Henrich R. Greve INSEAD Chair of Organization and Management Theory Professor of Entrepreneurship

1. Being in the Right Place: Communities and Organizations Henrich R. GreveINSEAD Chair of Organization and Management Theory Professor of Entrepreneurship

2. Overall Agenda • Firm and Community • The community as a node connecting information flows • The community as a birthplace of firms • The community as a supporting structure for firms

3. Node Connecting Information Flows • Industrial cluster model • Each industry involves a set of information flows useful for founders and those operating firm • Suppliers similarly involve information flows • Communities with the greatest intersection of these information flows become clusters with competitive advantage • Is this old-fashioned? Is it contrary to smooth information flow assumptions in some of our theoretical views, like resource based view?

5. A hard-to-find innovation? Post-Panamax Container Carrier: Not a subtle way to save 30+ % of total unit costs per journey

6. Container Network 1994

7. Overall Agenda • Firm and Community • The community as a node connecting information flows • The community as a birthplace of firms • The community as a supporting structure for firms

8. Birthplace of Organizations • Start with observations on community organization: • Santa Clara, CA the resort town versus Ventura, CA the oil town (but both had oil) • Molotch et al AJS 2000: Community organizations “harbor memory traces … through something like a social structure can transpose itself from one time to the next and one institutional realm to the next” • Northern Italy versus Southern Italy • Putnam et al. 1993: “one could have predicted the success or failure of regional government in Italy in the 1980’s with extraordinary accuracy from patterns of civic engagement nearly a century earlier”

9. Community Organizing Capability? • Early organizational founding leaves traces: • Exemplar organizations • Network of individuals trained in founding and running them • Cultural elements (stories, justifications) • Polya urn: Subsequent foundings draw on the same background • More nodes in network • Tighter connections between network • Stronger cultural background • But only in communities with early start – so divergence

10. Mutual Organizations in Norway, 19th and 20th century Savings bank foundings Cooperative foundings

11. Some Evidence: Financial Mutuals Create Retail Coops, 50+ Years Later Regression of Cooperative founding Average Treatment Effects

12. The Extension: Commercial Firms • Is there a generalized founding capability in communities? • If so, it should be shown by foundings having spillovers across forms of organizations, rather than within • Argument has been made based on general institutional conditions: • North (1990), Putnam et al (1993), Krugman (1991) • Argument has been made in negative direction: • Acemoglu et al. (2002) on disease, Kitchelt and Bustokova (2009) on clientele states, Kuran (2011) on corporate role in law • Our argument is specifically organizational

13. Overall Agenda • Firm and Community • The community as a node connecting information flows • The community as a birthplace of firms • The community as a supporting structure for firms

14. Supporting Structure for Firms • Close link of trust between firm and customers often overlooked; easier to notice when it is broken • Earlier work on stigmatization showed how it can unravel and create a crisis when firm breaks community norms • Jonsson, Greve, Fujiwara-Greve ASQ 2009: Skandia insurance firm broke community norms by giving relatives of managers cheap apartments to rent --> Loss of customers in mutual funds owned by other insurance firms, as well as other firms with characteristics resembling Skandia. • Fujiwara-Greve et al.: Skandia also suffered significant losses from scandal; was sold in the end.

15. Bank runs don’t happen anymore Greece 2011

16. Bank runs don’t happen anymore Korea 2011

17. Bank Runs and Communities • Bank runs are contagious: often occur as a reaction to bank runs elsewhere • Empirics: Most banks do not experience runs; runs are not predicted by bank characteristics • So look outside bank, to community: • Demographically diverse communities lack internal networks that drive spread of the “problem” – safer • Economically unequal communities have spread of problem plus distrust in others - riskier

18. Sources of fragmentation, 1893 USA • Heavily agrarian especially in Mid-West and West, much immigration • Race • Religion • Wealth inequality • These are community characteristics “outside” organization; cannot easily select away • Religion especially important because of congregation and communication / networks

28. Some Evidence: Communities Turn on Banks

29. The Extension: Exit, Voice, Loyalty • We have heard this before: Hirschman • Two modern updates: • Take seriously the structure of the community side: how are they linked in the communication side, and the mobilization structures? See them as potential social movements, for or against. • Take seriously the structure of the firm side: how are they linked in stigmatization structures? Who will be blamed when something happens? See them as linked subjects of social control agents.

30. The Big Picture: Firms in Linked Communities