Management Insights
Models and Insights for Hospital Inpatient Operations: Time-Dependent ED Boarding Time (p. 1)
Pengyi Shi, Mabel C. Chou, J. G. Dai, Ding Ding, Joe Sim
How do operations at inpatient wards affect emergency department (ED) overcrowding? Prolonged waiting time for admission to inpatient wards, also known as ED boarding time, is a major factor in ED congestion. The authors focus on understanding the effect of inpatient discharge policies and other operational policies on the time-of-day waiting time performance, such as the fraction of patients waiting longer than six hours in the ED before being admitted. Based on observations at a Singaporean hospital, they propose a model that shows a number of key characteristics. First, a patient’s service time in the inpatient ward depends on that patient’s admission and discharge times and length of stay. Second, the authors observe extra amounts of waiting caused by shortages other than bed unavailability, such as a nurse shortage. Third, patients waiting for a bed can overflow to a nonprimary ward when the waiting time is large enough. In simulations, the authors show hourly inpatient flow dynamics to evaluate the impact of operational policies on both the daily and time-of-day waiting time performance, such as a policy that eliminates excessive waiting for those patients who request beds in mornings. The insight for management: Hospital managers can choose among different policies to implement depending on the choice of objective, such as to reduce the peak waiting in the morning or to reduce daily waiting time statistics.
Deciding for Others Reduces Loss Aversion (p. 29)
Ola Andersson, Håkan J. Holm, Jean-Robert Tyran, Erik Wengström
Losses loom large in decision making, but only for my losses, not for yours. It is a known fact that risk aversion—fear of a loss—biases decision makers and causes suboptimal decisions relative to average expected outcomes. In a study of Danish decision makers, the authors find that deciding for others reduces loss aversion. When there is no chance for a loss, choosing for oneself or someone else is equivalent. In contrast, when losses are possible, the authors find that the two types of choices differ. The insight for management: Outsource those risky decisions? Suboptimal decisions from fear of loss are avoided when the decisions are made for others.
The Spillover Effects of Monitoring: A Field Experiment (p. 37)
Michèle Belot, Marina Schröder
How does employee monitoring affect the behavior of employees who are not monitored? In an experiment in which employees are paid to identify Euro coins, some employees are monitored and penalized on punctuality and theft while others are not. The authors find that monitoring improves work quality only if incentives are harsh but substantially reduces punctuality irrespective of the associated incentives. However, monitoring does not affect theft, with 10% of participants stealing overall. The insight for management: Monitoring, measuring, and incentivizing may or may not produce results; such management practices can affect behaviors such as punctuality for those who are monitored, and for those who are not, although theft is not affected whether monitored or not.
Do Managers Withhold Good News from Labor Unions? (p. 46)
Richard Chung, Bryan Byung-Hee Lee, Woo-Jong Lee, Byungcherl Charlie Sohn
Do managers withhold good news from labor unions? In negotiations, it is intuitive that managers tend to withhold good news and promote bad news to preserve their bargaining power against labor unions. The authors use comprehensive firm-level data from South Korea, where labor unions have a long tradition of making credible threats, and find that management disclosure is less likely in the face of strong labor unions. Firms with strong labor unions withhold good news during the labor negotiation period and release it gradually afterward. The insight for management: Good news can be bad; revealing positive outcomes during negotiations can reduce negotiating leverage.
Evaluating Hedge Funds with Pooled Benchmarks (p. 69)
Michael S. O’Doherty, N. E. Savin, Ashish Tiwari
How can hedge fund performance be evaluated, given the flexible nature of hedge funds’ strategies and their lack of operational transparency? The authors propose an approach to develop a fund-specific benchmark obtained by pooling a set of diverse attribution models. The insight for management: There are advantages of a pooled benchmark over alternative approaches.
The Benefits of Relationship Lending in a Cross-Country Context: A Meta-Analysis (p. 90)
Vlado Kysucky, Lars Norden
The old adage, “Never borrow from friends,” may work for individuals, but, between business partners, if I know you, are we more likely to make a deal? “Relationship lending,” where parties are familiar with each other, may create benefits for borrowers by reducing information asymmetries. However, empirical evidence is mixed. The authors conduct a meta-analysis to summarize and explain the different results based on information from 101 studies in the United States, Europe, Asia, and Latin America from 1970 to 2010. They find that strong relationships are generally beneficial for borrowers but that lending outcomes differ by type of relationship. Long-lasting, exclusive, and synergy-creating bank relationships are associated with higher credit volume and lower loan rates. The insight for management: Relationship benefits are more likely in the United States and in countries where bank competition is high, but only for large enterprises, not in small and medium-sized enterprises in an economy.
Collateral and the Choice Between Bank Debt and Public Debt (p. 111)
Leming Lin
How does collateral value affect a firm’s choice between bank debt and public debt? The author uses variation in the market value of a firm’s real estate assets caused by fluctuations in local real estate prices to represent collateral value not controlled by the firm. The insight for management: A one-standard-deviation increase in collateral value causes bank debt as a fraction of total debt to increase by six percentage points.
Arm’s Length Financing and Innovation: Evidence from Publicly Traded Firms (p. 128)
Julian Atanassov
How do financing arrangements affect innovation at a firm? Using a large panel of U.S. companies, the author documents that firms that rely more on arm’s-length financing, such as public debt and equity, innovate more and have higher-quality innovations than firms that use other sources, such as relationship-based bank financing. The author suggests that one reason could be greater flexibility and tolerance to experimentation associated with arm’s-length financing. The author finds support for this hypothesis by showing that firms with more arm’s-length financing have greater volatility of innovative output and are more likely to innovate in new technological areas. Furthermore, firms have more novel innovations if they borrow from multiple banks, use predominantly credit lines, and have less intense covenants. The insight for management: Keep the money men and idea men apart; where the money is sourced and how it is used should be separate to improve innovation.
Adaptation to Information Technology: A Holistic Nomological Network from Implementation to Job Outcomes (p. 156)
Hillol Bala, Viswanath Venkatesh
Another software update? How can I get my work done? Information technology (IT) implementation is a major organizational change event that substantially disrupts an employee’s work environment. The authors conduct field studies over six months, with four waves of data collection each, in two organizations implementing two different ITs. They find that employees performed four different technology adaptation behaviors—(1) exploration-to-innovate, (2) exploitation, (3) exploration-to-revert, and (4) avoidance—based on whether they appraised an IT as an opportunity or a threat and whether they had perceptions of control over an IT. Employees’ experiential engagements (i.e., user participation and training effectiveness) and psychological engagements (i.e., user involvement and management support) during the implementation jointly determined their appraisal of an IT. Finally, the authors find that technology adaptation behaviors influenced changes in two key job outcomes: job performance and job satisfaction. The insight for management: IT implementation can be friend or foe to employees; their perception and involvement in the implementation affect their behavior, and adaptation is affected by its effect on job performance and job satisfaction.
The Structural Virality of Online Diffusion (p. 180)
Sharad Goel, Ashton Anderson, Jake Hofman, Duncan J. Watts
To tweet or not to tweet? What causes a product or idea to “go viral”? Viral products and ideas are intuitively understood to grow through a person-to-person diffusion process analogous to the spread of an infectious disease. Until recently it has been prohibitively difficult to directly observe purportedly viral events. The authors propose a formal measure of what we label “structural virality” that interpolates between two conceptual extremes: content that gains its popularity through a single, “big bang” broadcast, and content that grows through “grassroots” viral spreading with any one individual directly responsible for only a fraction of the total adoption. The authors analyze a billion diffusion events on Twitter, including the propagation of news stories, videos, images, and petitions. They find that online diffusion is amazingly diverse; popular events regularly grow via both broadcast and viral mechanisms and every combination of the two. The insight for management: Though “grassroots” is critical to going viral, popularity is largely driven by the size of the largest broadcast.
Brand Performance Volatility from Marketing Spending (p. 197)
Marc Fischer, Hyun S. Shin, Dominique M. Hanssens
Is market volatility good or bad for a brand? Although volatile marketing spending may improve a brand’s financial performance, it can also increase the volatility of performance, which is not a desirable outcome. The authors analyze how revenue and cash-flow volatility are influenced by own and competitive marketing spending volatility, by the level of marketing spending, by the responsiveness to own marketing spending, and by competitive response. Based on a large sample of 99 pharmaceutical brands in four clinical categories and four European countries, the authors assess the magnitude of the different sources of marketing-induced performance volatility. They find volatility elasticities are significant and may be as large as 1.10 for cash-flow variance with respect to marketing responsiveness. The findings imply that common volatility-increasing marketing practices such as price promotions or volatile advertising plans may be effective at the top line, but they could turn out to be ineffective after all costs are taken into account. The insight for management: Optimal marketing volatility needs to trade off sales effectiveness and extra costs resulting from marketing volatility.
Customer Recognition in Experience vs. Inspection Good Markets (p. 216)
Bing Jing
How does customer recognition affect optimal bid price discrimination (BPD) in experience versus inspection good markets? First, the firms may reward repeat purchase when the probability of a high value is relatively low and when the high–low value difference is large; otherwise, they may engage in poaching. Second, BPD frequently increases each firm’s total profits, even in the poaching equilibrium. Third, consumers’ ex ante valuation uncertainty may increase or decrease firm profits without BPD, and it weakly increases firm profits with BPD, relative to the inspection good duopoly. The insight for management: Optimal price discrimination depends on whether the product is an experience or inspection good, and how the customer values it after the initial experience.
The Impact of Budget Constraints on Flexible vs. Dedicated Technology Choice (p. 225)
Onur Boyabatlı, Tiecheng Leng, L. Beril Toktay
How should firms invest in flexible and dedicated technologies when facing a budget constraint? The authors investigate how the tightening of the capital budget and a lower financial flexibility in the production stage (the likelihood of having a sufficient operating budget) shape the optimal technology choice. They find that dedicated technology should be adopted for a larger investment cost range and thus is the best response to the tighter capital budget, whereas flexible technology is the best response to lower financial flexibility. The insight for management: In the presence of financial constraints, firms should manage technology adoption together with plant location, which shapes capacity intensity, or product portfolio, which shapes financial flexibility.
Information Sharing in a Supply Chain with a Common Retailer (p. 245)
Weixin Shang, Albert Y. Ha, Shilu Tong
How much information sharing should Walmart engage in with Crest and Colgate? The products are substitutes, being sold through the same retailer. The authors show that the retailer’s incentive to share information strongly depends on production cost structure, competition intensity, and whether the retailer can offer a contract to charge a payment for the information. Without information contracting, the retailer has an incentive to share information for free when production economy is large but has no incentive to do so when there is production diseconomy. With information contracting, the retailer has an incentive to share information when either production diseconomy/economy is large or competition is intense. Interestingly, the authors show that the retailer prefers to sell information sequentially rather than concurrently to the manufacturers, whereas the manufacturers’ preferences are reversed. The insight for management: Retailer information sharing with competing producers depends on the level of competition and production economy.
Robust Multiarmed Bandit Problems (p. 264)
Michael Jong Kim, Andrew E.B. Lim
In the multiarmed bandit problem, a gambler at a row of slot machines has to decide which machines to play, how many times to play each machine, and in which order to play them. As he plays, he must decide between exploration (learning which machines are “hot”) versus exploitation (playing the hot machines). The problem applies to Internet advertising, dynamic pricing, and the like. It is usually assumed that the decision maker has a good understanding of the rewards that are independent; these assumptions are incorrect in some settings. The authors formulate a bandit problem that tests the assumptions; a pessimistic decision maker solves a worst-case problem against an adversary (“the house”) who has the ability to alter the machine payoffs and does so to minimize the decision maker’s expected total profit. Under these assumptions, the typical best practice decisions do not apply. The insight for management: Typical probabilistic decision making best practices fall short of best outcomes when faced with an adversary who actively tries to minimize payouts.
Quality, Subjectivity, and Sustained Superior Performance at the Olympic Games (p. 286)
David M. Waguespack, Robert Salomon
Do star gymnasts get better scores in part because they are stars? In some competitions such as gymnastics, performance evaluation includes a substantial subjective component. The authors suggest that the inherent uncertainty and ambiguity in subjective evaluation can lead to favorable treatment for star competitors. After the performance, judges may infer quality that is not directly observed (give stars “the benefit of the doubt”) or make conservative choices to assuage accountability concerns (give scores that they think will be the norm among judges). In the context of the Olympic Games, the authors compare country-level performance outcomes across Olympic sports and find that past performance is predictive of current performance in all sports but that the effect is stronger in subjective outcome sports versus objective outcome sports. They find the same pattern in individual boxing matches, with past country-level performance having a stronger effect on subjective boxing outcomes (judges’ decisions) than objective boxing outcomes (knockouts). The insight for management: Star power influences judges; past performance is a better predictor of future performance in sports where external judges and referees can influence the outcomes.
