- 11 Jan 2007
- Working Paper Summaries
A Perceptions Framework for Categorizing Inventory Policies in Single-stage Inventory Systems
In research surrounding inventory policies, there is a prevailing assumption of completely rational agents. In practice, however, deviations from the optimal policy abound, and analytical models to understand the effects of inventory dynamics on practice may require ways to model these deviations. Modeling deviations from the optimal policy is also important for better understanding inventory systems and supply chains. The term "perceptions" in Watson's research is not meant in its conventional sense, as in the perceptions of individual managers, but rather forms the basis for a framework for modeling and categorizing a range of inventory policies, including optimal inventory policy. This paper, which is a technical article meant more for an academic audience, explores the usefulness of his framework for categorizing the range of inventory policies that can be employed in a single-stage supply chain. Key concepts include: This is a technical article intended for an academic audience. Current models track forecast errors and use them and past demand realizations to predict future demand. But the results may not accurately reflect the reality of the demand process. This proposed framework categorizes a range of inventory policies in a single-stage supply chain. The framework will be useful for more robust examinations of supply chain management dynamics. Closed for comment; 0 Comments.
- 03 Jan 2007
- Working Paper Summaries
Banking Deregulation, Financing Constraints and Entrepreneurship
What effect does an increase in banking competition have on the entry of start-ups? In particular, does an increase in banking competition have a differential effect on the entry of start-ups relative to the opening of new establishments by existing firms? The U.S. branch banking deregulations provide a useful laboratory for studying how banking competition affects small businesses. Prior to 1970, all but twelve states had stringent restrictions on the ability of banks to open new branches or to acquire the branches of other banks within the state; beginning in the 1970s and until 1994, all but two states removed these restrictions. In this research, Kerr and Nanda studied the entry of newly incorporated businesses between 1976 and 1999 using detailed data collected by the U.S. Census Bureau. Their findings matter for understanding how reforms that affect the financing environment may improve the real economy through the reallocation of resources in the non-financial sectors. Key concepts include: Interstate branch banking deregulations had a positive effect on both the entry rates and entry sizes of start-ups relative to the facility expansions of existing firms. These beneficial effects were evident in multiple sectors of the economy and stronger in more financially dependent industries. While greater banking competition may hurt entrepreneurs through a decline in relationship banking or loan subsidization, the positive net effects point to substantial increases in credit provision to start-ups. The impact of financial market reforms on product market entry is an important micro-foundation for understanding and fostering economic growth. Closed for comment; 0 Comments.
- 22 Dec 2006
- Working Paper Summaries
Future Lock-in: Or, I’ll Agree to Do the Right Thing...Next Week
Most of us believe that we should make certain choices—save more money or reduce gas consumption, for example—but we do not want to carry out these choices. In psychology this tension has been referred to as a "want/should" conflict. Rogers and Bazerman show through four experiments that people are more likely to choose what they believe they should choose when the choice will be implemented in the future rather than in the present, a tendency they call "future lock-in." They also discuss directions for future research and applications for public policy, an arena in which citizens are often asked to consider binding policies that trade short-term interests for long-term benefits. Key concepts include: Tension occurs between an individual's immediate self-interest and the interests of all others, including his or her own "future self." Individuals tend to think that their future selves will behave more virtuously than their present selves. Four studies demonstrated the future lock-in effect, which describes a person's increased willingness to choose and support a binding "should-choice" when it is to be implemented in the future rather than in the present. Policymakers could leverage the benefits of future lock-in by advocating for reforms that would be decided upon in the present, but go into effect in the future. Future lock-in would encourage citizens to more heavily weight a policy's abstract merits rather than its concrete costs. Closed for comment; 0 Comments.
- 20 Dec 2006
- Working Paper Summaries
The Demise of Cost and Profit Centers
The Balanced Scorecard has proven to be a general and powerful performance management framework for units previously treated as profit and investment centers. The management control literature, however, identifies other organizational forms for decentralized units, including standard cost centers, revenue centers, and support units treated as discretionary expense centers. Starting from the example of a classic teaching case, Empire Glass Company, Kaplan explains how strategy maps and the Balanced Scorecard transform cost, revenue, and discretionary expense centers into strategic business units in their own right. Key concepts include: The foundation of management control systems has been enhanced by applying strategy maps and Balanced Scorecards to motivate, align, and evaluate the performance of diverse organizational units. The leading paradigm of organizational structure and control of just a generation ago—based on cost, profit, investment, revenue, and discretionary expense centers—is replaced by a framework in which every organizational unit can be considered a strategic business unit. Closed for comment; 0 Comments.
- 19 Dec 2006
- Working Paper Summaries
The Political Economy of Capitalism
Capitalism is often defined as an economic system where private actors are allowed to own and control the use of property according to their own interests, and where the invisible hand of the pricing mechanism coordinates supply and demand in markets in a way that is automatically in the best interests of society. Government, in this perspective, is often described as responsible for peace, justice, and tolerable taxes. Bruce Scott argues in this chapter that for a capitalist system to evolve in an effective developmental sense through time, it must have two hands, not one: an invisible hand that is implicit in the pricing mechanism, and a visible hand that is explicitly managed by government through a legislature and a bureaucracy. Inevitably the actions of the visible hand imply a strategy, no matter how implicit, shortsighted, or incoherent that strategy may be. Key concepts include: Government has two quite different roles to play in a capitalist economy, as an administrator of an ongoing system and as an innovator. Political leaders have prime responsibility for mobilizing the power to promote changes to the system. Capitalism has two hands, first the familiar if invisible hand of price mechanisms that coordinate economic actors within current frameworks, and second the visible hand of government, where it is both an administrator and an innovator. The visible hand of the state must be able to intervene in order to modernize market frameworks in a timely way, while at the same time administering and enforcing existing rights and responsibilities as a complement to the invisible hand. Closed for comment; 0 Comments.
- 15 Dec 2006
- Working Paper Summaries
The Business of Free Software: Enterprise Incentives, Investment, and Motivation in the Open Source Community
IBM has contributed more than $1 billion to the development and promotion of the Linux operating system, and other vendors such as Sun are ramping up open source software efforts and investment. Why do information technology vendors that have traditionally sold proprietary software invest millions of dollars in OSS? Where have they chosen to invest, and what are the characteristics of the OSS projects to which they contribute? This study grouped OSS projects into clusters and identified IT vendors' motives in each cluster. Key concepts include: Cluster 1, the "money-driven cluster," consisted of projects that have received almost all of vendor investments. The eighteen projects in this cluster have received over $2 billion in investment. Cluster 2, the "community-driven cluster," has a large number of projects that have received almost no vendor investment. IT vendors have generally ignored projects in this cluster and appear to have no coordinated strategy for dealing with them. Examining the impact of projects in both clusters shows that vendors have not invested uniformly in high-impact OSS projects. Instead, vendors invest in projects that can serve to draw revenues to their own (largely proprietary) core business. Closed for comment; 0 Comments.
- 11 Dec 2006
- Working Paper Summaries
Three Perspectives on Team Learning: Outcome Improvement, Task Mastery, and Group Process
Organizations increasingly rely on teams to carry out critical strategies and operational tasks. How do teams learn, and what factors are most important to team learning? This paper reports on current perspectives and findings that address these questions, looking at empirical studies on team learning from three areas of research: outcome improvement, task mastery, and group process. Overall, Edmondson and coauthors characterize the nature of research to date and assemble what is known and unknown about the theoretically and practically important topic of team learning. Key concepts include: Team learning has value for organizations; learning in teams is seen as a key mechanism through which learning organizations become strategically and operationally adaptive and responsive. Research on team learning is at a crossroads. How the learning of individual work teams translates into organizational learning is not well understood, and management literature to date offers few insights. One avenue for future research is the durability and utility of team-based networks for the organization as a whole. Learning in teams almost necessarily plays a role in developing the knowledge and skills of individuals who compose the team. Another avenue for future research is how individuals benefit from their team learning experiences in terms of intellectual, career, and personal development goals. Organizations stand to benefit when ideas are cross-fertilized and diverse individuals learn to work together. "Outsiders" can introduce valuable ideas. Learning and execution are often at odds: Learning by its nature involves uncertainty, false starts, and occasional dead ends. Team learning in organizations must be recognized as a strategy for tolerating forays into the unknown. Closed for comment; 0 Comments.
- 08 Dec 2006
- Working Paper Summaries
The Industry R&D Survey: Patent Database Link Project
The development and diffusion of new innovations are central to economic growth, and understanding the firm-level underpinnings of technology progress is important to academics, policymakers, and business managers. While many researchers have examined (either separately or together) corporate research and development and technology diffusion, they run into two significant data constraints. William R. Kerr and Shihe Fu describe how they developed a new dataset for studying corporate innovation that encompasses three important existing datasets. This paper summarizes the Industry R&D Survey for researchers who want to study innovation through the Census Bureau's data. Key concepts include: The developed platform offers an unprecedented view of the R&D-to-patenting innovation process and a close analysis of the strengths and limitations of the Industry R&D Survey. This R&S platform can, through the Census Bureau's file structure, facilitate other studies of how innovation leads to productivity. Closed for comment; 0 Comments.
- 08 Dec 2006
- Working Paper Summaries
When Learning and Performance are at Odds: Confronting the Tension
While most people agree that learning leads to improved performance, there are several ways in which learning and performance in organizations can be at odds. First, when organizations take on a new learning challenge, performance often suffers in the short term, because new behaviors or practices are not yet highly skilled. Second, by revealing and analyzing their failures and mistakes—a critical aspect of learning—individuals or work groups may appear to be performing less well than they would otherwise. This paper reviews research that describes the challenges of learning from failure in organizations, and argues that these challenges can be at least partly addressed by leadership that creates a climate of psychological safety and that promotes inquiry. Key concepts include: In organizations, the costs of learning may at times be more visible than the benefits. Therefore, leaders must publicize this idea broadly, or else learning may not happen. Experimentation, by its nature, will inevitably result in failures; yet without these failures learning cannot occur. Leadership is essential for fostering the mindset, group behaviors, and organizational investments that promote learning now and invest in performance later. Closed for comment; 0 Comments.
- 13 Nov 2006
- Working Paper Summaries
A New Framework for Analyzing and Managing Macrofinancial Risks of An Economy
The vulnerability of a national economy to volatility in the global markets for credit, currencies, commodities, and other assets has become a central concern of policymakers, credit analysts, and investors everywhere. This paper describes a new framework for analyzing a country's exposure to macroeconomic risks based on the theory and practice of contingent claims analysis. (A contingent claim is any financial asset for which future payoff depends on the value of another asset.) In this framework, the sectors of a national economy are viewed as interconnected portfolios of assets, liabilities, and guarantees that can be analyzed like puts and calls. The framework makes it transparent how risks are transferred across sectors, and how they can accumulate in the balance sheet of the public sector and ultimately lead to a default by the government. Key concepts include: The high cost of international economic and financial crises highlights the need for a comprehensive framework to assess the robustness of countries' economic and financial systems. Contingent claims analysis provides a natural framework for analysis of mismatches between an entity's assets and liabilities, such as currency and maturity mismatches on balance sheets. Policies or actions that reduce these mismatches will help reduce risk and vulnerability. This framework is useful to both the public and private sectors. Closed for comment; 0 Comments.
- 02 Nov 2006
- Working Paper Summaries
Managing Functional Biases in Organizational Forecasts: A Case Study of Consensus Forecasting in Supply Chain Planning
By their very nature, consensus forecasts contain subjective elements that can compromise forecast accuracy. In this case study of the implementation of a sales and operations planning process in a consumer electronics company, Oliva and Watson studied the organizational and political dimensions of forecast generation and improvement. Ultimately, consensus forecasting constructively managed the influence of biases (such as overconfidence) on forecasts. Key concepts include: Better and more integrated information is not sufficient for a good forecast. Design the process so that social and political dimensions of the organization are effectively managed. Create an independent group to manage the forecast process, not the forecast itself. This helps to stabilize the political dimension. Unintended incentives and blind spots can arise as a result of newly implemented processes, so managers need to control for biases and their effects on system performance. Insights from this case study can be generalized and extended to other settings that require cross-functional coordination. Closed for comment; 0 Comments.
- 02 Nov 2006
- Working Paper Summaries
Resolving Information Asymmetries in Markets: The Role of Certified Management Programs
Hundreds of thousands of firms rely on voluntary management programs to signal superior management practices to interested buyers, regulators, and local communities. Such programs typically address difficult-to-observe management attributes such as quality practices, environmental management, and human rights issues. The absence of performance standards and, in most cases, verification requirements has led critics to dismiss voluntary management programs as marketing gimmicks or "greenwash." Toffel examines whether a voluntary environmental management program with a robust verification mechanism attracts participants with superior environmental performance, and whether the program elicits improved environmental performance. His study focuses on the ISO 14001 Environmental Management System Standard, but the results have implications for voluntary management programs that govern many other difficult-to-observe management issues. Key concepts include: A voluntary management program with robust verification, such as independent certification, can distinguish organizations based on their difficult-to-observe management practices. Third-party certification may be a critical element to ensure that voluntary management programs legitimately distinguish participants. This finding is in sharp contrast with prior studies that found no evidence that superior performers disproportionately adopted voluntary management programs with weak or no verification mechanisms. For firms, the evidence that ISO 14001 distinguishes adopters as less pollution-intensive many encourage firms to use ISO 14001 to screen suppliers. Regulators should seriously consider using ISO 14001 as an indicator of superior performance. The results of the study should encourage those who have designed or adopted other voluntary management programs that lack robust verification mechanisms to consider whether adding such a mechanism would substantially bolster the credibility of the program. Closed for comment; 0 Comments.
- 02 Nov 2006
- Working Paper Summaries
Organizational Response to Environmental Demands: Opening the Black Box
How and why do organizations respond differently to pressures from different stakeholders? This question is central to organizational theory and feeds into strategic management research as well. Delmas and Toffel develop and test a model that describes why organizations respond differently to similar stakeholder pressures. They suggest that differences in how organizations distribute power across their internal corporate departments lead their facilities to prioritize different institutional pressures and thus adopt different management practices. Key concepts include: Stakeholder pressures are channeled to different organizational functions, which influence how they are received—and acted upon—by facility managers. As a result, managers of facilities that are subjected to comparable institutional pressures may adopt distinct sets of management practices to appease their external constituents. Closed for comment; 0 Comments.
- 01 Nov 2006
- Working Paper Summaries
Male Circumcision and AIDS: The Macroeconomic Impact of a Health Crisis
The AIDS epidemic is a humanitarian disaster that has struck sub-Saharan Africa with particular severity, but its macroeconomic impact is much less certain. Though conflicting theories abound, empirically-based studies on the link between HIV prevalence rates and economic growth have shown no consensus. Given the significant medical evidence that male circumcision can reduce the risk of contracting HIV in Africa, tribal circumcision practices provide an "experimental" setting to test the impact of the AIDS epidemic on the overall economy. Key concepts include: AIDS has not had a measurable impact on key economic variables in Africa such as gross domestic product per capita, savings rates, and fertility. Youth literacy levels may have increased more slowly than they would have in the absence of AIDS, suggesting that HIV may decrease investment in education. The AIDS epidemic may have led to an increase in malnutrition, perhaps supporting the hypothesis that AIDS has contributed to the persistence of poverty in Africa. While the impact of the epidemic on growth has not been as large as the world feared, governments of high-AIDS countries need to establish educational and nutritional outreach. Closed for comment; 0 Comments.
- 18 Oct 2006
- Working Paper Summaries
Racial Diversity Initiatives in Professional Service Firms: What Factors Differentiate Successful from Unsuccessful Initiatives?
What organizational factors are needed for racial diversity initiatives to succeed? While diversity continues to grow in importance in organizations, very little research has focused on the processes that underlie diversity management. Modupe Akinola and David A. Thomas propose a study intended to explore management initiatives that focus on racial diversity in professional service firms. Given that such firms rely on the high level of skills, expertise, and diverse perspectives offered by their professional staff, these firms may be ideal laboratories for examining diversity initiatives. Key concepts include: The success of diversity initiatives in professional service firms is driven by five criteria: a well articulated and widely bought-into diversity strategy, leadership support, an engaged employee base, innovative approaches to recruiting and retaining minorities, and management practices that are integrated and aligned with the initiative. Firms that achieve sustained success in their diversity initiatives should show evidence of more of these success criteria relative to their peers in the same industries. Organizations with a strong understanding of the factors that influence the success of diversity initiatives may begin to better recruit and retain minorities. Such insights may even extend to organizational practices unrelated to diversity. Closed for comment; 0 Comments.
- 13 Oct 2006
- Working Paper Summaries
Coerced Confessions: Self-Policing in the Shadow of the Regulator
Are regulators necessary? In industry, self-regulation and self-policing have been touted as a new paradigm of regulation that trades outmoded "command-and-control" strategies for industry-directed, market-based solutions. Short and Toffel's work, one of the first empirical studies to address self-policing behavior, examined a rich data set of companies' voluntary disclosures of regulatory violations under the U.S. Environmental Protection Agency's Audit Policy. The goal: to learn how violators behave when offered the option of voluntarily self-disclosing. The results show that even as corporations are given an expanding role in their own governance, the success of "voluntary" self-policing depends on the continued involvement of regulators with coercive powers. Key concepts include: Despite the rhetoric of cooperation surrounding self-policing programs, self-disclosures of violations are motivated by coercive regulatory enforcement activities. Facilities in the study were more likely to self-disclose violations if they were recently inspected, subjected to an enforcement action, or narrowly targeted for heightened scrutiny by a compliance incentive program. There was some evidence that facilities were more likely to "turn themselves in" in states where statutory immunity shielded their self-disclosed violations from prosecution. There was no evidence that facilities protected by state-level audit privilege were more likely to self-disclose. This research counsels caution regarding the extent to which government should cede regulatory monitoring to companies themselves, and suggests that self-policing can complement, but not substitute for, government regulatory inspections. Closed for comment; 0 Comments.
- 13 Oct 2006
- Working Paper Summaries
Pricing Liquidity: The Quantity Structure of Immediacy Prices
Researchers and participants in the market for securities have long been interested in the costs of transacting and the notion of liquidity as a performance measure of market structure. In real world capital markets, investors and corporations generally do not expect to transact at fundamental value. Rather, market participants face some degree of illiquidity, where they must sacrifice price, trade size, or speed of execution, forcing them to transact at prices away from fundamental value. The exact price of liquidity, however, is unknown. This paper develops an option-based model of the price of liquidity via the pricing of limit orders. Key concepts include: The model points to the competitiveness of market making as a potentially important driver of transaction prices. The model results in a simple formula that can be used to estimate transaction prices as a function of transaction size for individual securities, including very large transactions like corporate issues and takeovers. The uncertainty over transactable prices, relative to fundamental value, produces a liquidity risk. The model may be a useful step towards a new measure of liquidity risk. Closed for comment; 0 Comments.
- 03 Oct 2006
- Working Paper Summaries
Cartels and Competition: Neither Markets nor Hierarchies
Before 1945, many thinkers believed cartels brought widespread benefits. But following the spread of antitrust ideas after 1945, Adam Smith's verdict on cartels as "conspiracies against the public" prevailed. The cartel question highlights important issues about the benefits and risks of competition. This working paper maintains that, for better or worse, cartels have shaped economic and business history since the late nineteenth century. Big business must recognize how, up until the 1980s, the activities and influence of cartels affected technological development, corporate strategy, and organizational change. Key concepts include: Business historians need to broaden the discussion of cartels beyond conspiracy, or risk short-circuiting important theoretical questions. Cartel arrangements were not benign, yet they meshed more with the public interest than is recognized. If business historians take the perspective that joining cartels is a form of competitive strategy, or at least a cooperative way-station on the road toward future competition, they can explain why cartels have not damaged economic growth as much as some might expect. Studying cartels raises an intriguing question: When is competition essential to efficiency and innovation; when is cooperation? Closed for comment; 0 Comments.
- 28 Sep 2006
- Working Paper Summaries
Architectural Innovation and Dynamic Competition: The Smaller “Footprint” Strategy
To study dynamic competition, Baldwin and Clark build upon a design principle in computer architecture known as Amdahl's Law. The authors show that firms can study the underlying cause-and-effect relationships in a complex architecture in order to identify "bottlenecks." Firms may then redesign the interfaces of key components to make them more modular. They can then outsource more activities without sacrificing performance or cost. As a result, firms can offer competitive products or services, while investing less, and so enjoy an "invested capital advantage" over competitors. Baldwin and Clark explain how the strategy works and then model its impact on competition through successive stages of industry evolution. Key concepts include: Architectural innovation involves rearranging known parts (components) into new patterns (architectures) to achieve higher levels of system performance on one or more dimensions. The strategy described in this paper was used in the 1980s by Sun Microsystems against Apollo Computer and in the 1990s by Dell against Compaq and other personal computer makers. Sun's invested capital advantage can be linked to specific architectural innovations. As for Dell, indirect evidence shows that architectural knowledge and innovation contributed in important ways to Dell's success. Closed for comment; 0 Comments.
“Don’ts" and "Do’s”: Insights from Experience in Mitigating Risks of Western Investors in Post-Communist Countries
Cultural and other misunderstandings between westerners and locals in post-communist countries are very costly, and western investors grossly underestimate how damaging ineffective interaction really is. This article shows that such interaction constitutes a major stumbling block to effective risk management and stands in the way of the enterprise fully taking advantage of opportunities for profit in these product-hungry, fast-expanding, and dynamic economies. Ultimately, effective communication between westerners and locals is the necessary condition for the success of western investments in transition countries. Key concepts include: On the whole, and with several notable exceptions, investors and business executives from mature western economies pay far too little attention to the quality of their interaction with their local counterparts. Misconceptions about the "realities" of dealing with locals and the practices which such misconceptions lead to can engender vicious circles of misunderstandings, resentments, and lack of trust. It is well within the power of western investors and executives to generate a better relationship with locals. The westerners' best guides for meeting the challenge of effective interaction with locals across differences in business practices, concerns, priorities, and values are the same basic principles and managerial tools which they would apply within mature economies. Closed for comment; 0 Comments.