- 05 Jul 2006
- Working Paper Summaries
Wintel: Cooperation or Conflict
Industries are becoming more horizontal. Products that used to be designed and manufactured by a single firm are now produced by different companies that must coordinate activities. Here, the authors detail the relationship between Intel and Microsoft (both integral to PCs) and, using a mixed-duopoly model, analyze the dynamics of cooperation verses competition. They find that costs associated with complementary R&D, conflicts of interest in pricing, and the possibility of competitors all factor in the decision of when to cooperate or compete. Key concepts include: Complementary companies tend to compete on issues of price. For example, if one sells high (Intel's microprocessors) then another must sell low (Microsoft's software) in order for a product (a PC) to be able to sell at a profit. Complementors should weigh the costs and benefits of encouraging competition in each others' spaces. Closed for comment; 0 Comments.
- 05 Jul 2006
- Working Paper Summaries
The Framing Effect of Price Format
How do consumers evaluate different pricing scenarios? This study looks at different pricing models to see which is more likely to result in positive customer perception. Specifically, the authors look at all-inclusive pricing (e.g., the price of a chair is $85.95 including shipping) versus partitioned pricing (e.g., the price of a chair is $81 and shipping is $4.95). When consumers are presented with a partitioned price, they place an exaggerated weight on their evaluation of each individual component. Key concepts include: Price format can be an effective way to shift attention from one type of component (e.g., the actual price of a chair) to another (e.g., a great deal on shipping). If a component might be seen as a negative (e.g., costly shipping), all-inclusive pricing could be best. Consumers may form an opinion about a firm based on the firm's price format. When there is one focal attribute, post an all-inclusive price. When products are commodities, consider partitioning prices. Closed for comment; 0 Comments.
- 05 Jul 2006
- Working Paper Summaries
The Motion Picture Industry: Critical Issues in Practice, Current Research & New Research Directions
This paper reviews research and trends in three key areas of movie making: production, distribution, and exhibition. In the production process, the authors recommend risk management and portfolio management for studios, and explore talent compensation issues. Distribution trends show that box-office performance will increasingly depend on a small number of blockbusters, advertising spending will rise (but will cross different types of media), and the timing of releases (and DVDs) will become a bigger issue. As for exhibiting movies, trends show that more sophisticated exhibitors will emerge, contractual changes between distributor and exhibitors will change, and strategies for tickets prices may be reevaluated. Key concepts include: Business tools such as quantitative and qualitative research and market research should be applied to the decision-making process at earlier stages of development. Technological developments will continue to have unknown effects on every stage of the movie-making value chain (production, distribution, exhibition, consumption). Closed for comment; 0 Comments.
- 05 Jul 2006
- Working Paper Summaries
Measuring Consumer and Competitive Impact with Elasticity Decompositions
Do marketing actions expand the market or steal business from rival firms? One research method suggests that all of the demand created by an incremental advertising investment would be generated by market expansion; another suggests that the same increase would be stolen from rival firms. Steenburgh explains why these seemingly contradictory results actually are complementary and provide a more comprehensive understanding of the investment's impact. Key concepts include: Combine the consumer and the competitive points of view for a more complete understanding of the marketing investment's impact. Closed for comment; 0 Comments.
- 05 Jul 2006
- Working Paper Summaries
Learning Tradeoffs in Organizations: Measuring Multiple Dimensions of Improvement to Investigate Learning-Curve Heterogeneity
How and why experience leads to performance improvement has made the learning curve an important management topic for sites ranging from nuclear power plants to cardiac surgical units. This new research looks deeper at learning curves by focusing on learning rates in technology adoption in similar organizations along multiple, potentially competing dimensions. Using longitudinal data from sixteen hospitals that are adopting a new technology for cardiac surgery, it specifically studies two dimensions: efficiency and application innovation and the potential tradeoff between efficiency and application innovation. It also asks how such tradeoffs are influenced. Key concepts include: Organizations should explicitly decide which dimension of learning is of greatest strategic importance to them. Some organizations may learn more slowly on a particular dimension because they are investing in a different, potentially contradictory dimension of learning. Hospitals in the study that focused on increasing the technical difficulty and innovativeness of their use of a new technology were less likely to increase efficiency as quickly as those that were focused on efficiency. Closed for comment; 0 Comments.
- 05 Jul 2006
- Working Paper Summaries
The IPS Property
This paper is about discrete-choice and econometric models. The "invariant proportion of substitution," or IPS, property comes into play when, for example, a consumer faces a choice among three laptop computers with slightly different attributes. How will improvements to one laptop's attributes affect how the consumer chooses to substitute one alternative for another? Steenburgh looked at probabilities based on assumptions about consumers' utility-maximizing behavior. Key concepts include: The IPS property can be interpreted as an implicit assumption that is made to attain parsimony at the expense of flexibility. Idiosyncratic variation in the consumer's taste parameters can eliminate the IPS restriction. Closed for comment; 0 Comments.
- 05 Jul 2006
- Working Paper Summaries
Governance and CEO Turnover: Do Something or Do the Right Thing?
CEOs who become "entrenched" by the board of directors can gain an extra buffer between themselves and angry shareholders. Entrenchment has potential costs (a poorly performing CEO hangs on to the job) but also benefits (the board can deflect shareholder cries for dismissal of a CEO who was merely unlucky). The authors hope to shift the emphasis of the debate on entrenchment to a consideration of these tradeoffs and to shift the focus of the entrenchment-performance discussion toward the decisions, such as CEO dismissal, that are directly tied to the actions of the board. Key concepts include: By caving in to shareholder demands, boards may act against the long-time interests of the company and those same shareholders. Governance is a very important mediating factor in the relationship between performance and firing. At the time of founding a forward-looking investor may wish to put in place governance mechanisms that address these issues. Closed for comment; 0 Comments.
- 05 Jul 2006
- Working Paper Summaries
Float Manipulation and Stock Prices
When a firm reduces the number of shares available to trade, so-called float manipulation, the price of the stock is often driven up. The author uses a series of 2,000 stock split events in Japan as an experiment to understand the consequences of float manipulation for stock prices. The conclusion: Stock prices are raised significantly when there are differing opinions about the value of shares, investors are unable to sell short, and the number of outstanding shares is reduced. Key concepts include: Firms may use a float reduction as an opportunity to raise equity, or managers may exploit it as an opportunity to sell overpriced shares. Closed for comment; 0 Comments.
- 05 Jul 2006
- Working Paper Summaries
Exploring the Structure of Complex Software Designs: An Empirical Study of Open Source and Proprietary Code
How does a product's design mirror the organization that develops it, and how does such a dynamic occur? To track the evolution of one design over time, this exploratory study compared software designs developed via different modes of organization-open source versus proprietary development. As it turned out, the architecture of the product developed by a highly distributed team of developers (Linux) was more modular than another product of similar size developed by a co-located team of developers (Mozilla). The study helped reveal potential performance tradeoffs from architectures with different characteristics. Key concepts include: The value of design is a managerial choice. There are important, measurable differences in modularity between different software systems of comparable size and function. Systems may vary dramatically in terms of their robustness to change, and the costs and efficiency of future enhancements. Closed for comment; 0 Comments.
- 05 Jul 2006
- Working Paper Summaries
Do We Listen to Advice Just Because We Paid for It? The Impact of Cost of Advice on Its Use
People make decisions every day by weighing their own opinions with advice from other sources. But do we know whether people use advice in a way that is helpful to them? In two experiments performed under controlled, laboratory conditions, Gino found that all else being equal, people weigh advice differently according to the amount of money they pay for it. Also, the cost of advice affects the degree to which people use it. Key concepts include: Decision makers may rely on costly advice more heavily than free advice. The cost of advice did not affect the value gained by following the advice. Cost-of-advice research results might interest the consulting and medical professions. We need to better understand decision makers' sensitivity to the cost they pay to gain advice. Closed for comment; 0 Comments.
- 05 Jul 2006
- Working Paper Summaries
Do Managers’ Heuristics Affect R&D Performance Volatility? A Simulation Informed by the Pharmaceutical Industry
Can the R&D process be managed to provide more certainty and success? The authors explore R&D performance volatility using the pharmaceutical industry as the model. The study looks at two types of heuristics that are commonly used to manage R&D project portfolios: (1) which products to start, and whether to continue or kill a product in development; (2) how resources should be allocated at each phase of development. By changing the heuristics used to make decisions at each stage of development, managers can decrease the amount of uncertainty and failure in the R&D process. Key concepts include: Pay attention to R&D portfolio management, not just portfolio selection. Don't delay in killing bad projects. Closed for comment; 0 Comments.
- 05 Jul 2006
- Working Paper Summaries
The Cycles of Theory Building in Management Research
How do business academics know they are categorizing or measuring the best things to help us understand interesting phenomena? Scholars waste a lot of time and energy disparaging and defending various research methods. Yet the stakes are high for business academics to create theory that is intellectually rigorous, practically useful, and able to stand the tests of time. The authors describe a three-stage process for building theory; discuss the role of anomalies for building better theory; and suggest how scholars can refine research questions, carry out projects, and design student coursework. Key concepts include: A common language about the research process will help management scholars build more effectively on each other's work. If management researchers follow a robust, reliable process, even the most "average" among them can produce and publish research that is of high value to academics and practitioners. The dichotomy that many people see between teaching and research need not create conflict. Closed for comment; 0 Comments.
- 05 Jul 2006
- Working Paper Summaries
A Cross-Sectional Analysis of the Excess Comovement of Stock Returns
This paper develops cross-sectional predictions from a model in which the excess comovement of stock returns comes from correlated demand shocks. The model is tested on 298 Nikkei index stocks and 1,458 non-index stocks for the years 1993 through 2003. The study finds that controlling for index membership, index overweighting is a significant determinant of the comovement of returns with index returns. Key concepts include: Correlated investor demand for securities causes periodic and widespread mispricing. Members of arbitrarily weighted stock indexes, oftentimes "liquid" securities, are subject to frequent mispricing. Closed for comment; 0 Comments.
- 05 Jul 2006
- Working Paper Summaries
Creating the Office of Strategy Management
Organizations often fail to execute their strategy—failure rates may range as high as 60 to 90 percent. Successful companies align their key management processes for effective strategy execution. Creating a new corporate-unit level, the Office of Strategy Management (OSM), may help align management processes to strategy. The authors explain, among other topics, OSM core processes, desirable OSM processes, integrative processes, and positioning the OSM. Key concepts include: Strategy management is an emerging profession. Each organization must ask itself: What are we doing to make strategy management a core competency of our organization? Create an Office of Strategy Management, position it at the level of other senior corporate staff offices, and give it responsibility and authority for the nine key strategy management processes. Closed for comment; 0 Comments.
- 05 Jul 2006
- Working Paper Summaries
Bringing History into International Business
International Business scholars often talk about history, but rarely take it seriously. The first generation of International Business scholars placed a high priority on evolutionary and historical perspectives and methodology, but little work these days grapples with the history of International Business or uses historical data to explore an issue. Jones and Khanna discuss new avenues for researching business groups in history and in contemporary emerging markets, resource-based and path-dependent theories of the firm, and foreign direct investment and development over time. Key concepts include: Move beyond assertions that "history matters" and explore how it matters. Longitudinal analysis is important. History can be treated as rigorously as conventional statistical analysis, and should be. Closed for comment; 0 Comments.
- 05 Jul 2006
- Working Paper Summaries
Analyst Disagreement, Forecast Bias and Stock Returns
It is well documented that financial analysts' opinions are reflected in stock prices. The problem: Analysts often operate under incentives that are inconsistent with telling the truth. Retail investors, who tend to be less sophisticated, may fail to make proper adjustments for the more nuanced of the resulting biases, some of which might be reflected in market prices. To study the scope of market efficiency, Scherbina studied analysts' incentives, resulting forecast biases, and their potential impact on market prices. Key concepts include: When the level of analyst disagreement about future earnings is high, the average forecast tends to be overly optimistic. The "marginal investor," on average, fails to interpret analysts' earnings forecasts with an eye to inherent biases. Sophisticated investors have a beneficial effect on market efficiency. Closed for comment; 0 Comments.
- 05 Jul 2006
- Working Paper Summaries
Advertising and Expectations: The Effectiveness of Pre-Release Advertising for Motion Pictures
This research examines how advertising affects market-wide sales expectations for pre-release movies. The authors use data on advertising expenditures and an online stock market simulation, The Hollywood Stock Exchange (HSX), to track more than 280 movies released between 2001 and 2003. Their findings show that advertising affects the updating of market-wide expectations prior to release, and that this effect is stronger the higher the product quality. Key concepts include: Stock market simulations, such as the Hollywood Stock Exchange, can provide data on test markets, and provide clues about the quality of movies and the appeal of initial advertisements. Studios should spend less money on advertising low-quality movies. Closed for comment; 0 Comments.
- 05 Jul 2006
- Working Paper Summaries
What’s Law Got to Do with It: A Systems Approach to Management
Mainstream management theory often ignores the influence of law on the competitive environment and on the resources of the firm. The author attempts to spark greater academic interest in the legal aspects of management by proposing a systems approach to law and management "that explains how law affects the competitive environment, the firm's resources, and the activities in the value chain." Key concepts include: There is a variety of legal tools that managers can use as part of their market strategy to increase realizable value and manage risk. Firms operate within a broader social context, which can affect both how existing laws are interpreted and applied and how laws are changed in the future. The use of law to create competitive advantage is a wide-open area for academic study. Closed for comment; 0 Comments.
- 05 Jul 2006
- Working Paper Summaries
Implementing New Practices: An Empirical Study of Organizational Learning in Hospital Intensive Care Units
How do hospital units, as complex service organizations, successfully implement best practices? Practices involve people and knowledge; people must apply knowledge to particular situations, so changing practices requires changing behavior. This study is a starting point for healthcare organizations to improve work practices. The researchers drew from literature on best practice transfer, team learning, and process change and developed four hypotheses to test at highly specialized hospital units that care for premature infants and critically ill newborns. Key concepts include: Organizations must set up project teams to investigate and implement new practices. Project teams are important for creating organizational change. There is a strong positive relationship between "learn-how" and implementation success. "Learn-how" makes new practices work in a specific context, and psychological safety encourages people to participate in this disruptive process. Closed for comment; 0 Comments.
Failing to Learn and Learning to Fail (Intelligently): How Great Organizations Put Failure to Work to Improve and Innovate
Successful companies see failure as a part of the innovative process, but there are social (organizational) and technical (skill-based) reasons why it is difficult to turn failures into learning opportunities. First, executives need to develop the skills to probe failures and analyze the root causes. Then improve management's technical skills in problem diagnosis, statistical process design, and qualitative and quantitative analysis. Organizationally, executives should create an environment where people are encouraged to identify failures, rather than encourage a "shoot the messenger" mindset. Key concepts include: Learn from failure by identifying, analyzing, and discussing it, and through deliberate experimentation and risk-taking. It is important to learn from small everyday failures rather than wait for a catastrophe to force change. Break down tasks and provide feedback and specific information on mistakes right away. Use the failure data to educate the organization. Closed for comment; 0 Comments.