Fads
Overarching Argument
Firms adopt practices in faddish manners with little correlation between popular
techniques and performance. This is due to:
o having to cope with too much information/uncertainty and complex problems
o Conformity increases legitimacy & reputation
o being coerced into doing so to avoid shareholder sanctions/salary reductions
Evidence-based Management- Abundance of Practices & too much information
Pfeffer & Sutton (2006): There is a lack of evidence-based management
o Managers are overwhelmed with too much clashing and misleading advice to
consume – look to the latest trends for guidance
Popular practices are driven by ideologies/sloppy analogies rather than evidence, and
are often presented as universally applicable with understated risk and are reinforced by
every major player in the market
“faddish cycles occur in the absence of clear-cut evidence”.
Managers follow them as there is too much data to establish what the correct practice is
Survivor Bias in Management Practices
Issue with studying/imitating only surviving companies, especially the most successful
ones is that it can lead to flawed and dangerous conclusions about what the best
practices are.
Strang & Macy (2001): adaptive emulation whereby actors respond to perceived failure
by imitating their most successful peers
Managers will only broadcast their successful practices – inhibits learning and success
stories are not raw data but social/cultural construction
o “repeat winners using suboptimal innovations provide poor information about
what innovations to adopt”
Managers should look to “failures embedded in success stories and success embedded
in failure stories”, Pfeffer & Sutton (2006)
o More can be learnt from failed companies
Fads & Legitimacy
Staw & Epstein (2000): Adopting fads reflects the alignment of their corporate values
with those of society which helps build reputation
o Studies found strong positive correlation between the use of popular
management techniques and the firm’s reputation
BUT very few effects on the firm’s economic performance
Boards of directors etc. may judge competence by adherence to trends
o Incentive to follow trends as it increases executive compensation
o Studies found a strong positive correlation between CEO pay (salary and bonus)
and the adoption of popular management techniques
Links to DiMaggio & Powell’s Coercive Isomorphism
, Managers copy others to cope with important and complex problems and challenges
o Fashions gratify competing psychological drives for individuality/novelty on one
hand, and conformity/traditionalism on the other
Scott (1987): Organizations…conform because they are rewarded for doing so through
increased legitimacy, resources, and survival capabilities”
Fads to avoid shareholder sanctions
Abrahamson (1996): Managers adopt common practices to show conformity with the
dominant norms. Adopting practices which appear rational and progressive can avoid
shareholder sanctions
BUT opposite also applies: Jonsson & Regner (2009)- it may be hard to introduce
counter-normative practices to influential stakeholders of the firms
Legitimacy
Scott (1987): Organizations…conform because they are rewarded for doing so through
increased legitimacy, resources, and survival capabilities”
Stein (1987): If an investment cannot be directly observed by the stock market,
managers concerned with stock-price maximisation tend to skimp on this investment
Legitimacy to survive
Zuckerman (1999): Most innovations fail because of the difficulty in achieving legitimacy
so sellers engage in isomorphism (imitation) to gain membership in a recognised product
category
Stock prices of US firms (1985-1994) were discounted to the extent that the firm was not
covered by the securities analyst who specialised in its industry
o Financial markets are sensitive to illegitimacy so it is very costly so there is a
strong pressure to conform to achieve legitimacy in financial markets
Institutional Environments
Firms need to operate under the institutional logic of the country in which they operate
o The cultural context is a subset of the institutional environment
Appropriate structure depends on the cultural context as different countries have
different institutions and thus different rules to the game
o Example: 1997, Walmart expanded into Germany with their strategy which was
appropriate for the US institutional environment
BUT was not coherent with Germany’s institutions so failed miserably
The value proposition offered e.g. customer’s being greeted at the
door/having their groceries bagged for them was not appealing to
customers
Forced to withdraw from the market in 2006
o Laws against disruptive market capitalism e.g. it is illegal to sell below cost in the
Eurozone to force competitors out of business
o Despite Uber’s huge success in London, governments in Spain and Thailand have
invoked legislations preventing Uber from operating in Madrid and Bangkok
Overarching Argument
Firms adopt practices in faddish manners with little correlation between popular
techniques and performance. This is due to:
o having to cope with too much information/uncertainty and complex problems
o Conformity increases legitimacy & reputation
o being coerced into doing so to avoid shareholder sanctions/salary reductions
Evidence-based Management- Abundance of Practices & too much information
Pfeffer & Sutton (2006): There is a lack of evidence-based management
o Managers are overwhelmed with too much clashing and misleading advice to
consume – look to the latest trends for guidance
Popular practices are driven by ideologies/sloppy analogies rather than evidence, and
are often presented as universally applicable with understated risk and are reinforced by
every major player in the market
“faddish cycles occur in the absence of clear-cut evidence”.
Managers follow them as there is too much data to establish what the correct practice is
Survivor Bias in Management Practices
Issue with studying/imitating only surviving companies, especially the most successful
ones is that it can lead to flawed and dangerous conclusions about what the best
practices are.
Strang & Macy (2001): adaptive emulation whereby actors respond to perceived failure
by imitating their most successful peers
Managers will only broadcast their successful practices – inhibits learning and success
stories are not raw data but social/cultural construction
o “repeat winners using suboptimal innovations provide poor information about
what innovations to adopt”
Managers should look to “failures embedded in success stories and success embedded
in failure stories”, Pfeffer & Sutton (2006)
o More can be learnt from failed companies
Fads & Legitimacy
Staw & Epstein (2000): Adopting fads reflects the alignment of their corporate values
with those of society which helps build reputation
o Studies found strong positive correlation between the use of popular
management techniques and the firm’s reputation
BUT very few effects on the firm’s economic performance
Boards of directors etc. may judge competence by adherence to trends
o Incentive to follow trends as it increases executive compensation
o Studies found a strong positive correlation between CEO pay (salary and bonus)
and the adoption of popular management techniques
Links to DiMaggio & Powell’s Coercive Isomorphism
, Managers copy others to cope with important and complex problems and challenges
o Fashions gratify competing psychological drives for individuality/novelty on one
hand, and conformity/traditionalism on the other
Scott (1987): Organizations…conform because they are rewarded for doing so through
increased legitimacy, resources, and survival capabilities”
Fads to avoid shareholder sanctions
Abrahamson (1996): Managers adopt common practices to show conformity with the
dominant norms. Adopting practices which appear rational and progressive can avoid
shareholder sanctions
BUT opposite also applies: Jonsson & Regner (2009)- it may be hard to introduce
counter-normative practices to influential stakeholders of the firms
Legitimacy
Scott (1987): Organizations…conform because they are rewarded for doing so through
increased legitimacy, resources, and survival capabilities”
Stein (1987): If an investment cannot be directly observed by the stock market,
managers concerned with stock-price maximisation tend to skimp on this investment
Legitimacy to survive
Zuckerman (1999): Most innovations fail because of the difficulty in achieving legitimacy
so sellers engage in isomorphism (imitation) to gain membership in a recognised product
category
Stock prices of US firms (1985-1994) were discounted to the extent that the firm was not
covered by the securities analyst who specialised in its industry
o Financial markets are sensitive to illegitimacy so it is very costly so there is a
strong pressure to conform to achieve legitimacy in financial markets
Institutional Environments
Firms need to operate under the institutional logic of the country in which they operate
o The cultural context is a subset of the institutional environment
Appropriate structure depends on the cultural context as different countries have
different institutions and thus different rules to the game
o Example: 1997, Walmart expanded into Germany with their strategy which was
appropriate for the US institutional environment
BUT was not coherent with Germany’s institutions so failed miserably
The value proposition offered e.g. customer’s being greeted at the
door/having their groceries bagged for them was not appealing to
customers
Forced to withdraw from the market in 2006
o Laws against disruptive market capitalism e.g. it is illegal to sell below cost in the
Eurozone to force competitors out of business
o Despite Uber’s huge success in London, governments in Spain and Thailand have
invoked legislations preventing Uber from operating in Madrid and Bangkok
