Showing papers in "Management Science in 2010"
TL;DR: Using data on 21 handheld computing systems, it is found that granting greater levels of access to independent hardware developer firms produces up to a fivefold acceleration in the rate of new handheld device development, depending on the precise degree of access and how this policy was implemented.
Abstract: This paper studies two fundamentally distinct approaches to opening a technology platform and their different impacts on innovation. One approach is to grant access to a platform and thereby open up markets for complementary components around the platform. Another approach is to give up control over the platform itself. Using data on 21 handheld computing systems (1990--2004), I find that granting greater levels of access to independent hardware developer firms produces up to a fivefold acceleration in the rate of new handheld device development, depending on the precise degree of access and how this policy was implemented. Where operating system platform owners went further to give up control (beyond just granting access to their platforms) the incremental effect on new device development was still positive but an order of magnitude smaller. The evidence from the industry and theoretical arguments both suggest that distinct economic mechanisms were set in motion by these two approaches to opening.
777 citations
TL;DR: It is not enough merely to design MC toolkits in such a way that preference fit is maximized and design effort is minimized; to capture the full value of MC, toolk Kits should also elicit “I designed it myself” feelings.
Abstract: Many companies offer websites that enable customers to design their own individual products, which the manufacturer can then produce to order. To date, the economic value of products self-designed using mass customization (MC) toolkits has been attributed to the two factors of preference fit achieved (which should be as high as possible) and design effort (which should be as low as possible). On the basis of literature on behavioral decision making, we suggest a third factor, namely the awareness of being the creator of the product design. In the course of five different studies, we provide experimental evidence that this “I designed it myself” effect creates economic value for the customer. Regardless of the two other factors, self-designed products generate a significantly higher willingness to pay. This effect is mediated by feelings of accomplishment and moderated by the outcome of the process as well as the individual's perceived contribution to the self-design process. These findings have important implications for MC companies: It is not enough merely to design MC toolkits in such a way that preference fit is maximized and design effort is minimized. To capture the full value of MC, toolkits should also elicit “I designed it myself” feelings.
661 citations
TL;DR: In this article, the authors examine the effectiveness of two group structures for such tasks and find that groups organized in the hybrid structure are able to generate more ideas, to generate better ideas, and to better discern the quality of the ideas they generate.
Abstract: In a wide variety of settings, organizations generate a number of possible solutions to a problem---ideas---and then select a few for further development. We examine the effectiveness of two group structures for such tasks---the team structure, in which the group works together in time and space, and the hybrid structure, in which individuals first work independently and then work together. We define the performance of a group as the quality of the best ideas identified. Prior research has defined performance as the average quality of ideas or the number of ideas generated, ignoring what most organizations seek, a few great ideas. We build a theory that relates organizational phenomena to four different variables that govern the quality of the best ideas identified: (1) the average quality of ideas generated, (2) the number of ideas generated, (3) the variance in the quality of ideas generated, and (4) the ability of the group to discern the quality of the ideas. We test this theory with an experiment. We find that groups organized in the hybrid structure are able to generate more ideas, to generate better ideas, and to better discern the quality of the ideas they generate. Moreover, we find that the frequently recommended brainstorming technique of building on others' ideas is counterproductive; teams exhibiting such buildup neither create more ideas, nor are the ideas that build on previous ideas better.
535 citations
TL;DR: In this article, the authors show that experience diversity helps trim poor outcomes significantly more than it helps create breakthroughs, relative to the effect of external networks and find partial mediation of the effect on extreme outcomes by the diversity of technical experience of team members and by the size of team member's external collaboration networks.
Abstract: Are lone inventors more or less likely to invent breakthroughs? Recent research has attempted to resolve this question by considering the variance of creative outcome distributions. It has implicitly assumed a symmetric thickening or thinning of both tails, i.e., that a greater probability of breakthroughs comes at the cost of a greater probability of failures. In contrast, we propose that collaboration can have opposite effects at the two extremes: it reduces the probability of very poor outcomes---because of more rigorous selection processes---while simultaneously increasing the probability of extremely successful outcomes---because of greater recombinant opportunity in creative search. Analysis of over half a million patented inventions supports these arguments: Individuals working alone, especially those without affiliation to organizations, are less likely to achieve breakthroughs and more likely to invent particularly poor outcomes. Quantile regressions demonstrate that the effect is more than an upward mean shift. We find partial mediation of the effect of collaboration on extreme outcomes by the diversity of technical experience of team members and by the size of team members' external collaboration networks. Supporting our meta-argument for the importance of examining each tail of the distribution separately, experience diversity helps trim poor outcomes significantly more than it helps create breakthroughs, relative to the effect of external networks.
495 citations
TL;DR: Evidence that prior experience in small firms predicts positive performance outcomes in the early stages of entrepreneurship is interpreted as suggesting that workers inSmall firms may develop entrepreneurial human capital that makes them better entrepreneurs.
Abstract: Scientists and engineers in small firms are far more likely than their large firm counterparts to enter entrepreneurship. We label this phenomenon the small firm effect and explore its origins. In particular, we identify four classes of explanations for the small firm effect---preference sorting, ability sorting, opportunity cost, and the possibility that workers in small firms develop entrepreneurial human capital---and examine the empirical evidence for each. We find that preference sorting does play a role in generating the small firm effect: small firms attract those with prior preferences for autonomy who are similarly drawn into entrepreneurship. Similarly, ability sorting plays a role: those who ultimately become entrepreneurs may be drawn first to small firms because they offer tighter pay-for-performance links and can subsequently improve their expected earnings by becoming entrepreneurs, or because the skills required for success in small firms are also valuable in entrepreneurship. Evidence suggests that although those with the very least to lose do enter entrepreneurship with greater frequency, opportunity cost has at best a modest role to play in explaining the small firm effect. Finally, we interpret evidence that prior experience in small firms predicts positive performance outcomes in the early stages of entrepreneurship as suggesting that workers in small firms may develop entrepreneurial human capital that makes them better entrepreneurs. This effect may be largest among those of high ability.
375 citations
TL;DR: The authors examined whether the likelihood of entrepreneurial activity is related to the prior career experiences of an individual's coworkers, using a unique matched employer-employee panel data set and found that coworkers can increase the likelihood that an individual will perceive entrepreneurial opportunities as well as increase his or her motivation to pursue those opportunities.
Abstract: We examine whether the likelihood of entrepreneurial activity is related to the prior career experiences of an individual's coworkers, using a unique matched employer--employee panel data set We argue that coworkers can increase the likelihood that an individual will perceive entrepreneurial opportunities as well as increase his or her motivation to pursue those opportunities We find that an individual is more likely to become an entrepreneur if his or her coworkers have been entrepreneurs before Peer influences also appear to be substitutes for other sources of entrepreneurial influence: we find that peer influences are strongest for those who have less exposure to entrepreneurship in other aspects of their lives
328 citations
TL;DR: This work considers that individuals might transition incrementally by retaining their wage job while entering into self-employment, and test the model on a population of Swedish wage earners in the knowledge-intensive sector.
Abstract: In contrast to previous efforts to model an individual's movement from wage work into entrepreneurship, we consider that individuals might transition incrementally by retaining their wage job while entering into self-employment. We show that these hybrid entrepreneurs represent a significant share of all entrepreneurial activity. Theoretical arguments are proposed to suggest why hybrid entrants are distinct from self-employment entrants, and why hybrid entry may facilitate subsequent entry into full self-employment. We demonstrate that there are significant theoretical and empirical consequences for this group and our understanding of self-employment entry and labor market dynamics. Using matched employee--employer data over eight years, we test the model on a population of Swedish wage earners in the knowledge-intensive sector.
318 citations
TL;DR: This work manipulates the interface of a computer-mediated idea generation system to enhance the system's motivational affordance, i.e., the system’s properties that fulfill users' motivational needs.
Abstract: Increasing globalization has created tremendous opportunities and challenges for organizations and societies. Consequently, a broad range of information technologies to better support the collaboration of diverse, and increasingly distributed, sets of participants is ever more utilized. Arguably, the success of such technology-mediated collaboration is dependent upon the quality of each individual's contributions; however, although individuals' motivations to do their best could be significantly influenced by the design of a system's human--computer interface, this area has received little attention within the context of group collaboration environments. We fill this gap by integrating research from human--computer interaction, motivation, and technology-supported group work to theoretically derive mechanisms for increasing each individual's motivation within a collective setting. Specifically, we manipulate the interface of a computer-mediated idea generation system (a widely used collaboration tool) to enhance the system's motivational affordance, i.e., the system's properties that fulfill users' motivational needs. Results from two studies demonstrate that by embedding the theoretically derived mechanisms “providing feedback” and “designing for optimal challenge” into the collaboration environment, significant performance gains were realized. The results suggest that even slight manipulations of the human--computer interface can contribute significantly to the successful design of a wide variety of group collaboration environments.
307 citations
TL;DR: It is shown that direct last-minute sales are preferred over selling through an opaque intermediary when consumer valuations for travel are high or there is little service differentiation between competing service providers, or both; otherwise, opaque selling dominates.
Abstract: Companies in a variety of industries (e.g., airlines, hotels, theaters) often use last-minute sales to dispose of unsold capacity. Although this may generate incremental revenues in the short term,...
296 citations
TL;DR: Results obtained by fitting a heterogeneous diffusion model to data from a sample drawn from an annual survey of almost 4,000 U.S. hospitals suggest that diffusion can be accelerated if specific attention is given to increasing social contagion effects.
Abstract: We use a social contagion lens to study the dynamic, temporal process of the diffusion of electronic medical records in the population of U.S. hospitals. Social contagion acknowledges the mutual influence among organizations within an institutional field and implicates information transmission through direct contact and observation as the mechanisms underlying influence transfer. We propose hypotheses predicting a hospital's likelihood of adopting electronic medical records as a function of its susceptibility to the influence of prior adopters, the infectiousness or potency of influence exerted by adopting hospitals, and its social and spatial proximity to prior adopters. Results obtained by fitting a heterogeneous diffusion model to data from a sample drawn from an annual survey, spanning 1975 to 2005, of almost 4,000 U.S. hospitals suggest that diffusion can be accelerated if specific attention is given to increasing social contagion effects. In particular, with respect to susceptibility to influence, greater hospital size and age are positively related to the likelihood of adoption for nonadopters, whereas younger hospitals are associated with greater infectiousness for adopters. A hospital's “celebrity” status also contributes to its infectiousness. We further find strong effects for social proximity and significant regional effects for spatial proximity and hospital size, suggesting that geographical covariates should be included in diffusion studies. Results also reinforce the importance of theorizing about and including interactions in examinations of social contagion.
266 citations
TL;DR: It is concluded that the properties a contractual form exhibits in a one-manufacturer supply chain may not carry over to the realistic setting in which multiple manufacturers must compete to sell their goods through the same retailer.
Abstract: It is common for a retailer to sell products from competing manufacturers. How then should the firms manage their contract negotiations? The supply chain coordination literature focuses either on a single manufacturer selling to a single retailer or one manufacturer selling to many (possibly competing) retailers. We find that some key conclusions from those market structures do not apply in our setting, where multiple manufacturers sell through a single retailer. We allow the manufacturers to compete for the retailer's business using one of three types of contracts: a wholesale-price contract, a quantity-discount contract, or a two-part tariff. It is well known that the latter two, more sophisticated contracts enable the manufacturer to coordinate the supply chain, thereby maximizing the profits available to the firms. More importantly, they allow the manufacturer to extract rents from the retailer, in theory allowing the manufacturer to leave the retailer with only her reservation profit. However, we show that in our market structure these two sophisticated contracts force the manufacturers to compete more aggressively relative to when they only offer wholesale-price contracts, and this may leave them worse off and the retailer substantially better off. In other words, although in a serial supply chain a retailer may have just cause to fear quantity discounts and two-part tariffs, a retailer may actually prefer those contracts when offered by competing manufacturers. We conclude that the properties a contractual form exhibits in a one-manufacturer supply chain may not carry over to the realistic setting in which multiple manufacturers must compete to sell their goods through the same retailer.
TL;DR: The authors examined the relationship between individuals' motives (e.g., desire for intellectual challenge, income, or responsibility) and their innovative performance and found that different motives have very different effects: Motives regarding intellectual challenge and independence have a strong positive relationship with innovative output, whereas motives regarding job security and responsibility tend to have a negative relationship.
Abstract: Economists studying innovation and technological change have made significant progress toward understanding firms' profit incentives as drivers of innovation. However, innovative performance in firms should also depend heavily on the pecuniary and nonpecuniary motives of the employees actually working in research and development. Using data on more than 1,700 Ph.D. scientists and engineers, we examine the relationships between individuals' motives (e.g., desire for intellectual challenge, income, or responsibility) and their innovative performance. We find that motives matter, but different motives have very different effects: Motives regarding intellectual challenge, independence, and money have a strong positive relationship with innovative output, whereas motives regarding job security and responsibility tend to have a negative relationship. We also explore possible mechanisms underlying the observed relationships between motives and performance. Although hours worked (quantity of effort) have a strong positive effect on performance, motives appear to affect innovative performance primarily via other dimensions of effort (character of effort). Finally, we find some evidence that the role of motives differs in upstream research versus downstream development.
TL;DR: Using a sample of retail banking customers observed over a 30-month period at a large U.S. bank, it is found that use of the online banking channel is associated with higher customer retention rates over one-, two-, and three-year horizons.
Abstract: This paper uses the context of online banking to investigate the consequences of using self-service distribution channels to alter customer interactions with the firm. Using a sample of retail banking customers observed over a 30-month period at a large U.S. bank, we test whether changes in service consumption, cost to serve, and customer profitability are associated with the adoption of online banking. We find that customer adoption of online banking is associated with (1) substitution, primarily from incrementally more costly self-service delivery channels (automated teller machine and voice response unit); (2) augmentation of service consumption in more costly service delivery channels (branch and call center); (3) a substantial increase in total transaction volume; (4) an increase in estimated average cost to serve resulting from the combination of points (1)--(3); and (5) a reduction in short-term customer profitability. However, we find that use of the online banking channel is associated with higher customer retention rates over one-, two-, and three-year horizons. The documented relationship between the use of online banking and customer retention remains positive even after controlling for self-selection into the online channel. We also find evidence that future market shares for our sample firm are systematically higher in markets with high contemporaneous utilization rates for the online banking channel. This finding holds even after controlling for contemporaneous market share, suggesting it is not simply the result of increased market power leading to the acquisition of online banking customers.
TL;DR: The results validate the financial kernel together with support vector machines as a useful method for discriminating between fraudulent and nonfraudulent companies using only publicly available quantitative financial attributes and show that the methodology has predictive value.
Abstract: This paper provides a methodology for detecting management fraud using basic financial data. The methodology is based on support vector machines. An important aspect therein is a kernel that increases the power of the learning machine by allowing an implicit and generally nonlinear mapping of points, usually into a higher dimensional feature space. A kernel specific to the domain of finance is developed. This financial kernel constructs features shown in prior research to be helpful in detecting management fraud. A large empirical data set was collected, which included quantitative financial attributes for fraudulent and nonfraudulent public companies. Support vector machines using the financial kernel correctly labeled 80% of the fraudulent cases and 90.6% of the nonfraudulent cases on a holdout set. Furthermore, we replicate other leading fraud research studies using our data and find that our method has the highest accuracy on fraudulent cases and competitive accuracy on nonfraudulent cases. The results validate the financial kernel together with support vector machines as a useful method for discriminating between fraudulent and nonfraudulent companies using only publicly available quantitative financial attributes. The results also show that the methodology has predictive value because, using only historical data, it was able to distinguish fraudulent from nonfraudulent companies in subsequent years.
TL;DR: The authors proposed a behavioral theory to predict actual ordering behavior in multilocation inventory systems, based on a well-known stylized fact of human behavior: people's preferences are reference dependent.
Abstract: We propose a behavioral theory to predict actual ordering behavior in multilocation inventory systems. The theory rests on a well-known stylized fact of human behavior: people’s preferences are reference dependent. We incorporate reference dependence into the newsvendor framework by assuming that there are psychological costs of leftovers and stockouts. We also hypothesize that the psychological aversion to leftovers is greater than the disutility for stockouts. We then experimentally test the proposed theory in both the centralized and decentralized inventory structures using subjects motivated by substantial financial incentives. Consistent with the proposed theory, actual orders exhibit the so-called “pull-to-center” bias and the degree of bias is greater in the high-profit margin than in the low-profit margin condition. These systematic biases are shown to eliminate the risk-pooling benefit when the demands across store locations are strongly correlated. Because the proposed model nests the standard inventory and ex post inventory error minimization theories as special cases, one can systematically evaluate the predictive power of each alternative using the generalized likelihood principle. We structurally estimate all three theories using the experimental data, and the estimation results strongly suggest that the proposed behavioral theory captures actual orders and profits better. We also conduct two experiments to validate the behavioral model by manipulating the relative salience of the psychological costs of leftovers versus that of stockouts to alleviate the pull-to-center bias.
TL;DR: A tailored base-surge (TBS) sourcing policy that is simple, used in practice, and captures the classic trade-off between cost and responsiveness is analyzed and a simple “square-root” formula is presented that is insightful to answer questions and sufficiently accurate for practice.
Abstract: When designing a sourcing strategy in practice, a key task is to determine the average order rates placed to each source because that affects cost and supplier management. We consider a firm that has access to a responsive nearshore source (e.g., Mexico) and a low-cost offshore source (e.g., China). The firm must determine an inventory sourcing policy to satisfy random demand over time. Unfortunately, the optimal policy is too complex to allow a direct answer to our key question. Therefore, we analyze a tailored base-surge (TBS) sourcing policy that is simple, used in practice, and captures the classic trade-off between cost and responsiveness. The TBS policy combines push and pull controls by replenishing at a constant rate from the offshore source and producing at the nearshore plant only when inventory is below a target. The constant base allocation allows the offshore facility to focus on cost efficiency, whereas the nearshore facility's quick response capability is utilized only dynamically to guarantee high service. The research goals are to (i) determine the allocation of random demand into base and surge capacity, (ii) estimate corresponding working capital requirements, and (iii) identify and value the key drivers of dual sourcing. We present performance bounds on the optimal cost and prove that economic optimization brings the system into heavy traffic. We analyze the sourcing policy that is asymptotically optimal for high-volume systems and present a simple “square-root” formula that is insightful to answer our questions and sufficiently accurate for practice, as is demonstrated with a validation study.
TL;DR: It is found that group affiliation is particularly important for innovation in industries that rely more on external funding and in groups with more diversified capital sources, consistent with the internal capital markets hypothesis.
Abstract: Using novel data on European firms, this paper investigates the relationship between business groups and innovation. Controlling for various firm characteristics, we find that group affiliates are more innovative than standalones. We examine several hypotheses to explain this finding, focusing on group internal capital markets and knowledge spillovers. We find that group affiliation is particularly important for innovation in industries that rely more on external funding and in groups with more diversified capital sources, consistent with the internal capital markets hypothesis. Our results suggest that knowledge spillovers are not the main driver of innovation in business groups because firms affiliated with the same group do not have a common research focus and are unlikely to cite each other's patents.
TL;DR: This work constructs a method to modify automated order advices by learning from the behavior of store managers that is efficient to implement and outperforms store managers by achieving a more balanced handling workload with similar average days of inventory.
Abstract: Retail store managers may not follow order advices generated by an automated inventory replenishment system if their incentives differ from the cost-minimization objective of the system or if they perceive the system to be suboptimal. We study the ordering behavior of retail store managers in a supermarket chain to characterize such deviations in ordering behavior, investigate their potential drivers, and thereby devise a method to improve automated replenishment systems. Using orders, shipments, and point-of-sale data for 19,417 item--store combinations over five stores, we show that (i) store managers consistently modify automated order advices by advancing orders from peak to nonpeak days, and (ii) this behavior is explained significantly by product characteristics such as case pack size relative to average demand per item, net shelf space, product variety, demand uncertainty, and seasonality error. Our regression results suggest that store managers improve upon the automated replenishment system by incorporating two ignored factors: in-store handling costs and sales improvement potential through better in-stock. Based on these results, we construct a method to modify automated order advices by learning from the behavior of store managers. Motivated by the management coefficients theory, our method is efficient to implement and outperforms store managers by achieving a more balanced handling workload with similar average days of inventory.
TL;DR: This work shows that the optimal inventory-trading policy of a risk-neutral merchant is characterized by two stage and spot-price dependent basestock targets, which is a consequence of the interplay between the capacity and space limits of the storage asset and brings to light the nontrivial nature of the interface between trading and operations.
Abstract: This paper considers the so-called warehouse problem with both space and injection/withdrawal capacity limits. This is a foundational problem in the merchant management of assets for the storage of commodities, such as energy sources and natural resources. When the commodity spot price evolves according to an exogenous Markov process, this work shows that the optimal inventory-trading policy of a risk-neutral merchant is characterized by two stage and spot-price dependent basestock targets. Under some assumptions, these targets are monotone in the spot price and partition the available inventory and spot-price space in each stage into three regions, where it is, respectively, optimal to buy and inject, do nothing, and withdraw and sell. In some cases of practical importance, one can easily compute the optimal basestock targets. The structure of the optimal policy is nontrivial because in each stage the merchant's qualification of high (selling) and low (buying) commodity prices in general depends on the merchant's inventory availability. This is a consequence of the interplay between the capacity and space limits of the storage asset and brings to light the nontrivial nature of the interface between trading and operations. A computational analysis based on natural gas data shows that mismanaging this interface can yield significant value losses. Moreover, adapting the merchant's optimal trading policy to the spot-price stochastic evolution has substantial value. This value can be almost entirely generated by reacting to the unfolding of price uncertainty, that is, by sequentially reoptimizing a model that ignores this source of uncertainty.
TL;DR: An economic theory of the costs and benefits of corporate culture---in the sense of shared beliefs and values---in order to study the effects of “culture clash” in mergers and acquisitions is developed.
Abstract: This paper develops an economic theory of the costs and benefits of corporate culture---in the sense of shared beliefs and values---in order to study the effects of “culture clash” in mergers and acquisitions. I first use a simple analytical framework to show that shared beliefs lead to more delegation, less monitoring, higher utility (or satisfaction), higher execution effort (or motivation), faster coordination, less influence activities, and more communication, but also to less experimentation and less information collection. When two firms that are each internally homogeneous but different from each other merge, the above results translate to specific predictions about how the change in homogeneity will affect firm behavior. This paper's predictions can also serve more in general as a test for the theory of culture as shared beliefs.
TL;DR: In this paper, a simple model of partner selection in which firms ally for the purpose of learning and innovating, and in doing so create an industry network is proposed, abstracting completely from network-based structural and strategic motives for partner selection and focus instead on the idea that firms' knowledge bases must "fit" for joint learning and innovation to be possible, and thus for an alliance to be feasible.
Abstract: Empirical research on strategic alliances has focused on the idea that partners are selected on the basis of social capital considerations. In this paper we emphasize instead the role of complementary knowledge stocks and knowledge dynamics, which have received surprisingly limited attention relative to social capital as forces behind the formation and dynamics of innovation networks. To marshal evidence in this regard, we design a simple model of partner selection in which firms ally for the purpose of learning and innovating, and in doing so create an industry network. We abstract completely from network-based structural and strategic motives for partner selection and focus instead on the idea that firms' knowledge bases must “fit” for joint learning and innovation to be possible, and thus for an alliance to be feasible. The striking result is that, despite containing no social capital considerations, this simple model replicates the firm conduct, network structure, and contingent effects of network position on performance observed and discussed in the empirical literature.
TL;DR: Evidence is found that a limited presence of inbreds can benefit the research output of noninbreds and potentially the whole university, but a dominantly inbred environment will stifle productivity, even for noninbreedings.
Abstract: The practice of having Ph.D. graduates employed by the university that trained them, commonly called “academic inbreeding,” has long been suspected to be damaging to scholarly practices and achievement. Despite this perception, existing work on academic inbreeding is scarce and mostly exploratory. Using data from Mexico, we find evidence that, first, academic inbreeding is associated with lower scholarly output. Second, the academically inbred faculty is relatively more centered on its own institution and less open to the rest of the scientific world. This navel-gazing tendency is a critical driver of its reduced scientific output when compared with noninbred faculties. Third, we reveal that academic inbreeding could be the result of an institutional practice, such that these faculty members contribute disproportionately more to teaching and outreach activities, which allows noninbred faculty members to dedicate themselves to the research endeavor. Thus, a limited presence of inbreds can benefit the research output of noninbreds and potentially the whole university, but a dominantly inbred environment will stifle productivity, even for noninbreds. Overall, our analysis suggests that administrators and policy makers in developing nations who aim to develop a thriving research environment should consider mechanisms to limit this practice.
TL;DR: The first large-scale study to explore how employee outcomes such as employment, earnings, and health and safety change when employers adopt ISO 9001 was conducted by as mentioned in this paper, who found that ISO adopters had higher growth rates for sales, employment, payroll, and average annual earnings.
Abstract: Several studies have examined how the ISO 9001 quality management systems standard predicts changes in organizational outcomes such as profits. This is the first large-scale study to explore how employee outcomes such as employment, earnings, and health and safety change when employers adopt ISO 9001. We analyzed a matched sample of nearly 1,000 companies in California. ISO 9001 adopters subsequently had far lower organizational death rates than a matched control group of nonadopters. Among surviving employers, ISO adopters had higher growth rates for sales, employment, payroll, and average annual earnings. Injury rates declined slightly for ISO 9001 adopters, although total injury costs did not. These results have implications for organizational theory, managers, and public policy.
TL;DR: The empirical results indicate that centrality in a product architecture network is related to quality according to an inverted-U relationship, which suggests that vehicle subsystems of intermediate complexity exhibit abnormally high levels of quality problems.
Abstract: Product architecture and organizational communication play significant roles in complex product development efforts. By using networks to characterize both product structure and communication patterns, we examine the impact of mismatches between these on new product development (NPD) performance. Specifically, we study the vehicle development process of a major auto company and use vehicle quality (warranty repairs) as our NPD performance metric. Our empirical results indicate that centrality in a product architecture network is related to quality according to an inverted-U relationship, which suggests that vehicle subsystems of intermediate complexity exhibit abnormally high levels of quality problems. To identify specific subsystems in danger of excessive quality problems, we characterize mismatches between product architecture and organizational structure by defining a new metric, called coordination deficit, and show that it is positively associated with quality problems. These results deepen our understanding of the impact of organizational structure and product architecture on the NPD process and provide tools with which managers can diagnose and improve their NPD systems.
TL;DR: This paper investigates how the choice of contract type---among fixed-fee, time-and-materials, and performance-based contracts---is driven by the service environment characteristics and identifies service process design changes that improve contract efficiency.
Abstract: In this paper, we analyze the contracting issues that arise in collaborative services, such as consulting, financial planning, and information technology outsourcing. In particular, we investigate how the choice of contract type---among fixed-fee, time-and-materials, and performance-based contracts---is driven by the service environment characteristics. We find that fixed-fee contracts contingent on performance are preferred when the service output is more sensitive to the vendor's effort, that time-and-materials contracts are optimal when the output is more sensitive to the buyer's effort, and that performance-based contracts dominate when the output is equally sensitive to both the buyer's and the vendor's inputs. We also discuss how the performance of these contracts is affected with output uncertainty, process improvement opportunities, and the involvement of multiple buyers and vendors in the joint-production process. Our model highlights the trade-offs underlying the choice of contracts in a collaborative service environment and identifies service process design changes that improve contract efficiency.
TL;DR: A structural demand model is developed that endogenously captures the effect of out-of-stocks on customer choice by simulating a time-varying set of available alternatives and allows for flexible substitution patterns that can accommodate categorical and continuous product characteristics.
Abstract: We develop a structural demand model that endogenously captures the effect of out-of-stocks on customer choice by simulating a time-varying set of available alternatives. Our estimation method uses store-level data on sales and partial information on product availability. Our model allows for flexible substitution patterns, which are based on utility maximization principles and can accommodate categorical and continuous product characteristics. The methodology can be applied to data from multiple markets and in categories with a relatively large number of alternatives, slow-moving products, and frequent out-of-stocks (unlike many existing approaches). In addition, we illustrate how the model can be used to assist the decisions of a store manager in two ways. First, we show how to quantify the lost sales induced by out-of-stock products. Second, we provide insights on the financial consequences of out-of-stocks and suggest price promotion policies that can be used to help mitigate their negative economic impact, which run counter to simple commonly used heuristics.
TL;DR: This work considers a firm that invests in capacity under demand uncertainty and thus faces two related but distinct types of risk: mismatch between capacity and demand and profit variability, and postponement flexibility is a substitute to financial hedging as intuitively expected.
Abstract: We consider a firm that invests in capacity under demand uncertainty and thus faces two related but distinct types of risk: mismatch between capacity and demand and profit variability. Whereas mismatch risk can be mitigated with greater operational flexibility, profit variability can be reduced through financial hedging. We show that the relationship between these two risk mitigating strategies depends on the type of flexibility: Product flexibility and financial hedging tend to be complements (substitutes)---i.e., product flexibility tends to increase (decrease) the value of financial hedging, and, vice versa, financial hedging tends to increase (decrease) the value of product flexibility---when product demands are positively (negatively) correlated. In contrast to product flexibility, postponement flexibility is a substitute to financial hedging as intuitively expected. Although our analytical results assume perfect flexibility and perfect hedging and rely on a linear approximation of the value of hedging, we validate their robustness in an extensive numerical study.
TL;DR: It is found that the availability of BITNET on a scientist's campus has a positive effect on his or her productivity and collaborative network and suggests that IT is an equalizing force, providing a greater boost to productivity and more collaboration opportunities for scientists who are more marginally positioned in academe.
Abstract: This study investigates the impact of information technology (IT) on productivity and collaboration patterns in academe. Our data combine information on the diffusion of two noteworthy innovations in IT---BITNET and the Domain Name System (DNS)---with career-history data on research-active life scientists. We analyzed a random sample of 3,114 research-active life scientists from 314 U.S. institutions over a 25-year period and find that the availability of BITNET on a scientist's campus has a positive effect on his or her productivity and collaborative network. Our findings also support the hypothesis of a differential effect of IT across subgroups of the scientific labor force. Women scientists and those working at nonelite institutions benefit more from the availability of IT in terms of overall research output and an increase in the number of new coauthors they work with than do men or individuals at elite institutions. These results suggest that IT is an equalizing force, providing a greater boost to productivity and more collaboration opportunities for scientists who are more marginally positioned in academe.
TL;DR: The authors found that the stock price reaction upon departure is negatively related to the firm's prior performance and to the CEO's prior pay, and that better prior performance, higher prior pay and a more negative stock market reaction are associated with worse postdeparture firm performance.
Abstract: Do chief executive officers (CEOs) really matter? Do cross-sectional differences in firm performance and CEO pay reflect differences in CEO ability? Examining CEO departures over 1992--2002, we first find that the stock price reaction upon departure is negatively related to the firm's prior performance and to the CEO's prior pay. Second, the CEO's subsequent labor market success is greater if the firm's predeparture performance is better, the prior pay is higher, and the stock market's reaction is more negative. Finally, better prior performance, higher prior pay, and a more negative stock market reaction are associated with worse postdeparture firm performance. Collectively, these results reject the view that differences in firm performance stem entirely from non-CEO factors such as the firms' assets, other employees, or “luck,” and that CEO pay is unrelated to the CEO's contribution to firm value.
TL;DR: The trade-off method is adopted and it is shown that it is robust to violations of transitivity, which supports the main assumption of regret theory, that people are disproportionately averse to large regrets, even when event-splitting effects are controlled for.
Abstract: This paper introduces a method to measure regret theory, a popular theory of decision under uncertainty. Regret theory allows for violations of transitivity, and it may seem paradoxical to quantitatively measure an intransitive theory. We adopt the trade-off method and show that it is robust to violations of transitivity. Our method makes no assumptions about the shape of the functions reflecting utility and regret. It can be performed at the individual level, taking account of preference heterogeneity. Our data support the main assumption of regret theory, that people are disproportionately averse to large regrets, even when event-splitting effects are controlled for. The findings are robust: similar results were obtained in two measurements using different stimuli. The data support the reliability of the trade-off method: its measurements could be replicated using different stimuli and were not susceptible to strategic responding.