Missiles and Violins: Why Knowledge Management Strengthens the Case for Disarmament

When North Korea threatens to attack South Korea or fires missiles into the sea, the press reports are typically accompanied by pictures of military parades like the one below. I am wondering if I am the only one struck by the contrast between the missile pointing skyward and the decrepit truck underneath. Once again it is clear that North Korea only spends money on what its leadership cares about, so the best they have of trucks (and trucks can be used to carry food and other useful tasks) is far inferior to their missiles.

Through economic isolation and diplomatic pressure, many nations are trying to make North Korea back off from its program of developing nuclear warheads, re-starting nuclear reactors and fuel processing facilities, and improving missiles. But one might ask, what is the point? The knowledge on how to make nuclear warheads and missiles and operate nuclear reactors is already there. Stopping the program just means a pause; it can be re-started any time the leadership pleases. In fact, there is talk they are planning to re-start a nuclear reactor that was idled in an earlier treaty. So, it would appear that North Korea can give no credible promise that a stop will be permanent, which suggests that other nations cannot reward it for stopping either.

To see why it still makes sense to call for a stop, we need to talk about violins for a moment. In a paper in Organization Science, Gino Cattani, Roger Dunbar, and Zur Shapira discuss why nobody makes violins like the peak period Cremona violins anymore, although they are now seen as the best instruments that exist. These are the violins made by Stradivari and Guernari that are owned by the richest and played by the best (usually on loan; the richest and the best are different people). Current violin makers can get close to their sound, but they cannot reproduce it. Why can't these violins be made anymore? Cattani and coauthors point out that they became famous for their sound much later than their actual creation, as a result of music performance moving from small spaces in courts to larger concert halls or outdoor performances.  That condition, which is how top-of-the-range violins are used now, is where they are superior.

But something happened on the way to fame: the masters building the violins died and their workshops stopped producing them. Molds and some other technical knowledge persisted, but tacit knowledge disappeared. This tacit knowledge has proven impossible to recover completely, even by violin makers who have significant experience maintaining Cremona violins. It has something to do with wood selection, preparation, and varnish, and how to use those in combination.

Now let us go back to disarmament. It is clear that much technical knowledge and documentation can be preserved from a nuclear program and a missile program, and some machinery can be kept in working order. But even today, making highly complex items call for tacit knowledge. If tacit knowledge is not used, it will decline, and the ability to re-start the program will gradually wither away. So there is merit in stopping, even if there is no credible promise of re-starting. Indeed, it would not be surprising if North Korea encountered difficulties in re-starting its idle nuclear reactor.

Cattani, G., R.L.M. Dunbar, Z. Shapira. 2013. Value Creation and Knowledge Loss: The Case of Cremonese Stringed Instruments. Organization Science, articles in advance. 

 Missiles and old trucks in North Korea:

Postscript: I am aware of the research showing that a sampleof modern violinists chose a modern violin over a Stradivarius. It might suggest that there is some brand value embedded in the experiences that violinists and listeners get from a Stradivarius. But it could also be because playing a violin in an Indianapolis hotel meeting room wearing welding goggles is not an ideal way to assess a violin that plays best in concert halls.

 

How Much Do Consumers Care about the Death of Textile Workers?

Associated Press reported that there are now 761 known deaths in the collapse of a building housing multiple clothing factories in Bangladesh. Does that mean that firms will stop ordering clothing from suppliers with questionable safety standards? They have the means to do so because it is known that multi-story, multi-user buildings such as the one that collapsed are operated with low safety (the building that collapsed had too heavy machinery installed) and often have illegal modifications (the building that collapsed had three stories added illicitly). Single-story buildings are better; buildings owned by the factory operator are better.

The moral case for imposing safety standards is clear. The risk to the reputations of firms that do not is also clear, and understood by the firms. When boxes of Disney logo clothing were found in the building that collapsed, both Disney and Wal-Mart (the licensee) explained that they had withdrawn authorization to produce in such factories, and the boxes had been moved to this building for storage without their approval.

But ultimately what matters is how customers react, because there will always be firms that are willing to place orders in unsafe places unless customers are vigilant. Indeed, in the New York Times, Jerry Davis has argued that customers should make it unprofitable to be unsafe.  Will they do so?

Fred Pampel and Lori Hunter published a paper in the American Journal of Sociology that provides an interesting parallel, because it examined support for environmental spending. Concern for the environment is similar to concern for manufacturing safety because a consumer can be “selfish” and only consider local benefits (a cheap t-shirt), or the consumer can be an altruist who also considers benefits to others (not having a polluted river; not dying in a building collapse). They showed that environmental concerns have increased over time, and more importantly, they gave some insights into how. Using data on how attitudes changed over time within birth cohorts, they were able to show that individuals with higher socio-economic status (SES) were early supporters of the environment, but this concerns spread to others with lower SES, increasing the overall level of environmental concern. SES is related to income, though not quite the same, so one could say that an environmental concern spread via a diffusion process from rich to mid-income to poor.

This is important because it gives some predictions. If concern for worker safety is a concern of  high-SES individuals today (and it may well be – which newspapers and magazines discuss it?), then that is actually the start of broader acceptance. Firms may soon face customers who are broadly critical of unsafe manufacturing. And if you happen to belong to the high-SES segment, you should know that your attitudes and actions are influential.

Pampel, F. C., & Hunter, L. M. (2012). Cohort Change,Diffusion, and Support for Environmental Spending in the United States. American Journal of Sociology, 118(2), 420-448.

Can Innovations Happen Away from Silicon Valley? It Depends on the Network

The mobile phone market continues to be in turmoil. The launch of the innovative Galaxy S4 phone is now delayed for the US carriers T-Mobile and Sprint, and the reason is “supply issues,” which usually means that there are not enough of them. Unless something has gone wrong in Samsung’s factories, it means that it is selling more than anticipated in the markets where it has already been launched. Meanwhile, Finland’s Nokia and Taiwan’s HTC are battling each other in the marketplace with new phone models, and also trying to obstruct each other in court with legal claims. Apple is selling iPhones fast, but not so fast that they can avoid speculations that they may have to imitate Samsung’s lineup of phones in a range of different screen sizes. Whew.

Maybe you have noticed already, but only one of the four companies I mentioned hails from Silicon Valley: Apple. How does this square with the idea that the Silicon Valley is the center of information technology innovations, or more generally, that innovations in an industry usually come from agglomerations of technologically advanced firms? Well, there is a lot of research showing that such agglomerations will continue to produce innovations and new firms, so there is no need to predict doom for Silicon Valley. But there is reason to wonder about the exceptions: firms that can stay innovative away from such agglomerations.

A recent paper by Russell Funk in Academy of Management Journal looks at innovations in the nanotech industry, which also has agglomerations (one is in Silicon Valley, of course). He looked at how the structure of the networks of innovators within each firm combined with the location to determine the innovativeness. The idea is simple, but novel: we normally assume that networks that effectively spread knowledge are good for innovation, and in fact this is what happens when there is a lot of useful knowledge around. Firms surrounded by other advanced firms should have such networks. But networks that don’t spread knowledge effectively because the individuals are not well connected let each individual develop novel and unique ideas. They can help firms rebound from some of the disadvantage of being away from other sources of knowledge.

As he expected, he found that firms away from other high-tech firms were able to innovate more the fewer connections their innovators had, so maintaining internal diversity helped keep them innovative. We might suspect that Nokia and HTC, distant from Silicon Valley, are trying this approach because they are doing many product launches, and are not completely consistent in their choices. For example, HTC has both Android and Windows phones; Nokia is simultaneously pushing new models in the smartphone and basic phone market.

So the mobile phone market is likely to stay interesting for a while, and Russell Funk’s research may explain why that is so. But his research does not predict success, because innovativeness and success are as closely related as we think. But that is a story for another blog post.

Funk, Russell. 2013. Making the Most of Where You Are: Geography, Networks, and Innovation in Organizations. Academy of Management Journal, forthcoming.

Dare to Care? How Firms can (be made to) Help after a Disaster

It has been a week of tragedies. We have been shocked by the violence in Boston, with explosive devices made to maim and kill, and placed among marathon spectators. And much further from most news crews, nature struck coldly and fiercely: The earthquake in Sichuan this Saturday is known to have killed at least 186 people, and is estimated to have injured 11,000. Apart from the damage itself, it must have rattled nerves, because Sichuan also had an earthquake in 2008 that killed 70,000 people. Many deaths were from building collapses as a result of shoddy construction--some of those were primary schools.

How do communities react to disasters on a scale such as these earthquakes? We have seen the images of neighbors helping each other after disasters, often helped by highly trained (but few) disaster response crews flying in from abroad. But large-scale disasters usually overwhelm local resources, leaving the communities unable to recover on their own. Nor can they easily get help: the 2008 Sichuan earthquake, as well as the recent one, cut road links needed for help. Even Japan, with its modern infrastructure, was overwhelmed in the 2011 Tohoku earthquake and tsunami. A huge pool of volunteers was available in nearby Tokyo, but was unable to move to the disaster zone because of the need to keep roads clear for essential traffic.

What do people do when they watch such disasters unfold but are unable to help? Jianjun Zhang and Rose Luo studied the aftermath of the 2008 Sichuan earthquake in a paper forthcoming in Organization Science. Their focus was on how multinational corporations donated money to help earthquake victims, but the explanation for this philanthropy turned out to involve people, and the Internet.

As an authoritarian state, China has a tradition of state control and assistance, including in disasters, and low expectations that individuals or firms will help. But the market reforms have left China with a progressive increase in the strength of private corporations and some weakening of the state. When the earthquake overwhelmed the state, some multinational corporations started funding the relief efforts. But most did not, not right away.

What happened next was a mass movement of individuals. On the Internet, lists of donating companies appeared – and so did lists of prominent companies that did not donate. Internet forums were filled with commentary, critique, and praise. And just as the communist party has on a number of occasions been surprised by the speed and strength of Internet activism in China, so were the multinational firms. Responding to the volume of internet articles on donations, and stung by seeing their company appear on lists of stingy corporations, managers donated – and donated again if the first donation was seen as too small for the company. It started and ended quickly: the main donation period was over in a month. But in that brief month, firms made decisions that helped victims of the disaster (or not); those decisions established their reputation as supporters of the community in which they did business (or not).  

It is an interesting effect of the Internet that corporations can now learn about community reactions to their actions, or non-actions, very rapidly. When a disaster strikes, the speed of Internet activism is what it takes to match the speed of help to the quick response that the situation calls for.

Zhang, J., & Luo, X. R. (2013). Dared to Care: Organizational Vulnerability, Institutional Logics, and MNCs' Social Responsiveness in Emerging Markets. Organization Science. doi:10.1287/orsc.1120.0813

Why Do Personal Injury Lawyers Have Bad Suits and TV Ads?

The title of this blog entry reflects a stereotype of personal injury lawyers in the USA: They have late-night TV ads for their services (“Get what you deserve!”), they wear ill-fitting suits, and their status is a few steps below that of lawyers in specialties like criminal law and the various kinds of corporate law. Personal injury law is in fact important: it helps individuals recover damages from accidents that are not covered by insurance, or when insurance firms resist paying out. It also helps individuals recover damages resulting from product defects. Personal injury law is one reason why firms will check whether the toys they manufacture are nontoxic and cannot lead to choking, before putting them in a store for you to buy for your child. 

Having said that, there is some truth to the stereotype. Personal injury law is a low-status specialization, just a few notches higher than family law, the lowest-status of all legal specializations. And they are guilty of bad TV ads and suits.

Lawyers are status-conscious, so the low status of personal injury law, and indeed any personal (rather than corporate) area of law, cuts into recruitment for that specialization. Personal injury law is especially blighted because some high-status law corporate firms that do have family law practices on the side do not have personal injury practices. Why is that?  An article by Damon Phillips, Catherine Turco and Ezra Zuckerman in American Journal of Sociology has an explanation that also tells us a lot about markets in general.
 

Phillips, Turco, and Zuckerman noted that there were many explanations that did not make sense. Status alone was not an explanation, because these firms entered the lowest specialization of family law, but personal injury law was higher. Nor was it a worry that personal injury law somehow would involve them into low-ethics practices (it does not, in general) or that they lacked capabilities for it. Instead, their interviews with corporate clients of top law firms and lawyers delivered a simple and strong message. Their corporate clients viewed participation in personal injury as treason. Personal injury law means that the firm has crossed over to the other side, and is now willing to sue corporations on behalf of individuals. For the general council of a corporation, that is worrying enough that they stated their willingness to dropping their law firm just for adding a personal injury practice. Corporations demand loyalty from their law firms and are willing to shop around to get it.

Clearly this means that we cannot expect that a personal injury will get the best possible legal representation. That will be found on the other side of the courtroom, defending the corporation. More broadly, firms can make demands of loyalty from other firms that shape their business and organization. These in turn shape markets. For example, in markets with battling giants, like automobile companies, suppliers have to choose sides if the giants demand loyalty. When lobbyist firms and industry associations need research to justify their views, they will go to research providers that do not work with the other side. Loyalty demands have potentially far-reaching consequences.

OK, we are at the end of this blog entry. Are you still wondering whether the “bad suits” in the title was an intended pun? Yes, it was. Thank you for noticing.

Damon, J. P., Turco, C. J., & Zuckerman, E. W. (2013). Betrayal as Market Barrier: Identity-Based Limits to Diversification among High-Status Corporate Law Firms. American Journal of Sociology, 118(4), 1023-1054. doi: 10.1086/668412