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Going for It

Posted By webcomm On May 6, 2011 @ 9:02 am In Inside Business,Spring 2011 | Comments Disabled

Ranga Ramanujam

Ramanujam and colleagues studied 22,603 fourth-down decisions over five NFL seasons to better understand risk-taking behaviors in business.

Try asking any Monday morning quarterback about blown fourth-down play calls in the NFL and you are guaranteed passionate opinions. In most fourth-down plays, an NFL team will punt or try for a field goal. But occasionally teams decide to do something that is viewed as risky—attempt a fourth-down conversion, or “go for it.”

Associate Professor of Management Ranga Ramanujam, David Lehman from the National University of Singapore and other researchers studied 22,603 fourth-down decisions over five NFL seasons to understand when teams were more likely to attempt a seemingly risky fourth-down conversion. The goal is to apply this research to organizations. These findings are reported in a new study in Organization Science. The paper is titled “The Dynamics of the Performance-Risk Relationship within a Performance Period: The Moderating Role of Deadline Proximity.”

Ramanujam and his co-authors report that teams that were behind generally were more likely to go for it on fourth down. Also the more points behind they were, the more likely it was they would go for it. This effect became stronger as the game progressed. In other words, a trailing team was more likely to go for it later in the game rather than earlier in the game. Interestingly this was only the case for teams trailing by a margin of about three touchdowns or less. Teams trailing by wider margins actually became less and less likely to go for it as the game progressed.

“The idea here is that as the deadline approaches, the time available begins to factor into the decision to try something different in response to underperformance,” Ramanujam says.

The results suggest that as the game clock runs down, teams within striking distance of their opponent grow more and more eager to try risky plays that might help them win the game. However, teams outside that striking distance grow increasingly concerned with “saving face” or avoiding a risky move that might backfire and make them look stupid.

football-graphic

“We argue that this same tension between chasing organizational goals and avoiding reputational threats can help us understand risk-taking behaviors in other types of organizations,” Lehman says.

The goal of the study was to understand how risky organizational decisions might be shaped by performance feedback (i.e., the extent to which current performance is above or below the aspired level of performance) and deadline proximity (i.e., time remaining before an important deadline such as an earnings report date).

“We know that deadlines play an important role in organizational life. Part of what we’re trying to understand is how deadlines affect the well-known relationship between underperformance and risk taking,” Ramanujam says. “In other words, when are organizations more likely to deviate from routines? This is an important question for understanding a variety of important organizational outcomes such as innovation, change and fraud.”

Ramanujam, though, is quick to acknowledge that “although many managers have a natural talent for finding a football analogy for every business situation, football games are very different from the operations of business organizations. However, they are sufficiently similar in some key respects to make these findings potentially relevant to business organizations.”

For instance, fourth-down decisions typically are organizational decisions in that they are based on the inputs of various people on and off the field and are based on performance relative to a target and in reference to a deadline.

Ramanujam also notes that unlike prior studies that analyzed whether fourth-down conversions are as risky as they are made out to be, this study was about understanding when teams were more likely to go for it.

“What is especially relevant to our study is that teams treat this as a nonroutine choice,” Ramanujam says. “In more than 80 percent of fourth-down plays, the teams punted the ball.

Watch Ramanujam’s video about fourth-down decisions. [1]


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URL to article: http://www.vanderbilt.edu/magazines/vanderbilt-business/2011/05/going-for-it/

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[1] Watch Ramanujam’s video about fourth-down decisions.: http://www.owen.vanderbilt.edu/vanderbilt/newsroom/multimedia-gallery/video/watch-video.cfm?customel_datapageid_35945=72489

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