Vanderbilt Business

Category: Intellectual Capital

  • The science of HR

    The science of HR

    When you say ‘people are our best asset,’ what do you really mean? Tae-Youn Park’s evidence-based research can help companies choose the right HR models for success.

    Tae-Youn (Ty) Park

    Who:

    photo by John Russell

    Tae-Youn (Ty) Park joined Vanderbilt’s Organization Studies group as an assistant professor in 2012. He has been a researcher since 2003, first at Seoul National University’s College of Business Administration and later at the University of Minnesota’s Carlson School of Management, where he earned his Ph.D. with a focus on human resource management.

    Park credits his work for South Korea’s New Paradigm Center as the motivation for considering a career in academia. “The New Paradigm Center was a government-sponsored consulting and research initiative designed to help small- and medium-sized companies improve performance,” Park says. “While I was working there, I was able to see how good HR management practices can make both the employer and employees thrive together.”

    The New Paradigm model was rooted in the idea that redesigning jobs in ways that allow employees to have learning opportunities can benefit employees as they develop their careers through gained knowledge and skills; employers as they enjoy productivity increase through the increased human capital; and potentially the government, as the employment rate can grow when those organizations hire more people to give employees sufficient time for learning.

    “What I found interesting was that the New Paradigm model had to be modified depending on each organization’s business environment and context,” Park says. “I had the opportunity to meet business owners and learn about how they think about human resources. They often said that they think ‘people are their best asset,’ but they often didn’t know what good HR means in their specific business environment. I also wanted to know about good HR when business environment and context are considered. This was how I started thinking about doing research on HR in my career.”

    What he’s researching:

    All of Park’s research streams start with a big question: How can employees and employers thrive together?

    “People have different HR models in mind, as reflected in recent cases at Amazon, Google, Tesla and other companies,” Park says. “I study what HR practices and policies are effective under what circumstances, with specific focuses on compensation, workflow (or employee turnover) management, and employment relationships.”

    Park says that compensation is “at the core of any employment relationship.” Professionals and academics generally agree that higher wages are better and that performance-based pay is philosophically good. However, people often express challenges in designing and implementing effective compensation practices because high wages cannot be used in all organizations and also because employees often disagree with the performance metrics, the basis of pay-for-performance plans.

    Rather than sticking to this well-worn territory, Park focused on pay allocation—given a limited budget, how can organizations strategically allocate wages in a way that benefits employers and employees alike?

    In a recent study, Park and his colleagues, Seongsu Kim of Seoul National University and Li-Kuo Sung of Shanghai University of Finance and Economics, suggest that both highly differentiated and highly compressed pay allocation can be effective, depending on whether employees are promotion-focused (centered on wishes, hopes and aspirations) or prevention-focused (centered on fulfilling duties and responsibilities). This concept is defined as “regulatory focus.”

    Park’s research team theorized that when employees are strongly promotion-focused, they tend to see highly differentiated pay allocation as an opportunity to earn more in the future. But when they are strongly prevention-focused, they tend to see the interconnected nature of their works and therefore prefer compressed pay allocation. In testing the theory with 137 work teams in South Korea and 46 work teams in Taiwan, they found supportive evidence.

    “From a practical standpoint, our study shows that organizations can benefit by creating messages of pay differentials that are more promotion- (or prevention-) focused,” Park says. “For example, when an organization allocates pay in a largely dispersed manner, it would be more effective to emphasize and provide additional opportunities to employees so that employees become more promotion-focused. In contrast, when an organization allocates pay in a compressed manner, it would be more effective to emphasize safety- and security-related issues in the workplace so that employees focus more on the nonloss-related issues.”

    Park’s interest in pay allocation led him to study pay secrecy issues as well. Past research has shown that pay secrecy is generally negative, but it is unknown whether situations exist where secrecy could be preferred. “The organization has to know what will happen when pay becomes transparent,” he says.

    In one of his research articles, Park shows that pay transparency effects can be positive or negative depending on the organizational culture, particularly when it comes to the level of cooperation among employees. In a highly cooperative culture, highly paid employees are likely to be concerned about pay transparency because they can be negatively affected as targets of others’ pay comparisons. In contrast, in a noncooperative culture, low-paid employees are likely to be concerned about pay transparency because their work stress and job insecurity can increase with amplified pay comparisons. Park says he found supportive evidence of this theory using a sample of 1,801 employees on 319 teams in 49 organizations in South Korea.

    Park studies other forms of HR practices, including flexible work practices and employee workflow management. His research shows that the use of flexible work practices, such as maternity leave, can negatively affect employees’ career outcomes, especially when managers view their use as a lifestyle, rather than productivity increase, motivation.

    For management, simply providing flexible work practices is not effective. “They have to inform managers and supervisors on why the use of these flexible practices can really benefit employees in their organizational lives,” Park says.

    Throughout the stream of his research, Park wants to identify different sets of HR practices, namely HR systems, that are effective in different circumstances. In his current research, he categorizes various HR practices into two sets—inducement-enhancing practices and expectancy-enhancing practices—and investigates how the mix of the two HR practice sets influence the relationship between employer and employees.

    Students taking Park’s classes can expect to explore HR practices with the analytical rigor he brings to his own work. “I design my courses on an evidence basis,” he says. “I give students opportunities to think about good HR practices in different business environments. The takeaway messages after the discussion are mostly grounded in research evidence. In addition, in my other courses, I give students opportunities to actually analyze the HR data and find implications out of them.”

  • Intellectual Capital: Jessica Kennedy busts the myth that women are bad negotiators

    Intellectual Capital: Jessica Kennedy busts the myth that women are bad negotiators

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    Who: Jessica Kennedy is an assistant professor in organization studies who came to Vanderbilt in 2014, following two years as a postdoctoral fellow at the University of Pennsylvania’s Wharton School, which is also her undergraduate alma mater. Before embarking on an academic career, Kennedy worked as an analyst with Lazard and Goldman Sachs. It was her investment banking experience, in fact, that propelled her toward pursuing a Ph.D. studying how organizations impact behavior.

    “I never expected to be working on these topics, I’ll admit, because I studied business for undergrad and was really interested in finance,” Kennedy says. “But I then went and worked in investment banking for a few years, and while the deals were really interesting, I also saw these dynamics surrounding how groups accorded power and status and how people made decisions—and how those factors were driving performance in teams.”

    Ultimately, she got so interested in these questions that she went back and talked with professors from her undergraduate days about their research projects before enrolling in University of California-Berkeley’s Haas School of Business, where she received her doctorate in 2012.

    What she’s researching: Kennedy’s research falls into two main areas. One involves studying power and status hierarchies, examining the factors that elevate individuals within organizations and how that influences their decision-making. “In organizations there are a lot of social dynamics that make the pursuit of excellence in one’s work more complicated. I think that competition for social status is one such factor,” she says. “Hierarchies can also hinder decision-making. For instance, I have research currently under review that looks at how holding a position higher in the hierarchy influences a person’s willingness to express disagreement with an unethical course of action embraced by a group.”

    The other key topic Kennedy explores is the role of gender in career and negotiation outcomes. In a study from 2014, Kennedy looked at how gender affected the likelihood a person would be the target of deception in negotiation. She and her co-authors found evidence of a stereotype about women being more easily misled than men, and it corresponded with more unethical behavior in negotiations with women. “We found that men and women alike were targeting women with more deception than men,” Kennedy says, explaining that low expectations about a negotiator’s competence (not high expectations for warmth) drove deceptive intent.

    In one of the experiments, MBA students held mock real estate negotiations where buyers decided whether to reveal that the “real” intention for the use of the land in question contradicted the seller’s wishes. Buyers admitted to being deceitful to 22 percent of female sellers, compared to 5 percent of male sellers.

    While stereotypes are difficult to “disconfirm,” as Kennedy puts it, she suggests there are things women can do in negotiation to avoid deception. These include persistently questioning information, asking for verification from multiple sources, writing critical terms in contracts and signaling a willingness to retaliate against deception.

    Kennedy’s most recent paper on this topic argues that the perception of women as inherently bad negotiators is a myth. Instead, women possess the same inherent skills as men, but they face various impediments that negatively affect outcomes. One barrier that Kennedy identifies is “cognitive.” Building on her earlier research that stereotypes about women in negotiations lead to more deception, Kennedy says that negative stereotypes about women negotiators depress their confidence and create a cycle of self-fulfilling prophecies that undermine women’s performance.

    Another impediment that women face in negotiations is created by negotiating counterparts’ motivations. This speaks to the psychological need for negotiation counterparts to believe that women lack skills in this area as a way to explain why women are often underpaid compared to men. “We generally need to believe that we live within a fair, stable, understandable, controllable social order,” Kennedy says. “The idea that people doing the same type of job—and performing equally well at it—get paid differently is really threatening to most people.”

    The third bias facing women in negotiation has to do with the way research has been conducted in this domain. Kennedy says studies in negotiation are often conducted using short-term contexts in which only economic outcomes matter. “In the real world, of course, we care about the relationships that we build through negotiation,” she says. “Because our negotiation simulations aren’t capturing the value that positive relationships bring within longer-term, higher-stakes environments, we may be underselling women’s negotiating abilities.”

    Why it’s important: The field of organizational behavior—which draws from disciplines like political science, sociology and psychology—started in part because researchers realized that people in organizations often don’t behave in rational ways that maximize self-interest. Kennedy says they bring a variety of other motives that affect their behavior and attitudes toward others.

    In terms of her work on gender and negotiations, Kennedy says there are significant real-world issues involved. There is an economic toll in the sense that women may receive a lower salary or have to pay more for high-cost items like a house or a car. There is also a psychological toll in the sense that negotiators are less satisfied with their working relationships when deception is part of the interaction. Ultimately, biases against women negotiators damage relationship building and undermine the satisfaction of both parties with the outcome of the interaction. Because relationships are such an important part of why people enjoy working in business, these biases could ultimately reduce interest in the work at hand.

    Although she hopes to encourage negotiators to identify and correct the biases that may undermine women’s performance, Kennedy has a few recommendations to help empower women negotiators. “Women perform as well as men in negotiations when they believe that negotiating skills are a product of hard work, rather than innate ability,” Kennedy says. “Women negotiators should keep in mind that negotiating skills can be developed, and that a single negotiation isn’t a test of their skill. Instead, it’s a learning opportunity that can help them overcome the impact of some of these negative stereotypes that they face about their abilities.”

  • Intellectual capital

    Intellectual capital

    As members of one of the nation’s top research universities, Owen faculty always have something interesting on their minds. Here’s a portion of what two faculty members are currently considering.

    Jennifer Escalas

    Who: Jennifer Escalas, associate professor of marketing.

    Escalas came to Vanderbilt in 2004 after eight years as a professor at the University of Arizona. She earned two undergraduate degrees at UCLA, one in Spanish and linguistics and the other in economics. She stayed at UCLA for business school, earning her MBA from the Anderson School of Management. Before starting her journey in academia, Escalas was an assistant vice president at Union Bank in Los Angeles.

    20160114JR031_ALTERED.M_fmtEscalas’ research focuses on how consumers process narratives in advertising. Super Bowl ads are an example of brands using storytelling to evoke an emotional response in viewers. And for that reason, the media regularly calls Escalas for critiques of Super Bowl ads, as well as other buzzworthy TV commercials. She has published her marketing research in top academic journals and has served on many journals’ editorial and review boards. Escalas is also the director of Vanderbilt’s eLab, an academic research center dedicated to the study of human behavior, particularly in online environments.

    The power of storytelling is not something that Escalas just thinks about as an academic. She’s also an entrepreneur, where she applies the power of storytelling to Agon Sport, a competitive swimwear company she owns with her husband, a former Olympic swimmer.

     

    What she’s researching:

    Escalas is interested in how storytelling is used in online reviews of products or services by consumers. She examined online reviews on Trip Advisor, a popular website where travel reviews from the public can make or break businesses in the hospitality industry. Escalas hypothesized that a Trip Advisor review will be more compelling if it tells a good story. The idea is that the reader of the review will get lost in the story, called “narrative transportation” in the marketing world, and that can lead to an attitude change in the person reading the review, according to previous research on the subject.

    “In reading a review of a trip to Las Vegas, you would perceive the trip as being better or more entertaining— and, therefore, a good vacation for you—if you were transported into the story,” Escalas says.

    Escalas’ team pulled more than 1,000 Trip Advisor reviews of experiences in Las Vegas. First, they measured the helpfulness votes on the reviews, which is a reader’s way of giving a review a thumbs up. These helpfulness votes served as a proxy for narrative transportation. Then her team picked apart the reviews, doing work in narratology, which is a marketing term for deconstructing narratives into their parts. Her research team looked for telltale signs of narrative storytelling such as characters, plot and genre.

    The preliminary results from the study suggest a positive correlation between telling a good story and helpfulness votes on Trip Advisor.

    “My advice to people is, when you’re writing a review, tell a good story if you want people to take you seriously,” Escalas says.

     

    Why it’s important:

    The results might seem obvious, but in a digital world where attention spans are short and brevity is often valued, this research has identified an area where people still have a desire for storytelling. As people grow weary of traditional advertising and seek out authentic reviews online when researching travel, brands should be increasingly aware of how they are perceived.

    “Most of my work is on advertising, but people trust these peer reviews so much more than they trust advertising,” Escalas says.

    Potential customers, whether hotel guests or casino gamblers, find good stories about a trip they are considering very helpful when making travel plans. Providers of travel services should know that a Trip Advisor review that tells a story about them could be the deciding factor in someone booking with them or not. Escalas also thinks the research would translate beyond just travel reviews.

    “Experiences like vacations are particularly well-suited for stories, but I think our research would apply to tangible products as well, because you can imagine the experience of using the product,” Escalas says.

     

    Nicolas Bollen

    Who: Nick Bollen, the Frank K. Houston Professor of Finance and an internationally recognized financial expert on hedge fund fraud.

    Bollen joined Vanderbilt in 2001 after taking what some may consider an unusual route to becoming a finance professor: He earned a degree in physics from Cornell University before getting his MBA from the Fuqua School of Business at Duke University. He then went on to earn a Ph.D. in finance at Duke.

    Since joining Owen’s finance group, Bollen has become a prolific researcher and was quickly awarded tenure and promoted to associate professor in spring 2005. He was the 2005 recipient of the school’s Research Productivity Award and has published more than 40 papers during his time here, including 15 papers in top finance journals. In 2009, he received the Owen Research Impact Award, and in 2010, he was promoted to full professor. Earlier this spring, Bollen was named the Frank K. Houston Chair in Finance.

    Bollen is also a leader of Vanderbilt’s Financial Markets Research Center, which hosts some of the financial world’s most respected thinkers during two conferences annually.

     

    What he’s researching:

    Lately, Bollen is interested in how the gender of financial advisers affects their financial advice. Behavioral finance is increasingly important due to the rise of defined contribution plans, which have displaced defined benefit plans. Individual investors are now forced to take more responsibility for their financial health than they have in the past. Trillions of dollars in capital is now invested in retirement plans that are ultimately under the control of individuals.

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    Bollen says when he teaches personal finance, he talks about gender differences in financial behavior that have roots in psychology. One study found that men tend to be more overconfident than women, and that has been shown to affect the financial decisions that men make. Other research shows that men, on average, are more risk-tolerant than women, which affects the composition of their investments. To understand more about how gender affects behavioral finance, Bollen decided to investigate whether gender affected how individuals give financial advice to their clients.

    Bollen sampled financial advisers and graduate students in business school. He asked them questions about the financial advice that they would give to hypothetical clients. He also asked them questions about the financial strategy they would choose for themselves.

    Among the students, many gender differences were apparent. Male subjects chose a riskier blend of investments for themselves compared to the female students. Male students, on average, recommended a riskier allocation to their hypothetical clients regardless of the gender of those clients. Neither male nor female students differed in their advice depending on the gender of the clients.

    Among professional financial advisers, those gender differences disappeared, but the recommended risk-level increased. Bollen’s study found no gender difference between the asset allocation risk that the advisers choose for themselves, and both genders chose a riskier allocation for themselves than the students chose.

    “The results suggest that a person who chooses to become a financial adviser is risk-tolerant, regardless of their gender,” Bollen says.

    The pros also did not differ in their advice depending on the gender of their clients.

    “It’s natural to think about gender differences given what we know about risk preferences, on average, of men versus women,” Bollen says. “But in the context of financial advice, it’s a red herring.”

     

    Why it’s important: Many of Bollen’s students work in financial management, so the study suggests they should understand that their own risk tolerance might differ from their clients. The research also tells investors something about the risk tolerance of the people that are doling out investment advice.

    “Finance appears to be a profession that doesn’t appeal to risk-averse people,” Bollen says. “Our research shows a projection effect, where financial advisers project their risk tolerance onto their clients.”

    This implies that financial services firms need to do a better job understanding the preferences of their clients, Bollen says. ■

  • Intellectual Capital

    Intellectual Capital

    As members of one of the nation’s top research universities, Owen faculty always have something interesting on their minds. Here’s a portion of what two faculty members are currently considering.

    Richard Willis

    IntCapWillis166x422Who: Richard Willis, the Anne Marie and Thomas B. Walker Jr. Professor of Accounting. The West Texas native joined the Owen faculty in 2006. Willis earned his MBA from the Fuqua School of Business at Duke University in 1992 and his Ph.D. from the University of Chicago in 1998. He was an associate professor of accounting at the Freeman School of Business at Tulane University before coming to Vanderbilt. He has also held teaching positions at the Kellogg School of Management at Northwestern University and the Fuqua School, where he was awarded the Daimler-Chrysler Award for excellence in teaching.

    Prior to his academic career, Willis was a marketing research analyst for Warner-Lambert Company (later acquired by Johnson & Johnson), where he worked on many popular oral care brands, and at E. & J. Gallo Winery, where he helped launch the Bartles & Jaymes wine cooler.

    What he’s researching: Willis has extensive experience in accounting and financial reporting and a distinguished body of scholarly research in premier accounting and finance journals. Willis conducts what’s known as empirical financial accounting research. That means he studies questions that are addressable through data that’s either present in financial statements or disclosed by security analysts. Vanderbilt has a group of faculty working in this area, which is one of the reasons that Willis was attracted to Owen.

    Lately, Willis has become more politically minded. Willis and colleagues are currently studying elections in more than 30 countries to see how companies alter their tax strategy in response to political uncertainty. They are examining how companies around the globe avoid paying taxes in anticipation of upcoming national elections.

    Their hypothesis is that in the face of political uncertainty, companies may respond to that uncertainty by avoiding taxes to the fullest extent possible. The research team defines political uncertainty as general uncertainty about upcoming government and regulatory policies that might be altered as a result of a change in an incumbent government. Preliminary research suggests that companies will hold on to more of their cash whenever possible until after the election, when the uncertainty is resolved.

    The way these companies behave in the run-up to an election is similar to how everyday consumers behave during an economic downturn. When the economy tanked in 2008, consumers were uncertain about their future finances, so they saved more cash because they weren’t sure what was going to happen.

    “When that anxiety about the future manifests itself, a natural response is to hold on to more cash because you don’t know what’s coming next,” Willis says.

    Why it’s important: It matters to companies. In this case, with political uncertainty as an example, if the tax rate was going to drop after the election, then a company would want to defer paying taxes today—to the fullest extent possible—in expectation that they could pay lower taxes in the future after the tax rate was decreased.

    Companies look to avoid paying taxes through various tax deference strategies, such as tax shelters in offshore countries. In another scenario, if a company is running money through that tax shelter today, but expects that laws might soon change to make tax shelters illegal in that country, then the company might try to maximize the use of the shelter today.

    The U.S. corporate tax rate is the highest corporate tax rate in the world, so American companies are desperate to lower their tax burden and will try various strategies to do so. Understanding how companies are responding to global political uncertainty through their tax deference strategy could help economists better predict future responses to elections.

    Nicholas Crain

    Who: Assistant Professor of Finance Nicholas Crain came to Vanderbilt in 2013 after earning his Ph.D. in finance from the McCombs School of Business at the University of Texas at Austin. His dissertation examined the effect of career concerns on the pattern of investments selected by venture capital fund managers. He was also awarded runner-up in the 2012 Coller Ph.D. prize given by the London Business School for the best paper relating to private equity and/or venture capital fields. Prior to graduate school, Crain served as associate professor of naval science at the University of Idaho and as a division officer in the U.S. Navy aboard the USS Augusta, a nuclear-powered submarine.

    IntCapCain220x420What he’s researching: Crain’s research is about investment decisions and what affects performance in venture capital and private equity funds. To be a venture capitalist, he says, you have to raise new money periodically. Investors may commit capital, often between $30­‑$150 million, to be spent over five years. As this commitment winds down, you have to go out and raise more money, facing scrutiny on your past performance.

    According to Crain, this practice actually discourages risk taking. His research has shown that venture capital companies want to hit singles and doubles before trying to hit home runs. Convince investors that you have talent, he says, then start swinging for the fences. That’s the pattern seen in Crain’s data. Early investments for venture capitalists tend to have a lower variance in outcomes than later investments. The venture capitalists who do poorly with initial investments tend to keep making safer bets. Those who appear certain to raise new money are the ones who make risky investments with higher reward potential.

    Lately, Crain is interested in how newly available data will affect private equity in venture capital. Progress in quantitative analysis in the private equity and venture capital field has been slow because it is difficult to get data on these private transactions. That’s starting to change. Just in the last few years, the data that’s accessible to researchers has improved and now it is at the point where Crain can use it in his research. Soon, the data will be at the point where people in the venture capital industry can use it to help make decisions about their investments. Why is the investment data from venture capital and private equity firms more accessible now? More demand and improved technology, Crain says. Several companies are collecting the data and have invested the money needed to do a good job of assembling a clean database. The alternative asset industry has grown large enough for that investment to make sense.

    Why it’s important:  Better and more accessible data could lead to better insights into how investment performance is related to agency problems or corporate finance theory, which Crain studies. Practitioners will be able to get better insight into how well a fund manager performs.

    “Looking at their fund level returns, it’s hard to discern whether they’re awfully good or awfully lucky,” Crain says.

    Being able to see a little bit more about their performance on a granular level will reveal, for example, if a successful fund return came from one home run investment or a series of consistently successful investments. Such an analysis would lead to a systemic benchmarking across firms.

    “With the demand for venture capital transparency, along with the information technology’s ability to gather data easier, we will see improved benchmarking start to show up and be the basis for a lot of really interesting research sooner rather than later,” Crain says.

  • Intellectual Capital

    Steve Hoeffler

    As members of one of the nation’s top research universities, Owen faculty always have something interesting on their minds. Here’s a portion of what two faculty members are currently considering.

    Steve Hoeffler

    Who: Associate Professor of Marketing Steve Hoeffler. Don’t let the well-worn La-Z-Boy in the middle of Hoeffler’s office fool you. Infused with a laid-back demeanor that hints at his California upbringing, Hoeffler uses the chair as a kind of oasis away from his computer where he can concentrate more intensely on his work. At the same time, the overstuffed recliner speaks to his goal of avoiding the stereotype of a stuffy academic. “I distinctly remember sitting in an economics lecture as an undergrad, thinking, ‘yeah, the professor knows his stuff but the people in this class aren’t going to get it with the way he’s explaining it.’ He was just so technical,” Hoeffler recalls.

    After completing his MBA at University of California, Davis, Hoeffler contemplated going to UCLA or University of California, Berkeley, to study consumer marketing. He was drawn instead to the other side of the country to work with renowned marketing scholar James Bettman at Duke University. Hoeffler finished his Ph.D. there in 2000, but had already started teaching across town at University of North Carolina at Chapel Hill. Drawn to Vanderbilt by his former Duke colleague, Associate Marketing Professor Jennifer Escalas, Hoeffler joined the Owen School in 2006.

    What he’s researching: The common theme unifying Hoeffler’s research is consumer behavior around “really new products.” Hoeffler classifies these items as anything that allows consumers to do something that they have never done before, not just improved versions of an existing product. For example, the iPhone qualifies as a really new—or radically new—product since it introduced an ecosystem of apps that required learning new behavior. Contrast that, Hoeffler says, with a product that simply uses new technology, like a refrigerator with a new cooling mechanism. At the end of the day, it still keeps food cold inside a metal box and doesn’t require new consumer learning.

    In many ways, Hoeffler’s work follows a traditional line of marketing research: What are the factors that influence purchasing decisions? What is it about the products themselves and how they’re marketed that compels people to buy? “Normally it’s easy,” Hoeffler says. “You ask people in focus groups whether they’d use a product and go on from there. But without having a pre-existing mental model of how to use something, you can’t do that.”

    One recent study conducted by Hoeffler and co-authors looks at the role different analogies play in helping consumers evaluate really new products. For example, does a product like Google Glass benefit from a straightforward comparison like, “It’s a wearable smartphone”? Or would it be more meaningful for an audience to compare the function in Google Glass that constantly records what you’re seeing to pensieves, devices featured in the popular Harry Potter series to view bottled memories?

    One of the next projects on Hoeffler’s agenda is working with Owen colleague Larry Van Horn, a health care economist, to examine the ways consumers value medical care. “Many people have never had to think about health care as a consumer product,” Hoeffler says. “But now with health care reform, and insurers asking patients to shoulder more costs, more people are starting to evaluate things like pricing, which is completely unfamiliar to them.”

    Why it’s important: As new products are created, more companies need tools to help discern what products and services actually improve the lives of consumers—and will sell—versus what’s just cool, new technology. But Hoeffler’s research does not revolve solely around marketing the latest in consumer electronics. He’s working with an interdisciplinary group of researchers to examine ways to improve package safety. “We’ve seen that things like laundry detergent pods and e-cigarettes have led to a spike in childhood poisonings,” he says. “And yet, there’s been no real breakthroughs in package safety since childproof caps for medicine bottles were developed.”

    Ranga RamanujamRanga Ramanujam

    Who: Professor of Management Rangaraj “Ranga” Ramanujam. He joined the Owen faculty in 2008 and soon was recognized for his skills in the classroom and for his prodigious research. Ramanujam received his Ph.D. from Carnegie Mellon in 2000 and taught at Purdue University before coming to Vanderbilt. Prior to academic life, Ramanujam worked at Standard Chartered Bank, where an internal fraud that cost the company millions of dollars prompted his interest in studying how such calamities happen.

    What he’s researching: Officially, Ramanujam studies issues linked to operational failures. Less formally, he studies a kind of organizational physics that examines how internal structures lead to catastrophic problems like faulty ignition switches or persistent medical errors. “I could see that there were very strong, but invisible, effects impeding organizational effectiveness,” Ramanujam says. “From a business viewpoint, it’s obvious why this is important. But I don’t think the reasons for such organizational failure are adequately appreciated.”

    In many ways, what Ramanujam has been doing is carefully teasing apart how organizational catastrophes happen. What are the preceding conditions and subsequent consequences that surround a serious failure? How do specific features of an organizational structure contribute to problems? And how do organizations learn and improve in a meaningful way in the wake of disasters?

    Just as Ramanujam saw his own employer narrowly avoid collapse due to a lapse of internal controls, his early academic research looked at how risk played a role in diverging from accepted policies and procedures at financial services firms. “These failures can certainly be attributed to individual actions like a rogue trader,” he says. “But we know the organizational context matters.” For example, GM’s ignition switch recall can be traced to unspoken company rules that strongly discouraged employees from classifying problems as safety concerns to avoid additional costs. Similarly, intense schedule pressures affected NASA’s ability to respond effectively to early signs of the problems that eventually caused the explosions of space shuttles Challenger and Columbia.

    This area of inquiry on organizational safety and effectiveness ultimately led Ramanujam to health care. It’s not just that hospitals face life-or-death stakes when errors or intentional rule violations occur, but also because health care organizations have a wealth of data available to analyze. Ramanujam began by examining how much, when and why medical students report medical errors. That led him to look at work-satisfaction rates among nurses and the role that burnout played on a person’s willingness to speak out about problems.

    These days, Ramanujam is seeking answers to fundamental questions surrounding organizations. For example, one of his studies uses restaurant health score data from Los Angeles County as a way to detect the elements that comprise a good rule—or at least one that’s not routinely ignored. Another area Ramanujam thinks about is communication within an organization, specifically when employee silence (not to be confused with a lack of talking) introduces wider risks.

    Why it’s important: The public has grown less tolerant of safety violations. Previously, an ignition switch problem like the one that GM encountered last year would not have been such a big deal. Today, it warrants a massive recall that cost GM more than $4 million. For managers, Ramanujam’s research homes in on the specific actions that make for more effective teams and employees. On its widest scale, creating safety-conscious organizations simply benefits everyone.

  • Intellectual Capital

    As members of one of the nation’s top research universities, Owen faculty always have something interesting on their minds. Here’s a portion of what two faculty members are currently pondering.

    Yasin Alan

    Yasin AlanWho: Assistant Professor of Operations Management Yasin Alan. He arrived at Vanderbilt in 2012 after receiving his Ph.D. in production and operations management from Cornell University’s Johnson Graduate School of Management. He currently teaches the core operations management course and an elective course in supply chain management in Vanderbilt’s full-time MBA program. Alan holds two patents in inventory and systems management.

    What he’s researching: When Alan tells nonacademics that he studies the relationship between a company’s inventory performance and its finances, he quietly braces for the inevitable question: Isn’t that obvious? If a company is selling its goods quickly, the stock should go up; if not, watch out for financial distress. But the relationship is not as straightforward as it sounds—and proving so with real data is even harder.

    “Yes, there are lots of correlations, but showing a causal relation is very difficult,” Alan says. In particular, Alan wants to know if there are early signals about a company’s financial performance that investors can glean from inventory metrics.

    For example, a recent paper Alan co-authored for the journal Management Science involved ranking retail companies according to their rate of inventory turnover in several different retail segments. The study then tested a portfolio strategy that involved buying stocks in companies in the top 40 percent of the segments—the high performers—and selling the bottom 40 percent in each segment. The result: The portfolio showed a 1 percent average monthly gain over market benchmarks. The results stayed consistent over a 25-year period.

    The study also found that there tends to be a 1-to 2-year lag between the time a company makes inventory information public and when it gets reflected in the stock price. For Alan, this helped confirm earlier studies showing that market participants do not fully understand how to incorporate inventory information into their trading strategies and consequently are leaving money on the table.

    Alan’s work gets at the interplay of inventory and company performance in other ways as well. One ongoing study examines how inventory indicators may serve as an early warning for bankruptcy. Similar to his work on stock returns, Alan wants to know if there are key operational metrics that could suggest bankruptcy risk long before a negative stock price or earning trend becomes apparent. The study is still in progress, but Alan has seen indications that bolster his hypothesis.

    Another avenue of Alan’s research may seem obvious until you dig deeper into the questions being posed and answered. In this case, he’s working with Owen faculty colleagues Michael Lapré and Gary Scudder to understand what operational dimensions have the most impact on airline profitability. “Is it pricing? Is it managing connections? Is it labor? Fuel?” he asks. “We want to know which components have the biggest effects on profitability.” Alan explains that a low-cost airline like Southwest—rising during the same period that many legacy carriers faced bankruptcy—offers an ideal case study to tease out which operational functions play the biggest roles in profitability.

    Why it’s important: Alan’s work is part of an emerging field that ties together traditional operations management and finance. At its core, his research topics revolve in many ways around identifying and managing risk. Alan is also exploring how banks value the inventory collateral they use for loans. Currently, banks tend to use rules of thumb to place a value on inventory. Alan wants to develop a more refined, informative approach for banks to value inventory collateral fairly.


    Catherine F. Lee

    Who: Catherine Lee joined the school’s accounting group in 2013, in what is somewhat of a return home. She grew up in Middle Tennessee and attended Nashville’s Hume-Fogg Academic High School before going to Princeton University to study engineering. From there she worked as an investment banking associate in renewable energies for JPMorgan Chase. She later earned her MBA and Ph.D. from the University of Chicago. “I really enjoyed working on Wall Street,” she says. “But building investment models for clients all day didn’t involve a lot of thinking about the bigger questions.”

    Catherine LeeWhat she’s researching: Disclosures. That may seem like a pretty dry topic for someone interested in the “bigger questions” of accounting and finance, but Lee relishes the opportunity to explore seemingly mundane topics in new and different ways. For example, she enjoys guiding her accounting students through CEO shareholder letters.

    “It’s kind of like finding the meaning in a novel. It’s amazing what little gems are there,” she says, fully acknowledging that only a true accounting nerd could say something like that. Lee says shareholder letters often drop key hints about the future direction of large public companies. One example she likes to discuss with students is a letter written by Starbucks CEO Howard Schultz just before the company announced a return to its roots and a major retrenchment of its rapid growth strategy. “He starts with this wistful recounting of the company’s original Pike Place location in Seattle,” she says. “Then several months later, they began closing stores. It’s pretty fascinating.” Along the same lines, Lee is starting to look at how material disclosures made in social media—not just by companies themselves, but by clients, partners and suppliers—can affect stock performance.

    In another line of research, Lee examines the political influence corporations have on accounting policies and regulation. She says the lobbying money spent by companies to influence the outcome of the 2004 American Jobs Creation Act offers a window into how certain kinds of companies react to changes in accounting regulations. “There aren’t many opportunities to measure how much companies care about certain accounting policies,” she says. “Normally, a company either submits comments to FASB (Financial Accounting Standards Board) or they don’t. With the 2004 Jobs Act, we can see the magnitude—based on how much money is spent on lobbying—to which managers are concerned about how the changes will affect their financial statements.” But asked whether companies or their executives should be required to disclose more of their lobbying activities in financial statements, Lee comes down as a firm “no.” For starters, she says that information is already publicly available through campaign finance laws for any investor who wants to find it. And making political expenditures part of a financial statement, she says, may infect the financial markets with the same caustic elements currently bedeviling the political arena.

    Why it’s important: Lee initially decided to pursue a Ph.D. in accounting because it offers the tools and language to understand what’s really happening in a company. That’s still the common thread that underlies her research: Discovering new ways to view a firm’s internal economics. “I’ve always been interested in understanding what motivates managers to make the choices they do. Accounting is a tool that allows me to do that.”

  • Intellectual Capital

    As members of one of the nation’s top research universities, Owen faculty always have something interesting on their minds. Here’s a portion of what two faculty members are currently pondering.

    Bart Victor

    Bart VictorWho: Bart Victor, Cal Turner Professor of Moral Leadership. Victor joined Owen in 1999 after serving as a faculty member at the Institute for Management Development in Lausanne, Switzerland, and before that, at the University of North Carolina’s Kenan-Flagler Business School. In addition to his scholarly research, Victor has served as the faculty sponsor for Project Pyramid since 2004, teaching the classroom component of the cross-disciplinary student initiative focused on addressing poverty around the world.

    What he’s researching: Poverty—specifically, the role that corporations, business leaders and nongovernmental agencies can play in helping alleviate it. Emblematic of the types of issues he researches is Victor’s work examining how resource-poor populations view loans versus charitable donations. When faced with a choice between working off a loan and receiving a charitable donation, many people would opt for the loan, he says. “Accepting a charitable gift is part of a transaction that has certain costs. It’s costly for a person to demonstrate a need; it’s costly to find ways to show gratitude.”

    Similar insights led Victor into business as an academic discipline in the first place. Working as a community organizer in Chicago in the 1970s—“before it was the cool thing to do,” he quips—Victor saw that no matter how many well-meaning people and agencies stepped into his rough neighborhood offering help, the single most reliable factor to improve life was when someone got a good job. “Then one day I looked around and realized that the only person getting a good job from what I was doing happened to be me. That’s when I got interested in business,” he says. In addition to starting several companies, Victor went on to receive his Ph.D. in Business Administration from UNC’s Kenan-Flagler in 1985.

    Why it’s important: At first glance, it might seem odd to find someone researching poverty at a business school—institutions traditionally focused on wealth creation. But Victor says his work simply explores the other side of a significant resource asymmetry that exists in the world. For example, he recently started a project with Mark Ratchford, assistant professor of marketing, and Miguel Palacios, assistant professor of finance, examining people’s behavior in the Ultimatum Game. In this scenario, strangers bargain over how to split a particular amount of money. If one person makes an offer and the other accepts it, both get to keep the money; if the offer is rejected, nobody gets anything. Under a rational actor model, a person should be able to offer a small amount, even as little as $1, since both participants would be better off than they started. But researchers have found that people typically offer around $400 to help ensure the deal is accepted, a decidedly irrational outcome. Victor and his fellow Owen researchers now want to flip that experiment on its head, looking at how behavior changes a person who has to ask for money outright, rather than bargain over it.

    Why this perspective matters: Just ask Facebook, which recently paid $15 billion to acquire the instant message system WhatsApp, mainly to acquire large swaths of users in emerging markets. Victor says that’s part of a longer continuum that includes companies like Coca-Cola, whose global strategy started with the premise that a Coke should be within arm’s reach anywhere in the world. Implicit in such a strategy lies a strong moral component: “If you believe people are without potential, why would you bother wanting to reach them?”

    Mumin Kurtulus

    Mumin KurtulusWho: Associate Professor of Operations Management Mumin Kurtulus joined Owen in 2005 after receiving his Ph.D. from INSEAD, located near Paris. Born in Bulgaria, Kurtulus lived in Turkey and France before coming to Nashville. Last year he won Owen’s Research Productivity Award and in 2012, was a finalist for the school’s James A. Webb Jr. Teaching Award.

    What he’s researching: Much of the work Kurtulus has done involves retail supply chains. Within those networks, he has focused on a specific kind of collaboration between manufacturers and retailers known as category captainship. This is a practice in which a retail chain turns over control of its shelf space in a particular category (e.g., cosmetics) to a dominant manufacturer. “I want to identify the conditions where not only the manufacturer—the category captain—and the retailer benefit from this,” he says, “but the other manufacturers can benefit from this approach too.”

    Why it’s important: To many observers, a set-up in which a single manufacturer is responsible for deciding which items to display, how to display them, and how to price them may seem like an egregious breach of competitive principles. But Kurtulus finds that in an ideal scenario, a strong category captain can help lift the tides of both the retailer and other brands within the same segment. “Over the past 30 years or so, the retailing business has become very challenging. Many retailers today operate on razor-thin margins,” Kurtulus says. Category captainship—a practice that started with a handful of large retailers, but is now growing among smaller companies—has proven to be an effective way to grow margins.

    One of his recent papers uses the example of Kashi, a division of Kellogg’s. Because of the manufacturer’s efforts to develop a better retail display strategy while helping educate consumers about natural and organic products, the entire category saw a boost, with at least one retail company reporting a 15.5 percent sales increase across the category. Of course, that’s an ideal outcome. What matters to Kurtulus is understanding what variables contribute to a mutually successful collaboration between retailers and suppliers. Conversely, he wants to know what pitfalls companies and manufacturers should avoid.

  • Intellectual Capital

    As members of one of the nation’s top research universities, Owen faculty always have something interesting on their minds. Here’s a portion of what two faculty members are currently pondering.

    Kelly Haws

    Kelly HawsWho:
    Kelly Haws, associate professor of marketing. Haws is one of five new faculty members who joined Owen in 2013. Previously, she served as assistant professor of marketing and Mays Research Fellow at Texas A&M University’s Mays Business School, where she was a three-time winner of the student-selected SLATE Teaching Excellence Award. The Association of Consumer Research presented her with this year’s Early Career Award for recognized contributions to consumer research.

    What she’s researching:
    Food. More precisely, Haws looks at the consumer psychology surrounding how we decide to purchase and consume food. One of her latest studies examines the trade-off effects of supersize pricing. She says consumers typically go into a restaurant with a mindset balanced between financial and health concerns—they don’t want to spend too much money and they want to make good food choices. But when faced with the skewed prospect of paying just 50 cents more for an item that’s 50 percent larger, the thrill of getting a good deal tends to completely overwhelm any previously held notions of eating well. “The good news is that we can use this effect for good as well as evil,” she says, pointing out that offering supersize pricing on carrots works like it does with more hedonistic items such as French fries.

    Although the influence of supersized pricing seems to be quite powerful, a study Haws conducted with a research colleague found that simple reminders about healthy eating can help reduce the appeal of the cheaper-per-unit larger sizes and curb overconsumption. Haws and her co-author hung or removed a poster at a sporting event concession stand reminding customers that “Calories In = Calories Out.” Snack purchasers who saw the poster were more likely to forgo the deal associated with supersized pricing than were those who didn’t see the health message. When it comes to posting nutritional information like calorie counts in restaurants, however, the jury is still out. “Even though it seems like there is clarity on that issue, in that providing information is better than not doing so, the findings are still pretty mixed in terms of actual impact on consumer decision making,” she says.

    Why it’s important: Haws boils her two main research interests down to these: decisions about our finances and decisions about our health, particularly when it comes to food. Asked how she became interested in these two topics, Haws says she first started thinking about issues of bad decision making when she worked in the subprime mortgage industry after receiving her MBA. “I still remember working with a woman who was paying for a crib she’d purchased on a credit card for her son—who was in college at the time,” Haws says. As for her focus on food, Haws says research from a variety of disciplines—including marketing, nutrition and medicine—has exploded in the last decade. It’s a booming business, plus as a researcher, Haws finds there are plenty of rich data sets.

    One of the major questions underpinning all the work in understanding how consumers make food decisions is whether it’s best to follow a path of moderation or abstention. Haws says she approaches that idea in an agnostic way, instead looking at what effect either route has on larger patterns of behavior. “If I were to get on my soapbox, I’d say it doesn’t really matter what choices you make on any particular day,” she says. “What I want to know is how those choices affect the overall pattern of decision making.”

    Jesse Blocher

    Jesse BlocherWho:
    Jesse Blocher, assistant professor of finance. Blocher joined Owen in 2012 after completing his Ph.D. at the University of North Carolina’s Kenan-Flagler Business School. Prior to working on his doctorate, Blocher worked at TIAA-CREF and Accenture.

    What he’s researching: Interconnectedness in financial markets, a topic that was thrust into the spotlight following the 2008-2009 financial crisis. In particular, Blocher examines the spillover effects that mutual funds and other investment vehicles have on each other. “To use an analogy from real estate, if you buy a house and someone buys the house across the street from you and improves it, your home value goes up,” he says. “What I do with mutual funds is show that if I’m a mutual fund manager and someone else buys the securities of another fund that’s similar to mine, the fact that they’re buying those makes their value go up, which also helps me.”

    Why it’s important: It’s tempting to associate Blocher’s work with a kind of herd mentality among investors. But actually, Blocher says he looks at what are called crowded trades. In other words, once the investment herd has adopted a popular position—something like Apple, or more recently, Tesla—what are the impacts of that? Perhaps not surprisingly, Blocher has already come up with some findings showing that these crowded trades cause both positive and negative market swings that aren’t necessarily tied to fundamentals. What is less understood is exactly how this phenomenon plays out across the market, not just at individual institutions or funds. For example, where is the point at which panicked selling begins to spill over to other funds? “In many ways mutual funds can behave almost like banks, where you can get a kind of bank run on funds, whether those are mutual funds, hedge funds or whatever,” Blocher says.

    Since coming to Vanderbilt, Blocher has started working with Robert Whaley, the Valere Blair Potter Professor of Management, on securities lending—that is, when something like an exchange-traded fund or mutual fund will loan out stocks or bonds and collect rental income on those assets. “Not much is known about this practice, but how much of this income is retained by financial services companies and how much is passed on to investors is still somewhat controversial,” Blocher says. In addition, Blocher and Whaley are investigating the potential risks to investors when their portfolios are lent out, which include poor returns on collateral invested or even an inability to recall the lent shares when needed. Who would bear these losses is not always clear—if investors bear the risk, it doesn’t seem that they are compensated for it.

    The common theme for Blocher in both of these areas of research is the new linkages that are being created among banks. “We can understand ‘too big to fail,’ ” he says. “But to the extent that the big banks get smaller—which I think would be a good idea—and get more interconnected with each other, it may be that we’ve taken a problem concentrated in a few large entities and instead distributed it to a lot of smaller entities that then start to behave like one large entity. I think that would be a problem.”

    Watch video at vu.edu/owenresearch-video