FIRST PRINCIPLES: THE ENTREPRENEURIAL MANAGER · First Principles: The Entrepreneurial Manager, ©...

Effective Management in Contemporary Organizations, University of ChicagoFirst Principles: The Entrepreneurial Manager, © Ronald S. Burt, July 1999,

FIRST PRINCIPLES : THE

ENTREPRENEURIAL MANAGER

It begins with the individual manager. Contemporary organizations, with their leanerhierarchies and global markets, require more than ever that managers be the authors oftheir jobs. Successful managers better read their organization to figure out what to do,and who to involve in getting it done. Such managers have social capital. This sessionis an introduction to social capital and issues associated with its management.

Monday Morning Session Outline: 8:30 - 8:45 Overview of Program (15) 8:45 - 9:45 Introduction: Human and Social Capital in Manager Performance (60) 9:45-10:00 Case Video — John Clendenin (15)10:00-10:30 Morning Break (30)10:30-11:00 Group Preparation (30)11:00-11:50 Case Discussion — John Clendenin at Xerox (50)11:50-12:00 Wrap-Up & Transition to the Afternoon (10)

Preparation (case discussion questions on page 17):

J Read the Kotter article on his influential study of successful managers. This isan easy read valuable for its insights on the broad goals of successfulmanagers. The goals provide a starting point for this session.

J Read the Clendenin case carefully. I'll begin the session with an introductionto human and social capital success factors in manager performance withincontemporary organizations. Clendenin provides a case example of thefactors in operation, and so an occasion to discuss the substance, benefits,and costs of such managers.

Some Discussion Topics:

J What is social capital as distinct from human capital?

J How is social capital a manager's competitive advantage in adding value?

J What are the management implications of organizations relying more onsocial capital?


Framing the Issues

Task: Kotter’s influential work in the early 1980sidentified two goals for successful managers:

J What should I do? Read your organization and market to define anagenda (cf. Kotter, 1982, p. 160; "Figuring out what to do despiteuncertainty, great diversity, and an enormous amount of potentiallyrelevant information.").

J With whom should I do it? Read your organization and market toknow who to involve to implement the agenda (cf. Kotter, 1982, p. 160;"Getting things done through a large and diverse set of people despitehaving little direct control over most of them.").

Tools: Organizations, situations, and individualsvary in the extent to which they make the goalsdifficult:

Value Added = Investment x Rate of Return

Social Capital DefinesInvestment Opportunities

Financial and HumanCapital are Production

Investments


If a man can write a better book,preach a better sermon,or make a better mousetrap than his neighbor,though he builds his house in the woodsthe world will make a beaten path to his door.

attributed to Ralph Waldo Emerson (1855)by Sarah S. B. Yule and Mary S. Keene, Borrowings (1889).

Human Capital Hypothesis:Success Is Determined by Intrinsic Merit

(aka Waldo Hypothesis)


Illustrative Evidence

Illustration is the front cover of the October 27th issue of Fortune magazine, 1986.


Rank (P = .04) Highest 41.2 (34-56) Higher 39.6 (30-54) High 38.8 (26-52) Entry 38.2 (28-53)

Function (P = .29; .03 for younger in sales/service) Sales 37.7 (27-52) Service 38.6 (28-56) Manufacturing 38.9 (28-54) Engineering 39.7 (26-53) Marketing 41.3 (28-50) MIS 41.3 (34-47) Finance 39.0 (30-50) Human Resources 39.4 (32-49)

Plant Location (P = .07) Core 39.7 (28-56) Remote 38.3 (26-52)

Mean Age (min-max)

All 39.3 (26-56)

Education (P = .17) College or less 38.4 (28-52) Graduate 39.6 (26-56)

Race (P = .55) White 39.4 (26-56) Nonwhite 38.5 (28-50)

Sex (P < .001) Men 40.0 (28-56) Women 36.6 (26-51)

Seniority (P = .05) Recent hire 38.5 (26-56) Long with the firm 40.5 (28-52)

Some Managers Are Promoted Early,Others Lag Behind

Expected age at promotion is the average age at which a person with a specific personal backgroundis promoted to a specific rank within a specific corporate function (below). Managers promoted totheir current rank ahead of other managers with the same personal background have positive valueson the early promotion variable (above). Managers promoted late to their current rank have negativevalues (R = .34; see pp. 126-131 in Structural Holes).


Survey subscribers to Consumers' Union, from pp. 179-180 in Gary S. Becker (1975) Human Capital. Things have changed.Insert graph shows spouse income predicted by Chicago GSB alumnae income in 1998 with both capped at $300,000 (dashedline is regression: spouse = 80,094 + .245 alumna). Knowing alumna's income tells you little about spouse's (.05 R2).

Returns to Human Capital

income regressed over education: I = a + bE + i; expected income: I = a + bE,

Regression coefficient b is the average rate of income returns to education, which varies across kindsof individuals; e.g., higher for managers than for workers. More generally, each individual earnsan income return to education, R, defined by the extent to which their income exceeds level expectedfor someone of their educational level:

R = I - I,

where R = 0 refers to people earning exactly what is expected for their level of education, R > 0 refersto people making more than expected from their education, R < 0 for people making less thanexpected from their education (see p. below or pp. 115-118 in Structural Holes).


Social Capital Hypothesis:Success Is Determined by Opportunities

I. INFORMATION BENEFITS

Access(getting information & knowing who can use it)

Given a limit to the financing and skills that we each possess individually, mostcomplex projects will require your coordination with other people as staff, col-

leagues, clients, or investors.

Timing(knowing early)

Given a limit to volume of information that you can monitor continually, yournetwork is your principal screening device:

an army of people screening diverse pools of information for items affecting you,and

your only insurance of getting personally significant information early.

Referrals(time constraint & legitimacy)

Given the limited number of places where you can appear in person, most of yourbusiness and career opportunities come to you through referrals.


from Figures 1.1 and 1.3 in Structural Holes

Building a Network(numbers versus diversity)


from Figure 1.2 in Structural Holes

Contact Redundancy


Soc

ial C

apita

l, S

truc

tura

l Hol

es, a

nd E

ntre

pren

eurs

(see

App

endi

x I,

pp. 2

0-21

, for

an

intr

oduc

tion

to s

ocia

l cap

ital &

str

uctu

ral h

oles

; App

endi

x II,

pp.

22-

23, f

or m

easu

rem

ent)


MORE INFORMATION BENEFITS:

Better Benefits from Broader Coveragereferral, access, information

Early Exposure as the Intermediaryopportunities to act early on fresh information

opportunities to profit by bringing people together who could benefit from oneanother

SOCIAL CAPITAL II.CONTROL BENEFITS

Tertius Gaudensthe third who benefits

literal meaning of entrepreneur

Two Tertius StrategiesCreate Competition for Same Relationship

(e.g., two sellers competing for transaction with buyer)

Create Competition between Alternative Relationships(e.g., mother and peers competing to define a child's behavior)


Social Capital Matters:Entrepreneurial Managers Promoted Early

structural hole is the disconnection between contactsstructural hole provides information and control benefits

information and control benefits mean better performance (create and implement needed agenda)which means higher rate of return on human capitalnetwork constraint measures lack of structural holes

therefore, rate of return should decrease with network constraint

clique-managers(James)

entrepreneurs(Robert)


Soc

ial C

apita

l Mat

ters

: Eva

luat

ion,

Pro

mot

ion,

Com

pens

atio

n

from Burt, "The network structure of social capital" (1999 Wharton Economic Sociology Conference)

(see Appendix II on pp. 22-23 for details on measuring social capital in terms of network constraint,and Appendix IV on pp. 26-27 for results on the contingent value of social capital.)


Two Network Forms of Social Capital


In other words, manager self-diagnosis is unreliable.(Network Entrepreneur Personality Index is defined in Appendix III, pages 24-25)

Summary Evidence on the Two Forms


John A. Clendenin at XeroxIntroduction from Clendenin’s October 1997 resumé: “John is an executive at Xerox Corporationwhere he is responsible for the coordination and management of the worldwide Integrated SupplyChain Strategy and Business Process as part of the Integrated Supply Chain Competency Center.John’s previous assignments include Marketing Support Manager for DocuTech; Manager, StrategicAlliances; Manager, Supply Chain and Asset Management; Manager, Multinational InventoryOptimization; Director of the Multinational Development Center; and Manager, Administration, Controland Systems in the Parts and Supplies Business Area.”

The case for discussion is Clendenin’s management of the Multinational Distribution Center (MDC).*After a stint in the Marine Corps and graduation from business school, Clendenin joined Xerox in1984. A series of successful projects earned Clendenin promotion in December 1984 to administrativemanager for the parts and supply area.

He found, hidden away within his domain a small subunit, the Multinational SystemsDevelopment Center (MSDC), which was responsible for developing and maintaining systems toimprove communication between the logistics and distribution operations within each of Xerox'sworldwide operating units. Before the MSDC was created (in the mid-1970s as part of Xerox’smovement toward the worldwide integration of copier design, development and manufacturing), Xerox’smajor operating units in the United States, Europe, Asia, and Latin America each produced and marketedtheir own copiers. The operating units even had different protocols for naming parts. Though notviewed as an important part of Xerox’s operations, the MDSC was responsible for tracking thedistribution of Xerox’s $8 billion per year in copiers and spare parts from 23 manufacturing plants in15 countries. Analyzing the existing system, Clendenin calculated that the MSDC had the potential toreduce operating costs by approximately $100 million per year.

In response to resistance from regional purchasing and systems managers, Clendenin negotiateda mandate from the president of Xerox to restructure multinational distribution into three organizationcomponents: (a) A multinational distribution steering committee composed of the vice presidentsof logistics and distribution for Xerox’s worldwide operating units (headed by an officer two levelsabove Clendenin), (b) A multinational working group composed of managers from the operatingunits (at the level of Clendenin’s boss) who would flesh out these strategies with detailed implementationplans, and (c) A multinational development center (MDC, formerly the MSDC) that would identifyfor the steering committee promising opportunities for improvements in logistics. It would also beresponsible for developing and maintaining computer systems for multinational logistics. Clendeninwas appointed to lead the MDC.

Clendenin builds the social capital of the MDC and himself over the subsequent years. Managingthrough the self-interest of others, he nurtures subordinates in a lively, competitive work environment,and adds value to internal clients with cost reduction programs that coordinate across the structuralholes between Xerox’s regional logistic operations.

The result is a quotable success story: The MDC grows from four to 42 people before Clendeninis rotated in 1989 into a new management position in logistics. The MDC’s budget grows from $400Kto $4.3M. Over Clendenin’s tenure, the MDC is credited with taking $700M in inventory costs out ofXerox’s operating expenses.

*More detail can be obtained from Russell Eisenstat’s case“Managing Xerox’s Multinational Development Center” (Harvard Business School Press, case number 9-490-029).


Discussion withan M.B.A.study group*

A. hello John (5 minutes)

B. entrepreneur thrives in differentiatedorganization (8 minutes)

C. negotiated control within workgroup(7 minutes)

D. negotiated control beyond workgroup(9 minutes)

E. whose interests are served by theentrepreneur? (8 minutes)

Case Discussion Questions

1. Clendenin seems to be a master at creating resources wherenone existed before (for example, the growth of the MDC). Howdoes he do it?

2. Would you want to work for someone like Clendenin? Upside?Downside?

3. Would you hire someone like Clendenin to work for you? Howdo you manage this kind of talent?

*Stills are from the video shown during the session.


In Sum,

It has become clear that social capital in organizations and markets isless a function of connections with people, than it is a function of thestructural holes between people. It is by building bridges across theholes that individuals add value. Managers (like Robert on page 10)whose networks span structural holes (making them "networkentrepreneurs" or "entrepreneurial" managers) have information andcontrol advantages in realizing Kotter's two goals for successfulmanagers. Such managers turn out to be the people more rewardedby their firms. They receive more positive job evaluations, highercompensation, earlier promotions, and serve on more productiveteams.*

Entrepreneurial managers operate somewherebetween the force of corporate authority,

and the dexterity of markets,

rushing coordinationto disconnected parts of the firm

that could be productively brought together.

(*See Appendix V on pp. 28-29 for a 360˚ summary of social capital's costs and benefits.)


More Specifically, Four Summary Points

1. Separate human capital from social capital.

Human capital — ability to work

Social capital — opportunities to add value with work

2. Social capital is indexed by the bridges that a person can buildbetween others.

It is not a function of one’s connections to others, so much asit is a function of the structural holes between one’sconnections.

It is the diversity of contacts that generates social capital. Ifeveryone you know is well-known to one another, youdon’t have social capital.

3. Managers are now, more than ever, the authors of their ownjobs, so the information and control benefits of social capital havebecome essential success factors, and the new frontier in HRmanagement.

Brokers do better.

4. This situation can be expected to continue through the nextdecade (as organizations adapt to technological advances inlogistics that allow near-instantaneous shipping andcommunication), and perhaps for generations to come (if the rateof advance does not slow).

In other words, we could be witness to a new era of businesscompetition in which leaders will be the seniorexecutives who know how to manage and develop thesocial capital of their people.


Rec

ent y

ears

hav

e se

en a

dra

mat

icsh

ift in

the

way

com

pani

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rgan

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shi

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Answer key to page 24 — Add 1 for each of the following you circled: 1A, 2B, 3A, 4B, 5B, 6A, 7A, 8B, 9B, 10A


Furth

er re

adin

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R. S

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petit

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arva

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nive

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Pre

ss (1

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eca

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entre

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urt,

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theo

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cra

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cou

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to th

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anag

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diff

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thei

rab

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to s

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with

out

bu

reau

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hat i

s an

oppo

rtun

ity fo

r so

me

man

ager

s, is

dist

ress

for

man

y ot

hers

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oord

inat

ion

task

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wb

road

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cor

resp

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crea

se in

unc

erta

inty

, st

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, an

dpo

tent

ially

dis

rupt

ive

conf

lict.

New

issu

es e

mer

ge f

or h

uman

reso

urce

man

agem

ent.

Whi

ch is

why

soc

ial c

apita

lan

alys

is c

an b

e us

eful

. In

soc

ial

scie

nce

term

s, th

e sh

ift a

way

from

bure

aucr

acy

is a

shi

ft to

soc

ial

capi

tal a

s a

criti

cal p

erfo

rman

cefa

ctor

. S

ocia

l cap

ital r

efer

s to

the

wea

lth o

f a m

anag

er’s

rela

tion

ship

sw

ithin

and

bey

ond

the

firm

. T

his

form

of c

apita

l can

be

mea

sure

d,an

d en

hanc

ed, s

o an

alys

is c

an b

e a

pow

erfu

l too

l in

hum

an r

esou

rce

man

agem

ent.

Spe

cific

ally

, soc

ial

capi

tal a

naly

sis

has

been

use

ful t

o:(a

) un

ders

tand

how

a c

ompa

nyre

ally

wor

ks (

how

peo

ple

com

mun

icat

e, h

ow in

form

atio

nflo

ws,

and

so

on),

(b)

iden

tify

and

man

ager

s ad

d m

ore

valu

e to

thei

rco

mpa

nie

s. B

oth

argu

men

ts b

egin

with

ineq

ualit

y. S

ome

man

ager

sen

joy

high

er in

com

es.

Som

e ar

ep

rom

oted

fas

ter.

Som

e ar

e le

ader

son

the

mor

e im

port

ant p

roje

cts.

The

hum

an c

apita

l sto

ry is

that

such

ineq

ualit

ies

resu

lt fr

omd

iffer

ence

s in

indi

vidu

al a

bilit

y.T

he m

ore

rew

arde

d m

anag

ers

are

smar

ter,

or b

ette

r ed

ucat

ed, o

r m

ore

expe

rienc

ed.

Soc

ial c

apita

l foc

uses

on

the

valu

e a

man

ager

add

s th

roug

h ot

her

peo

ple.

Th

e so

cial

cap

ital s

tory

isth

at in

equa

litie

s re

sult

from

con

text

ual d

iffer

ence

s b

etw

een

peop

le.

Ret

urns

to in

telli

genc

e,ed

ucat

ion,

and

sen

iorit

y de

pend

on

a m

anag

er’s

loca

tion

in th

e so

cial

stru

ctur

e o

f an

org

aniz

atio

n. S

ome

port

ion

of th

e va

lue

a m

anag

er a

dds

to a

firm

is h

is o

r he

r ab

ility

toco

ordi

nate

oth

er p

eopl

e, w

here

coor

dina

tion

refe

rs to

iden

tifyi

ngop

port

uniti

es to

add

val

ue w

ithin

an o

rgan

izat

ion,

and

get

ting

the

right

peo

ple

toge

ther

to ta

kead

vant

age

of th

e op

port

uniti

es.

Cer

tain

net

wor

k st

ruct

ures

of

rela

tions

hips

— d

eem

ed s

ocia

lca

pita

l — c

an e

nha

nce

a m

anag

er’s

abili

ty to

iden

tify

and

deve

lop

oppo

rtun

ities

.T

he s

umm

ary

poin

ts a

retw

o:

(a) S

ocia

l cap

ital d

iffer

s fro

mhu

man

cap

ital.

Soc

ial c

apita

l is

aqu

ality

cre

ated

bet

wee

n pe

ople

whi

le h

uman

cap

ital i

s a

qual

ity o

fin

divi

dual

s.

Inve

stm

ents

that

crea

te s

ocia

l cap

ital a

refu

ndam

enta

lly d

iffer

ent f

rom

the

inve

stm

ents

that

cre

ate

hum

anca

pita

l. (

b) S

ocia

l cap

ital i

s th

eco

ntex

tual

com

plem

ent t

o hu

man

cap

ital.

Whe

re h

uman

cap

ital

refe

rs to

indi

vidu

al a

bilit

y, s

ocia

l

man

ager

s un

awar

e of

the

bene

fits

they

offe

r one

ano

ther

. C

erta

inm

anag

ers

are

conn

ecte

d to

cer

tain

othe

rs, t

rust

ing

cert

ain

othe

rs,

oblig

ated

to s

uppo

rt c

erta

in o

ther

s,de

pend

ent o

n ex

chan

ge w

ith c

erta

inot

hers

. In th

e ab

ove

diag

ram

, Jam

esha

s a

netw

ork

that

spa

ns o

nest

ruct

ural

hol

e (t

he r

elat

ivel

y w

eak

conn

ectio

n be

twee

n a

clus

ter

reac

hed

thro

ugh

cont

acts

1, 2

, and

3ve

rsus

the

othe

r cl

uste

r re

ache

dth

roug

h co

ntac

ts 4

and

5).

The

stru

ctur

al h

ole

betw

een

the

two

clus

ters

doe

s no

t mea

n th

at p

eopl

ein

the

two

clus

ters

are

una

war

e of

on

e an

othe

r. I

t sim

ply

mea

ns th

atpe

ople

in e

ach

clus

ter

are

sofo

cuse

d on

the

pres

s of

bus

ines

sw

ithin

thei

r ow

n cl

uste

r th

at th

eypa

y re

lativ

ely

less

atte

ntio

n to

the

activ

ities

of p

eopl

e in

oth

er c

lust

ers.

Rob

ert t

ook

over

Jam

es' j

ob.

Rob

ert p

rese

rves

con

nect

ion

with

both

clu

ster

s in

Jam

es' n

etw

ork,

but

expa

nds

the

netw

ork

to a

mor

edi

vers

e se

t of c

onta

cts.

Rob

ert's

netw

ork,

add

ing

thre

e ne

w c

lust

ers

of p

eopl

e sp

ans

ten

stru

ctur

al h

oles

.T

hese

str

uctu

ral h

oles

betw

een

peop

le a

re e

ntre

pren

euria

lop

port

uniti

es fo

r th

ird p

artie

s to

brok

er th

e flo

w o

f info

rmat

ion

betw

een

peop

le o

n op

posi

te s

ides

of

the

stru

ctur

al h

ole,

and

co

ntro

l the

form

of p

roje

cts

that

brin

g to

geth

erpe

ople

on

oppo

site

sid

es o

f the

stru

ctur

al h

ole.

Str

uctu

ral h

oles

sepa

rate

non

redu

ndan

t con

tact

s.E

ach

hol

e is

a b

uffe

r, lik

e an

insu

lato

r in

an

ele

ctric

circ

uit.

As

are

sult

of th

e st

ruct

ural

hol

e be

twee

nth

em, t

wo

cont

acts

pro

vide

net

wor

k(in

form

atio

n an

d co

ntro

l) be

nefit

sth

at a

re in

som

e de

gree

add

itive

rath

er th

an o

verla

ppin

g. S

ocia

l

ben

efits

). T

hey

are

also

mor

e lik

ely

to b

e th

e pe

ople

dis

cuss

ed a

ssu

itabl

e ca

ndid

ates

for

incl

usio

n in

new

opp

ortu

nitie

s (r

efer

ral

ben

efits

). T

hey

are

also

mor

e lik

ely

to h

ave

shar

pene

d an

d di

spla

yed

thei

r ca

pabi

litie

s be

caus

e th

ey h

ave

mor

e co

ntro

l ove

r th

e su

bsta

nce

ofth

eir

wor

k de

fined

by

rela

tions

hips

with

sub

ordi

nate

s, s

uper

iors

, and

colle

ague

s (c

ont

rol b

enef

its).

The

sebe

nefit

s re

info

rce

one

anot

her

atan

y m

omen

t in

time,

and

cum

ulat

eto

geth

er o

ver

time.

Thr

ough

thei

ren

trep

rene

uria

l opp

ortu

nitie

s,m

anag

ers

with

con

tact

net

wor

ksric

h in

str

uctu

ral h

oles

can

add

valu

e ab

ove

and

beyo

nd th

e va

lue

of t

heir

hum

an c

apita

l. T

hey

mon

itor

info

rmat

ion

mor

eef

fect

ivel

y th

an b

urea

ucr

atic

cont

rol.

Gos

sip

mov

es fa

ster

, an

dto

mor

e pe

ople

, tha

n m

emos

.E

ntre

pren

euria

l man

ager

s kn

ow th

ep

aram

eter

s of

org

aniz

atio

np

robl

ems

early

. T

hey

are

hig

hly

mo

bile

rel

ativ

e to

bur

eauc

racy

,ea

sily

shi

fting

net

wor

k tim

e an

den

ergy

from

one

sol

utio

n to

anot

her.

Ent

rep

ren

euria

l man

ager

sta

ilor

solu

tions

to th

e sp

ecifi

cin

divi

dual

s be

ing

coor

dina

ted,

rep

laci

ng th

e bo

iler-

pla

te s

olut

ions

of f

orm

al b

urea

ucra

cy.

To

thes

eb

enef

its o

f fas

ter,

bette

r so

lutio

ns,

add

cost

; ent

repr

eneu

rial m

anag

ers

offe

r in

expe

nsiv

e co

ordi

natio

nre

lativ

e to

the

bure

aucr

atic

alte

rnat

ive.

In

shor

t,en

trep

rene

uria

l man

ager

s op

erat

eso

mew

here

bet

wee

n th

e fo

rce

ofco

rpor

ate

auth

ority

and

the

dext

erity

of m

arke

ts, r

ushi

ngco

ordi

natio

n to

dis

conn

ecte

d pa

rts

of th

e fir

m th

at c

ould

be

pro

duct

ivel

y br

oug

ht to

geth

er.

Appendix I: Social Capital in Brief


Name Generators on Short Form:

Q2. Personal discussion

Q3. Informal socializing

Q4 & Q5. Formal authority

Q6. Most valued

Q7. Most difficult

Q8. Essential political support

Q9. Competitors

Q10. Discuss exit (trust)

Q11. N.E.C.

Name Interpreters on Short Form:

Q12. Strength of relation with eachcontact

Q13. Strength of relations betweencontacts



Appendix II: Measurement


Network Entrepreneur Personality IndexSelect the phrase under each item thatbetter describes you (circle A or B).Select only one phrase per item. Ifyou disagree with both phrases, selectthe one with which you disagree less.With so few questions, it is importantto select phrases that describe how youactually operate, rather than how youfeel you should or would like tooperate. There are no right or wronganswers. When you are finished, youshould have a total of ten phrasescircled. (To get your score, see the noteat the bottom of page 20.)

1. When evaluating opportunities, I am likely to look . . .

A. for a chance to be in a position of authority

B. for the long-run implications

2. My strength lies in the fact that I have a knack for . . .

A. being easygoing

B. getting a point across clearly

3. In discussions among peers, I am probably seen as . . .

A. an outspoken advocate

B. motivating people to my views

4. I believe that people get into more trouble by . . .

A. being unwilling to compromise

B. not letting others know what they really think

5. In a leadership role, I think my strength would lie in the fact that I . . .

A. won people over to my views

B. kept everyone informed

6. In evaluating my aims in my career, I probably put more emphasis on . . .

A. my ability to create an aura of excitement

B. being in control of my own destiny

7. As a member of a project team, I . . .

A. seek the advice of colleagues

B. closely follow the original mandate of the group

8. Others are likely to notice that I . . .

A. let well enough alone

B. let people know what I think of them

9. In an emergency, I . . .

A. take the safe approach

B. am quite willing to help

10. I look to the future with . . .

A. unshakable resolve

B. a willingness to let others give me a hand

from Burt et al., "Personality correlates of structural holes" (1998 Social Networks)


Identifying Employees Who HaveEntrepreneurial Networks

(staff employees in large bank, S is a dummy variable for employees in senior ranks)

For the purposes here, an employee has an entrepreneurial networkif their network constraint score is no more than the average for all respondents.

from Burt et al., "Personality correlates of structural holes" (1998 Social Networks)

Appendix III: Personality


Social Capital Matters Morein Higher Ranks

(same axes as on page 12)


Expected Years Early = 20.81 - .79(C)




(figure 5 isn't in this handout, itrefers to the managers on thepreceding page)

More Generally, Social Capital Matters More

for Managers with Unique Job Assignments

from Burt, "The contingent value of social capital" (1997 Administrative Science Quarterly)

Appendix IV: Contingent Value


Orie

ntin

g qu

estio

n

Pot

entia

l Ben

efits

Pot

entia

l Cos

ts

Opt

imiz

ing

ques

tion

To a

Sub

ordi

nate

Wou

ld y

ou a

void

a jo

b su

perv

ised

by

an e

ntre

pren

eur?

proj

ect m

ore

visi

ble

mor

e re

sour

ces

mor

e lik

ely

succ

ess

mor

e fu

ture

opp

s?pr

ojec

t mor

e pr

otec

ted

stro

ng in

form

al c

ontr

olw

ithin

team

mea

ns

subo

rdin

ate

posi

tion

co

hesi

ve c

ult

subo

rdin

ate

disa

ppea

rs

To a

Col

leag

ue

Wou

ld y

ou a

void

a pr

ojec

t with

an e

ntre

pren

eur?

proj

ect m

ore

visi

ble

mor

e re

sour

ces

mor

e lik

ely

succ

ess

mor

e fu

ture

opp

s?

entr

epre

neur

get

scr

edit

for

the

proj

ect

& b

est f

utur

e op

ps.

To th

e E

ntre

pren

eur

Wou

ld y

ou a

void

actin

g lik

ean

ent

repr

eneu

r?

info

rmat

ion

& c

ontr

olE

ntre

pren

eur’s

ada

ptiv

e,tim

ely

coor

dina

tion

yiel

ds h

ighe

r re

turn

s to

his

or h

er h

uman

cap

ital

= s

atis

fctn

of i

nsid

er, s

pot a

ndde

velo

p op

ps, r

eput

atio

n,m

ore

rew

ards

and

job

choi

ce

stre

ss (

high

ene

rgy)

repu

tatio

n (v

isib

le fa

ilure

)al

iena

tion

from

col

leag

ues

hurt

feel

ings

& je

alou

syen

emie

sfr

agile

?

slea

zy?

In w

hat b

usin

ess

situ

atio

nsis

ent

repr

eneu

rial b

ehav

ior

mos

t fea

sibl

e an

d be

nefi-

cial

?

high

or

low

diff

eren

tiatio

n?

high

or

low

am

bigu

ity?

m

any

or fe

w p

eers

?

To th

e S

uper

viso

r

Wou

ld y

ou a

void

hirin

gan

ent

repr

eneu

r?

adap

tive,

tim

ely

coor

dina

tion

ofre

sour

ces

mea

nsco

st s

avin

gs, c

ycle

redu

ctio

n, e

tc. b

ecau

sesu

perv

isor

nee

d no

t tel

len

tre

wha

t nee

ds d

oing

-ent

repr

eneu

r ge

tscr

edit

for

the

proj

ect

-col

leag

ue je

alou

sy-e

ntre

pren

eur

dive

rts

reso

urce

s to

his

/her

own

inte

rest

s aw

ayfr

om fi

rm’s

inte

rest

s

How

do

I kee

p th

een

trep

rene

ur c

on-

fined

to th

e fir

m’s

inte

rest

s?

man

y or

few

pee

rs?

Cos

ts a

nd B

enef

its o

f the

Ent

repr

eneu

r(f

rom

with

in, b

esid

e, b

elow

, and

abo

ve th

e en

trep

rene

ur)

In w

hat b

usin

ess

situ

atio

nsis

ther

e ro

om fo

r tw

o en

trep

rene

urs?

high

or

low

diff

eren

tiatio

n?hi

gh o

r lo

w a

mbi

guity

?m

any

or fe

w p

eers

?


Whose InterestsAre Served by the Entrepreneur?

At Merrill Lynch, there was no doubt about it: Edson Mitchell was a star. Largely under hisdirection, the investment bank’s fixed-income division leapt from nowhere in the 1980s to become thenumber one global player. Using swaps and derivatives talent hired from JP Morgan and MorganStanley, Merrill surprised its competitors by becoming one of the most creative and innovative playerson Wall Street. By 1995, the charismatic Mitchell was said to be in command of a $1 billion revenuestream — the driving force behind Merrill’s international expansion in recent years.

But last January, Merrill embarked on a strategic reorganization, and the future of Mitchell’sstar status seemed to be thrown into question. He was asked to head equities, a move his superiorssaid was designed to broaden his management capabilities. But outsiders interpreted the reassignmentas a way of breaking down Mitchell’s power base, as part of an attempt to rid Merrill of the fiefdomsthey say had plagued it for years. After weeks of negotiations, Mitchell turned down the new assignmentand defected in May to Deutsche Morgan Grenfell in London. He was the most senior person to leaveMerrill in more than a decade.

Michell’s departure, followed by more than a dozen of his most gifted subordinates, dismayedmany senior Merrill executives, including president David Komansky. “He was the most creativeperson in fixed income,” sighs Komansky, “Believe me, I wish he hadn’t gone.” Over the next fewmonths, such highly-regarded Merrill executives as Grant Kvalheim, who had headed capital markets,and Henry Yordan, a managing director, joined Deutsche Morgan Grenfell in New York. Top-flightdebt salesman Michael Phillips went to work with his former boss in London. Admits Komansky: “Iregret losing many of them.”

It seems obvious now that Mitchell inspired deep loyalty in his division, where former employeessay he fostered an incredible team spirit. For years, Merrill’s inferiority complex in investment bankingwas what propelled his drive. But it may also have inhibited Mitchell from extending his team spiritto many other parts of the institutional side of the firm, which former fixed-income professionalsadmit they viewed as mediocre and inferior. Under Mitchell, says one individual close to Merrill:“Fixed income was much less cooperative with other parts of the firm. They thought investmentbankers didn’t add value. They wanted to do their own deals, and print their own tickets.”

To Komansky, and no doubt to many others on the Merrill executive team, that meant onething. “Edson’s myopic drive to build his businesses” resulted in a “perception of a lack of what wecall teamwork” explains the president. But, as even Komansky acknowledges, Mitchell’s defectionpoints to one of the most difficult issues facing Wall Street in general and Merrill in particular. Andthat is the inevitable tension between the creative entrepreneurial spirit — with its accompanying egos— that drives the best of Wall Street, and the organizational structure needed to keep a colossus likeMerrill from imploding.

from Euromoney, January 1996, page 24

Appendix V: Value for Whom?


Appendix VI: National Variationsin Business Culture

from

Bur

t, H

ogar

th, a

nd M

icha

ud"T

he s

ocia

l cap

ital o

f Fre

nch

and

Am

eric

an m

anag

ers"

(19

99)

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