauation of Manufacturing

90/73

TM

Arnoud DE MEYER and

Kasra FERDOWS

"Removing the Barriers in Manufacturing",

October 1990

TM Mihkel TOMBAK Flexibility", August 1990

90/62 Damien NEVEN and "Public Policy Towards TV Broadcasting in the 90/74 Sumantra GHOSHAL and "Requisite Complexity: Organising Headquarters-EP Menno VAN DUK Netherlands", August 1990 SM Nitin NOHRIA Subsidiary Relations in MNCs", October 1990

90/7SMKT

Roger BETANCOURT andDavid GAUTSCHI

'The Outputs of Retail Activities: Concepts,Measuremest and Evidence", October 1990

90/87F1N/EP

Lars Tyge NIELSEN "Existence of Equilibrium is CAPM: FurtherResults', December 1990

90/76 Wilfried VANHONACKER 'Managerial Decision Behaviour and the Estimation 90/88 Susan C. SCHNEIDER and •Cognition i Organisational Analysis: Who'sMKT .1 Drunk Sales Response Models',

Revised October 1990OB/MKT Reinhard ANGELMAR Minding the Store?' Revised, December 1990

90/89 Manfred F.R. KETS DE VRIES Me CEO Who Couldn't Talk Straight and Other90/77 Wilfried VANHONACKER nest* the Koyck Scheme of Sales Response to OB Tales from the Smut Room,* December 1990MKT Advertiskg: An Aggregation-Independent

Autocorrelatios Test', October 1990 90/90 Philip PARKER 'Price Elasticity Dynamics over the AdoptionMKT Lifecyde: An Empirical Study,' December 1990

90/78 Michael BURDA and *Exchange Rate Dynamics and CurrencyEP Stefan GERLACH Unification: The Ostmark - DM Rate",

October 1990

90/79 Anil GABA 'Inferences with an Unknown', Noise Level in aTM Bernoulli Process", October 1990

Anil GABA and 'og Survey Data in Inferences 'boon PurchaseRobed WINKLER Behaviour', October 1990 1991

90/81 Tawfik JELASSI *Du Prised au Pinar: Baas et Orientations desTM Systbses Interactifs d'Aide a la Dickies,"

October 199091101TM/b11

Luk VAN WASSENHOVE,Leonard FORTUIN and

*Operational Research Can Do More for WaftersThan They 'Mid;

Paul VAN BEEK January 199190/82 Charles WYPLOSZ 'Monetary Union and Fiscal Policy Discipline,"EP November 1990 91/02

TM/S111Luk VAN WASSENHOVE,Leonard FORTUIN and

"Operational Research and Environment,'January 1991

90/83 Nathalie DIERKENS and *Informed°. Asymmetry and Corporate Paul VAN BEEKFIN/TM , Bernard SINCLAIR-DESGAGNE Commericatios: Results of a Pilot Study",

November 1990 91/03 Pekka HIETALA and •An Implicit Dividend Increase in Rights Issues:FIN Timo LOYITYNIEMI Theory and Evidence; January 1991

9044 Philip M. PARKER 'The Effect of Advertising on Price and Quality:MKT The Optometric Industry Revisited,' 91/04 Lan Tyge NIELSEN •Two-Mad Separation, Factor Structure and

December 1990 FIN Robustness," January 1991

90/8.5 Avijit GHOSH and 'Optimal Min and Location in Competitive 91/05 Susan SCHNEIDER *Maisaskag Boundaries is Organisations'MKT Vikas TIBREWALA Markets; November 1990 OB January 1991

90/86 Olivier CADOT and *Prudence and Success in Politics," November 1990 91/06 Manfred KETS DE VRIES, •Usdentsedies the Leader-Strategy Interface:EPITM Bernard SINCLAIR-DESGAGNE OB Danny MILLER and Application of the Strategic Relationship Interview

Main NOEL Method,* January 1990 (89/11, revised April 1990)

91/07 Olivier CADOT "Lending to Insolvent Countries: A Paradoxical

EP Story," January 1991 91/19

MKT

Vikas TIBREWALA and "An Aggregate Test of Purchase Regularity",

Bruce BUCHANAN March 1991

91/08 Charles WYPLOSZ "Post-Reform East and West: Capital

EP Accumulation and the Labour Mobility 91/20 Darius SABAVALA and "Monitoring Sbort-Run Changes in Purchasing

Constraint," January 1991 MKT Vikas TIBREWALA Behaviour", March 1991

91/09 Spyros MAKRIDAKIS "What can we Learn from Failure?", February 1991 91/21 Sumantra GHOSHAL, "Wenn* Communication within MNCs: The

TM SM Harry KORINE and Influence of Formal Structure Versus Integrative

Gabriel SZULANSKI Processes", April 1991

91/10 Luc Van WASSENHOVE and "Integrating Scheduling with Batching and

TM C. N. POTTS Lot-Sizing: A Review of Algorithms and 91/22 David GOOD, "EC Integration and the Structure of the Franco-

Complexity", February 1991 EP Lars-Hendrik ROLLER and American Airline Industries: Implications for

Robin SICKLES Efficiency and Welfare", April 1991

91/11 Luc VAN WASSENHOVE et al. "Multi-Item Lotsizing in Capacitated Multi-Stage

TM Serial Systems", February 1991 91/23 Spyros MAKRIDAKIS and "Exponential Smoothing: The Effect of Initial

TM Michele HIBON Values and Loss Functions on Post-Sample

91/12 Albert ANGEHRN "Interpretative Computer Intelligence: A Link Forecasting Accuracy", April 1991 (Revision of

TM between Users, Models and Methods in DSS",

February 1991

90/46)

91/24 Louis LE BLANC and "An Empirical Assessment of Choke Models for

91/13

EP

Michael BURDA "Labor and Product Markets in Czechoslovakia and

the Ex-GDR: A Twin Study", February 1991

TM Tawfik JELASSI Software Evaluation and Selection", May 1991

91/25 Luk N. VAN WASSENHOVE and "Trade-Offs? What Trade-Offs?" April 1991

91/14 Roger BETANCOURT and "The Output of Retail Activities: French SM/TM Charles J. CORBETT

MKT David GAUTSCHI Evidence", February 1991

91/26 Luk N. VAN WASSENHOVE and "Single Machine Scheduling to Minimize Total Late

91/15

OB

Manfred F.R. KETS DE VRIES "Exploding the Myth about Rational Organisations

and Executives", March 1991

TM C.N. POTTS Work", April 1991

91/27 Nathalie DIERKENS "A Discussion of Correct Measures of Information

91/16 Arnoud DE MEYER and "Factories of the Future: Executive Summary of FIN Asymmetry: The Example of Myers and Majlurs

TM Kasra FERDOWS et.al. the 1990 International Manufacturing Futures

Survey", March 1991

Model or the Importance of the Asset Structure of

the Finn", May 1991

91/17 Dirk CATTRYSSE, "Heuristics for the Discrete Lotsizing and 91/28 Philip M. PARKER "A Note on: 'Advertising and the Price and Quality

TM Roelof KUBC,

Marc SALOMON and

Scheduling Problem with Setup Times", March 1991 MKT of Optometric Services', June 1991

Luk VAN WASSENHOVE 91/29 Tawfik JELASSI and "An Empirical Study of an Interactive, Session-

TM Abbas FOROUGHI Oriented Computerised Negotiation Support System

91/18 C.N. POTTS and "Approximation Algorithms for Scheduling a Single (NSS)", June 1991

TM Luk VAN WASSENHOVE Machine to Minimize Total Late Work",

March 1991

91/30 Wilfried R. VANHONACKER and "Using Meta-Analysis Results in Bayesian Updating:MKT Lydia J. PRICE The Empty Cell Problem", June 1991 91/43 Sumantra GHOSHAL and "Building Transnational Capabilities: The

SM Christopher BARTLETT Management Challenge", September 199191/31 Rezaul KABUL and "Insider Trading Restrictions and the StockFIN Theo VERMAELEN Market", June 1991 91144 Sumantra GHOSHAL and "Distributed Innovation in the 'Differentiated

SM Nitin NOHRIA Network' Multinational", September 1991

91/32 Susan C. SCHNEIDER "Organisational Sensemaking: 1992", June 1991

011 91/45 Philip M. PARKER "The Effect of Advertising on Price and Quality:MKT An Empirical Study of Eye Examinations, Sweet

91/33 Michael C. BURDA and "German Trade Unions after Unification - Third Lemons and Self-Deceivers", September 1991

EP Michael FUNKE Degree Wage Discriminating Monopolists?",June 1991 91/46 Philip M. PARKER "Pricing Strategies in Markets with Dynamic

MKT Elasticities", October 1991

91/34 Jean DERMINE "The BIS Proposal for the Measurement of InterestFIN Rate Risk, Some Pitfalls", June 1991 91/47 Philip M. PARKER "A Study of Price Elasticity Dynamics Using

MKT Parsimonious Replacement/Multiple Purchase91/35FIN

Jean DERMINE "The Regulation of Financial Services in the EC,Centralization or National Autonomy?" June 1991

Diffusion Models", October 1991

91/48 H. Landis GABEL and "Managerial Incentives mid Environmental91/36 Albert ANGEHRN "Supporting Multicriteria Decision Making: New EP/TM Bernard SINCLAIR-DESGAGNE Compliance", October 1991

TM Perspectives and New Systems", August 199191/49 Bernard SINCLAIR-DESGAGNE "The First-Order Approach to Multi-Task

91/37 Ingo WALTER and "The Introduction of Universal Banking in Canada: TM Principal-Agent Problems", October 1991

EP Hugh THOMAS An Event Study", August 1991

91/50 Luk VAN WASSENHOVE and "How Green is Your Manufacturing Strategy?"91/38 Ingo WALTER and "National and Global Competitiveness of New York SM/TM Charles CORBETT October 1991

EP Anthony SAUNDERS City as a Financial Center", August 199191151 Philip M. PARKER "Choosing Among Difflision Models: Some

91/39EP

Ingo WALTER andAnthony SAUNDERS

"Reconfiguration of Banking and Capital Marketsin Eastern Europe", August 1991

MKT Empirical Guidelines", October 1991

91/52 Michael BURDA and "Human Capital, Investment and Migration in an91/40TM

Luk VAN WASSENHOVE,

Dirk CATTRYSSE and

"A Set Partitioning Heuristic for the GeneralizedAssignment Problem", August 1991

EP Charles WYPLOSZ Integrated Europe", October 1991

Marc SALOMON 91153 Michael BURDA and "Labour Mobility and German Integration: SomeEP Charles WYPLOSZ Vignettes", October 1991

91/41

TM

Luk VAN WASSENHOVE,

M.Y. KOVALYOU and

"A Fully Polynomial Approximation Scheme forScheduling a Single Machine to Minimize Total 91/54 Albert ANGEHRN "Stimulus Agents: An Alternative Framework for

C.N. POTTS Weighted Late Work", August 1991 TM Computer-Aided Decision Making", October 1991

91/42 Rob R. WEITZ and "Solving A Multi-Criteria Allocation Problem:TM Tawfik JELASSI A Decision Support System Approach",

August 1991