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How IT governance can make or break a university’s crisis response

2023-07-21T15:09:00-04:00

Like most people, Yoonseock (Yoon) Son saw most of his in-person interactions abruptly shift to online video messaging platforms as the COVID-19 pandemic, and all the uncertainty it contained, spread across the globe in early 2020. As an assistant professor of information technology, analytics and operations at the University of Notre Dame’s Mendoza College of Business, Son was naturally curious to learn about his colleagues’ experiences with suddenly teaching class online.

Yoonseock Son

“As I was catching up with a friend over Zoom, we realized that we were having similar problems with remote teaching, but that others were struggling far more than we were and then other people weren’t having many problems at all,” he recalled. “That seemed weird because we were all doing the same job — teaching remotely — yet everyone was coping differently. I realized it wasn’t just about the faculty themselves, but it was also about their access to IT support and how it was affecting their productivity in terms of both research and teaching.”

Having previously studied how IT governance impacts society in regard to diversity, equity and inclusion, Son thought the changes caused by the pandemic provided fertile ground for examining how IT governance affects the resilience of higher education institutions. He documented his insights in the paper “The Value of Centralized IT in Building Resilience During Crises: Evidence from U.S. Higher Education’s Transition to Emergency Remote Teaching” published in MIS Quarterly with co-authors Jiyong Park of the Bryan 91��Ƶ of Business and Economics at the University of North Carolina at Greensboro and Corey Angst, the Jack and Joan McGraw Family Collegiate Professor of IT, Analytics and Operations at Notre Dame.

Previous research suggests that when there is high environmental uncertainty, such as when stock prices fluctuate or new competition emerges, organizations with decentralized IT governance are generally more effective at meeting these challenges. Son explained that this is because decentralized IT governance allows for more flexibility, enabling firms to address their specific needs. “But that’s when the environmental uncertainties are expected to a degree,” he said. “The pandemic was completely unprecedented, so the solutions were unknowable.”

Son and the researchers thought that during truly uncertain crises, centralized IT governance in higher education would be preferable because it would give a central body the authority to govern IT investments and coordinate information. To test this theory, they compared data for 463 U.S. universities from before the pandemic in 2017 through the pandemic in 2020 from RateMyProfessors.com, a software engine that allows students to assign ratings to professors and campuses. For the same period, they also pulled surveys of the schools’ chief information officers (CIOs) conducted by the nonprofit Educause.

Ultimately, the data showed that universities that centralized and coordinated their IT investments adapted more efficiently to the pandemic and performed better at maintaining student satisfaction.

“Because there was limited time and resources and no one knew what was happening, the centralized coordination of information was critical for maintaining quality of service,” Son said.

He explained that based on statistics from Educause, it normally takes about six weeks to develop an online course, but in the early days of the pandemic, most instructors only had a week or two to shift everything online. “So most people needed technical support for this, but you don’t want to waste limited resources and time by decentralizing information and leaving it to many different individuals to decide how to allocate that technical support.”

Son said these results are not limited to higher education, but can apply to firms in most sectors. “The results show that organizations that gave CIOs higher authority were better at coping with COVID than schools where the CIO’s power was decentralized,” he said. “So even if firms are operating with a decentralized governance structure, they should at least consider forming a strong task force to collect information, distribute information and provide support, because everyone’s going to have similar problems and it’s very inefficient for each department to respond to the same problem simultaneously.”

Though the paper’s results were in line with what the researchers expected, Son said that they have barely scratched the surface.

“There should be more qualitative research, like conducting interviews and surveys, to really understand what's happening to individuals because with this data there are limitations,” Son said. “At some universities some faculty had to teach from inside their cars because they did not have the infrastructure in their home or school to support online teaching, and this kind of thing is not reflected in the data. So further research could be conducted with a more granular level of data.”

Originally posted on Mendoza News.

Turning coursework into holistic problem-solving for modern marketing issues

2023-05-24T10:14:00-04:00

Embracing the changing whims of a dynamic consumer base is a cornerstone of marketing. Yet it’s often debatable when and how brands should initiate change alongside such an erratically evolving culture.

Vamsi Kanuri

“You can’t really talk about the problems that managers were facing five years ago, or even two years ago, because marketing is such a dynamic discipline,” said Vamsi Kanuri, who created and teaches the Marketing Decision Models course for undergraduate and MBA students at the University of Notre Dame’s Mendoza College of Business. “It’s almost impossible for me to keep the current content static.”

Luckily, Kanuri, an associate professor of marketing, is able to regularly draw new content and decision models into his class via his prolific research. Using econometric, optimization and machine-learning techniques, he evaluates the performance and consumer welfare implications of marketing strategies within the domains of social media, services and multichannel marketing. Each time he publishes a paper, Kanuri converts the dataset into a case, allowing students the opportunity to tackle real-world problems directly.

“I’ve only taken on projects that have managerial implications and can be readily applied in practice,” he said. “Most of my students list these projects on their résumés, which I encourage them to do, because in some cases they’re accomplishing more than they would during a summer internship. Sometimes they come back from an interview and tell me that’s all the interviewer was interested in.”

Kanuri’s practical approach to marketing decision models began when he was working toward his doctorate and attended a conference at the Reynolds Journalism Institute at the University of Missouri, which convened a number of national newspapers. “When I sat in that meeting, I was just baffled to hear that every single problem they discussed was actually a marketing problem,” he said.

He became fascinated with pricing-related issues at major papers and eventually collaborated with a major West Coast newspaper, writing his dissertation on a subscription algorithm he developed that aligned both customer and advertiser preferences. Within six months of implementing a variant of Kanuri’s algorithm, the paper reported nearly $1 million in profits. Suddenly, other departments at the newspaper were eager to work with him.

Kanuri’s interest in the area corresponded with the industry’s increasing reliance on social media platforms, which were proving to be as unpredictable as they were influential. This time, the newspaper solicited his help in determining how to use social media to drive content to the news site. The resulting paper, “Scheduling Content on Social Media: Theory, Evidence, and Application,” was published in the Journal of Marketing and also formed the backbone for one of his course’s group projects.

“How do you go from a model to making a decision for an actual problem? That is the part we cover in class,” said Kanuri. In this case, his students reviewed data comprising the newspaper’s Facebook posts to observe aspects such as the time stamp, title, description, whether the post was boosted and how many link clicks it received. After analyzing the data, the students built a regression model to forecast link clicks and then created a scheduling tool that could demonstrate a correlation to a profit function.

“They’ve really enjoyed the practical aspects of this,” he said. “They get to see both the theoretical relevance and the managerial application of the content we cover in class.”

Beyond the real-world application that the class provides to burgeoning CEOs, Kanuri said it also helps them appreciate the mathematical aspects of business. “Marketing is becoming a more quantitative field, so we explore a lot of mathematical frameworks, not just psychological frameworks,” he said. “It’s inevitable that they will need to pick up these skills, so it’s better to do that when their jobs are not at stake.”

Meanwhile, his research continues. After working with three social media teams at Notre Dame, Kanuri became interested in how color complexity within shared images affects consumer preferences and behavior. In a forthcoming paper, he details how the likelihood of user engagement increases when complex images accompany social media posts. This research in turn led to a different study exploring how people respond to tempo variation in social media videos.

“We wanted to look at characteristics that would affect the pace of content consumption,” he said of the social media video project. “It turns out, higher tempo actually moves people away from the video because it’s a distraction.”

As for future projects, Kanuri does not believe researchers have even scratched the surface in terms of studying social media. “I think a lot of research continues to look at siloed attributes of social media,” he said. “But we understand that one modality is not consumed in isolation, so the research is moving into multi-modal aspects.”

With the rapid expansion of technology, Kanuri is hopeful that researchers in the field will be able to better address a common problem long faced by marketers: attribution. “Marketers are really good at identifying who was there, when and what they consumed on a given channel. But how do you know which combination of factors has driven a consumer to make a purchase?”

Kanuri added that it’s unlikely that researchers will be able to pull consumer preferences from multiple platforms and attribute them to a purchase for at least a few years. “But that’s where we’re headed,” he said. “We want to move beyond a particular platform to get a holistic perspective of content consumption and how content consumption can affect a customer’s journey.”

As his students graduate, they will inevitably encounter dynamics in their industries that cannot be predicted yet. AI-generated algorithms, for example, are already leading marketing managers to contemplate whether they should devote human resources to content generation. For his part, Kanuri is in the early stages of a project that addresses algorithmic design and biases, something he is very passionate about.

Regardless of all the unknowns, he is optimistic about how researchers and students will address the unavoidable changes on the horizon. “I think we should only be threatened when our learning stops,” he said.

Originally posted on Mendoza News.

Virtual reality provides opportunity to break traditional confines of teaching and research

2023-04-26T09:16:00-04:00

One of the many challenges that researchers often face is drawing strong conclusions from archival data.

Tim Hubbard

“We can’t really talk about what it’s like when we have a board made up of 50 percent women when, in practice, we don’t have enough firms that have women making up half of their board,” said Tim Hubbard, who studies how cognitive and social factors such as gender and diversity influence strategic leadership.

Instead of relying on more traditional methods of research, he has discovered a new world of possibilities by leveraging experimental virtual reality (VR) in his lab work and classroom.

Hubbard, an assistant professor of strategic management and the Donnelly Fellow of Participatory Management at the Mendoza College of Business, is co-director of the University of Notre Dame’s Virtual Reality Lab alongside assistant professors of psychology Mike Villano and Nathan Rose.

“Where VR becomes really powerful is the ability to take somebody to a place that we couldn’t normally in a lab,” said Hubbard. Through this medium, the lab has studied how close people of different races are willing to let others get to them; how sufferers of acrophobia, or fear of heights, respond to changing environments; and how remote teams can work more creatively together.

For Hubbard’s students, VR allows them to experience firsthand what it’s like to make decisions as a CEO. In his strategic management class, students run through a simulation where they must make quick decisions and then explain their thinking to a board before being questioned by a hostile reporter in a TV studio. “These are undergraduate and master’s students. They’re not CEOs and they’re not going to be for at least a few years,” he said. “But now, instead of just reading case studies about being a CEO, they have from the first day of class at least a taste of what a simulated few days as a chief executive officer could be like.”

Hubbard’s research on the potential benefits of using VR to teach management science has been published by the Academy of Management Discoveries and is forthcoming in Research Methodology in Strategy and Management. The wide breadth of possibilities available with VR has also led to unique partnerships outside of Mendoza, including with the University’s psychology department and Office of Digital Learning as well as with the University of Chicago’s Mindworks lab.

“There’s only a handful of us doing this around the world,” said Hubbard, adding that it’s important to build a community familiar with using VR to review research papers. “We need to build a community of scholars who understand the method and can review these papers. They need to have put the headsets on and have a sense of what an immersive experience it can be. Time in a headset with the type of work we are doing can overcome even the most skeptical, who think these studies are gamified or cartoonish.”

A major step in building this community will occur this summer with the first meeting of the Global XR Management Community hosted by the INSEAD Middle East Campus in Abu Dhabi, United Arab Emirates.

“This will be the first meeting like this in the world and will be split between one day of teaching and one day of research,” said Hubbard. “The focus is going to be on trying to get people who are teaching with VR to learn how to do research with it and people who are researching with it to learn how to teach so that we can enhance the capabilities for everybody who’s coming.”

While Hubbard is optimistic about the future of VR in academia, he’s also realistic about the challenges to implement it. The realism of the simulations, for example, can be costly and time-consuming to develop. “These headsets have high resolution. It’s a different level than what people see advertised on TV for video games,” he explained. “These avatars have wrinkles on their faces, you can see the stubble of a beard, they make eye contact with you. We use Hollywood-like motion capture in order to get realistic animations. But that requires a heavy processing power and so we have high-end PCs that are running these simulations and we’re only running one participant at a time.”

The access and ease of using the technology is improving, however. More individuals are purchasing high-end headsets for use in their homes, which could mean uploading the simulations to the cloud and running studies remotely. There are also a few studies using “off-the-shelf” software and don’t require a custom-built simulation.

Ultimately, though, Hubbard argues that VR is uniquely capable of gathering empirical data on phenomena that is either difficult or impossible to study using traditional methods. Most studies on gender dynamics in the boardroom, for example, draw from measures that can only be observed outside the boardroom since access is limited.

Hubbard pointed out that some of the effects observed could be due to good governance since firms with strong governance practices are more likely to have women and racial minorities in their boardrooms. Likewise, poor decisions made by a company with fewer women involved might be due to bad governance as opposed to lack of diversity.

“There’s all kinds of corrections that scientists do to try to adjust for this,” he said. “In our case, we randomly assign these as experimental conditions so we can see truly exogenous effects. If you increase the number of women, you see this; if you decrease the number of women, you see that; and there’s no other explanation for it. So we get true causation and can show how women in boardrooms cause different decisions. And that’s revolutionary.”

Hubbard’s research appears in the Academy of Management Journal, the Strategic Management Journal, the Journal of Management 91��Ƶ, the Academy of Management Discoveries and the Fordham Environmental Law Review. He has received numerous awards such as the AMJ Best Reviewer Award and the James Dincolo Teaching Award. He serves on the editorial board for the Strategic Management Journal and Academy of Management Journal.

Originally posted on Mendoza News.

What short selling can reveal about a stock’s real value

2023-02-07T10:30:00-05:00

Though it’s a common practice, stock short selling has often been maligned, leading to attempts to curtail the practice during financial crises since the investor who short sells typically profits while the security’s other investors struggle.

The practice occurs when an investor predicts a stock’s price will fall and so borrows shares to sell in the open market with the intention of buying back the stock at a lower price — thereby profiting from the difference when they return the shares to the borrower. Yet despite a reputation for only benefiting the short seller, closer analysis appears to reveal that short selling actually provides a necessary service for the whole financial ecosystem.

A new paper by Paul Schultz, the John W. and Maude Clarke Professor of Finance at the University of Notre Dame’s Mendoza College of Business, explores how companies often benefit from exploiting overpriced stocks that are difficult to short sell. The paper, “The Response to Share Mispricing by Issuing Firms and Short Sellers,” is published in the Journal of Financial and Quantitative Analysis.

“Short sellers are not the bad guys that they're portrayed to be,” said Schultz, who discusses share repurchasing in his corporate finance course. “If a stock is overpriced, it's a good thing if short sellers can bring the price back down to its true value.”

Schultz became intrigued by share mispricing when he was studying why volatile stocks tend to perform badly and realized that short selling data might have the answer. Recognizing that firms buy and sell their own shares for myriad reasons, he speculated that they likely do so in part to exploit share mispricing and enrich their shareholders. Additionally, even if there are other reasons for transacting in their own shares, misvaluation can explain the timing.

“Because you can’t sell short unless you borrow the shares, it's very costly and short sellers are only going to short if they think they can make up the fees,” said Schultz. “So high short selling fees are a predictor of stock returns because if the short selling fees are high, you can expect the stock to perform poorly over the next few months.”

For short sellers, the high fees can make the poorly performing stock challenging to exploit, but for institutions it can still be profitable. “If they’re lending their shares out, they’re collecting those high fees,” he explained. “So companies don't really care if the stock might go down in the future because they can issue stock and sell their shares when the stock is overpriced and profit that way.”

To test this assertion that mispricing is an important motive for firms to transact in their own shares, Schultz culled data from IHS Markit to study the share lending practices of lending agents, prime brokers and other financial institutions that were active on the lending market between 2006 and 2019. He found that as short selling fees increased and stocks then became overpriced, companies were more likely to conduct a seasoned equity offering (SEO) and issue new shares. Alternatively, when a stock was not as difficult to borrow and was therefore undervalued or at the very least fairly priced, companies were more likely to repurchase their stock.

“If you sell your stock for a higher price than it's worth, then the current shareholders, which includes the management, will be better off,” said Schultz.

He also addresses previous literature that argues that after a firm issues an SEO, the stock will perform poorly for roughly three years. “I'm finding that's the case, but only for the companies that issue stock when their stock is hard to borrow,” he said. This doesn’t appear to happen for firms that aren’t intentionally exploiting mispricing, such as when a company sells shares to make cash for investments or other projects. In these cases, the high borrowing fees aren’t there to deter short sellers. “The stocks which tend to underperform after their SEOs are the hard to borrow stocks, where companies may be trying to exploit mispricing.”

Still, firms are often reluctant to take advantage of share mispricing because SEOs are expensive and take time to initiate due to the legal hurdles involved. But when the mispricing is significant, Schultz has found that companies are attempting to exploit it.

“It’s pretty direct evidence that the difference between the frequency of SEOs and the frequency of repurchases varies based on how hard the stock is to borrow,” he said, adding that investors may want to shy away from SEOs. “If a company sells stock, you may want to check to see if that stock is hard to borrow before you invest.”

Despite its negative reputation, Schultz believes that making short selling cheaper and easier would have positive benefits. “If short sellers are unable to bring a stock’s price down because it's hard to borrow, then you have companies selling overpriced stock to the public,” he said. “It’s a good outcome for the current shareholders of the company, but not a good outcome for public investors. So short sellers are performing a valuable function.”

Should crowdfunding be this complicated?

2022-09-13T15:23:00-04:00

In 2015, John Donovan was listening to a podcast when he learned about an entrepreneur who was hoping to start a business in the podcast space. Given the topic and audience, it would seem this entrepreneur could easily reach a large number of potential investors. However, U.S. regulations at the time prevented businesses from raising capital from non-accredited investors, i.e., individuals who aren’t certified as high net worth.

“Back in 2015, if you wanted to raise capital from ‘normal’ people and give them an equity stake in a company, you had to file financial statements with the SEC. You basically had to become a public company,” said Donovan, assistant professor of accountancy and the PwC Faculty Fellow at the Mendoza College of Business at the University of Notre Dame. “You’re talking about small companies that are looking for $100,000 having to comply with the exact same regulations as a company like General Motors.”

Following SEC regulations associated with the JOBS Act in late 2015, the rules changed based on the amount of capital being raised, but only slightly. Startups still must provide audited financial statements or hire an accountant to review financial statements before raising capital from common, non-accredited investors — all of which can become costly and complicated, though very little evidence exists to demonstrate the value of these requirements.

John Donovan

Prior to working in academia, Donovan was a certified public accountant at PricewaterhouseCoopers (PwC), where he became interested in startup finance. “It’s a very important part of our economy. Job creation is largely driven by new companies emerging and access to capital for startup firms,” he said. “Yet there’s not a lot of evidence in our research examining the role accounting and financial reporting might play in that space, largely because data is really hard to come by. And here in the United States, we’re mandating that [startups] not only provide it, but have it looked at by an accountant.”

Donovan decided to go searching for data that could help determine the importance of accounting and financial reporting in the startup space. He outlined his research in the paper “Financial Reporting and Entrepreneurial Finance: Evidence from Equity Crowdfunding,” published in Management Science.

While the U.S. has distinct regulations in place, Donovan found that the United Kingdom was the complete opposite. “In the U.K., they were saying you can provide whatever information you want. It’s all voluntary, it does not need to be audited or reviewed,” said Donovan. “So I thought the U.K. was a really good laboratory to see what that market would look like outside of regulation. I wanted to see first, are firms disclosing this at all? And then if they are, to what extent does it actually matter to reduce information asymmetry and let investors know what’s going on with the company? Are they even responding to this information? Does it help firms raise capital?”

To answer these questions, Donovan collected the data manually by tracking every firm listed in the U.K. on Crowdcube, the world’s largest equity crowdfunding platform, over a three-year period to see how much capital they were actually raising and what information they had provided to investors to help raise that capital. His findings both supported and challenged a few repeated perceptions among startup investors.

“The commonly held belief is, ‘Why would I care about a firm’s assets or liabilities or existing historical revenues? I’m only worried about growth. I’m only worried about the future prospects of this firm,’” said Donovan. “I think what a lot of people have in mind is that every prospective tech firm wants to be the next Uber or Facebook or some huge growth app. But a lot of small businesses aren’t that. About a quarter of my sample was actually food and restaurant firms. A huge number of startups, especially in this market, are just trying to do something simple like start a restaurant or source a new sustainable coffee.”

Donovan’s research showed that, contrary to popular opinion, financial reporting does indeed matter in the average case. Investors respond to having more financial detail and are more likely to contribute capital to firms that are providing financial reporting. However, it’s not a one-size-fits-all statement. The firm’s assets and liabilities tend to only really matter after more mature firms have had some meaningful operations.

“It just makes sense,” said Donovan. “If you only have one month of historical revenue or assets, that’s not relevant. What I found was that at three years is when that information started becoming relevant. And that’s about the median firm that’s accessing this market in my sample.”

Donovan also found that reporting historical information about assets, liabilities and revenues has an indirect positive effect on a startup’s future since raising capital is linked to future asset growth. He suggested that entrepreneurs can use this information to reassess their relationship with accounting and consider having financial statements to provide to potential investors when raising capital.

He uses this study in his undergraduate accounting classes to help illustrate how important accounting is for successful entrepreneurs. However, he hopes others will recognize this area of research and its potential to improve entrepreneurs’ access to capital in the U.S.

“In the U.K., this market has grown larger than private equity or VC. That hasn’t happened here in the United States yet,” Donovan said. “The big question is, are the regulations in the U.S. potentially hurting entrepreneurs? Is it too costly? And if so, what should the regulation of this market look like?”

Originally posted on Mendoza News.

Is focused attention always best? New study reveals when it’s not

2022-08-25T14:00:00-04:00

In the early 1980s, the dental care company Colgate decided to pursue the flourishing readymade meals market and debut its own line of frozen entrees. Yet rather than broaden Colgate’s market share, the strategy backfired and led to reduced revenues and poor net income.

According to Michael Mannor, the John F. O'Shaughnessy Associate Professor of Family Enterprise at the University of Notre Dame, Colgate’s misstep is a classic example of a company going against the standard expert advice to favor acute focus over broad pursuits.

“For 50 years or more, business consultants and scholars have been encouraging ambitious CEOs to focus, focus, focus,” said Mannor, a professor at the Mendoza College of Business who has spent 15 years researching how organizational structures can either create challenges for or support CEOs. “But these are people who have done very well in their organizations — they’re captains of industry — who tend to have big plans for corporate growth and were selected by boards of directors for their ability to drive growth.”

Mannor wanted to study the tension between the prevailing emphasis on focus and the typical CEO’s tendency toward ambition. He detailed his findings in the paper “Keep Your Eye on the Ball or on the Field? Exploring the Performance Implications of Executive Strategic Attention,” published in the Academy of Management Journal by Mannor and co-author John Eklund of the University of Southern California.

“We wanted to think about how CEOs manage focus versus breadth of opportunity,” said Mannor. “When CEOs focus on just a few issues do they perform better? Or, for CEOs who do not follow that advice, do their organizations end up essentially chasing squirrels?”

Acknowledging that there are no absolutes, Mannor and Eklund theorized that executives should adjust the breadth of strategic attention based on the quantity and quality of opportunities available and how effectively their firm has previously performed in the current opportunity landscape. They suspected that when there are fewer low-quality opportunities, executives should cast a wider net to find potential growth options. Alternatively, if a firm is already using its resources efficiently, then leadership should opt for a wider breadth of strategic attention.

To test this theory, the researchers approached a variety of top consulting agencies and asked them to characterize and categorize the different types of activities that organizations tend to focus on. They also consulted academic journals and the leading practitioner journals that CEOs often read to determine how those journals characterized strategic opportunities. Upon pulling all the data together, they then asked top professors across different business schools from Europe and North America to evaluate the results. In the end, they determined there were 13 categories that represented the range of strategic attention that CEOs might focus on. These strategic categories included topics such as joint ventures, customer experience, stakeholder management, risk management, and mergers and acquisitions.

To measure how much executives focus on each category, Mannor and Eklund used software to analyze the transcripts of quarterly earnings calls for language that aligned with each of the 13 categories. They drew the transcripts from a random sample of half the companies on the S&P 500.

“We wanted to have a representative sample of large public companies in part because these are the organizations that are leaders in their industry and have a disproportionate influence on the success and failure of industries as well as consumer welfare,” said Mannor.

The analysis confirmed that focus is indeed the best strategy for a large number of organizations. However, that advice should not be applied universally.

“If a CEO is facing a market where there's not a lot of opportunities, focus doesn’t work as well and they need to branch out,” said Mannor. “Same goes for a firm that has struggled to convert opportunities into results. So if in the last couple of years they’ve struggled to take their value proposition and make it work effectively, those organizations can benefit from broader strategic attention.”

Likewise, if a firm is very efficient at using its resources, then broader focus can still be very effective. Meanwhile, a firm that struggles to efficiently use its resources should limit its focus.

“It’s a bit counterintuitive because you would think that if there’s a strong market with a lot of opportunities out there, it would make sense to go out and try to grab those,” said Mannor. “But we find in the data that CEOs end up destroying more value when they try to chase those opportunities. That’s because there's a tension with cognitive overload. When CEOs and organizations pursue too many things, they end up not doing as well at anything. So you spread yourself too thin.”

Mannor, who teaches a version of this paper in his graduate courses in order to expose students to how academic research methods are developed, believes this study can benefit organizations that are struggling to create value in their market. “Broader attention could be very helpful for moving into new spaces,” he said.

Additionally, investors can use this information to evaluate businesses. “Most people have a 401(k) or do some degree of stock investing,” said Mannor. “This gives you a way to look at the strategies of an organization in a deeper way and to think about to what extent this company has their attention divided versus what are their areas of core focus. It also provides some discipline to the average kind of person who's buying and selling stocks to not just prioritize innovators who seem like they’re going out and pursuing lots of opportunities, because oftentimes those companies will underperform those that focus on delivering core value.”

Originally posted on Mendoza News.

New model helps to identify when users are likely to upgrade software products

2022-07-13T16:00:00-04:00

Each year, the bestselling video game Call of Duty releases a new generation with upgraded features and new storylines. This isn’t news to anyone familiar with popular video games or other software products such as smartphones, as releasing new generations and models is thought to keep users engaged and ensure a competitive market share.

While most companies can expect customers to be on board with a certain frequency of upgrades, the average time between user upgrades has increased in recent years. In 2014, for example, U.S. consumers upgraded their smartphones every 23 months. Yet by 2018, the average consumer was holding onto their phone for an additional eight months. That gap is predicted to only widen in the coming years. To better predict when users will opt to upgrade their products, a team of researchers set out to identify the factors that might reveal users’ intentions.

“Perhaps in the first few generations, consumers are more excited about new features, but as time goes on, most of the users become less and less excited about the new and improved features,” said Xinxue (Shawn) Qu, an assistant professor of information technology, analytics and operations at the Mendoza College of Business at the University of Notre Dame. “We wanted to know why certain consumers are more willing to adopt new upgrades while others tend to wait a longer time. If you want to understand users’ willingness to adopt, you need to observe their previous usage pattern.”

Qu, an expert in technology adoption, data management and predictive analytics, and a team of researchers compiled their findings in the paper “Predicting Time to Upgrade under Successive Product Generations: A Survival Model with Exponential-Decay Baseline Function,” for a forthcoming issue of Production and Operations Management. Qu’s co-authors include Aslan Lotfi of the Robins 91��Ƶ of Business at University of Richmond, Dipak Jain of the China Europe International Business 91��Ƶ and Zhengrui Jiang of the 91��Ƶ of Business at Nanjing University.

The researchers focused on a popular sports video game that releases annual upgrades and boasts a particularly rich data set of more than 60,000 unique players tracked across multiple generations of the game series. They predicted that the most active players — those who started a larger number of game sessions, played more game modes, made more enhancement purchases and played the game more recently — would be more likely to upgrade to the newer generation. They were also interested in an increasingly common scenario, where online purchases made prior to the game’s release account for a significant portion of the sales of a new product generation.

“We realized that the existing theory cannot fully address the current phenomenon,” said Qu. “When Apple first releases a new iPhone, people wait in line wanting to get to the store at the launch date and buy the product as soon as they can. That's totally different from the traditional theory, where it takes time for the market to respond to the introduction of new technology.”

This trend of waiting in line on launch day or upgrading online before the physical release leads to a huge sales spike in the days following a release and then a sharp decline in sales once the enthusiastic adopters have made their purchases. To help explain and predict consumers’ upgrade behaviors, the researchers proposed an exponential-decay proportional hazard model (Expo-Decay model) and tested it against existing other models.

Xinxue (Shawn) Qu

“This model falls under a framework called survival analysis,” said Qu. “It's accounting for all the factors that can predict the time before an event can happen. For instance, the dependent variable of our model is when the user is going to adopt a new generation of an item and then we can incorporate all the other factors, including usage and adoption behavior from previous generations.”

The researchers also launched three extensions to their model, the first of which captures unobserved factors that might have influenced user behavior. The second extension emphasizes more recent user patterns over all historical data to help understand time delays in adoption. The third extension updates the value of covariates as time progresses. Ultimately, though the first two extensions incorporated more nuanced variables, they did not outperform the Expo-Decay model. The third extension, however, outperformed the benchmark.

“Let's say the product is released in September. All my observations should be from before September,” said Qu. “But if the user hasn’t made a purchase when it comes to November, and if you are still using the user's data captured in September to make a prediction for November, the model becomes less accurate. So this is where the third extension is better.”

Certain findings were intuitive and confirmed what the researchers had hypothesized. Indeed, if a user upgraded earlier in previous generations, they are more willing to upgrade earlier for the focus generation as well. One finding, though, was rather surprising.

“Interestingly, we found that those specialized users who only use a few functions are more willing to upgrade,” said Qu. “This is possibly because those users only use a limited number of functions, so they are tired of exploring others, or they are already familiar with other features and they know they are not interested in those features. So they are waiting to see what will be new in the next generation. When a new feature is introduced, they will be the first in line to make the purchase.”

Qu said companies can benefit from this research to better predict sales since the model can incorporate features regarding user behavior and any factors that influence their purchasing decisions. Therefore, companies can personalize their marketing strategies and target the users who are more likely to upgrade earlier. From a product design perspective, companies can also better determine which features will be welcomed by the markets and systematically improve their new product development process.

He adds that the Expo-Decay model can be applied to areas beyond product development, and the source code for the model is available upon request.

“We observe a similar pattern on social media,” said Qu. “Let's say you tweet something, usually you can observe the content will go viral quickly, within a few hours. But then after a week no one will come back to the old content anymore because of the short memory of the internet, or maybe because people's enthusiasm decays over time. So that could be a future area of study.”

Operational transparency mandates help reduce drug shortages, research finds

2022-05-31T10:43:00-04:00

In May 2011, cancer patients and their health care providers faced grave uncertainty as they experienced a shortage of the essential oncology drug paclitaxel. Crucial for many who are treating ovarian, breast, lung and colon cancers, this IV chemotherapy drug is one of many that become prone to sudden scarcity due to manufacturing interruption. When these pharmaceutical drug shortages occur, health care providers must compensate for the lack of life-saving medication by rationing, seeking alternatives or even suspending treatment altogether.

To address the growing problem, the U.S. Food and Drug Administration launched a new mandate in 2012 requiring all drug manufacturers to report any manufacturing interruption that might lead to shortages. Canada followed with its own mandate in 2017 and policymakers in multiple countries have since either implemented or are considering similar mandates to curb shortages.

To explore if and how the FDA’s mandate has affected drug shortages, researchers analyzed policy changes and data from the U.S. and Canada following both countries’ mandate rollouts. Their findings are detailed in the paper “Alleviating Drug Shortages: The Role of Mandated Reporting Induced Operational Transparency,” published in Management Science by co-authors Junghee Lee of the Mendoza College of Business at the University of Notre Dame, Hyun Seok “Huck” Lee of the Korea University Business 91��Ƶ and Hyoduk Shin and Vish Krishnan of Rady 91��Ƶ of Management at the University of California, San Diego.

“In terms of just pure numbers, shortages appear minimal, and so some have argued that only 200 out of 5,000 drugs experience shortages. So it's less than 4 percent, and therefore we're doing good,” said Lee, assistant professor of information technology, analytics and operations and an expert in innovation and technology management in supply chains and health care operations. “However, the impact is rather significant because we're talking about our health care. For example, according to a 2017 study, the shortage of norepinephrine in 2011 is associated with about a 4 percent increase in in-hospital mortality.”

Realizing that these policies are still in their early stages, the researchers wondered if these mandates actually impact drug shortages and whether more transparency about manufacturing interruption affects competition. Additionally, can policymakers do even more to influence the pharmaceutical industry and decrease drug shortages?

Using drug-shortage records from the U.S. between 2010 and 2015 and from Canada between 2017 and 2019, the researchers paid special attention to the time-to-recovery (TTR) for individual drug shortages (i.e., how long before a stalled drug is replenished) and annual-days-of-shortage (ADS) for each drug. Their research shows that mandated reporting policies do reduce both TTR and ADS; however, the success of the policy hinges on the level of competition in the industry concerning the drug in question.

Junghee Lee

“Before the mandate, it took competitors in the industry much more time to recognize when one firm was failing to supply a drug and then realize it was an opportunity for the competitor to ramp up production,” said Lee. “To increase production takes time — sometimes a week, sometimes a month. But this mandate forces the manufacturer to report any kind of issue and make their operational situation more transparent, which induces more healthy competition.”

This mandated transparency appears most effective in a duopoly where competition is split evenly, or close to evenly, between two competitors. For a drug that is produced by one manufacturer, or mostly by one manufacturer, there is little that transparency can accomplish as that supply is lost either way. Lee and the research team initially presumed that the mandate would be more effective for drugs with more competition, but were surprised to find the opposite was true.

“If I’m a manufacturer and there are 10 other companies producing the same drug, then my market share is small,” said Lee. “Therefore, I have less economic incentive to hurry up and fix my production. But if I have 50 percent market share and if I'm on the verge of losing it, I will be very desperate.”

Despite there not being any direct penalty for incurring shortages, firms are more inclined to report interruptions than they were before the mandate in order to work quickly to recover losses before competitors step in to fill the gap.

“I was a little bit suspicious,” said Lee. “But indeed, they took this mandate very seriously, and they anticipate what's coming after revealing their issue. That's due to competition.”

However, relying solely on industry competition to eradicate drug shortages has its limits, as shown not only via monopolies and highly competitive oligopolies, but also through operational structures. Lee explained that another angle for researchers to explore is what can be learned from the manufacturing process itself.

“It's very typical that one big generic manufacturer produces hundreds of drugs and not surprisingly, that same company experiences drug shortages multiple times, even for the same drug,” he said. “Can a firm improve if they experienced a shortage before? Because at least some group of their employees have already resolved that issue for one instance and if they are facing another issue, then can’t they better resolve this next one?”

Overall, Lee hopes the outcome of this study will encourage more policymakers across the globe to adopt mandates similar to those in the U.S. and Canada since the empirical data suggests that operational transparency does lessen the number of drug shortages. The researchers also concluded that policymakers should use inventory data to better monitor the severity of shortages in order to develop more advanced warning systems and mitigate the shortages before they occur. Ultimately, though, Lee wishes to see even more supply-chain transparency.

“As consumers, or patients, we can ask where do these drugs come from? Who manufactures them? And then potentially we’re willing to pay a couple more bucks if it's domestically manufactured or sourced from proven suppliers,” said Lee. “If we have those intentions more explicit, then the change will be expedited and then we're going to have a transparent supply chain sooner.”

Originally posted on Mendoza News.