Commentary: Effects of Success on Management Performance

• Author: Thomas H. Stanton
• DOI: http://doi.org/10.1111/puar.12781
• Published date: 01 July 2017
• Date: 01 July 2017

614 Public Administration Review • July | August 2017

Commentary

I n their article “Performance and Management in

the Public Sector: Testing a Model of Relative Risk

Aversion,” Sean Nicholson-Crotty, Jill Nicholson-

Crotty, and Sergio Fernandez observe that almost

no research “has explored how the success or failure

of a public organization influences the decisions of

those who manage it.” The authors help fill this gap

by exploring how the performance of a public sector

organization affects managers’ propensity to take

risks. Analyzing data from the Federal Employee

Viewpoint Survey (FEVS), they find that managers

are more likely to (1) innovate and (2) empower

their employees, despite the risks that innovation

and employee empowerment entail, when their

organizations perform very poorly or very well. By

contrast, if an organization performs only marginally

well, managers seem more risk averse and reluctant to

innovate or empower their employees.

In contrast to studies of public sector organizations,

the literature on private companies contains

considerable discussion of the effects of

organizational performance—especially great

success—on the risks that managers take and the

decisions they make. The financial crisis revealed

a striking progression of companies from (1) good

performance (market share, profits, etc.) to (2)

apparently high performance to (3) management

complacency and costly risk taking.

Although many large financial institutions failed

during the crisis, some managers and management

teams led their organizations to success. The contrast

among managers’ risk-taking and decision-making

approaches yields valuable lessons:

• There are warning signs of major risks.

• Investigating is less costly than ignoring warnings.

• Constructive dialogue across multiple points of view

helps managers understand risk/reward trade-offs.

• Information flow to decision makers is necessary

but not sufficient to make a superior decision.

In other words, in order to make sound decisions

and decide how much risk to take, managers need

Thomas H. Stanton

Johns Hopkins University

Effects of Success on Management Performance

Thomas H. Stanton is a fellow of the

Center for Advanced Governmental Studies

at Johns Hopkins University. He served

on the staff of the Financial Crisis Inquiry

Commission.

E-mail: tstan77346@gmail.com

Public Administration Review,

Vol. 77, Iss. 4, pp. 614–615. © 2017 by

The American Society for Public Administration.

DOI: 10.1111/puar.12781.