Presentation on theme: "How do organizations respond to failure Bus 374 Dr. Rajiv Krishnan Kozhikode."— Presentation transcript:
How do organizations respond to failure Bus 374 Dr. Rajiv Krishnan Kozhikode
The behavioral theory on Failure Organizations engage in problemistic search in response to failure. Failure is evaluated in relation to an organization’s own past performance and in relation to that of its peers. Problemistic search involves searching for quick fix solutions to overcome failure.
Cheating as a quick fix – Harris & Bromiley, 2007 When faced with failure, cheating might be considered a quick fix option Cooking of books is an example
Bonuses and Stock Options as CEO Incentives When a CEO’s pay comprises of Bonuses and Stocks, performance decline for the firm will mean lower pay for the CEO, but performance enhancement will be rewarded. So CEOs who have a high bonus and stock option component in their pay will have greater incentive to show performance enhancement to the shareholders Sounds good… CEO might work hard, right?
Yes, greater incentive to SHOW performance enhancement CEOs are subject to problemistic search too… Hence, paying in stocks and bonuses is a great incentive… A greater incentive to cheat, as well. When firms perform below aspiration levels, incentive to cheat is higher
Can failure be a learning opportunity? – Haunschild & Sullivan, 2002 Learning curve – Experience produces improvement Failure provides experiences.
Complexity of errors Causes of failure can be homogenous… you know what went wrong and who is responsible Causes of failure can be heterogeneous… you cant easily point out what went wrong and more than one person can be responsible Homogenous experience can result in “passing the blame”… not understanding what the underlying cause was Heterogeneous experiences can result in more learning experiences… More people are involved, so more variety of information More peripheral causes, so incentive to understand the underlying cause No blame game
Type of error and learning More complex the errors, the greater the learning – i.e., the lesser the future errors More complex the errors, the less the errors are attributed to individuals
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