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The Dynamic Value of Hierarchy

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  • Anne Marie Knott

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

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.

Suggested Citation

  • Anne Marie Knott, 2001. "The Dynamic Value of Hierarchy," Management Science, INFORMS, vol. 47(3), pages 430-448, March.
  • Handle: RePEc:inm:ormnsc:v:47:y:2001:i:3:p:430-448
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    File URL: http://dx.doi.org/10.1287/mnsc.47.3.430.9776
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    References listed on IDEAS

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    1. Eric D. Darr & Linda Argote & Dennis Epple, 1995. "The Acquisition, Transfer, and Depreciation of Knowledge in Service Organizations: Productivity in Franchises," Management Science, INFORMS, vol. 41(11), pages 1750-1762, November.
    2. Henderson, Rebecca. & Cockburn, Iain., 1994. "Measuring competence? : exploring firm effects in pharmaceutical research," Working papers 3712-94., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    3. Marvin B. Lieberman & Lawrence J. Lau & Mark D. Williams, 1990. "Firm-Level Productivity and Management Influence: A Comparison of U.S. and Japanese Automobile Producers," Management Science, INFORMS, vol. 36(10), pages 1193-1215, October.
    4. Knott, Anne Marie & McKelvey, Bill, 1999. "Nirvana efficiency: a comparative test of residual claims and routines," Journal of Economic Behavior & Organization, Elsevier, vol. 38(4), pages 365-383, April.
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    Cited by:

    1. Kocher, Martin G. & Pogrebna, Ganna & Sutter, Matthias, 2013. "Other-regarding preferences and management styles," Journal of Economic Behavior & Organization, Elsevier, vol. 88(C), pages 109-132.
    2. Kocher, Martin G. & Pogrebna, Ganna & Sutter, Matthias, 2009. "Other-Regarding Preferences and Leadership Styles," IZA Discussion Papers 4080, Institute for the Study of Labor (IZA).
    3. repec:kap:jtecht:v:42:y:2017:i:3:d:10.1007_s10961-015-9435-6 is not listed on IDEAS
    4. Aris Tri Haryanto & Tulus Horyono, 2015. "The Influence Of Market Orientation On Innovation Type And Enterprise Performance," Polish Journal of Management Studies, Czestochowa Technical University, Department of Management, vol. 11(1), pages 68-78, June.
    5. 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.
    6. 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.
    7. 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.
    8. Argote, Linda & Fahrenkopf, Erin, 2016. "Knowledge transfer in organizations: The roles of members, tasks, tools, and networks," Organizational Behavior and Human Decision Processes, Elsevier, vol. 136(C), pages 146-159.
    9. repec:dug:journl:y:2017:i:1:p:196-206 is not listed on IDEAS
    10. Karim R. Lakhani & Hila Lifshitz-Assaf & Michael L. Tushman, 2013. "Open innovation and organizational boundaries: task decomposition, knowledge distribution and the locus of innovation," Chapters,in: Handbook of Economic Organization, chapter 19 Edward Elgar Publishing.

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    Keywords

    Routines; Franchise; Managerial Value;

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