MAINTAINING ORGANISATIONAL PERFORMANCE IN TIMES OF GROWTH: New experimental evidence and lessons for firms and countries

New experimental research finds that it is possible for organisations to increase their size while maintaining performance even when new members come from groups with histories of low performance.

The study by Timothy Salmon and Roberto Weber, which is published in the March 2017 issue of the Economic Journal, also suggests that any deterioration in the performance of an organisation as it grows is often the result of existing members'' negative reaction to entry rather than actual poor behaviour by the entrants.

These findings indicate that when examining the problem of how to grow successful organisations, you have to pay attention not only to the behaviour of new entrants but also to the behaviour of existing group members.

These results have applications to firms adding staff, but there are also obvious parallels to immigration between countries. The results should be seen as positive indications that both firms and countries should be able to incorporate new members with relative ease.

Furthermore, when growing a firm or country, it is important not only to find ways to transfer cultural norms to incoming members but also to ensure that existing employees or citizens do not allow misplaced fears of incomers to drive their behaviour.

The researchers begin their analysis by noting that many organisations are concerned with how to maintain their culture as their membership grows and changes. To assess the challenge of maintaining efficiency while integrating new entrants from lower-performing groups, they establish an experimental setting in which participants play what are known as coordination games.

In these games, a group of players does well if everyone selects a high number. On the other hand, choosing higher numbers than others is costly. The group does best by coordinating on choices of high numbers but individuals who are afraid that others won''t coordinate on high choices will often push the group payoffs to low levels.

Once the experimental subjects have played this game, the experimenters then take those who did the best at coordinating at high levels and place them in a small group on their own while leaving the others in another group. This produces one small, well-coordinated group and one large, poorly coordinated group.

The researchers then allow those in the poorly coordinated group to move to the other group. They test several different rules for how this entry is allowed to occur.

The results show that the well-coordinated group can maintain high coordination either by the new entrants coming in slowly or by having potential entrants pass an entrance exam demonstrating that they understand why the high performing group has been doing well. Either mechanism is effective in ensuring that the new group members will contribute at the same level as the existing group members.

An important observation in the data concerns why groups sometimes fail. The researchers find indications that it is often the existing group members who lower their contribution levels when new entrants come in, perhaps in anticipation that the new members won''t perform as well as existing ones. This fear is often misplaced, but it can be self-reinforcing and can substantially harm a group''s performance.

''Maintaining Efficiency While Integrating Entrants from Lower-Performing Groups: An Experimental Study'' by Timothy Salmon and Roberto Weber is published in the March 2017 issue of the Economic Journal. Timothy Salmon is at Southern Methodist University. Roberto Weber is at the University of Zurich.