Based on research by Balaji Koka, Robert E. Hoskisson and Eni Gambeta

• According to new research, building strong bonds between a firm and its employees can be both helpful and harmful for business.
• When these bonds improve, in-house efforts at new solutions improve as well.
• But stronger firm-employee relationships can come at the expense of other types of innovation.

In the relations between a company and its workers, is there such a thing as too much love?

Sadly for those enamored by affection, according to professors Balaji R. Koka and Robert E. Hoskisson from Rice Business and professor Eni Gambeta of the University of Cincinnati, the answer is yes.

In a study of innovation efforts across 271 U.S. manufacturing firms, the researchers found that how strong or weak the relationship was between a firm and its employees had a direct impact on not just the amount of innovation, but also the type. When relations were strong, innovation did increase — but only as long as that innovation happened within the business with, say, line extensions. More radical changes, ones that might upend the company culture, were less likely.

The notion of innovation prospering alongside good bonds between a firm and its people seems, of course, to make perfect sense. Happy workers aren’t a bad thing. Past research shows that trust, workplace security and a system of rewards for imaginative solutions all affect in-house innovation the way food, vitamins and exercise function on human muscle. That is, they make it stronger.

But what about “distant search” innovation — ideas that aren’t created in-house, but brought in from outside?

Though local innovation thrives amid rich company-worker bonds, these same relationships might erode efforts at finding innovation from external sources, the researchers hypothesized. In a culture with low turnover, as is likely the case in a happy firm, a homogenous information pool and a partiality for institutional knowledge could lead to the quest for innovation turning too far inward.

Why does this matter? Well, as the history of business has shown, being too comfortable can be a signal of decline. Radical, culture-changing innovation may be disturbing, but it can also lead to greater strength in the long run.

In the 271 firms the researchers studied, they found that, as they expected, strong company-worker bonds correlated to less exploratory innovation. And as external searches for innovation dwindled, local innovation efforts grew. Simply put, in the happy firms innovation that was unfamiliar and disruptive was less likely. Meanwhile, the firms with the weakest company-worker bonds had four times as many instances of distant-search innovation as those with the strongest bonds.

So what do these findings mean for company leaders?

A supplemental analysis, the researchers write, showed that while stronger employee-company bonds enrich a firm’s overall productivity in innovation, they appear to harm a company’s long-term valuation. Meanwhile, stronger employee-company relationships have a spillover effect onto other stakeholders (such as stronger customer-firm relationships), which leads to an even stronger focus on local innovation and less emphasis on exploring more disruptive innovation elsewhere.

Valuable distant-search innovation, in other words, appears to be at risk when company culture is healthiest. So how should leaders respond?

Not by returning to feudal work practices, the researchers stress. Intentionally treating employees badly, they note, eventually poisons all avenues of innovation. Instead, thoughtful leaders should keep treating workers with decency, knowing that a healthy culture is the bedrock of a firm’s longevity.

But at the same time, the research suggests, managers of harmonious work cultures should anticipate soft spots in the search for outside ideas, and compensate for that. Being comfortable is good; being too comfortable is not. Being open to truly new ideas, even if disruptive, is worth encouraging.

It’s not unlike trying to keep up muscle tone after leaving grueling manual work for professional life. No one really wants to go back to breaking rocks or grubbing for tubers. Better to make up for any lost strength by adding something new, like yoga or tai chi, to train new muscles and sharpen concentration at the same time.

Balaji R. Koka is an associate professor of strategic management at Jones Graduate School of Business at Rice University

Robert E. Hoskisson is George R. Brown Emeritus Professor of Management at Jones Graduate School of Business at Rice University

To learn more, please see: Gambeta, E., Koka, B. R., & Hoskisson, R. E. (2019). Being too good for your own good: A stakeholder perspective on the differential effect of firm-employee relationships on innovation search. Strategic Management Journal, 40(1), 108–126.

Q&A with Professor Yael Hochberg 

The images flowing from Italy’s overburdened hospitals in mid-March and early April seemed to speak for themselves. Yet for weeks, and for some people, they did not. In a newly released study, Rice Business professor Yael Hochberg found that residents of counties with higher shares of Trump voters considered COVID-19 less risky than did residents of other counties — and practiced less social distancing to stop the virus from spreading.

In other words, America’s gaping political divide has affected how we’ve managed risk in the pandemic. The purpose of social distancing, of course, is to reduce the spread of COVID-19. So it matters whether people believe they need to take such precautions, said Hochberg and her coauthor, John Manuel Barrios of the University of Chicago’s Booth School of Business.

Here, Hochberg explains more about her research, how she captured and quantified her data so quickly — and what surprised her most.

RBW: What motivated your study?

YH: It mostly stemmed from conversations my coauthor and I were having about how different segments of society were reacting to the pandemic. We realized we had access to data that could answer some of our questions.

RBW: What data did you have in hand, exactly?

YH: What we had was anonymized data from a location data products company called Unacast, and data on Google search activity that we were using for other projects. We realized we could look at the share of search activity that had to do with the COVID-19 epidemic. And we had access to measures computed from location data from tens of millions of smartphones. You can see, for example, the daily distances people are traveling, and see what kinds of businesses they visit, and you can compare that by date.

So you can take a look at, say, Monday April 6 and compare that with all the Mondays from January to the end of February, before anyone was calling this a major crisis in the U.S. This is what Unacast does. Their data also codes up all the businesses, so you can characterize if they are essential businesses, such as a food store or a pharmacy. Other businesses — nail salons, sporting goods stores, bars, gyms, etc. — are labeled nonessential. And they compute the number of visits to nonessential businesses as compared to the same day of the week before the COVID-19 period.

How much people were searching for a topic is an indicator for how concerned they were about it, and the social distancing behaviors like visits to non-essential businesses are actual decisions that you make in the face of however you perceive the risk.

RBW: What was your main finding?

YH: What we found is that people of different political stripes appeared to perceive the risks of COVID-19 differently and adjust their behavior differently. In counties with the highest share of Trump voters, there were far fewer Google searches for information about the virus, and the social distancing response to coronavirus risk was 40 percent lower than in other counties.

RBW: How did you correlate political beliefs with search and travel habits?

YH: The data we had on search and social distancing was aggregated to the county level. Data from the 2016 election allows you to see the vote share for Donald Trump in a given county. What you see is that in the high Trump vote share areas, the proxies for perception of risk — searches for information about the virus, searches for economic impact, unemployment information — these searches, and thus the perception of risk, are lower. The cell phone data also show less social distancing in those counties in the early days of the pandemic.

RBW: What was your hypothesis?

YH: The hypothesis we had was that these choices were driven partly by political polarization, which results in people arriving at different interpretations of the same facts. There is a lot of research that shows increased polarization in the U.S., and how that plays into things like media consumption, and the fact that people are less likely to believe things that come from the opposing party. So, for example, if Fox News was downplaying the risk as opposed to CNN emphasizing the risk, and conservative politicians and President Trump were not talking about this in the same tone as media more associated with the Democratic Party, that could have an effect on how people who leaned Republican viewed the risks versus those who leaned Democrat.

What you see in the data is that when conservative politicians start to be affected by the virus and Fox media starts to change their tone, and Trump stands up and says this is an emergency, those counties suddenly amp up their social distancing. They start playing catch up, searching online for things more than the blue counties are, traveling less, etc.

RBW: What was the catalyst in changing behavior?

YH: We believe that when authority figures associated with a political party start saying, “This is not a hoax,” that’s when people affiliated with that party start to pay attention. One of the things that was really interesting was that even when the state governments were saying to stay home, counties with higher shares of Trump voters reduced their distances way less than other counties. But when the federal decree came, that’s when these counties changed their behaviors.

A likely channel for this is the media. Until your source of news and the people you consider credible say, “This is real, we should actually be worried,” there may not be a behavioral change. These behaviors change, though, the minute there is news, for example, that Ted Cruz is going into quarantine. There was nothing fundamentally different about medical information at that time, but when it hits a politician you support, and Fox News reports on it, that’s a big factor.

We didn’t have viewership data on Fox versus MSNBC, but we can see the ratio of searches for Fox News versus searches for MSNBC on Google. And where that ratio is higher, the social distancing was less and searches for the virus were less.

RBW: What was your takeaway?

YH: If you have a situation that you, as the policymaker, or governor, or head of state thinks is a serious situation, but that different people in the community are going to view differently because the people they consider authority figures say it’s being exaggerated, if, in that situation, you say, “We recommend you stay at home,” there are going to be people who say, “This is not a big deal.”

If there are people who don’t think the risk is all that high, and they engage in behavior that might expose other people to infection — whether it’s the kid who’s bringing your food through UberEats, the person who went to the pharmacy counter before you, the other person walking a dog in your building — if those people are not taking precautions, you have a problem. In other words, if people don’t have the same perception of risk this can be problematic.

RBW: Was there anything surprising to you about what you found?

YH: When all is said and done, you might think that your health in the face of a disease with a high fatality rate is a nonpartisan issue. The virus strikes where it will. If you tell me people have different outlooks on the economy based on who is in the White House, I wouldn’t be surprised. But you wouldn’t think reaction to a disease would get colored in a partisan way. We have all watched the death count from China and Italy, and you’d think after seeing that people would interpret the facts similarly. And they don’t.

We have no data indicating why political leaders took different attitudes, or whether they under- or over-reacted. But the fact that some people are not viewing the pandemic as seriously as others is pretty clear. All you have to do is look at what has happened in many U.S. cities. People have not stayed home. They don’t stay away from each other in the parks or on trails. People are not all following the “suggestions.” That’s why we concluded in our study that in such cases, the only way to shut that kind of behavior down may be to truly mandate and enforce stay-at-home orders.

Yael Hochberg is the Ralph S. O’Connor Professor in Entrepreneurship – Finance and the Head of Rice University Entrepreneurship Initiative. 

By Deborah Lynn Blumberg

The rules are right there on the company website: At Houston running store Fleet Feet, you’re allowed only 60 days to exchange shoes or to get a full refund.

In 2019, though, general manager Danny Braden intentionally violated that policy. He allowed a woman to return shoes a full year after purchase when she explained that she was struggling after losing her husband. It wasn’t the first time Braden had broken the rules. In fact, he encourages, even trains, his employees to do the same — as long, he emphasizes, as it’s safe for everyone and helps a customer.

In the era of coronavirus, some rules are non-negotiable. Enforcing social distancing or hand washing can be matters of sickness or health. But in retail, thankfully, few rules carry anywhere near that kind of weight.

“A lot of times our rules are arbitrary,” says Braden, who manages five Fleet Feet locations in the Houston metro area. “We bend rules a lot. We want our customers to be happy.”

A surprising number of companies acknowledge the same thing: allowing what some might call unethical customer conduct can be good for business. From clothes stores to websites to streaming services, organizations across industries knowingly permit — even encourage — customers to break nonessential rules.

Fast food restaurant Popeyes recently wove rule-breaking into an advertising campaign, announcing that the first 1,000 people who tweeted a picture of themselves eating a Popeyes meal with the hashtag #ThatPasswordFromPopeyes would get the company’s Netflix username and password.

Of course, Netflix has for years allowed users to share accounts, knowing full well that they’re losing hundreds of millions of dollars in the process. Restaurants gamely comp meals to dissatisfied customers even when their complaints are groundless. Target also partakes in harmless rule-bending, honoring the one year guarantee on its Cat & Jack kids’ clothing brand  even when the returned shirt or shorts clearly has done a full tour of duty in art class or on the jungle gym.

Rice Business professor Utpal Dholakia has studied this type of benign indulgence — and supports it. While most business owners believe they shouldn’t allow unethical behavior, Dholakia says their attitude could be hurting their companies.

“If allowing people to return items or giving them freebies keeps them coming back and spending money,” he notes, “it will actually help the business in the long run.”

Higher Revenues

In a study of a Swiss online retailer, Dholakia and colleagues Zhao Yang and René Algesheimer of the University of Zurich found the company earned more and got better customer engagement when it let consumers register multiple accounts in an effort to qualify for free gifts. Though that clearly violated company policy, the rule breaking signaled a sort of devotion, the researchers discovered. The people who broke the rule were actually more engaged with the retailer’s website than were other shoppers — and they spent more money.

In Ann Arbor, Michigan, the Zingerman’s deli food chain has long folded this insight into its business model. Cofounder Ari Weinzweig actively encourages his 700-plus employees to break company rules in the name of customer service. The only caveat: never compromise the health or safety of customers or the community.

To clarify the distinction, Weinzweig teaches responsible rule breaking as part of employee training. “We’re socialized to believe breaking a rule means getting in trouble,” he says. “Rules are in place for good reason, and you need to be mindful.”

When Zingerman’s is open for business, the customer rules. Crave something off-menu? They’ll try to supply it. Need smoked salmon before opening hours? They let you in. Even clients determined to get a reservation despite a no-reservations policy can get their name on a list.

This commitment to bending the rules while complying with safety laws has helped Zingerman’s earn over $65 million dollars in annual revenue, Weinzweig says.

Rules Are For The Rogue Minority

Even libraries — generally bastions of propriety — have loosened up on rules to lure students tempted elsewhere by digital technologies.

Flouting years of tradition, Rice University’s Fondren Library, when it’s open, now encourages users to bring food and drinks into parts of the library. Librarians who might have scolded visitors hiding candy or smuggling coffee are now instructed to welcome them.

“We know people spending time in the library want to have something to drink and eat, so we’re allowing certain things in,” says Sandi Edwards, Assistant University Librarian for Research Services.

Rules, of course, exist for a reason: In business, they help set customer expectations and guide employees in performing work well. They cut down on errors and protect the health of workers and clients. They also can set the tone for how a business conducts itself, so that when conflict arises, employees look to the rules for guidance.

But when rules are vague or outdated, they can needlessly drive customers off, says Jeanne Bliss, a consultant who was the inaugural chief customer officer at Lands’ End, Coldwell Banker, Allstate and Microsoft.

In a retail setting, Bliss says, perceived fairness is a huge driver of customer satisfaction. Customers want to feel they are being treated fairly. Often that means harmless bending or breaking of rules.

So how should businesses split the difference? The first step is to ensure customer and community safety. Next, identify the top exceptions customers request, then guide employees how to respond.

The healthcare industry, for example, distinguishes between red and blue rules. Red rules, such as no smoking where oxygen is being use, protect people and must never be broken. Blue rules, on the other hand, such as filling out admitting paperwork before treatment, are frequently broken in emergency situations.

Dealing With Digital Rule Breakers

Dholakia argues that businesses should make similar priorities. While, for example, absconding with sparkling water from Trader Joe’s is illegal, some businesses purposefully let shoplifters walk out to protect employee safety.

The digital age has ushered in new examples of permitting questionable customer behavior. Newspapers such as The New York Times or the Wall Street Journal often look the other way when readers dole out subscription login details to friends and family. The reasoning? Those non-paying readers are seeing ads — and might become paying readers themselves one day.

Streaming services are the same. Netflix doesn’t bother to crack down on the 12 percent of their viewers who aren’t paying for the service, though it costs the company a reported $500 million a year in revenue. Instead, like other services, Netflix merely limits the number of screens one password can access at any time. Across the streaming industry, a 2014 poll by Consumer Reports showed, a full 46 percent of streaming users were sharing an account with someone outside their household.

At Zingerman’s in Michigan, where customers often insist on using expired coupons, staffers are trained to cheerfully give partial value. Recently, founder Weinzweig says, a customer who benefited from that indulgence then bought two extra bottles of balsamic vinegar. “I’m not saying break every rule every time,” he says. “That’s chaos. Part of leadership is knowing when it’s okay to break them.”

Utpal M. Dholakia is the George R. Brown Professor of Marketing at Jones Graduate School of Business at Rice University.​

Deborah Lynn Blumberg is a Houston-based freelance writer specializing in business, finance and health and wellness whose work has appeared in publications including The Wall Street Journal, MarketWatch, The Christian Science Monitor and Newsday. Previously, she was a reporter at Dow Jones/The Wall Street Journal. (deborahlynnblumberg.com; @dlblumberg). 

Campus Kindness is a series of features on Rice Owls contributing to the fight against COVID-19. Read more here.

A pair of Rice MBA students are using their business skills to give medical staff and the economy a boost amid the COVID-19 pandemic.

Coco Ma and Kathleen Harcourt have created a nonprofit organization, #SnacksForMedStaff, that delivers free meals to medical staff who are treating patients infected with the virus.

“Medical staff are making tough choices and working hard to protect our community,” said Ma, who is specializing in marketing and entrepreneurship at the Jones Graduate School of Business.

The nonprofit has raised more than $14,000 through word of mouth and an online fundraising campaign. The money is used to buy meals and energy drinks from restaurants and stores and deliver them through services such as Uber Eats and DoorDash to hospitals in Houston and around the country.

Meal packages have been delivered to several Houston area hospitals including Houston Methodist, Ben Taub, Memorial Hermann The Woodlands, Lyndon B. Johnson, Davam Urgent Care, Aspire and HCA Houston Healthcare in Conroe. Deliveries have also been made to hospitals in New York, Michigan and California.

The response from medical staff has been heartwarming. “They always tell us how incredibly grateful they are and how much it means to them that we are doing this,” said Harcourt, who is studying finance at the Jones School. “Many of them are stressed out and exhausted, and receiving a small token of thanks really lifts their spirits to keep going forward. We have had a few times where tears were brought to their eyes because someone had thought of them.”

Taking care of health care workers is dear to Ma, who grew up in Hangzhou, China, where her mother is a hospital administrator.

“In the past two months, I have seen so many heartbreaking stories about front-line medical workers passing away due to coronavirus,” she said. “Many health care workers had mental or physical breakdowns because they lacked personal protective equipment and (had) heavy workloads.”

Ma said her mother’s hospital has treated thousands of COVID-19 patients. “I remember one day my mom sent me a message saying she went to work that morning but the hospital couldn’t give her a mask because they had run out,” she said. “But everyone still worked hard to treat patients like any other day.”

After watching Chinese media coverage of people sending food and energy drinks to health care workers there, Ma proposed doing something similar in the United States. Harcourt loved the idea.

“At first, we only intended to spend our money and just send a few meals, but once our classmates found out what we were doing, they started giving donations and sending us contacts at hospitals, and one student, Eric Schumacker, spent a lot of time creating our website,” Harcourt said.

#SnacksForMedStaff, she said, has given her and Ma a sense that they are making a difference.

“We wanted to do something good for the community,” Harcourt said. “We were feeling down about how hospital workers were experiencing sometimes warlike situations with COVID-19 and how small businesses were closing and leaving people unemployed. This nonprofit has empowered us to do something about it.”

David Medina is director of Multicultural Community Relations in Rice’s Office of Public Affairs.

The COVID-19 pandemic has shifted work, school and social lives online, demanding everyone leave their comfort zones of routine and predictability. Jing Zhou, a professor of management at Rice’s Jones Graduate School of Business who’s an organizational behavior expert, found herself stretching her creative muscles to convert an in-person MBA course to online.

Her course Negotiations is taught as an Intensive Learning Experience (ILE), which Zhou considers “the best way of closing the knowing-doing gap — the course helps (students) to not only understand and appreciate negotiation concepts and frameworks, but also use the concepts and frameworks as foundations for building and executing their strategies for a specific negotiation.”

The class is part of the professional MBA program at the Jones School, and students are working professionals. Typically they take the course on evenings or weekends, participating in back-to-back class days. During those two days, the students practice negotiation exercises and discuss or effective or ineffective strategies. Zhou says this ILE has been one of the “secret sauces in the program because of its rich content and rigorous pedagogy.”

These factors make the class seemingly impossible to convert to an online format. Nonetheless, to keep teaching in the current climate, the Jones School went forward with the originally scheduled dates (March 13 and 14) and moved the class online. It was a team effort — Zhou presented her teaching plan to colleagues from various departments who helped her figure out how to make it work.

Zhou chose to teach the class from one of the executive education classrooms at McNair Hall, home of the Jones School, because a remote teaching setup was already in place there. “When I teach, I like to walk around and write things on the board, and teaching in a real classroom allowed me to hold some things constant amongst a sea of change,” she said.

Given the nature of the class, the students virtually moved among small-group “breakout rooms” and the main “classroom.” They engaged in individual preparation, team preparation, negotiations of all sizes and configurations, and whole-class discussion.

Thanks to technology, the class continued almost unchanged. Zhou had to adjust the social aspects of teaching, like picking up on nonverbal cues from students. “When I can only see faces on a screen, I can’t read any nonverbal cues and, hence, the need to pose the same question in different ways, or repeat key takeaways to make sure they fully understand the course concepts and frameworks,” she said.

When Houston city leaders issued a stay-at-home order March 24, Zhou could no longer use the technology at the Jones School and had to convert her class to be even more remote for the next section on April 4 and 5.

“In the following days, I had tutorial sessions with IT and trial runs with a group of Jones School staff to practice various tech features,” Zhou said. “I had to go from a tech dummy who needed her teenage son’s help to set up a WhatsApp account, to someone who now feels pretty comfortable navigating various features in Zoom and syncing a laptop with (a Microsoft) Surface Pro to run a complex class.”

Due to the unusual circumstances, the Jones School offered students the option to attend online or postpone until they could take it in person. Twenty students out of the original 80 decided to participate online.

“Knowing it would be the smallest Negotiations ILE I’d ever taught, I didn’t know what to expect, and frankly was a bit worried about whether the quality of discussion would meet Rice Business’ high standards,” Zhou said.

But it worked. Students were engaged and actively participated, even with Zhou changing her teaching style.

“Sitting at home in front of a couple of computers is not my preference; I draw energy from walking around,” she said. “So knowing I would have to sit and teach, I needed to energize myself psychologically. I dressed up as if I were teaching in the classroom. This helped me to activate my professional identity, and generate psychological energy to do a great job. In addition to a teaching plan, I also created a very detailed class timeline and shared it, in advance, with all students. I felt this helped us to use time efficiently.”

Studies have found that physical settings influence cognitive thinking, according to Zhou, and the change of physical settings could affect divergent thinking and new insights. So, she theorized, it may be beneficial to blend online classes with face-to-face instruction to encourage new thinking.

As people adjust to stay-at-home measures, she notes, they’re searching for ways to encourage motivation and creativity.

“I hope this experience makes people aware that being creative requires much more than telling oneself ‘be creative now,’” Zhou said. “There are strategies that facilitate idea generation, idea evaluation and idea implementation, but most people have never learned those skills and could get frustrated easily after they realize their efforts at forcing creative do not produce great ideas or projects.”

Her advice isn’t just for those who are acclimating to working from home or those attempting a new passion project, but also for organizations.

“I believe people who are willing to learn will realize there are existing processes that need improvement,” she said. “Leaders will need to analyze which part of their existing processes are not efficient and need to be eliminated — and they should use creative thinking skills to engage in process innovation.”