The logical thing to do when a company wants to generate the most revenue from its resources, is to put its most experienced leaders in charge of those resources.
After all, who else would best know how to use them? But a new study on Hollywood producers in the Strategic Management Journal reminds us that it’s not that simple.
Academics have been writing about the Resource-Based View (RBV) — a theory of how companies can gain competitive advantage from their unique and valuable resources — since the 1980s, though the idea has been around for longer. The researchers behind this new study point out that recent work on RBV has focused on managers as the ones generating the revenue from the company’s resources. What they wanted to explore is how managers do that.
The study investigated the interplay between a manager’s experience level and the type of resource the manager oversees. The researchers looked at three types of resources — financial, brand, and human — and specifically at the role of “fungibility,” which is a resource’s ability to be deployed in different ways. (Think of it this way: Cash, which can be spent in whichever way you choose, is highly fungible; people, whose specialized skills limit your options for deploying them, are less fungible.) For their data, the researchers turned to the movie business, where all three types of resources are at work on every project.
Studying 837 mass-market movies released between 1996 and 2003, they collected data on the movies’ producers and their prior experience. All the movies were released by a major Hollywood studio and played on at least 1,000 screens in the U.S. Most of the movies had multiple producers: 92% had between one and three, and the rest had as many as seven. Each producer’s experience was measured by how many movies he or she had produced prior to the current movie. When a movie had multiple producers, their experience levels were used together. (The researchers also tested their results against the experience level of each movie’s most experienced producer alone, but the results were not significantly different.)
Next, the researchers analyzed the three types of resources across all 837 movies. For the financial resources, they used each movie’s production budget. For the brand resources, they used whether the movie is a sequel, reasoning that sequels and series can offer the same advantages as a brand. For the human resources, they used each movie’s director, assessing the director’s talent by whether he or she had ever been nominated for a professional award by the Director’s Guild of America.
Finally, a movie’s performance was judged by its U.S. box office revenue. The researchers controlled for several factors that could influence a movie’s performance, including its rating, the timing of its release, and whether its actors were stars.
Using regression analysis, the study found that experienced producers outperformed less-experienced producers when working with higher budgets and stronger brands — but got worse results when working with talented directors. Experienced producers only got better results when working with less-talented directors. In addition, less-experienced producers outperformed experienced producers when working with lower budgets and weaker brands.
The researchers concluded that fungibility plays an important role in whether top managers deploy resources successfully. As they gain experience, managers become more skilled at using resources in different ways, as well as at recognizing opportunities to use them. But when a resource is less fungible, like a company’s specialized top talent, experienced managers can struggle to deploy it, and even end up destroying value in the process.
The best strategy, the researchers say, is for leaders to adapt their approach to the specifics of the project. When working with top talent, it’s best to take a hands-off approach: offer general support, but otherwise let them do their jobs. When working with less-experienced talent, a manager being more actively involved will get better results. And when the resources aren’t people, the most experienced leaders will get the best possible results.
But the amount of resources matters too. The study also found that experienced managers struggle to create value with fewer resources, possibly because after honing their methods on projects with plentiful resources, they have a hard time adapting to meager circumstances. In these cases, less-experienced managers, who tend to be better at finding ways to wring value from fewer resources, are the best choice to lead the project.
So the next time your company has a resource-based project that needs a leader, remember: depending on the project, your most experienced people might not be the best people for the job.
Image and article via Harvard Business Review