Exciting and uncertain times
Arguably, we live in the most exciting and alarming period of transformation in human history. Within less than two generations, ever since Ray Tomlinson sent the first email in 1971—or three generations if we want to start the clock at the invention of the first digital computer—information technology has penetrated almost every aspect of our lives. Unlike the industrial revolution that primarily benefited richer nations and privileged individuals, diffused through colonial powerhouses, 70% of the world’s youth are online and 58% of the entire world population has a mobile broadband subscription (International Telecommunication Union, 2017). The current technological revolution transforms how we search for information, learn (from Wikipedia to online courses), spend our spare time (e.g., Candy Crush, Pokémon GO, YouTube, Facebook), produce (from molding to additive manufacturing), what we learn (limited textbooks to the Internet), and with whom we socialize (e.g., Snapchat, Tinder), to name merely a few aspects.
Business is no less affected. “Information is king” has dethroned “cash is king.” Cash may still retain a certain royal status, but the crown sits serenely on the heads of those who control information. Traditional cash-rich industries (e.g., media, photography) have experienced the rapid depletion of positive cash flows when the fundamental economic principles of their cash-generating business models fell apart (Afuah & Tucci, 2003; Amit & Zott, 2012; Kolbjørnsrud, Amico, & Thomas, 2016). In other industries, traditional businesses are feeling the earth trembling beneath their feet. It is not that such traditional economic activities are necessarily disappearing; it is merely that production and service provisioning are becoming secondary in the new balance of power, whereby those who possess information also substantially influence value appropriation.
New business models primarily based on mediating technology (Sasson, 2008; Stabell & Fjeldstad, 1998; Thompson, 1967) have taken over as the economic superpowers. In 2018, Apple Inc., Alphabet Inc., Microsoft, Amazon, and Tencent have the highest market capitalizations in the world. Seven of the largest 10 publicly traded firms are a direct creation of the current technological revolution. In the 1970s, 1980s and 1990s, the largest firms were oil producers, industrial conglomerates and retailers (with the exception of IBM and AT&T, both dethroned long ago).
It should be noted that the center of gravity in terms of the underlying economic knowledge of such firms and markets has been at UC Berkeley (e.g, Katz & Shapiro, 1985; Shapiro & Varian, 1998), NYU (Economides, 1996) and at BI Norwegian Business School (Fjeldstad & Andersen, 2003; Fjeldstad, Snow, Miles, & Lettl, 2012; Stabell & Fjeldstad, 1998). At UC Berkeley, network economics developed hand-in-hand with the most vibrant information technology cluster in the world (Saxenian, 1994). The existence of world-class universities developing cutting-edge technologies, coupled with dedicated researchers in locally-present business schools, has created positive reinforcing loops further increasing cluster attractiveness (Reve & Sasson, 2012). Such symbiotic relationships have had a tremendous effect on the education of new generations of mediating firms’ managers, public policy, court rulings and legislation that at the time lacked a fundamental understanding of network economics. At BI Norwegian Business School, the understanding of network business models developed in spite of the lack of a sizeable local industry and world-leading cluster in the vicinity.
When technological developments dramatically influence individual behavior on the one hand, and markets on the other, the daily life of corporations are not immune to the upheaval. Let us merely examine some examples from finance. Traditional financing arrangements are complemented and threatened by crowdfunding, blockchain and various corporate and non-corporate venture capital firms (Dushnitsky & Shapira, 2010). Investment, which is commonly home biased (Coval & Moskowitz, 1999), is now facing not only information overload but also large sovereign-backed investors that control roughly 10% of globally traded stocks and who are prohibited from investing at home (See also: Capapé & Santiso, 2017).
We will discuss additional matters that are pressing for corporations below. First, let us just admit the obvious: We are bewildered, overwhelmed, we fear redundancy and are largely in the dark on how to succeed in this new era. It does not become any easier when some argue that we are currently observing the last generation of the simple, non-upgraded, humans (Harari, 2016), that traditional long-tail manufacturing will be replaced by instantaneously automated production (Anderson, 2012; Sasson & Johnson, 2016), and that artificial intelligence will either transform or render obsolete a wide range of work tasks and management practices (Kolbjørnsrud et al., 2016).
Corporations are soon to start competing on employing the millennium generation who are digital natives, but the former know very little about how to motivate and integrate the latter. Corporations know even less about how to convert the current non-digital-natives into digitally capable employees. Employees have misconceptions about what it takes to excel (Hansen, 2018) and which tools will assist them in doing so.
Public policy is, as usual, lagging behind. Knowledge-based economic policies are creeping slowly into contemporary economic life. Very few countries acknowledge the public aspect of life-long learning, hence creating a situation whereby employers have no incentive to invest in mobile employees who themselves are not allocated the time to invest in knowledge upgrades. Furthermore, school curricula have remained largely unchanged over the last generation, exposing the millennium generation to largely redundant languages instead of the language of tomorrow: data.
We live in an era of the unprecedented availability of information, yet we have only just started learning how to create and appropriate value (Magretta, 2002) from information. In the era of the explosion and distortion of information, we need islands of sanity: dedicated researchers who devote their time and effort to providing reliable and valid evidence and thought-provoking ideas about how to understand, create and adapt to these unparalleled life-changing developments.
This book presents research-based answers—not the answers—to some of the uncertainties that managers, investors, employees and policy makers face in this new era. As the title, “At the Forefront, Looking Ahead” indicates, on its 75th anniversary and having started as a practitioner-oriented evening school, BI Norwegian Business School is undoubtedly a research-based school at the forefront of global research. Its research groups contribute excellent, original research that is at the international forefront and appears in outstanding international journals (The Research Council of Norway, 2018), while its graduates, more than any other school, populate CEO positions in the largest 500 local firms.
Being at the forefront requires that we look ahead, not merely celebrate past successes. The book does exactly that. It covers three themes: 1) The D-G-tal organization, including algorithm-based decision making and management, digital labor, business models, corporate reputation and branding; 2) The governance of corporations, with specific reference to state-owned and family-owned firms and their auditing; 3) Decision making, incentives and innovation, covering issues such as employee motivation and creativity, environmental R&D, political decision making and customer experience.
The first section, the D-G-tal Organization, commences with the case for arguably the greatest transformation of organizations and managers. In chapter 2, Andersen, Johnson, Kolbjørnsrud and Sannes explore the managerial, organizational, and strategic implications of letting algorithms and learning systems based on massive amounts of data make increasing number of organizational decisions. These “intelligent enterprises,” with enhanced abilities to sense, comprehend, act, learn and explain (SCALE) the environment, must cede authority over some decisions, while developing SCALE capabilities and roles to stay competitive.
Wong and Fieseler discuss the meaning and implication of digital work. Chapter 3 discusses how digital technologies transform contemporary labor arrangements. In particular, they identify a) aspirational labor, whereby future employees exhibit work-related skills providing a track record towards building a digital CV; b) platform labor, whereby platforms are mediated between individuals who maintain their autonomy and offer skills to contract providers, resulting in highly skilled, temporary and mobile labor and; c) corporate labor, which introduces arrangements aimed at increasing efficiency, such as computer-mediated communication tools and enterprise social media.
That reputation is intangible, inimitable, and difficult to acquire means that it has the qualities to be a valuable resource in supporting a firm’s quest towards competitive advantage. It also has characteristics that make it very fragile. While it takes a prolonged period to establish a positive reputation, when abundant information can be instantaneously diffused, it may only take minutes or hours to shatter it. In Chapter 4, Brønn and Buhmann offer insights into the challenges of building, maintaining and managing organizational reputation.
Branding has not been left untouched by digitalization. In Chapter 5, Olsen simply asks the million-dollar question: To what extent are insights from the traditional strategic understanding of branding still relevant in the digital age? Olsen argues that new digital technologies, media channels and online consumption patterns provide a realm of new opportunities to brand managers. Brand managers should continue developing a deep understanding of what consumers actually need, not just which data brand managers can gain in the short run.
Digital transforms markets, organizations, and organizing. Fjeldstad and Haanæs address a vital issue for firms: how value creation and organization design are affected by digitalization. Chapter 6 takes us on a journey through various business models and discusses how digital may radically transform the mechanisms by which activities and resources are differentiated and integrated for each business model type. They also report on the new organization design principles for organizing digitally.
The second section explores corporate governance. In Chapter 7, Berzins, Bøhren and Stacescu report on empirical evidence of the most common and most neglected form of organizing, namely the family firm. Taking an agency theory perspective, the authors argue that two common agency problems are, to a large extent, non-existent in family firms. When firm owners and insiders are one and the same, the first agency problem—conflict of interests between these two groups—does not arise. When 82% of family firms have no minority owners, the second agency problem—whereby the majority can act in its interest at the expense of the minority—does not exist, and it is of lesser magnitude when the owners of many of the remaining family firms control stakes exceeding two-thirds. This may be an explanation for the persistent finding of higher performance in family firms compared to non-family firms.
Chapters 8 and 9 address legal and historical aspects of state ownership. The State is the largest owner on the Norwegian Stock Exchange. Christensen traces the development of the Norwegian state ownership model to the State’s ownership of Norsk Hydro. The author argues that the model, which entails that the state act as a private shareholder—respecting minority shareholder rights and taking a more long-term strategic view—explicates the wide-ranging support for the state as a legitimate owner. Bråthen complements the above by arguing that one of the reasons for the success of state ownership of publicly listed firms is the gradual development of the legal framework for the exercise of state ownership. Having said that, Bråthen identifies some unresolved legal aspects of state ownership, including active ownership, the status of the State’s principles for corporate governance, and potential liability of the State for damages.
A related topic is the functioning of the auditing system, which mitigates agency conflicts between firm directors who produce financial statements, and investors, such as the State, that use them. Regulation is necessary to ensure the independence of auditors who are paid by the firm and to ensure adequate quality in a concentrated market. In the light of contemporary regulatory changes, in Chapter 10 Langli and Willekens review novel regulations and highlight obstacles to the development of our understanding of the impact of auditor regulation on auditors’ behavior and quality. Surprisingly, in a rich data environment such as auditing, most of auditors’ work is confidential, thus preventing further development of our knowledge of auditing work and its quality. In an era characterized by distorted information, the role of external financial statement auditors in assuring reliability increases in importance.
The third section explores decision making, incentivizing and innovation. Škerlavaj argues that creativity and innovation, which are the driving forces behind the data-driven revolution (Frank, Roehrig, & Pring, 2017), are also the solution to the many societal ambiguities and uncertainties that we face. However, high-potential creative ideas are at high risk of dismissal and are often replaced by moderately novel ideas. The author of Chapter 11 takes a leadership perspective to understand the fate of many high-potential creative ideas. Great leaders who wish to create the conditions under which high-potential creative ideas can flourish should act as change agents for innovation, integrators across units, disciplines and perspectives, should be helpful and supportive, and encourage proactive behavior.
How to motivate employees to increase productivity has been a heavily debated topic. In light of the emerging new digital workforce, the understanding of the fundamental antecedents to motivation in general, and to intrinsic motivation in particular, is of vital importance. Kuvaas reports a thought-provoking meta-study that shows that ability and motivation are similarly important to job performance, and that high levels of motivation can compensate for lower levels of ability (Van Iddekinge, Aguinis, Mackey, & DeOrtentiis, 2018). Chapter 12 provides ample of empirical evidence establishing the importance of intrinsic motivation and guides leaders through factors that affect intrinsic motivation.
Bjertnæs, Heggedal and Jacobsen discuss a contested and not fully understood R&D policy in the age of sustainability. Environmentally friendly R&D is a necessary condition in addressing environmental challenges. The current model for climate R&D policy argues for gradually declining subsidies to address the inefficiencies in this research market. In Chapter 13, the authors argue that in the presence of increasing returns to scale—for example, knowledge spillovers—increasing R&D subsidies are optimal.
In the light of recent technological changes, the understanding of how agents exert influence by strategically transmitting private information to policy makers will only gain in importance in the years to come. Actors will attempt to exert power through lobbying decision makers who do not yet know mean to end relation of information policies. Taking a game theoretical approach in Chapter 14, Helland, Monkerud and Løyning report that in a costly signaling game, elite politicians from the Norwegian National Assembly are substantially more off-mark relative to equilibrium predictions than students are. It begs the question of whether we should trust lobby-prone politicians with technology-driven transformational policies.
Finally, yet importantly, the meaning of excellent service is technology-dependent and, hence, firms’ understanding of the service encounter is continuously in flux. Information technologies redefine the realm of opportunities at the hands of service providers, from in-store location tracking through electro-dermal activity, to tracking online behavior. In Chapter 15, Gustafsson and Lervik-Olsen review the evolution of service marketing and provide an intriguing integration of services and technologies.
We hope that you will enjoy reading these thought-provoking ideas and the empirical evidence that may not fit with your ex-ante presumption of business, management and decision making. Please do not hesitate to contact us with comments and suggestions1We would like to thank the authors for their dedication and contribution, as well as the book committe members, Dagmar Langeggen and Audun Farbrot, for their irreplaceable role in initiating, forming, and finalizing this project.. Notwithstanding our position at the forefront, we are always looking toward the horizon for new opportunities for knowledge creation. The journey has just begun.
|1||We would like to thank the authors for their dedication and contribution, as well as the book committe members, Dagmar Langeggen and Audun Farbrot, for their irreplaceable role in initiating, forming, and finalizing this project.|