Distributed decision‐making in the shadow of hierarchy: How hierarchical similarity biases idea evaluation

Abstract

Research SummaryCompanies are increasingly opening up decision‐making, involving employees on all levels in distributed—and purportedly “hierarchy‐free”—decision processes. We examine how hierarchy reaches into such “democratized” systems, arguing that it is a source of homophily that biases idea evaluation decisions. Using a data set from internal crowdfunding at one of the world's largest industrial manufacturers, we show that idea evaluators overvalue hierarchically similar others' ideas. Competition in the form of lateral closeness dampens this bias, whereas uncertainty in the form of novelty amplifies this bias. We contribute to the literatures on decision biases in centralized versus distributed innovation and on structural similarity as a driver of employee behaviors.Managerial SummaryMany companies are starting to involve employees on all levels in strategic decisions, so as to curb hierarchical rigidities and integrate multiple perspectives. However, such distributed decision‐making opens the door to new biases and, ultimately, suboptimal strategic decisions. In the context of internal crowdfunding at a large industrial manufacturer, we show that employees evaluate hierarchically similar others' ideas overly favorably. Thus, hierarchy is not just a source of rivalry, but also of identification, leading to favoritism among hierarchical peers. Further, employees are particularly likely to assess ideas based on hierarchical similarity rather than content if the ideas are novel and therefore hard to evaluate. We provide suggestions for the design of distributed decision‐making systems.

Blinded by the person? Experimental evidence from idea evaluation

“…Indeed, evaluators often do not base their evaluation solely on the idea itself but also on whose idea it is (Fuchs, Sting, Schlickel, & Alexy, 2019;Menon & Blount, 2003;Reitzig & Sorenson, 2013). Prior work on idea evaluation has, for example, explained how biases could arise from hierarchy (Keum & See, 2017;Schweisfurth, Schöttl, Raasch, & Zaggl, 2023), sequence (Bian, Greenberg, Li, & Wang, 2021;Criscuolo, Dahlander, Grohsjean, & Salter, 2021), and nepotism (Reitzig & Sorenson, 2013). Knowing who proposed an idea can provide important information (Chaiken, 1980;Pornpitakpan, 2004), yet relying on such source-based heuristics can lead to biases that disadvantage women and people far away from the decision-makers (Banaji & Hardin, 1996;Blair & Banaji, 1996;Stangor, Lynch, Duan, & Glas, 1992).…”

Digital Skills Mobilization within Incumbent Organizations: The Agentic Role of Digital Champions

“…Moreover, the introduction of hierarchically diverse roles such as that of digital champions may reduce hierarchical similarity, which has been recently proven to bias decision-making when it comes to innovation. (Schweisfurth et al, 2023). When facing digital transformation, firms have to limit upper-echelon influence and hierarchical similarity and realize that while top-down commitment will be essential for any strategic and organizational change to actually happen, the stimuli for such change in the digital world are likely to come bottom-up, because top managers' backgrounds and characteristics may not align well with the digitally disrupted context in which firms operate today.…”

Does familiarity with an idea bias its evaluation?

“…It can be counteracted by putting evaluation panels in charge of particularly important decisions and by job rotation as it can offset the biasing effect of individual idea familiarity. Finally, distributed idea evaluation (e.g., internal crowdfunding [ 25 ]) is gaining in popularity as a new tool in the decision-making toolbox. It helps to overcome individual level familiarity biases, as long as subjective familiarity with an idea is differently distributed across evaluators: A more diverse group of evaluators is likely to have a broader range of familiarities with different ideas, reducing the overall bias in the decision-making process.…”

“…First, the characteristics of the idea creator may systematically affect or bias the idea evaluation process. For example, evaluators prefer ideas that come from known idea creators [ 24 ], from individuals hierarchically close to them in the organization [ 25 ] and individuals with whom they share a social identity [ 26 ]. Second, factors rooted in the idea evaluator may introduce error into the idea evaluation process.…”