The study reveals that teams across the land are not playing nicely after all. In fact, there are many occasions when we choose not to share information with colleagues if we think it can harm our own prospects of success. And when that information determines, say, the level of funding passed down from a CEO, it can have a significant – and counter-productive – effect on the company as a whole.
(Image removed)Dr Nektarios (Aris) Oraiopoulos
“Most organisations must make decisions about where best to allocate resources,” says Cambridge Judge’s Nektarios (Aris) Oraiopoulos, whose research paper “Resource allocation decisions under imperfect evaluation and organizational dynamics”, published in Management Science, examined how these issues play out in the pharmaceutical industry. “Pharmaceutical companies as a whole need to regularly reassess their R&D portfolios and decide which projects have the greatest potential; for example they might choose to improve an existing drug or develop a new one. Such decisions are often made by C-level executives who rely on information provided by the project managers. But individual project managers do not necessarily give accurate information to the boss if they think it will cost them the resources that fund their projects.”
(Image removed)Dr Vincent Mak
Oraiopoulos’s study, undertaken with Vincent Mak, Director of the MPhil in Strategy, Marketing and Operations at Cambridge Judge, and Professor Jochen Schlapp, at Mannheim University, revealed managers’ likelihood to share information depended on whether there was an appropriate fit between the type of the project (e.g. a new project vs a “me-too” project) and the incentives scheme in place.
“In small companies such as start-ups, there’s often such a strong culture of collective ambition and responsibility – and enhanced risk – that it’s hard to attribute success or failure individually,” says Oraiopoulos. “Therefore the most effective incentive rewards everyone on the basis of the collective success. But as the company grows, people inevitably assume singular responsibilities, the outcomes are less risky and, in the interests of the company, managers start following individual agendas – and management start rewarding individual performance.”
Which is where the problems start. “If two project managers are offered a group incentive for success, individuals are more willing to be upfront about any failings. But when the two project managers compete for resources and rewards, as it often happens in a bigger organisation, project managers are less likely to step aside.”
There are many reasons for this, says Oraiopoulos, not necessarily based in mendacity. “Pharmaceutical research includes many ‘true believers’ – researchers who have absolute faith in a new product, especially if it could cure an important disease. But that faith skews their judgment. They believe their breakthrough is just around the corner, even if all the existing evidence suggests otherwise.”
This is a difficult moral argument for any CEO to reject – a difficulty compounded by the lack of impartial information in such a knowledge-specific industry. “One project manager’s specialty might be a cardiovascular, another’s oncology,” says Oraiopoulos. “No-one knows the science and potential of their product better than they do. They can present an accurate case on why their project deserves resources – or, consciously or subconsciously, mask its failings because no-one has the expertise to challenge them. So how does the CEO tell the difference?”