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The Dynamic Value of Hierarchy

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  • Anne Marie Knott

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    (The Wharton School of the University of Pennsylvania, 2023 Steinberg Hall-Dietrich Hall, Philadelphia, Pennsylvania 19104-6370)

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    Abstract

    This study develops a dual-routines view of the dynamic value of hierarchy, and tests it against the implicit null hypothesis that hierarchy merely provides static advantages over markets. The view holds that hierarchical managers perform two roles that create value for firms in perpetuity---an administrative role of enforcing operational routine, and an entrepreneurial role of executing a metaroutine that continually revises operational routine to keep pace with changes in the environment. The test consists of a natural experiment comparing the behavior and performance of establishments that leave a franchise, "lose their hierarchical managers," with those that remain. I find support for the view. In the absence of the franchisor, establishment behavior drifts from the operational routine, and establishments fail to adopt innovation. Both responses lead to significant decay in performance. Thus hierarchical managers are necessary to actively enforce routine, even after the routine been assimilated, and to introduce innovation, even in this unique setting of perfect incentives.

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    File URL: http://dx.doi.org/10.1287/mnsc.47.3.430.9776
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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 47 (2001)
    Issue (Month): 3 (March)
    Pages: 430-448

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    Handle: RePEc:inm:ormnsc:v:47:y:2001:i:3:p:430-448

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    Related research

    Keywords: Routines; Franchise; Managerial Value;

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    Cited by:
    1. Corsi, Thomas M. & Grimm, Curtis M. & Cantor, David E. & Sienicki, Dale, 2012. "Safety performance differences between unionized and non-union motor carriers," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 48(4), pages 807-816.
    2. Szulanski, Gabriel & Jensen, Robert J., 2008. "Growing through copying: The negative consequences of innovation on franchise network growth," Research Policy, Elsevier, vol. 37(10), pages 1732-1741, December.
    3. Kocher, Martin G. & Pogrebna, Ganna & Sutter, Matthias, 2013. "Other-regarding preferences and management styles," Munich Reprints in Economics 18156, University of Munich, Department of Economics.
    4. Gunday, Gurhan & Ulusoy, Gunduz & Kilic, Kemal & Alpkan, Lutfihak, 2011. "Effects of innovation types on firm performance," International Journal of Production Economics, Elsevier, vol. 133(2), pages 662-676, October.

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