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Research SIGGELKOW AND LEVINTHAL ARE NOW WORKING ON SIMULATION MODELS TO UNDERSTAND THE EFFECT THAT THE INTERDEPENDENT DESIGN OF AN ORGANIZATION HAS ON ITS PERFORMANCE. corporate income from taxation. "The SEC has taken the posi- tion that this erroneous reporting represents financial fraud and is investigating numerous companies who will likely be forced to restate their earnings, in addition to pos- sibly paying penalties," says Heron. "Stock options are supposed to provide incentives for executives to work to improve the firm's future performance. However, backdat- ing stock options so that they are already in-the-money and disguising the practice can be compared to let- ting executives bet on a game where they already know the final score." The investigation, and the role of Heron and Lie in uncovering the fraudulent backdating practices, has been featured in publications rang- ing from the Wall Street Journal to BusinessWeek. Some of the late- filing companies that Heron and Lie discovered, along with those companies' executives, now face fines, repayment of taxes, and other legal actions by lawmakers and the U.S. Internal Revenue Service. The lesson to companies, say these researchers, is that in the post-SOX world, everyone is watching. A Company Is the Sum of Its Parts Two researchers at The Wharton School at the University of Pennsylvania in Philadelphia are working to restore the luster on an old management theory: that, for a company to flourish, its managers must under- stand it not just as a whole, but as an integration of its interde- pendent parts. Nicolaj Siggelkow, associate professor of management, and Daniel A. Levinthal, profes- sor of management, want to bring 50 BizEd SEPTEMBER/OCTOBER 2006 the "part-whole" vision of the corporation back into favor. Siggelkow, who began Nicolaj Siggelkow studying this area of research during his under- graduate studies at Stan- ford University, notes that companies often ignore the unique interdependen- cies within their opera- tions. Instead, many are so sure that what works for other firms will work for them, they'll import so-called "best practices" before making sure these practices will actually work within their own network of personnel, departments, and technological systems. "That's why so many companies that tried to adopt lean manufac- turing techniques foundered. They thought they could import them without having to change other areas in the organization," says Siggelkow. He adds that companies that copy best practices also risk looking too much like their com- petitors, which only works to mini- mize competitive advantage. Levinthal first became interested are engaged in their own adaptive journeys as these parts are juggled by those forces," he says. In 2002, the two Daniel A. Levinthal researchers studied the interdependent design of individual firms such as Vanguard and Liz Claiborne to see how they have evolved over time. More impor- tant, the two wanted to see how they reacted to external changes in the market, given their unique set of circum- stances, and how the choices they made reflect- ed their organizational designs. They found that in the "part-whole" relationships within firms when he heard a pre- sentation by evolutionary biolo- gist Stuart Kauffman. Kauffman's work, explains Levinthal, focuses on the relationship between the interdependencies of an organism's genetic structure and how well that organism functions in the world. "When I heard that, I thought it provided a conceptual apparatus that might apply to business orga- nizations. Corporations have their own part-whole structure that is subject to competitive forces; they firms that have developed a long track record of success either adapt industry best practices to their interdependent systems or develop their own unique best practices. The two cite Dell Computers and Southwest Airlines as two com- panies that have taken advantage of all their internal competencies, each of which depend on an inter- connected set of strategies and decisions to work effectively. Siggelkow and Levinthal are now working on simulation models to understand the effect that the interdependent design of an orga- nization has on its performance. The researchers' early simulations show a primary pitfall in one area in particular: innovation. As more companies push for innovation, they're asking lower-level manag- ers to come up with ideas. But rather than give those managers the autonomy to act on their ideas, they instead ask them to send their ideas up the hierarchical chain, so