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Manage Your Talents, Manage Your Career

Manage Your Talents, Manage Your Career

How to find a balance between executives and employees' objectives to attract and retain talents? How to show legitimacy and trust to align with citizens' values in a time of conflicts? What is the good timing to leave a company? Understanding these multifaceted questions is key for navigating the talent competition and fostering personal career growth. Today, students seek ethical employers, while employees yearn for deeper meaning in their work. Simultaneously, governments and consumers closely examine firms' practices throughout the supply chain. In this edition, researchers from diverse fields offer insights and business cases gleaned from their investigations.

Structure

Part 1
Is Scientific Discovery Driven by Great Individuals or by Great Teams?
How important are individual “star” performers compared to their teams in driving scientific innovation? A recent study by Denisa Mindruta, Janet Bercovitz, Vlad Mares, and Maryann Feldman shows that while “star researchers” contribute significantly, the collaborative synergy between stars and their teams is crucial for success. In management, this research addresses the fundamental question of how to optimize team composition to maximize performance, underscoring the balance between individual brilliance and collective effort.  Three main key findings: Star scientists enhance collaboration performance through direct contributions and resource attraction. Diversity in team composition, both in expertise and seniority, fosters innovation. Research shows that collaborative efforts usually surpass individual contributions in scientific discovery.
Part 2
How Much Control Do You Really Have Over Your Career?
For many of us, it is a given that if we work hard, make valuable contributions, and cultivate the right professional connections, our careers will progress. After all, nepotism aside, work is basically a meritocracy, isn’t it? Well, perhaps not fully, say Roxana Barbulescu, professor of Management and Human Resources at HEC Paris, and her co-authors Claudia Jonczyk of the University of Neuchâtel, and Charles Galunic and Ben Bensaou of INSEAD. Three key findings: Even in up-or-out career environments like professional services firms, and evaluations and promotions, chance events play a substantial role in shaping individuals' careers. Employees tend to interpret chance events differently, leading to varied career attitudes and plans. By identifying and addressing disparities in resource allocation, client visibility, and mentorship opportunities, leaders can enhance employees' sense of recognition and hopefulness about their career advancement within the organization.
Part 3
Generalists vs. Specialists Impact on Firm Performance: The Case of CEOs and Acquisitions
Investing in knowledge diversification or specialization is a topic of interest and debate for employees, managers, and researchers since a long time. In a recent study, Strategy and Management Professors Denisa Mindruta of HEC Paris, Guoli Chen and Philipp Meyer-Doyle of INSEAD and Sterling Huang of the Management University of Singapore, aimed to understand the consequences of corporate decisions of generalist and specialist CEOs on firm performance, by comparing their decisions in all the acquisitions done by U.S. S&P 1500 firms over a ten-year period.
Part 4
Specialize or Generalize: What Makes Jobseekers Choose One Career Strategy Over Another?
The world of employment is undergoing a period of rapid change, with major technological developments, economic turbulence, and shareholder activism all contributing to a fast-moving and unpredictable context. To adapt to this new employment landscape, what kind of career strategies do (and should) professionals adopt, specialization or generalization? Professor Roxana Barbulescu of HEC Paris and Rocio Bonet of IE Business School offer insights for jobseekers and employers. 
Part 5
What is Experience Worth in A Sales Career? And What it Means for Talent Retention
Sales is an occupation known for its high turnover rates. How do employers value a salesperson’s experience, and does it matter whether they have hopped between industries and firms? Dominique Rouziès, Professor of Marketing at HEC Paris, and her co-authors Bertrand Quélin and Michael Segalla (HEC Paris), Ali Reza Keshavarz (School of Business, Maynooth University) and Francis Kramarz (CREST-ENSAE), dug deeper to find out what experience means for a sales professional’s compensation levels and career prospects.
Part 6
To Attract and Retain Top Talent, Firms Sell Themselves as Springboards to a Great Career
These days, workers at management consulting, investment banking, accounting, and law firms tend to be as interested in their career paths as they are in their salaries—which often means jumping from one firm to another in pursuit of better opportunities. But their career paths and motivation can be powerfully influenced by what sort of tasks an employer assigns to them. A study by Raphaël Lévy, Associate Professor of Economics and Decision Sciences at HEC Paris, and his colleague Heski Bar-Isaac, Professor in the Joseph L. Rotman School of Management at the University of Toronto, explores how these firms’ task allocation strikes a balance between producing value for the business and offering workers opportunities to prove their talent. Three key findings: • “Lose it to use it”: To attract and motivate employees, employers sometimes sell their jobs as springboards to a great career even outside the firm. • Employees are motivated to perform when granted exposure on the labor market and when assigned to tasks allowing them to showcase their skills. • Different human resources policies coexist: some firms consent to high exposure to their employees to boost their professional advancement, others, more concerned with employee retention, offer flatter career paths.
Part 7
Are Strong Brands Stressing Out Their Mid-level Employees?
Most companies value the benefits of branding: customer loyalty, easier sales, premium pricing. But what does brand equity mean for the employee experience? How can businesses balance the advantages and possible drawbacks of strong brands? Dominique Rouziès, Professor of Marketing at HEC Paris, and colleagues Myriam Ertz of LaboNFC, at UQAC (Canada), and Emine Sarigöllu¨ of LaboNFC, at McGill University (Canada), set out to answer these questions by understanding the social mechanics driving employee attitudes towards their employer’s brands.
Part 8
When Does Pressure to Do Extra Work Drain Staff and Threaten Home Life?
Sometimes workers “go the extra mile,” doing charity fundraisers, taking part in team socials, or mentoring new recruits, but does it bring value or is it counter-productive? A new study from Ekaterina Netchaeva (HEC Paris), Remus Ilies and Massimo Magni (Bocconi University), and Jingxian Yao (Tongji University), shows that although this extra work can energize employees, the pressure to engage it in, on the contrary, drains them.
Part 9
How Gender Diversity at Law Firms is Driven By Competition for Business
A new study of John Mawdsley and Rodolphe Durand of HEC Paris, and Lionel Paolella of the University of Cambridge, indicates that for U.S. law firms, efforts to increase gender diversity aren’t only motivated by a desire for fairness, but instead are driven by the need to take clients away from rival firms. The authors show that when women are increasingly represented in the senior ranks of clients of rivals, law firms strategically boost their own gender diversity to align with the diversity values of those clients. However, when increasing gender diversity is less likely to be successful for taking those clients, law firms reduce their gender diversity efforts in their organization.
Part 10
Digitalization and Talent Attraction at the Big 4
HEC Paris Professor Hélène Löning shares insights on disruption in the way the four well-known auditing and consulting firms, or "Big 4", perform auditing, recruit and manage careers. In her view, the Big 4 and other consulting firms will have to take account of the new generations' expectations to find the skills and talents needed to add value and bring solutions to their clients.
Part 11
3 Lessons on Team Leadership in Times of Uncertainty
The current uncertain and complex environment is further driving research on how business leaders should respond in the workplace. In this RESKILL Masterclass, Brad Harris, Professor of Management and Human Resources at HEC Paris, discusses the questions of building trust, creating healthy dynamics and enabling an empowered culture needed to respond to the challenges the 21st century is throwing up. It was recorded on March 23, 2023, and is available on YouTube. You can also find all the questions and comments on the LinkedIn Live. Here are the three key takeaways... and a summary of leadership qualities.
Part 12
Why Companies Need to Pay Attention to Their Legitimacy
To retain talent, sell their products or attract investors, and generally justify their existence, businesses need to be perceived by society at large as legitimate. But as social values evolve over time or after a sudden crisis, organizations may see their actions and purpose questioned. In this interview, Julien Jourdan, expert on the consequences of reputation, legitimacy and scandals on organizations, explains why legitimacy is key to resilience for businesses.
Part 13
To Make Your Organization Resilient, Think Like a Family Business
The ups and downs of economic cycles take most companies for dangerous roller-coaster rides, but family firms weather crises much better than their competitors. That's because they focus on resilience rather than on immediate performance. At a time when the global economy seems to experience crisis after crisis, lessons can be drawn from family firms, or non-family ones that behave (and survive) like them. Alain Bloch, Emeritus Professor in entrepreneurship and co-founder of the former Family Business Centre at HEC Paris, explains.
Part 14
Hannah Walt: Is She Trustworthy?
When Hannah Walt became the managing director of Epano Consulting of the Berlin branch, she did not only inherit challenges; she also had to face the general issue of being new to the business unit. She was promoted from within the company but came from a different geographical unit and had not worked in the Berlin office before.
Part 15
Jayda Moore: Can She Rebuild Trust?
The case examines the topic of trust repair with Jayda Moore, a fictitious character in a fictitious firm that specializes in marketing consulting. Jayda has been the manager of the consumer goods team at MarketMinds since September 2022 and had managed to create a supportive and caring team atmosphere. Her team members felt valued and appreciated and were accordingly highly motivated, leading to great operational successes. As a result, the team members’ level of trust had evolved, they had especially trusted Jayda. However, the well-earned trust in her is now put to the test.
Part 1

Is Scientific Discovery Driven by Great Individuals or by Great Teams?

Is Scientific Discovery Driven by Great Individuals or by Great Teams?
Strategy
Published on:

How important are individual “star” performers compared to their teams in driving scientific innovation? A recent study by Denisa Mindruta, Janet Bercovitz, Vlad Mares, and Maryann Feldman shows that while “star researchers” contribute significantly, the collaborative synergy between stars and their teams is crucial for success. In management, this research addresses the fundamental question of how to optimize team composition to maximize performance, underscoring the balance between individual brilliance and collective effort. 

Three main key findings:

  • Star scientists enhance collaboration performance through direct contributions and resource attraction.
  • Diversity in team composition, both in expertise and seniority, fosters innovation.
  • Research shows that collaborative efforts usually surpass individual contributions in scientific discovery.
scientific team discovery_cover

“This isn’t mine; this is one for the team,” said Succession star Kieran Culkin as he accepted the Best Actor award at this year’s Golden Globes. It’s a familiar aspect of Hollywood awards speeches – a reminder that the stars dazzling us on screen could not exist without the people who support them. “It’s been said, but it’s a team effort, this show,” said Succession creator Jesse Armstrong at the awards, underlining the same sentiment.

Hollywood speeches aside, we do seem to focus on individuals when we acknowledge greatness. In business and science, the dominant cultural narrative is that the bulk of innovation is driven by a handful of exceptional individuals or “stars.” We elevate pioneers like Steve Jobs or Albert Einstein and reward individuals who show similar promise with resources that allow them to continue performing high-value work. 

Star scientists are those who publish significantly more than their peers, producing papers with greater impact and actively participating in commercialization of ventures. However, science is rarely a solo effort. Even star scientists usually have a team ¬– a “constellation” – of collaborators behind them. Research teams have been growing in size at a rate of 15-20% per decade since the 1950s. In recent years, more than 80% of all science and engineering publications and over two-thirds of patents have been the product of multiple authors.

 

What maximum impact can a single person have on a collaboration's joint performance?

 

Research collaborations that include star researchers typically achieve higher average performance than those without such individuals. But what is the maximum impact that a single person can have on a collaboration's joint performance? We examined the relative contributions individuals and their collaborators make to scientific innovation to understand how to optimize team composition to achieve superior performance.

How star researchers improve collective performance 

Star researchers improve collective performance in two ways. First, the presence and contributions of the star researcher improve the quality and output of their collaborators, leading to greater overall team success. Previous approaches have studied this so-called spillover effect by examining what happens when a star scientist leaves the group. These studies showed that when this happened, colleagues experienced a lasting 5-10% decline in publication rate.

Second, once a researcher has initial success, they find it increasingly easy to attract talent and resources. This is called the “Matthew effect,” named after a (loose) interpretation of a Biblical parable. In practice, the Matthew effect reflects a feedback loop wherein star researchers can increase their success at a greater rate than their peers. It has been borne out by studies showing that star scientists gain preferential access to valuable resources like funding, talented graduate students, and advanced lab facilities both in academia and in the private sector. 

We studied the complexity of successful teams with stars

Prior research has treated spillover and the Matthew effect separately but are inextricably linked. So, we developed a model to capture this complexity.

 

We identified a cohort of 30 “stars” who were in the top 5% of globally cited researchers. 

 

We investigated the star-constellation relationship in collaborations that resulted in an invention. University researchers must disclose new inventions to their institutions. Because the disclosure is a legal document, it’s useful for our research because it sidesteps social noise, such as favors and institutional politics that may skew rates of publication authorship. The data was taken from a U.S. university with a renowned medical school. 

Analysis was performed using data on the 555 invention disclosures that were registered between 1988 and 1999. From the total cohort of 1003 scientists, of which 248 were team leaders, we identified a cohort of 30 “stars” who were in the top 5% of globally cited researchers. 

Irreplaceability in teams with stars

The contribution of a star scientist to a team is dominant ¬– i.e., their contribution exceeds that of their team – when they are “irreplaceable.” This means that they are so well-matched to the rest of the team that the constellation would be unable to produce work of the same standard without them, even with a new leader. 

What makes a leader “well matched” to their team? We looked for trends in the dataset and considered the research impact, knowledge profile, and range of seniorities in the group to determine what matters most when scientists choose collaborators. 

We found that high-value team leaders tend to work with high-value collaborators, supporting the theory that star scientists attract talented constellations. Further, prominent leaders have access to, and are preferred by, collaborators with whom they share some expertise overlap, though a very high similarity makes the collaboration less favorable. Some common language and goals are strengths, but too much overlap in expertise stifles innovation. 

In addition, high-value team leaders tend to work in groups where scientists of both senior and junior ranks come together.  We therefore argue that diversity of perspectives and skills enables discovery. Last but not least, star scientists and their collaborators tend to share the same research profile with respect to the application domains of their research.  

Who contributes most – stars or their teams?

We used these findings to investigate whether the star or constellation makes a greater contribution to scientific discovery. When a star and constellation are well-matched, they produce higher-quality research. For each collaboration, we calculated whether the star or constellation would be harder to replace. 

To calculate the replaceability, we replaced a star or constellation with the substitute that was the second-best match. The greater the loss in research impact, the more irreplaceable the missing star or constellation was to the research. 

 

We find that it is rare for a single person to make a more impactful contribution than their team.

 

Surprisingly, our results show that it is rare for a single person to make a more impactful contribution than their team. The star's relative contribution to knowledge creation surpasses the constellations in only 14.3% of collaborations. The constellation is the dominant party in terms of relative value creation in only 9.5% of cases. In more than three-quarters of cases, neither party dominates, with complementarity between star and constellation maximizing research value. In almost every pairing, innovation was a collective endeavor.

In short, to identify the drivers of innovation and discovery, we should not allow our view of the entire sky to be eclipsed by a few very bright stars.

 

Applications

Scientists perceived to bring star qualities are in demand and are often induced to transfer from one institution to another. This research suggests that administrators should endeavor to enable stars to move with their teams. Adjusting to work without their collaborators may have an adverse effect on the scientist’s research and their ability to attract additional talented hires. Dominating stars suffer a smaller loss without their team, but they are getting a bigger piece of a smaller pie. However, the most significant conclusion of this research is that research credit is unfairly biased towards prominent individuals. Star scientists undoubtedly drive innovation, and a minority brings irreplaceable value. However, when considering the research output of a star, their achievements should be looked at within the context of a team. In most cases, the constellation brings a high contribution that merits recognition with IP credits, financial rents, and other resources. 

Methodology

We developed a method to model the value of a star-constellation collaboration using data from the technology transfer office at a U.S. university with a highly-ranked medical school. We compiled a dataset of 555 invention disclosures registered between 1988 and 1999. We identified relevant factors that drive collaboration and used this to predict the replaceability of a star or constellation. 
Source: Based on an interview with Denisa Mindruta on her paper “Stars in their Constellations: Great Person or Great Team?” co-written Janet Bercovitz of the University of Colorado, Vlad Mares of INSEAD and Maryann Feldman of Arizona State University, published in Management Science, 2023.
denisa mindruta - hec
Denisa Mindruta
Associate Professor
Related topics:
Strategy
See structure
Part 2

How Much Control Do You Really Have Over Your Career?

Human Resources
Published on:

For many of us, it is a given that if we work hard, make valuable contributions, and cultivate the right professional connections, our careers will progress. After all, nepotism aside, work is basically a meritocracy, isn’t it? Well, perhaps not fully, say Roxana Barbulescu, professor of Management and Human Resources at HEC Paris, and her co-authors Claudia Jonczyk of the University of Neuchâtel, and Charles Galunic and Ben Bensaou of INSEAD.

Three key findings:

  • Even in up-or-out career environments like professional services firms, and evaluations and promotions, chance events play a substantial role in shaping individuals' careers.
  • Employees tend to interpret chance events differently, leading to varied career attitudes and plans.
  • By identifying and addressing disparities in resource allocation, client visibility, and mentorship opportunities, leaders can enhance employees' sense of recognition and hopefulness about their career advancement within the organization.
man_disappointed_at_work_cover

Copyright: Elnur

Even the savviest employees, adept office politicians, and those with the most talent and potential can have their career paths limited by everyday chance events. If you find yourself repeatedly working in teams that do not leverage your best skills, on or projects that are not prioritized by your employer, the incremental effects could lead to stalling and detours on the path to career advancement.

Traditionally, career research rested on the assumption that employees have a high degree of agency in their careers and can make their way in the professional world through their personal competencies, natural abilities and the resources available to them. Recognizing that there is less control than we thought may be disconcerting, but it can also point the way towards management structures that make better use of a company’s talent.

Orderly organizations, unpredictable events

We wanted to explore the role of chance in shaping people’s careers. We focused on professional services firms – law, consultancy and accountancy – which typically feature a traditional hierarchy of job roles. These industries have ‘up-or-out’ career paths, where individuals are expected to either climb the ranks according to a given timescale or leave their firm. 

This structure contrasts with the more recently established trend for more flexible, flat-structured companies, which allow for plenty of lateral movement between roles and high levels of employee agency.

 

We were surprised to learn that luck plays as much of a career-shaping role in traditional up-or-out firms as it does in flat structures.

 

We were surprised to learn that luck plays as much of a career-shaping role in traditional up-or-out firms as it does in flat structures. A large proportion of employees reported that chance had played an important role in their careers. This happened in parallel to formal frameworks of evaluation and promotion, which might seem likely to promote a meritocracy.

Minor and major chance events

There is an important distinction between major seismic events that will affect a career, such as a client firm’s bankruptcy, and proximate chance events – everyday unpredictabilities that contribute to uncertainty and insecurity for employees. A reshuffle of teams, arrival or departure of a mentor, or a change in client contact personnel would fall into the latter category. We know that these events happen, but we may seriously underestimate their impact over the course of a professional lifetime.

Being visible and making connections

Relationships are hugely important in all spheres of life, not least at work. Chance events that affect professional relationships are some of the most impactful. 

Good luck can place an employee in contact with reputed senior partners or clients who share their specialism and happen to have urgent needs. Not only can these people recognize an employee’s merit, they can also extend offers to work on projects together, and recommend them to others. This can raise the employee’s profile, give them more career support and in turn, increase their chances of promotion.

In contrast, bad luck can result in an employee being repeatedly assigned to projects of lower importance to the firm, or in large teams with limited room for personal initiative. Without interventions from senior leaders that shift direction, these events can limit exposure and learning and, over time, decrease an employee’s chances of advancement. 

Making sense of chance

While all employees are equally subject to chance, their personal interpretation of events can lead to major behavioral and attitudinal differences. Most tellingly, it affects their future plans and whether or not they intend to stay with their employer. In total, more than 50% of the employees interviewed were either planning to leave or leaning in that direction.

 

While all employees are equally subject to chance, their personal interpretation of events can lead to major behavioral and attitudinal differences.

 

Our research revealed that employees tend to fall into one of four groups, depending on what sense they have made of their chance experiences to date.

•    Partner-track

These ‘lucky’ employees have the confidence to continue in their role, expecting to ascend the hierarchy. They are clear about how to progress and are getting the feedback they need. If merit were as powerful as is traditionally believed, you might expect these to be a strong majority. In fact, they are around 41% of the employees studied.

•    Client-track

These employees plan to move over to the client side, and are collecting the skills and connections they need to do so. Like the partner-track employees, their interpretation of chance events has been more positive than negative, although perhaps not to the same extent. They feel confident about succeeding as client-side professionals. 21% of the interviewees were client-track.

•    Wait-and-see

Unsure of what’s next, these employees are continuing until they have more clarity. They have experienced both negative and positive chance events and are not yet able to interpret them into an overall picture. 21% of interviewees fell into this category.

•    Running out the clock

These employees aren’t sure what the future holds. However, they are sure they’re not staying with their current employer. They have interpreted their chance experiences negatively and don’t feel hopeful about things changing for the better. They represent 16% of the interviewees.

It’s important to note that an employee’s interpretation of chance events is cumulative and ongoing, rather than fixed. It may be more difficult for long-serving employees to change beliefs that have developed over a long period of time, whereas early-career professionals are more likely to be able to change their assessments as experience accrues.

Can employers stop talent heading for the exit?

Given that all the interviewees had been with their firms for several years and had been promoted at least once, it’s reasonable to say that they are competent and valuable employees. Yet more than half are at risk of leaving. At a time when employee retention is a huge priority for employers, this major source of attrition risk should not be ignored.

 

Talented employees who are currently under the radar may be more likely to stay with their firms if leaders intervene.

 

But what can employers do? We know that chance events happen, and that employees are wary that events over which they have little control can derail their hard work. What may be missing is senior leadership’s understanding of this phenomenon, and how precarious it makes employees feel. 

Applications

Talented employees who are currently under the radar may be more likely to stay with their firms if leaders intervene. To do so, leaders must look more closely, not just rewarding and promoting the employees excelling in plain sight but seeking out the ones who have demonstrated good work but may have faced less fortuitous circumstances, from project and resource allocation to client visibility and senior mentorship availability. Whether the strategy involves coaching, changing an unsuitable allocation of clients, or opening the door to increasingly diverse mentorship, must depend on the business. Although some discouraged employees may have already made up their minds to leave, employers still have a chance to make the undecided feel more recognized, valued and hopeful about their promotional prospects, whatever luck has in store.   

Methodology

We collected data from 68 professionals from three large firms with up-or-out hierarchies, in the US and Europe. All interviewees were pre-partner level and had been with their current employer for about five years. All had been promoted to project manager or associate about 18 months prior and were around half-way to the ‘up-or-out’ decision point.
Based on an interview with Professor Roxana Barbulescu on her paper “Management of fortuity: Workplace chance events and the career projections of up-or-out professionals”, co-written with Claudia Jonczyk of the University of Neuchâtel, and Charles Galunic and Ben Bensaou of INSEAD, published in the Journal of Vocational Behavior, December 2022.
Related topics:
Human Resources
See structure
Part 3

Generalists vs. Specialists Impact on Firm Performance: The Case of CEOs and Acquisitions

Strategy
Published on:

Investing in knowledge diversification or specialization is a topic of interest and debate for employees, managers, and researchers since a long time. In a recent study, Strategy and Management Professors Denisa Mindruta of HEC Paris, Guoli Chen and Philipp Meyer-Doyle of INSEAD and Sterling Huang of the Management University of Singapore, aimed to understand the consequences of corporate decisions of generalist and specialist CEOs on firm performance, by comparing their decisions in all the acquisitions done by U.S. S&P 1500 firms over a ten-year period.

shaking hands - cover

Viewed from the perspective of prospective employers, an individual’s past career choices have one key role: to provide information on that individual’s qualifications for a job. Yet, as those who are sifting through CVs very well know, there are no simple heuristics for judging how past work experience predicts subsequent job performance. Take, for example, two career paths: one described by a diverse work experience spanning across industries, firms, or domains, and the other one closely tied to a specific industry, firm, or domain. How do these experiences, one broad and the other focused, influence individual decisions, actions, and ultimately, job performance? 

The benefits of knowledge diversity and specialization have intrigued, and even sometimes discriminated, scholars for a long time. 

A quick historical detour shows that since the Renaissance, individuals skilled in a variety of fields, from the arts to the sciences to politics and beyond, have been celebrated as a model of intellectual and cultural achievement. This ideal has persisted over time, and it embodies the idea that having a broad range of knowledge in various areas can help individuals adapt to changing circumstances and think creatively. A diverse knowledge background allows one to approach problems and challenges from multiple angles and come up with innovative solutions.

However, history abounds with opposite arguments and examples. A quote commonly attributed to the ancient Greek poet Archilochus raises doubts on the value of knowledge breadth: "the fox knows many things, but the hedgehog knows one big thing". In everyday parlance, being a “Jack of all trades” is often followed by the expression “and master of none”, with a clearly negative connotation. Popular press and influential books have persuasively argued that specialization - famously achieved through the 10,000-Hour Rule! (see “Outliers” by Malcolm Gladwell) - is key to professional success.

Generalists and specialists 

Recent work has started to shed new light on this debate. Scholars studying scientific progress have shown that accumulating knowledge creates a heavier load for learners, which makes interdisciplinary studies hard to pursue: As knowledge accumulates within a discipline, individuals must specialize on increasingly narrower niches to reach the knowledge frontier (Jones, 2009), with the consequence that one trades-off breadth for gaining expertise (Jones, 2010).

Given the pressure towards specialization, a simple way to reap the benefits of combining diverse knowledge is to encourage teamwork between specialists from diverse fields. Empirical studies of innovation confirm that in the last decades, innovation has occurred through collaboration and less as a solo effort (Wuchty, Jones & Uzzi, 2007).  

At individual level, is it still possible and even worth it to invest in a more diverse human capital profile? While being trained in multiple disciplines becomes increasingly difficult, individuals can still broaden their knowledge by being exposed to different environments and situations via their work experience. In turn, work experience accumulates into a set of skills that form an individual’s human capital. 

We too engaged with this debate. As management scholars, we turned attention to the career paths of managers who have most impact on organizations: CEOs. It is widely understood that executives draw on skills gained throughout their career when they make corporate decisions. What is referred to as a “Generalist” CEO is an executive with a general human capital obtained from playing different roles in different contexts, such as for example, by holding multiple positions at more than one firm or being exposed to more industries or working for a conglomerate. In contrast, “Specialist” CEOs are executives with a narrower but deeper set of knowledge and skills (Custodio, Ferreira, Matos, 2013). We aimed to understand if decisions of generalist CEOs are different from the decisions of specialist CEOs. If yes, how, and with what consequences? 

Different strategies

We addressed this question by looking at acquisitions, a corporate decision that falls under the purview of CEOs and has significant impact on firm performance. We examined all acquisitions done by U.S. S&P 1500 firms over a ten-year period. Two notable patterns emerged. First, generalist and specialist CEOs follow a different acquisition strategy. Relative to specialist CEOs, generalist CEOs make an additional acquisition every four years and are 60% more likely to make an unrelated (i.e., diversifying) acquisition, selecting targets from outside their firm’s primary sector. In contrast, specialist CEOs tend to focus on internal development initiatives and when they acquire, they favor target deals in the same industry. 

Second, the acquisition performance (measured as the cumulative abnormal return to the acquisition announcement) is higher when the fit between CEO human capital and opportunities is clearer. That is, generalist CEOs pursuing diversifying acquisitions and specialist CEOs related acquisitions generate higher returns than alternative situations (i.e., generalist CEOs doing related acquisitions and specialist CEOs unrelated acquisitions).

 

Managers tend to engage in strategic actions that correspond to their human capital (generalist or specialist), a fit that is associated with stronger performance.

 

We interpret these findings as suggesting that managers tend to engage in strategic actions that correspond to their human capital, and that such a fit is associated with stronger performance.

Who to choose?

In doing this study, we had to consider alternative explanations for the same empirical patterns. We were particularly concerned about factors that could explain both the appointment of a generalist CEO and firm growth through (diversifying) acquisitions. To do so, we had to understand what type of firms hire generalist CEOs. We tested several explanations (including firm size, diversification level, and prior acquisition activity) but it was the human capital profile of the firm’s directors that stood out: boards composed of directors who themselves have a more generalist human capital profile tend to prefer a generalist over a specialist CEO; likewise, generalist CEOs join these firms because they anticipate a closer strategic alignment with and support from such boards. While these are central tendencies, hiring is a complex decision and we observed enough variation in the sample to put our analysis to the following test: would generalist CEOs pursue the hypothesized acquisition strategy even in situations in which they are working with a less generalist board? We found that generalist CEOs are indeed more likely to engage in acquisitions only if they work at firms with higher generalist boards. The rest of our conclusions remained valid even after taking into account this two-sided matching of generalist CEOs and generalist boards.

 

Generalist CEOs spur firm innovation, but the jury is out regarding whether they improve firm performance overall.

 

Our research complements past findings on the link between CEO human capital profile, decision making and firm outcomes. Notably, Custodio et al. (2019) found that generalist CEOs spur firm innovation. However, the jury is out regarding whether they improve firm performance overall (Li & Patel, 2019). 

When considering the consequences of career moves, most working professionals will weigh-up pecuniary and non-pecuniary benefits such as career progression, impact, and work-life balance. Yet, there is a hidden and important aspect of these career choices, as they shape the type of human capital that individuals build through work experience. Encouraging for those who depart from the beaten path and venture to move across positions, firms, and industries, is that statistically, generalist CEOs enjoy a 10% pay premium relative to specialist CEOs (Custodio et al., 2013).

 

This research paper was awarded the best research article by the Prix Fondation HEC. Learn more on HEC Newsroom's article. Listen to the testimonial from Denisa Mindruta, winner of the Professor Article of the Year.

 

 

Laurent Inard, Partner and Supervisory Board Member at Mazars, shares his opinion on the research:

 

“I was honored to award the best research paper 2022 as President of the Jury of the HEC Foundation's Prizes. The question addressed is of great interest, at the crossroads of two disciplines, namely (i) strategy (i.e. strategies of acquisitions) and (ii) human capital (more precisely the profile of managers). While common sense may tell us that there exists a relation between the profile of managers and their appetence regarding acquisitions, it is a great achievement not only to have been able to evidentiate such a relation, but also to have quantified and characterized it through the study of several indicators such as (i) the number of transactions, (ii) the nature of the transactions (i.e. core business or diversified), (iii) their post-acquisition performance!

Last but not least, the research also introduced a powerful concept – namely the two-sided market theory – in an original context, which is the study of the couplings between the managers and the firms: which factors drive them? One of the key takeway is that the profiles of the board of directors is of the essence, even more than the size, diversification level or history of acquisitions… This two-sided model, very promising, shall open the way to further research and for example the composition of the boards, their diversification etc."

Article by Denisa Mindruta (HEC Paris) based on the research paper, “Generalist vs. Specialist CEOs and Acquisitions: Two-sided Matching and the Impact of CEO Characteristics on Firm Outcomes”, coauthored by Guoli Chen and Philipp Meyer-Doyle (INSEAD, Singapore), and Sterling Huang (Management University, Singapore), published in the Strategic Management Journal in 2022.
denisa mindruta - hec
Denisa Mindruta
Associate Professor
Related topics:
Strategy
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Part 4

Specialize or Generalize: What Makes Jobseekers Choose One Career Strategy Over Another?

Human Resources
Published on:

The world of employment is undergoing a period of rapid change, with major technological developments, economic turbulence, and shareholder activism all contributing to a fast-moving and unpredictable context. To adapt to this new employment landscape, what kind of career strategies do (and should) professionals adopt, specialization or generalization? Professor Roxana Barbulescu of HEC Paris and Rocio Bonet of IE Business School offer insights for jobseekers and employers. 

Choosing whether to pursue a specialist or a generalist career profile is a case in point. Pre-2020 studies indicate that professional specialization, such as product management in marketing or ethical investments in finance, can help jobseekers fit their skills to employer needs and demonstrate commitment to their field of expertise. Specialism is associated with better productivity and return on human capital investment for employers, too.

But under certain circumstances, generalizing may prove to be a better strategy. What kind of labor market conditions or personal circumstances could prompt a jobseeker to switch from specialism to generalism – and can we still take it for granted that specializing is the way to go? These questions prompted us to undertake a new research study.

What happens when we can’t predict the future?

It feels intuitive that building on your existing skills and strengthening your reputation as a specialist is the way to succeed. Once you become skilled in an area and have a proven track record, say, the intricacies of a supply chain subdomain, you are more likely to be selected for future work of the same kind. It’s a self-reinforcing process. 

However, this pattern relies heavily on an underlying assumption that things will remain stable. The skills you build up early in your career must remain useful throughout your working life, otherwise the investment will not fulfill its early promise. When roles, skills and expectations change, you must be able to adapt. In that context, it makes sense that employees are keen to broaden their skillsets, and that increasingly flat companies, especially in fast-moving industries, favor managers who are flexible and versatile.

A focus on decision making

While there is plenty of research on what makes specialism or generalism more profitable once a person’s career is established, little attention has been paid to the decision-making process of employees. Our interest is in what makes individuals choose to pursue one path or the other early in their careers.

 

Our interest is in what makes individuals choose to pursue one path or the other early in their careers.

 

To explore the question, we focused on data from MBA graduates from a prestigious institution. Because an MBA is a generalized qualification, and one that is often taken by people who want to begin a new career, it provides a kind of level playing field for our study. MBA graduates going into management roles will likely have multifaceted jobs that require skills and knowledge across a range of domains, including people skills, technical knowledge, and organizational knowledge. As a result, there’s no foregone conclusion about whether they will specialize or remain generalized. 

Opportunity-enhancing generalism 

The decision to specialize or generalize is likely to rest on an evaluation of one’s prior experience with an eye to the future: the career benefits that one can imagine will occur in the future should one continue in the same area of experience going forward. If individuals have skills and a reputation in a specialized area already, those career benefits – which may include for instance a good pay grade, promotion potential, or attractiveness in the eye of potential employers – need to be weighed against the potential benefits of broadening their skillset. 

Where the anticipated benefits of this pre-existing career capital are deemed as relatively low, an individual has less to lose in opting for a different, more generalized career strategy.

Of course, these are partly subjective assessments on the part of the individual. A person may be more or less confident in their past experience or feel more or less optimistic about their potential to command future success, depending on their outlook and personality. 

On a more concrete level though, an employee might think about how ‘future-proofed’ their prior experience role is. Sticking with a specialism might depend on the industry a person has worked in, the type of roles they’ve held, and the level of prestige commanded by their previous employers.

Exploratory versus exploitative job searching

Careers in sectors that are considered prestigious by MBA graduates, such as investment banking or consultancy, may feel like a safer bet for specializing. The same may be true of work experience in large, prestigious firms with strong reputations and visibility. 

We considered these factors – firm and sector status – in developing our hypothesis. We also considered how these two factors might intertwine.

  • We expect that prior experience in higher-status sectors and employers will be associated with exploitative job search behavior, i.e., seeking roles that will exploit the already-accrued career investment.
  • We expect that prior experience in lower-status sectors and employers will be associated with exploratory job search behavior – seeking new opportunities and letting go of existing career investment.

What we find

Overall, exploratory job searching was the modal result across our sample. 78% of the MBA graduates carried out exploratory job searches. 

Our analysis separated the graduates into four mutually exclusive categories based on their pre-MBA experience:

  • Lower-status employer, higher-status sector: 87% of these engaged in exploratory search.
  • Lower-status employer, lower-status sector: 79% engaged in exploratory search.
  • Higher-status employer, lower-status sector: 73% engaged in exploratory search.
  • Higher-status employer, higher-status sector: 68% engaged in exploratory job search.

The results showed statistically significant differences between the higher-status employer / higher-status sector group vs the three others, which supports our main hypothesis that high-status backgrounds make exploratory search less likely. Lower status backgrounds, in contrast, favor exploratory search – and embark more readily on a generalist path.

 

To balance specialisms and narrow professional niches, employers can offer their people incremental moves that broaden their skills.

 

We also found interactions between the other variables that show separate effects being exerted by lower sector status on one hand, and lower employer status on the other. Of the two, employer status seems to have a stronger influence in promoting exploratory search behavior.

 

Methodology

We collected data from 1,255 students taking part in a one-year MBA program at an international business school. Institutional data gave us demographic information such as age, gender, and prior work experience details which formed the first part of our dataset. Data on the job search process was collected via a survey, to which 836 graduates returned usable responses. A second survey covered job-search preferences. Our final data stream was employer ranking data from Fortune and Vault.

Applications

Our work has clear implications for job seekers, providing a framework for evaluating and comparing career strategies. It also offers insights for employers. A company’s internal labor market might default to a promotion strategy that enhances and reinforces specialisms, taking employees further into narrow professional niches. To balance this, employers can offer their people incremental moves that broaden their skills. When considering promotions and internal appointments, they should look not only for the most able candidates, as indicated by related prior experience, but for those who have an appetite for trying new things. This approach might go hand in hand with finding overlooked talent in the business. By allowing employees the chance to try different contexts and roles, firms can build experiential diversity and capitalize on the resilience and adaptability people build through change.
Based on an interview with Professor Barbulescu on her paper “Looking for Greener Grass? Prior Status and Exploration-Exploitation Decisions in Job Search”, co-written with Rocio Bonet, published in the journal “Organization Science”, February 2023.
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Part 5

What is Experience Worth in A Sales Career? And What it Means for Talent Retention

Marketing
Published on:

Sales is an occupation known for its high turnover rates. How do employers value a salesperson’s experience, and does it matter whether they have hopped between industries and firms? Dominique Rouziès, Professor of Marketing at HEC Paris, and her co-authors Bertrand Quélin and Michael Segalla (HEC Paris), Ali Reza Keshavarz (School of Business, Maynooth University) and Francis Kramarz (CREST-ENSAE), dug deeper to find out what experience means for a sales professional’s compensation levels and career prospects.

Copyright: nakhin

Experience as a proxy for quality

It's clear that work experience is a valuable metric for employers. When other markers of quality (in terms of job performance) are absent from a candidate’s credentials, hiring managers look to an applicant’s level of experience and whether they have industry-specific experience to help them select the right person. 

We wanted to understand how experience translates into compensation value, and whether different kinds of experience – in an occupation, a firm, or an industry – were valued differently. To do that, we looked at the paycheck data of around 25,000 sales employees working in France between 1994 and 2015. 

One sector, two career paths

A few trends quickly emerged. We found that sales managers and salespeople have quite different career paths and compensation levels across their professional lifetimes. 

You might think that salespeople would be the obvious candidates for sales management roles, but in fact the opposite is true. A sales manager is not typically promoted from a sales position. They are much more likely to be drafted in from another function within the same firm. And the longer a person works in sales, the less likely they are to become a sales manager. 

 

The longer a person works in sales, the less likely they are to become a sales manager.

 

Three times out of four, employers employ sales managers from within their firm. And two times out of three, they are recruited from other managerial functions. This makes sense, given that an internal hire is a known quantity, and their skills and organizational fit are verifiable. 

However, many new sales managers have zero sales experience. Their managerial experience is apparently what counts.

Time to move on?

Another striking pattern is the speed with which experience ‘decays’ in sales and sales management. The amount of compensation that results from an individual’s experience describes an inverted U shape, rising at first before plateauing off and then going into decline as a person’s experience increases.

 

industry_experience_graphic

 

Industry experience and compensation

Note: A salesperson on the dashed curve has 0 years of industry experience at the start of his/her career. After 6 years, his/her compensation has increased by 0.06% as the result of his/her cumulated industry occupation experience. 

This trend is the same across all three types of experience we measured. It also holds true for salespeople and sales managers, although the time it takes to plateau, and decline is different for the two groups. 

Although the pay-packet does not literally decrease in size after the plateau phase, it is less than the individual could earn in another job, role or industry, so the ‘loss’ is in the form of an opportunity cost. 

Fascinatingly, our data showed us precisely how far into their employment the average sales professional would get before it made financial sense for them to leave.

 

For sales managers and salespeople alike, experience-related compensation climbs for around 3 years before levelling off.

 

For sales managers and salespeople alike, experience-related compensation climbs for around 3 years before levelling off. The figures are 2.9 years on average for salespeople, 3.4 years on average for sales managers. During that time, pay increases at 1.1% per year for salespeople and 3% for sales managers.

Salespeople’s career moves are mostly within an industry, according to our data. The compensation value related to industry experience peaks at around 3.1 years for salespeople and 3.6 years for sales managers. As before, the increase is greater for sales managers, at 1.9% per year, compared to just 0.6% for salespeople. 

Occupation experience

Occupation is where the different values attached to experience for salespeople and sales managers really comes into focus. For salespeople, the peak in experience-related pay comes at 3.4 years. For sales managers the figure is almost double – 6.4 years. What’s more, during the ascending phase of the experience arc, sales managers’ pay increases by 13.8% each year. For salespeople, the increase is a more modest 3.25% per year.

 

For salespeople, sales experience is more valuable than firm or industry experience.

 

For salespeople, sales experience is more valuable than firm or industry experience. In sales management roles, logically enough, prior experience in a managerial role is valued highly, despite that previous role not being sales specific. For both groups, it seems that value is placed on their role-specific transferrable skills – who you work for, and in what industry, matters less.

Why does experience change in value?

Our research supports a few hypotheses about why experience is valued differently over time. It may be that at first, payment increases in line with the acquisition of valuable skills and knowledge. Longer-term, an individual’s appetite to keep growing their abilities levels off as there are fewer opportunities to learn, and they become more preoccupied with professional obligations such as paperwork. Technological advancement could also play a role, as older employees are less inclined to learn and use new tools and systems, placing them at a disadvantage compared to younger colleagues.  

The way remuneration relates to experience encourages salespeople to adopt a ‘sales identity’, where occupation is more consistent than firm or industry. It is occupational experience that employers seem to value most highly, suggesting that hiring a skilled salesperson is more important than finding one with industry or firm-specific experience.

We ran a comparative analysis with two other professions – accounting and HR – where skills are highly transferrable between companies and industries. We found that these ‘boundary spanner’ functions show similar patterns in how experience is valued by employers across firm, industry and occupation parameters. 

Applications

Salespeople and sales managers have limited time during which financial rewards will increase. For salespeople, on average this is 3.4 years in sales occupations, though of course it will vary from person to person. Typically, it will make sense for a sales manager to stay in their role for 6.4 years before moving on. 

For a salesperson wishing to transition to sales management, counterintuitively it may make sense for them to move first into a non-sales management role, and then sidestep into sales management, rather than to apply directly as a salesperson. Employers value management experience over sales experience in these roles.

We found that for new sales managers moving in from other job functions, there is more risk when they switch firms, industries or occupations if they have no sales experience at all. Leaders in sales can help offset this tendency by providing good quality support and training in sales-specific skills.

watch the reskill masterclass:

 

Methodology

We used data from a large-scale administrative database (the Annual Declaration of Salaries, accessed 2022) based on mandatory employers' reports of each employee's gross earnings subject to payroll taxes from 1994 through 2015 in France. We combined this data with occupation codes that correspond to sales manager and salesperson roles, and eliminated all but those who had worked full time for at least 3 months.

Implications for firms

Given high levels of employee mobility, firms should consider hiring sales employees with more experience. Salespeople may well leave, and firms will be financially better off hiring people with a few years of experience, as these are associated with lower payouts over the complete employment period.  Overall, our findings reveal that firms should consider whole-career trajectories when designing compensation plans for sales employees, whether sales managers or salespeople, especially given their impact on a firm’s all-important bottom line.
Based on an interview with Professor Rouziès and her paper, ‘How do firms value sales career paths?’, co-authored with Ali Reza Keshavarz, Francis Kramarz, Bertrand Quelin and Michael Segalla, published in the Journal of the Academy of Marketing Science, May 2023.
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Part 6

To Attract and Retain Top Talent, Firms Sell Themselves as Springboards to a Great Career

Economics
Published on:

These days, workers at management consulting, investment banking, accounting, and law firms tend to be as interested in their career paths as they are in their salaries—which often means jumping from one firm to another in pursuit of better opportunities. But their career paths and motivation can be powerfully influenced by what sort of tasks an employer assigns to them. A study by Raphaël Lévy, Associate Professor of Economics and Decision Sciences at HEC Paris, and his colleague Heski Bar-Isaac, Professor in the Joseph L. Rotman School of Management at the University of Toronto, explores how these firms’ task allocation strikes a balance between producing value for the business and offering workers opportunities to prove their talent.

Three key findings:

• “Lose it to use it”: To attract and motivate employees, employers sometimes sell their jobs as springboards to a great career even outside the firm.

• Employees are motivated to perform when granted exposure on the labor market and when assigned to tasks allowing them to showcase their skills.

• Different human resources policies coexist: some firms consent to high exposure to their employees to boost their professional advancement, others, more concerned with employee retention, offer flatter career paths.

Career paths reflect outside opportunities

In professional service firms where human capital is the main asset, attracting and retaining talented workers is key. This might mean showing prospective hires a potential path to eventually becoming a partner and spending one’s career at the firm. But professional service firms have far fewer partners than associate positions, and the dominant paradigm in these firms has long been that of `up-or-out’: either you make it to partner, or you leave.

 

Professional service firms often have to sell themselves as workplaces where workers can build a career, even if it's in another firm.

 

To make such positions still attractive to employees, despite that winnowing down, firms need to promise workers that even if they don’t get to partner, the job is still a safe proposition, because they’re going to get a job of equivalent quality somewhere else. That’s why firms have developed outplacement practices in which they will help you to land that job elsewhere. Professional services firms thus often have to sell themselves as workplaces where workers can build a career—even though, perhaps paradoxically, their ascent is likely to take them someday to another firm.

Cultivating opportunities through task assignments

In following that strategy, firms also have to keep in mind that how employees grow and get ahead in their careers—and what motivates them to do their best—has a lot to do with what sorts of tasks they’re assigned to perform. If you’re a worker who is assigned routine tasks that don’t require talent, no matter how well you perform, the output stays the same, and the job is completely uninformative when it comes to displaying your abilities. In contrast, if you’re assigned to more challenging tasks, performance becomes highly indicative of talent. This in turn provides incentives for employees to outperform to showcase their skills to potential employers. One way to motivate young employees is to assign them to tasks in which they spend lots of time with the clients, so they get important exposure on the labor market. The firms know that in the end, the clients are going to get to know those employees and develop confidence in their abilities, and possibly want to hire them. This looks self-defeating for retention purposes, but that potential opportunity creates an incentive for employees to demonstrate their value to prospective employers, which ultimately benefits their current employers. 

Striking a balance for mutual investments and shared benefits

While a higher exposure of employees’ performance thus indirectly benefits the firm through heightened employee motivation, it also increases the wage that firms need to pay to retain their employees. This possibly limits their incentives to staff them on more risky tasks since recouping the benefits from such an investment is only possible when futures wages are not too large. In a situation where the worker got all the return from such an investment, the firm won’t have an incentive to make decisions to create those opportunities. An essential challenge is thus to find the extent of exposure that strikes a balance between workers’ and firms’ incentives.

 

Now, many such firms have created permanent non-partner associate positions for which no outplacement effort is needed.

 

Bar Isaac and Levy’s work allows to better understand that there isn’t a single approach to this problem. Indeed, different firms will choose different human resources policies. Some firms strategically differentiate by offering a high exposure to their employees, guaranteeing them to remain highly employable, and hence to rise professionally. These firms are able to attract, motivate, and possibly retain the best talents. Instead, other firms do not afford the effort that managing employees’ future employability requires, and thus offer flatter career paths. The evolution of the internal organization of professional service firms illustrates this possibility to sustain different corporate cultures: while up-or-out contracts that required workers to leave if they didn’t make partner after a set number of years used to be almost universal, some firms have abandoned that approach altogether, and many now have created permanent non-partner associate positions for which no outplacement effort is needed.

Methodology

The researchers used a combination of mathematical modeling and an extensive survey and analysis of prior research on professional service firms, labor market strategies, and the evolution of career paths and changes in the nature of tasks at firms.
This article was based upon the paper “Motivating Employees through Career Paths,” co-authored by Raphaël Lévy with University of Toronto Professor Heski Bar-Isaac and published in Journal of Labor Economics in January 2022, and also upon an interview with Lévy. 
Raphael Levy
Raphaël Levy
Assistant Professor
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Part 7

Are Strong Brands Stressing Out Their Mid-level Employees?

Marketing
Published on:

Most companies value the benefits of branding: customer loyalty, easier sales, premium pricing. But what does brand equity mean for the employee experience? How can businesses balance the advantages and possible drawbacks of strong brands? Dominique Rouziès, Professor of Marketing at HEC Paris, and colleagues Myriam Ertz of LaboNFC, at UQAC (Canada), and Emine Sarigöllu¨ of LaboNFC, at McGill University (Canada), set out to answer these questions by understanding the social mechanics driving employee attitudes towards their employer’s brands.

©tupungato/123RF.COM

How do we define brand equity?

Brand is an intangible concept, and its definition is always a little elusive. We chose to adopt a definition of brand equity that relates to customers. Brand equity is what predisposes someone to choose a brand more often, pay higher prices, and to remain loyal, or choose to try a brand in the future.  

Through these mechanisms, brand equity brings a firm more income, thanks to higher sales volumes and prices. Strong branding also offers more growth potential and a reduction in risk, owing to the loyalty factor.  

Brand equity and employees

So brand equity is attractive to business owners. But what about employees?

We made some predictions according to social exchange theory, a school of thought that describes a quid-pro-quo dynamic driving sentiment in a relationship. Social exchange theory says that the better a person (or social entity such as a brand) treats you, the better you’ll treat them – not just on a transactional level, but in terms of emotional benefits like loyalty and respect.

 

With great brand power comes great strategic responsibility.

 

On that basis, the higher up the organizational tree you climb, the more positive employee attitudes should be, since higher positions receive higher salaries and more benefits. But as our research indicates, that’s not the only factor involved, especially when it comes to mid-level workers.

An increase in brand equity doesn’t affect all employees equally. For higher-level employees, the effect is more or less neutral. For lower-level employees it’s mostly positive, and for mid-level employees it tends to be negative.

Who makes strong brands strong?

Our data about employee attitudes and brands, collected from a large cross-industry sample, supports the hypothesis that strong brands make mid-level employees’ jobs harder. These employees are directly involved in making – and keeping – brand equity high. They’re planning external and internal marketing, writing scripts for contact centers, evaluating performance and generally ‘living the brand’. 

While mid-level employees are called brand custodians, in many cases the brand itself is not so much something to be looked after as a very demanding boss. It dictates how hard they work and what they must do to fulfill their job functions. The more prestigious the brand is, the more demands it will place on this mid-level group. 

Higher-level employees benefit from a strong brand in terms of material rewards and professional reputation. But they are less likely to be directly involved in the activities that maintain brand equity, so less demand is placed on them when brand equity rises. 

The same is true of lower-level employees, who are generally engaged in operational rather than strategic work, despite some of them having an important role in brand perception when serving or supporting customers.

Cascading positive – or negative – attitudes

One thing we know is that the attitude of managers directly impacts that of the workers who report to them. Mid-level workers have an important influence on lower-level employees, and that influence can be positive or negative. Which way it goes depends on how they feel they are treated.

Social exchange theory emphasises reciprocity. Therefore, mid-level employees who see a large discrepancy in treatment between themselves and those above them will respond in kind. They are likely to ‘pay back’ their unfavorable treatment in ways that negatively impact those below them. 

The issue of ambivalent middle managers becomes more important when we consider how lower-level employees may be feeling to start with. 

Although their attitude rises in line with brand equity, employees on lower rungs have less incentive to ‘live the brand’ than those above them. They play an important role in brand health, especially in the service sector, providing front-line customer experiences in stores or on phone-lines. But their socio-emotional and utilitarian benefits are not likely to be high, and in turn, their reciprocal response will not be strong enough to promote a whole-hearted, one-brand persona. Not without the positive influence of mid-level managers, at least. 

That’s why it’s crucial for mid-level managers to feel that they receive equivalent treatment to those higher up, both in terms of socio-emotional benefits, such as thank-you letters and appreciation events, and utilitarian ones, for example privileged access to corporate stocks. That way they can effectively play their all-important role in inspiring and motivating those below them. 

Great service starts at the highest levels

We found that the service industry is an especially pronounced example of mid-level and lower-level employee attitudes deteriorating as brand equity rises. In this sector, when mid- and senior-level employees aren’t aligned in their attitudes, there’s even more chance that mid- and lower-level employees will have a negative attitude towards the brand.

 

We found that the service industry is an especially pronounced example of mid-level and lower-level employee attitudes deteriorating as brand equity rises.

 

This might be because when service brands are strong, front-line employees are under more pressure to communicate that brand to customers, and their enthusiasm and service quality depend more on those directly above them to help counteract the stress-induced negativity.
 

Applications

Our research doesn’t undermine the positives of brand equity, but it does highlight that with great brand power comes great responsibility. Firms must deploy internal marketing wisely when a brand’s star begins to rise. For mid-level employees especially, it’s important to focus on behavior and messaging that helps offset the negatives. For example, offering pro-active management support, education and training that helps them handle the demands of ‘brand as boss’, and clear performance evaluation. Internal marketing messages can convey ideas and values to staff, and external activities help cement an employee’s sense of identity as part of the firm and the brand.  A differential approach to employer branding also makes sense. Lower-level and higher-level candidates can be attracted by strong brand messaging, but for mid-level roles – and those at all levels of the service sector – it’s wise to focus on other aspects, such as the level of compensation and benefits on offer and the development opportunities available.

Methodology

We assessed employee attitude using the Great Place To Work (GPTW®) measure, which assesses a wide range of employee attitudes. We assessed brand equity using the BrandZ™ measure, which is correlated with other brand equity measures. We used data from 20 large firms in France, spanning a range of sectors.
From an interview with Professor Dominique Rouziès based on her paper “The impact of brand equity on employee attitudes,” co-authored with Myriam Ertz (LaboNFC, University of Quebec at Chicoutimi) and Emine Sarigöllu¨ (LaboNFC, Desautels Faculty of Management at McGill University), published in the European Management Journal (in press).
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Part 8

When Does Pressure to Do Extra Work Drain Staff and Threaten Home Life?

Human Resources
Published on:

Sometimes workers “go the extra mile,” doing charity fundraisers, taking part in team socials, or mentoring new recruits, but does it bring value or is it counter-productive? A new study from Ekaterina Netchaeva (HEC Paris), Remus Ilies and Massimo Magni (Bocconi University), and Jingxian Yao (Tongji University), shows that although this extra work can energize employees, the pressure to engage it in, on the contrary, drains them.

Almost everybody works beyond the strict scope of their job specification. This extra activity is known as organizational citizenship behavior (OCB). It includes staying late in the office, working weekends, being the “go-to” person for colleague questions, taking on charity projects, and even attending team dinners. It is discretionary behavior that is not explicitly rewarded, although it can help organizations or teams to perform well.

Thanks to these benefits, OCB is often implicitly promoted. Perhaps a manager highlights exemplary employee behavior, or praises people who go “above and beyond” regarding OCB. This subtle narrative is called citizenship pressure.

We wanted to address a significant gap in our knowledge by comparing the effects of OCB and citizenship pressure on workers. We asked whether feeling the pressure to act outside one’s job role affected people differently and influenced them to actually engage in these behaviors. We questioned whether engaging in OCB or being exposed to citizenship pressure might have a detrimental effect on employees. Do workers find these phenomena drain their limited personal resources to work well?

Do the effects of OCB or citizenship pressure spill over into family life? Does OCB and/or citizenship pressure mean a worker comes home tired? Do they engage with their family and feel energized to socialize, or do they just collapse on the couch? 

We drew on previous research as the framework for our study. Studies propose a model of human energy and suggest that people's perceived level of energy determines their capacity to act out their intentions. The more energy an employee has, the more able they feel to perform an activity. So, does participating in OCB and encountering citizenship pressure increase or decrease worker fatigue? And can employees replenish their energy from the extra workload or pressurization with evening relaxation and a good night’s sleep? 

Doing extra versus feeling pressure to do extra: what is the most tiring?

Using survey data from professional office workers and their spouses in India across several days, we found a crucial difference between the effects of performing OCB and the experience of feeling citizenship pressure. We found that citizenship pressure (without any actual behaviors) causes employees to feel more fatigue at the end of the workday, even when we controlled for daily workloads and the day of the week.

 

Citizenship pressure causes employees to feel more fatigue at the end of the workday than the actual behaviors.

 

Participating in OCB did not use up employee energy to the same extent, suggesting that OCB does not drain employees to the same level. This finding is consistent with other work that suggests some OCB may actually help regenerate employee energy levels. Our findings show that it is the pressure to go beyond the call of duty that contributes to fatigue, hence the perception is stronger than the action.

So does this fatiguing effect spill over into family life? And do workers manage to recover and replenish their energy when they are at home? 

A heavy burden on private life

Our study results showed that workers with higher fatigue at the end of the working day experienced lower-quality interactions with their spouses. But more significantly, this socializing – whether watching TV together, having dinner or spending the evening with family or friends – depended on the extent to which the spouse allowed the employee to recover after work. It sounds counterintuitive – and it certainly is not always easy to manage if both partners are working and come home tired –but it pays to give a tired worker some time and space to “destress” when they get home. There is usually food to cook, washing to sort, children wanting to play; but taking a moment to decompress and relax leads to better much better interaction across the evening. We found that spouses who supported their partners by creating this space (for example by looking after the kids) reported better interactions with their partners overall.

 

Workers with higher fatigue at the end of the working day experience lower-quality interactions with their spouses.

 

Fitness tracker data revealed that a good night's sleep also helps reduce the deleterious effects of citizenship pressure. When our participants experienced sufficient deep sleep, they were less likely to feel fatigued the following day, and hence better prepared to do a good day’s work.

Finding the balance

Our advice to employers is: beware! There are many positive outcomes of OCB for organizations, but our results qualify the received wisdom. We would suggest companies take a more moderate stance in their expectations and temper any implicit messages encouraging OCB. By not exercising caution, organizations run the risk of adding unnecessary weight to employees’ shoulders that may negatively affect their ability to perform, both at work and at home. 

The importance of sleep should not be ignored either, which means tackling any culture of working during the evenings. Many studies have demonstrated that engaging in work-related behaviors in the evening, for example using computers and mobile phones, negatively affects sleep which fatigued employees desperately need to replenish their energy. We have shown that deep sleep is a remedy for the fatiguing effect of citizenship pressure. Workers need to disconnect, relax, and sleep well so they are prepared for the next working day and life at home!

 

Methodology

We collected data from a sample of 73 professionals and their spouses. Workers completed a morning, afternoon, and evening survey every day for 10 days to capture information on OCB, pressure and levels of fatigue; spouses also submitted a survey each evening about how they spent their evenings with the worker and the extent to which they made allowed the worker to relax, for example by managing the children or taking on household tasks. Sleep data were collected using a wrist-worn fitness tracker.

Applications

OCB is known to have clear and consistent positive outcomes for organizations. However, our study reveals that the perceived pressure to engage in this behavior can have negative downstream effects. Organizations may be well-advised to take a more moderate stance about encouraging this behavior, tempering implicit encouragement while more conspicuously rewarding OCB.
Based on an interview with Professor Ekaterina Netchaeva concerning her paper, “What we are pushed to do versus what we want to do: Comparing the unique effects of citizenship pressure and actual citizenship behavior on fatigue and family behaviors.” It was published in the Journal of Vocational Behavior in 2023.
Related topics:
Human Resources
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Part 13

How Gender Diversity at Law Firms is Driven By Competition for Business

Strategy
Published on:

A new study of John Mawdsley and Rodolphe Durand of HEC Paris, and Lionel Paolella of the University of Cambridge, indicates that for U.S. law firms, efforts to increase gender diversity aren’t only motivated by a desire for fairness, but instead are driven by the need to take clients away from rival firms. The authors show that when women are increasingly represented in the senior ranks of clients of rivals, law firms strategically boost their own gender diversity to align with the diversity values of those clients. However, when increasing gender diversity is less likely to be successful for taking those clients, law firms reduce their gender diversity efforts in their organization.

Bob_Odenkirk_Rhea_Seehorn_cover

Bob Odenkirk and Rhea Seehorn, co-stars of the cult series "Better Call Saul", which features a female actress as a central character, at the 2018 San Diego Comic Con International. (Photo Credits: Gage Skidmore)

There’s a growing trend of women being represented in business leadership ranks, a change that many may see as remedying past discrimination and furthering gender equality. But no matter how much companies care about social change, they also are locked in hard-fought competition with rival firms for customers. That’s particularly true of big U.S. corporate law firms, who survive and thrive by building a roster of major business clients with a continual need for their services—and that often means luring clients away from their current attorneys. 

As a study of 167 of the biggest U.S. law firms and 1,400 buyers of legal services reveals, though, those two motivations don’t necessarily clash. To the contrary, business competition can actually be a powerful driver for law firms to increase gender diversity, if the potential clients that they’re trying to lure away from competitors are themselves creating more opportunities for women in their senior ranks. But this rivalry-based theory of gender diversity also has a downside for the promotion of women; when the opportunity to attract new buyers of legal services decreases, so do law firms’ efforts to increase their gender diversity. This also happens when law firms can use racial diversity as a substitute for promoting women.

Doing Good Isn’t Enough Motivation 

In my career as a business researcher, I study professional service firms and how they create and capture value from clients, and how that affects their strategy and performance. I’m interested in the pressures that these outfits have to deal with, and the motivations that influence them. That focus led me to look at gender diversity from the perspective of competitive action.  

It’s no secret that a lot of companies these days are very interested in Environmental-Social-Governance (ESG) values. There’s been a push over the last 10 to 20 years for businesses to be more socially responsible. Many people believe that it’s the right thing to do, and you’re doing well by doing good.

But evidence suggests that the motivation for diversity efforts is more complex, and not primarily altruistic. Lawyers and law firms, after all, are subject to the same pressures as other businesses. Beyond that, diversity efforts tend to focus on the bottom of the organizational chart. Firms have diversity committees that influence hiring practices, and when they recruit new associates from law schools, they often achieve a relatively even split between male and female hires. 

But the acid test is, how does that translate through the rest of the organization, all the way up to senior partner level? That’s where you see a huge drop-off in diversity, going from 50 percent female associates to less than 20 percent of the partners being female. We discovered that law firms actually become diverse at a much lower rate than clients. So the question becomes, when law firms increase their female representation at the top, why is it happening? Are these firms acting strategically? Is it market-driven? And if it is, how powerful would that effect be?

A Rivalry-Based Perspective

The law profession is a good place to study how firms have to respond to diversity expectations of buyers, and how they gain competitive advantage for doing that. Law firms are dependent upon buyers of their services for revenue and market reputation, and although clients pick their firms based on a wide range of criteria—from industry expertise to track record-- increasingly they’re insisting upon diversity as well. A few years back, prominent companies even jointly published a “Call to Action  ” statement to let law firms know that they intended to direct their spending to firms that took diversity seriously. 

So we developed the hypothesis that gender diversity actually is, in part, rivalry-based. If you’re a law firm trying to lure a competitor’s big client to drop them and hire you instead, you’ll notice if the potential client has a lot of women in senior positions, and you’ll try to match their diversity so that you’re a better fit for them along that dimension. But if that possible customer isn’t as diverse, you won’t feel the pressure to be diverse, either. When you consider gender diversity from that perspective, it suddenly becomes strategic and instrumental.

We also had to think about what might be alternative drivers for law firms to become more or less diverse. There’s an abundant body of literature on the benefits to organizations from being more diverse. Instead of trying to look like clients, for example, there could be a human capital rationale, in which firms see having greater diversity as a way to have a better talent pool, with more varied knowledge and perspectives, and an increase in skills. But if improving human capital was the main driver, you wouldn’t see diversity influenced as strongly by whether the clients are diverse. 

 

A key reason for becoming more diverse is rivalry. This really matters, rather than building human capital.

 

Indeed, what we found was that this effect—law firms trying to match clients’ preferences—is strongest when it’s the clients of the firm’s closest rivals who are indicating their preference for diversity. A key reason for becoming more diverse is rivalry. This really matters, rather than building human capital (we can assume these firms have great lawyers!).

Similarly, you wouldn’t see that strong rivalry-based effect if diversity was mostly driven by ideology. If you're trying to achieve competitive advantage, you're trying to steal clients away from other firms, and you're trying hardest to steal those clients away from your closest and strongest rivals. So the response is going to be strong.

How to Use the Insights

One of the neat things about this study is that, empirically, we’re showing a really strong association between diversity and rivalry, and aligning with the preferences of rivals’ clients. It’s a strategic maneuvering that’s been alluded to in some of the previous literature, but it had never really been demonstrated until now.  

Managers should be thinking about how to use diversity as part of their strategy for improving their market position. In addition to the knowledge, skills, and capabilities that people might have, the managers should be thinking more about how to build their human capital and talent bases in a way that gives them an advantage in the market as well. If you build your pool of employees to also reflect what society is, or what society values, you’re probably going to do better.

There’s a need for additional research on the rivalry effect upon diversity. We don’t know at this point how relevant it is outside of professional services—the extent to which it would apply, for example, to manufacturing, where companies’ sense of social responsibility might be driven more by making the transition to green energy or curbing unfair treatment of workers. Or if it’s in a field or geography where white males historically have been dominant, and continue to be, so women aren’t part of the workforce.
 

Methodology

The researchers utilized a longitudinal panel dataset that included law firms from the annual Am Law 200 survey, which ranks the highest-grossing 200 U.S. corporate law firms, supplemented with demographic data on gender and race collected by Vault.com and the Minority Corporate Counsel Association. ALM Intelligence’s annual Corporate Representation (Who Counsels Who) files enabled them to link law firms to clients of services. Data on the gender of executives at the companies who were buyers came from BoardEx, a global business intelligence firm. Additional data on the number of attorneys in branch offices of law firms was gleaned from the National Law Journal.

Applications

Instead of viewing gender diversity just as an ethical responsibility or a tool for building human capital, managers should examine it from a competitive-based angle as well. In their strategic planning, they should look for opportunities to make proactive improvements that can help them to improve the firm’s market position. 
Based upon an interview with John Mawdsley and the article “A rivalry-based theory of gender diversity,” recently published in the Strategic Management Journal, co-authored with Lionel Paolella of the University of Cambridge and Rodolphe Durand, professor of Strategy and Business Policy at HEC Paris.
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Part 10

Digitalization and Talent Attraction at the Big 4

Management Control - Audit
Published on:

HEC Paris Professor Hélène Löning shares insights on disruption in the way the four well-known auditing and consulting firms, or "Big 4", perform auditing, recruit and manage careers. In her view, the Big 4 and other consulting firms will have to take account of the new generations' expectations to find the skills and talents needed to add value and bring solutions to their clients.

Helene Loning - video Big 4

Why do auditing and consulting firms such as the Big 4 need to develop new approaches to recruitment and career?

First, we need to understand how these professional firms were organized and recruited until now. Career at the Big 4 (Deloitte, EY, KPMG and PWC) is based on three pillars: massive recruitment of junior people freshly graduated; pyramid from Junior to Partner, with an up-or-out system; a rather closed world where personal relationships are important, first with your managers and bosses, then with your clients. 

At the bottom of the pyramid, junior people perform analytical and recurrent tasks, with an emphasis on productivity. The next level is managerial: it is about managing a team and a mission in order to deliver effectively – in line with the client’s expectations on time and quality - and efficiently – not using too much precious time resources. All the way up, partners are in charge of the client relationship.

Each level is characterized by a set of skills of a different nature. Competence and performance in the level below govern the access to the upper level, where you should quickly achieve the acquisition of the new set of skills (or out).

 

At least two strong forces are currently and concomitantly pushing the professional auditing and consulting firms to challenge and question their model of organization and career.

The first one is the fast-paced digitalization of their jobs and the consequent deep, structural transformation of the way auditing is performed (as well as consulting, however to a lesser extent). Auditing until now has been characterized by sampling methods for checking and verifying. In the future, RPA (Robotic Process Automation) and even more Artificial Intelligence will enable exponential gains of productivity and reliability, to the point that instead of sampling, it will be possible to screen the complete set of data, thus to detect and visualize all the anomalies. Experienced and skilled humans, at least for now, will still be needed for analyzing and understanding the anomalies. 

 

Thankless tasks and unglamorous jobs traditionally delegated to junior recruits will progressively be taken over by RPAs, or machines.

 

This transformation is a quantum leap in the way auditing is performed. Thankless tasks and unglamorous jobs traditionally delegated to junior recruits will progressively be taken over by RPAs, or machines in a machine-learning mode. Because it responds to the productivity rule, this revolution is already on going in all professional firms.

The second force driving change is the new generations now entering the labour market, the tech-savvy, young people under 25 years old. Their expectations towards their employers are quite different from their elders.

Firstly, they want an intellectually stimulating job, where they feel they are learning, putting their brain at work and doing something useful for themselves – the job should help them grow. Secondly, they are driven by purpose and want a job that has impact and makes sense in their eyes; either the job should have a social impact and be useful for the society at large, or at least they should see the impact of what they do for their company on a daily basis. Part of the current enthusiasm of this generation for entrepreneurship is to be related to seeking visible impact of their daily activities. 

 

The tech-savvy, young people under 25 years old now entering the labour market have in general completely different expectations.

 

Thirdly, they are an ever-questioning generation who has been raised to ask and be answered their whys. They do not do without understanding why they (should) do it. 

Legitimacy of authority in their eyes does not come with age or experience. They are fully aware that they do not know everything and still have to learn, but they also know that they can do a number of things better than their elders. As a consequence, legitimate authority for them is based on whether they can learn from you – mostly if you are leading by example and inspiring them.

What do the professional firms do to answer these challenges? Have the Big 4 evolved? 

At least for a decade, they have seen their ability to attract talents to auditing erode, especially in the best universities and schools. As an answer, they have opened the range of jobs that they offer to junior talents, jobs that used to be dedicated to experienced juniors with at least 3 years of auditing. 

One thing to understand is that the Big 4 are much more than auditing firms. They are first and foremost knowledge-based firms, expertise companies. Auditing is their historical core market, however in the past three decades, they have experienced double-digit growth, which has been driven by consulting activities, not by auditing, which is a saturated and bounded market. 

Building on their accounting and financial expertise, they ventured into financial advisory and all the jobs around the transactions or “deals”: preparatory work for mergers & acquisitions, due diligence process, independent valuation of companies to be sold/bought, accounting for the acquisitions, post-merger integration of companies accounting and finance systems… This is a long list of expertise activities to be performed. 

From there they also ventured into processes improvements and management consulting: they started with finance processes improvements, then operational processes improvement, operational excellence and strategic consulting. 

Big 4 firms have progressively opened all these branches and professions to junior recruits, either directly or by offering “graduate programs” that enable the junior recruit to spend 6 to 8 months in three different jobs or branches. They also have started to explore further talent management and career issues. 

Helene Loning - video Big 4

Will they need to go beyond? 

My strong conviction is that the new generation, who hardly sees itself in a hierarchical mode, will shake the whole organizational pyramid. Big 4 firms might end up re-thinking entirely their recruitment and career schemes. 

Because they are knowledge and expertise providers, human capital is crucial to them, it is their beating heart. Maybe they will have to start thinking skills beyond talents: what skills will the talented need tomorrow? Who are the profiles, junior or senior, who detain these skills?

 

Those among the Big 4 who are not “open” in terms of recruitment, who do not go and capture expertise, know-how, skills and talents where they are, will no longer be able to add value and bring solutions to their clients. 
 

The closed, entre soi world will have no choice but to give way to more openness. In an open innovation era and a world where knowledge is built collectively, those among the Big 4 who will not be “open” in terms of recruitment, who will not go and capture expertise, know-how, skills and talents where they are, will not be able anymore to add value and bring solutions to their clients. 

Some of the professional firms have already begun this "revolution" in their organization, with very active incubators, innovation departments, "off hierarchy" profiles, who weave relationships and networks with the existing hierarchy and will boost their business tomorrow.

Helene Loning - HEC Paris
Hélène Löning
Associate Professor and Academic Director
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Part 11

3 Lessons on Team Leadership in Times of Uncertainty

Leadership
Published on:

The current uncertain and complex environment is further driving research on how business leaders should respond in the workplace. In this RESKILL Masterclass, Brad Harris, Professor of Management and Human Resources at HEC Paris, discusses the questions of building trust, creating healthy dynamics and enabling an empowered culture needed to respond to the challenges the 21st century is throwing up. It was recorded on March 23, 2023, and is available on YouTube. You can also find all the questions and comments on the LinkedIn Live. Here are the three key takeaways... and a summary of leadership qualities.

brad harris - cover

watch the replay of the masterclass:

 

1. You don’t always need a team—sometimes a group will do! 

Essentially, a team is not necessarily superior to a group. It depends on the project you are embarking on. Does a team justify all the work you require to achieve your goals? Building teams can sometimes be messy and complex. Sometimes it doesn’t merit all the legwork to make your team truly great. You must ensure the potential for collaboration gains (or synergy) outweighs the coordination tax (process losses). Only use teams when you embark on a task/problem that is big and complex enough to warrant one. 

2. Trust is the bedrock of teams and groups

I have been researching this concept for the past 15 years and used the word 38 times in this very Masterclass. One of the biggest responsibilities team leaders have is to establish a culture of trust within their collective unit. A recent Gallup poll showed that when engaged employees trust their management highly, they are 50% more productive, they devote 106% more energy to their task and they have 13% fewer sick days! So trust appears to pay rich dividends at all levels. An easy way to think about trust is our willingness to be vulnerable to one another. You build it on the foundations of authenticity, good logic, and empathy/benevolence.

3. Great teams are more a function of design than coaching

Great teams and groups are a function of design and coaching. Although we like to focus on coaching, design should be the first priority. Unfortunately, people tend to think design is too HR focused and short sell it. Yet, design is about setting a compelling vision, crafting goals that make sense and giving feedback about everyone’s role. We can emphasize these factors every single day as leaders. From a design perspective, you need people that have clear roles, strong incentives and work with a team that accepts a degree of overlap. To sum up, a good design can cover for mediocre coaching, but even the best coaching will struggle to overcome a poor design! 


Brad’s Top 5 Team Leader Qualities:

  1. Drive clarity (not necessarily certainty).
  2. Share strategic information early and often.
  3. Create a regular check-in routine.
  4. Make learning a priority.
  5. Be a role model and enforce the norms and values you want to see.

 

Find the books and research publications by Professor Brad Harris on his HEC Paris profile here, and the reference he mentioned, "The World is Flat" by Tom Friedman, here.   
Brad Harris
Professor and Associate Dean of the MBAs
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Part 12

Why Companies Need to Pay Attention to Their Legitimacy

Leadership
Published on:

To retain talent, sell their products or attract investors, and generally justify their existence, businesses need to be perceived by society at large as legitimate. But as social values evolve over time or after a sudden crisis, organizations may see their actions and purpose questioned. In this interview, Julien Jourdan, expert on the consequences of reputation, legitimacy and scandals on organizations, explains why legitimacy is key to resilience for businesses.

legitimacy - cover

Photo Credit: Nuthawut on Adobe Stock

What is legitimacy in a business context?

Legitimacy is a generalized perception in society that the actions of an organization are desirable, proper, or appropriate. Legitimacy may greatly vary with space and time. Think about environmental concerns in the automobile industry: diesel engines were perfectly legitimate in the 1980s, and their production and sale strongly encouraged by several European governments. Not anymore, certainly not since the Dieselgate scandal.

Legitimacy has cognitive, pragmatic and moral aspects: Do we understand what the firm produces? Is it useful to society? Do we regard the organization as a force for good?

Why does legitimacy matter?

I tend to think about firms as coalitions of stakeholders maintained to achieve a purpose. In a market economy, nobody is forced to work for a firm, buy its products, or acquires its shares in the stock market. Each stakeholder brings certain resources to the collective project that the firm embodies: money of course, but also talent, ideas, and hard work. Convincing stakeholders to join the coalition and stay in requires more than an attractive economic proposition. Nobody likes being associated with an organization that is regarded as illegitimate.

 

Convincing stakeholders to join their coalition and stay in requires more than an attractive economic proposition. Nobody likes being associated with an organization that is regarded as illegitimate.

 

Ask HEC Paris graduates if they would be willing to join a tobacco company, a nuclear energy producer, or a firm caught in a major scandal. Most would just say no. A minority may accept but would only join in exchange for a larger compensation.

What happens when an organization is deemed illegitimate?

An organization that fails to meet legitimacy standards is at risk of meeting disapproval and even strong hostility. Illegitimacy has a cost and the most illegitimate organizations are at risk of having their “social license to operate” revoked.

For example, The Weinstein Company was the central piece of the American independent film industry until its founder was found guilty of sex crimes. But it only survived a few months after the “MeToo” scandal. In my work, I find that French film producers that fail to appear legitimate in the industry are twice more likely to go broke, irrespective of their commercial and artistic success.

Where do pressures for legitimacy come from?

From society in general, and activists and the media in particular. The more prominent organizations become, the more scrutiny they attract, and the more likely they are to be dragged into the spotlight and accused of wrongdoing. If their audience shows interest, the media are motivated to pursue the matter and, when the social drama develops, short episodes of Durkheimian “collective effervescence” may happen. These are ephemeral yet intense moments of emotion in society when moral rules – what is right and what is wrong, what is permissible and what is socially punishable – are questioned and revisited.

 

There are ephemeral yet intense moments of emotion in society when moral rules are questioned and revisited. And no executive wants to be in the C-suite when that happens.

 

Believe me: no executive wants to be in the C-suite when that happens. When the US EPA accused Volkswagen of cheating engine emission tests, the firm lost 42% of its market value in a few days. The CEO was forced to step down, many executives were investigated, and some ended up being prosecuted. The German firm survived but, to rebuild its legitimacy, it had to engage in a costly company-wide strategic reorientation, reinventing itself as a force for good, a (repentant) pioneer of clean transportation.

How does legitimacy help organizations survive major international crises?

Large geopolitical events, like revolutions, insurrections, and wars may as well shift how organizations are perceived and trigger a form of “legitimacy stress”.

Consider multinational corporations caught in geopolitical crossfires. Overnight, such firms become at risk of being targeted by activists, NGOs, and governments in their home and host countries. They may react by boosting their engagement in lobbying and other corporate political activities, as we find in a study of multinational firms in the US at the onset of the 2003 war in Iraq.

But “private politics” tactics require time and only work when institutions in place allow them.

Photo Credit: Nuthawut on Adobe Stock

Resisting public pressures is especially hard in times of crisis when society experiences episodes of “collective effervescence”. Even if they have a strong rationale for doing so and the best intentions, leaders need to weight the benefits of maintaining operations and the potential long-term legitimacy cost for the entire organization.

The Western firms that maintained their activities in Russia in 2022 despite “name and shame” campaigns justified their policy by the need to preserve local jobs, serve innocent populations, and pointed out that valuable assets would end up in dirty hands if they left. Yet, as growing legitimacy concerns were adding to logistical difficulties, many were forced to exit eventually.

Preserving the legitimacy of a firm is not a mundane task, not something leaders may think about when they have time on their hands, when they have taken care of “real business” issues. It should be at the top of their minds at all times. It’s a leadership job par excellence.
 

Institutional Specialization and Firm Survival: Theory and Evidence From the French Film Industry”, by Julien Jourdan (HEC Paris), published in Strategy Science in 2018, and “When the Dust Settles: The Consequences of Scandals for Organizational Competition”, by Alessandro Piazza (Columbia University) and Julien Jourdan (HEC Paris), published in Academy of Management in 2017.
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Part 13

To Make Your Organization Resilient, Think Like a Family Business

Entrepreneurship and Startups
Published on:

The ups and downs of economic cycles take most companies for dangerous roller-coaster rides, but family firms weather crises much better than their competitors. That's because they focus on resilience rather than on immediate performance. At a time when the global economy seems to experience crisis after crisis, lessons can be drawn from family firms, or non-family ones that behave (and survive) like them. Alain Bloch, Emeritus Professor in entrepreneurship and co-founder of the former Family Business Centre at HEC Paris, explains.

family business - cover

Photo Credit: Kzenon on Adobe Stock

The average life expectancy of a company does not exceed 40 years, according to several international studies. Yet some manage to clock 100 years or more, like Brink's, Michelin and General Electric, which all survived the wars, economic turmoils and crises of the 20th century, and have entered the 21st century full steam ahead. What is the secret to their exceptional longevity, or to use a word that has become particularly popular in management circles, their resilience?

Surviving increasingly frequent crises

Finding out how companies weather storms is all the more relevant nowadays as periods of fair weather seem shorter and shorter, with one crisis following the other nearly back-to-back. Furthermore, beyond the question of mere corporate survival lies an important issue: When an organization aims for resilience, by definition, it is more respectful of the stakeholders overall, for instance more respectful of its employees - who after all are the crew that will take the organization through the storm-, more respectful of its suppliers and this respectful behavior is oriented toward the long term. So how do companies successfully gear their strategy for the long term?

Learning from family businesses

The answer lies in a set of characteristics that we identified by examining family businesses. Although the term “family business” conjures images of mom-and-pop shops, family-controlled groups may be huge, like Walmart. We compared 149 publicly traded, family-controlled businesses with revenues of more than 1 billion dollars based in Western Europe and North America and a similar group of non-family-controlled companies. While family-controlled groups earn less than their peers during economic booms, they outperform them during economic slumps. Also, when looking across business cycles from 1997 to 2009, we found that their average long-term financial performance was higher.

 

Our conclusion was that family businesses focus on resilience more than performance.

 

Our conclusion was that family businesses focus on resilience more than performance. What they do is that they forgo the excess returns available during good times in order to increase their chances of survival during bad times. At a later stage, we carried out additional research with interviews with executives from 19 European firms or European subsidiaries of US firms that were more than a century old and found that they made similar strategic choices. This confirms that well-run family businesses can serve as models, even for companies with different ownership structures.

Here are the strategic choices that we identified as fostering resilience.
 
1/ Frugality
A quick definition of frugality would be “to spend well”. When managers have a sense that the company's money is the family's money (whether this is strictly true or not), they quite simply do a better job of keeping their expenses under control. They splash less on swanky headquarter offices than their peers, for instance, and keep the bar high for capital expenditures, only investing in very strong projects. One owner-CEO told us: “We do not spend more than we earn”. Prudent rules may mean missing out on opportunities during periods of expansion, but this also limits their exposure in times of crisis.

The same caution applies regarding debt and acquisitions. Family-controlled firms are less leveraged (debt accounted for 37% of their capital on average versus 47% for non-family firms) and make fewer, smaller acquisitions (worth 2% of their revenues vs 3.7% for non-family). Instead, family businesses prefer organic growth and will often pursue partnerships or joint ventures instead of acquisitions.

2/ Reliability
Long-lasting firms are very similar to what has been called “high-reliability organizations” in the academic and scientific literature, usually in contexts of high risks (such as a nuclear power plant). They ensure that their processes are reliable and will resist shocks. For instance, at Spie, a construction group, there is a strong focus on training in work safety, which has helped keep the accident rate at half the usual level in the sector. Incidentally, reliability helps reduce costs, in turn supporting frugality.

3/ Ambidexterity
Resilient companies combine operation and exploration, the need to attend to the present by exploiting the existing capabilities and to prepare the future by exploring new opportunities. One example of an ambidextrous company is Saint-Gobain, which operates in the sector of construction materials. Its research branch has full latitude to set its own goals, but is firmly anchored in the company's strategic markets to help make innovations commercially viable.   

4/ Value placed on human resources
Family businesses (and those that emulate them) are better at retaining talent than their competitors. How? Not necessarily through financial incentives, but by avoiding layoffs during downturns, which contributes to stronger employee engagement and helps them keep skills and expertise. They also invest significantly more in training, spending on average €885 per year per employee on average versus €336 at non-family firms. 

Leadership also is more stable, with executives at century-old firms displaying 20 years' seniority (pretty classic longevity in family firms), while most CEOs at Fortune 500 companies tend to only have been around the company 8 years before taking the helm.  

What is most interesting about the main principles that resilient companies follow is that they are coherent and synergistic, each principle reinforcing the other. For example, frugality and low debt reduce the need for layoffs, which improves retention; fewer acquisitions mean less debt; money saved through frugality is available to be invested wisely and so on. This virtuous circle is likely one that other companies will want to adopt these principles to become more resilient and weather the frequent crises of our global economy.

 

Listen to Alain Bloch's interview in French on Xerfi Canal:

 

Listen in French: Les entreprises familiales sont-elles plus engagées que les autres ?

 

 

HEC professor Alain Bloch
Alain Bloch
Affiliate Professor
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Part 14

Hannah Walt: Is She Trustworthy?

Strategy
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When Hannah Walt became the managing director of Epano Consulting of the Berlin branch, she did not only inherit challenges; she also had to face the general issue of being new to the business unit. She was promoted from within the company but came from a different geographical unit and had not worked in the Berlin office before.

The case traces the first few weeks when Hannah became the managing director of the branch office. She is a fictitious character in a fictitious firm specialized in global environmental sustainability consulting services. Although Hannah had been with Epano Consulting for a few years; she had been based in the US and UK offices.

She was on a career fast track. She was not known in the Berlin office when she was named. One week into the job in Berlin, getting to know the staff, organization, and key clients, she organizes a general staff meeting with all the employees, including her direct reports.

 

The story allows the exploration of trust in granular detail.

 

Her first informal meeting as the managing director was a resolute disaster. The silence in the meeting hall was violently quiet. During the entire meeting, she heard no one speak, although she invited questions and comments. Hannah’s voice was the only sound in the meeting hall; thus, the silent treatment was her official ‘welcome’ from the staff.

We later learn in the case that the previous managing director prior to Hannah’s arrival had made promises of overtime pay and promotions. These promises were not kept. Against this backdrop and Hannah Walt’s first weeks in the new position, the objective is to explore the concept of trust in depth and how one can try to proactively create trust in a case presented in two parts: A and B.

WHY THIS CASE?

Building trusting relationships at the workplace is one of the most important building blocks in a company in general and for any career. The story allows the exploration of trust in granular detail such as understanding trust in social interactions, building trust proactively and rebuilding trust when it is broken.


Learn about the role of trust at work in this RESKILL Masterclass with Professor Brad Harris: Team Leadership in Times of Uncertainty

 

This business case was written by Nils Plambeck, Associate Professor of Strategy & Business Policy at HEC Paris and is available on the Case Centre.
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Part 15

Jayda Moore: Can She Rebuild Trust?

Strategy
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The case examines the topic of trust repair with Jayda Moore, a fictitious character in a fictitious firm that specializes in marketing consulting. Jayda has been the manager of the consumer goods team at MarketMinds since September 2022 and had managed to create a supportive and caring team atmosphere. Her team members felt valued and appreciated and were accordingly highly motivated, leading to great operational successes. As a result, the team members’ level of trust had evolved, they had especially trusted Jayda. However, the well-earned trust in her is now put to the test.

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Under extreme work pressure, Jayda did not keep promises that she made to her team members. In addition, she had emotional outbursts in the office against her staff.

Against this backdrop, we examine the underpinnings of trustworthiness, how trust is broken, and how it could potentially be repaired in different circumstances. Jayda embarks upon a journey to rebuild trust.

WHY THIS CASE?

Building trusting relationships at the workplace is one of the most important building blocks in a company in general and for any leader’s career. Broken trust undermines the foundations of relationships between colleagues and may have an impact on productivity, team performance, and the individual’s well-being. The case enables a discussion about the process of trust repair and the contingencies that shape the effectiveness of different repair tactics.

 

Opinion by Karine Rougé (H.04), CEO of Veolia North America’s Municipal Water services:

The case highlights the various ways trust can be built, lost and repaired within a team. I was absolutely thrilled to see HEC giving exposure to these topics to students. Interpersonal relationships and self management as a leader are not “nice to have” but essential skills to lead in a complex world. Leading in a purpose driven organization requires a deeper set of leadership skills, fostering trust, dialogue, and thus able to deal with complexity in a way that command-and-control leadership can’t.

 

Learn about the role of trust at work in this RESKILL Masterclass with Professor Brad Harris: Team Leadership in Times of Uncertainty:

 

This business case was written by Nils Plambeck, Associate Professor of Strategy & Business Policy at HEC Paris, and is available on the Case Centre.

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