Speaking Sideways to Speak Up
Ethan Burris, Department of Management
Though business leaders understand the competitive demands of their industries, it is often their employees that are in the position of experiencing specific obstacles and opportunities firsthand. It is crucial for organizational effectiveness that employees report problems and make suggestions to their superiors. Whether this occurs or not is often influenced by leaders, yet little research has recognized how co-workers affect such decisions. We reason that voice decisions and behaviors are social and collective in nature, and that employees often “speak sideways to speak up.” Specifically, we focus on the following three social processes involved in speaking up to, or withholding information from, leaders: a) co-worker interactions that involve getting or giving advice about whether to speak up to the target authority, and if so, how and when it should be done; b) co-worker interactions that involve seeking or agreeing to be a voice surrogate (where one party speaks up for another employee); and c) co-worker interactions that involve the formation of a coalition for collective communication. Through 60 in-depth interviews and 3,000 surveys from employees of a large insurance company, we test hypotheses about: 1) how, when, and why advice seeking or giving occurs among coworkers; and 2) which employees have the greatest impact on organizational voice (and similar change initiatives), and why. This study will contribute to our understanding of the dynamics of speaking up at work.
The Rise of the SUV: Preference Evolution or Supply Shock?
Garrett Sonnier and Raghunath Rao, Department of Marketing
Recent research in marketing and economics has focused on the evolution of consumer preferences for new product forms in the U.S. automotive market. For example, the market share of light trucks as a percentage of new vehicle sales rose from 20% to more than 40% between years 1980 to 1995, reaching 55% in 2004. In this research, we argue that this shift is due to both consumer preferences and changes in the regulatory environment. The passage of corporate fuel economy regulations (CAFÉ) in 1975 dramatically altered the kinds of cars that manufacturers produced. The regulation essentially precluded them from building large cars. However, the regulations for light trucks were much less stringent because such vehicles were nearly non-existent in the consumer market. This changed in the 1980’s. The popularity of the light truck segment seems due in part to an underlying preference for sizes that manufacturers were unable to meet with automobiles.
We propose to study this issue by assembling a long data set consisting of sales, prices, advertising, and characteristics of light duty vehicles sold in the U.S. market from the late 1960’s up to the present. This will enable us to construct a rich model of industry structure pre- and post-CAFÉ. We hope to construct an econometric model that disentangles and quantifies the role of the regulations, preferences for vehicle characteristics, and macroeconomic factors in explaining the rise of the light duty truck segment. We will then be able to conduct counterfactual policy experiments, such as computing market shares absent of the regulations. From a marketing standpoint, this work increases our understanding of the evolution of consumer preferences for new products. From the perspective of public policy, our analysis considers the efficacy of CAFÉ given firms’ ability to shift production to a less-regulated segment.
Performance Goals and Employee Productivity
Michael Williamson and Steven Kachelmeier, Department of Accounting
Performance goals frequently serve as a basis for rewarding employees. However, little agreement exists as to where goals should be set to optimize employee productivity. Prior research suggests that the relation between goal difficulty and employee productivity forms an inverted-U: performance goals and productivity are positively related until goals become very difficult, at which point employees “give up.” Based primarily on this research, management accounting texts often advocate the use of challenging but achievable performance goals. Corporate surveys, however, suggest that low, easily attainable goals, “stretch” goals, and non-specific (e.g., “do your best”) goals are more commonly used. We are conducting two studies to help reconcile these competing perspectives.
First, we are re-examining the relation between goal difficulty and employee productivity in an environment in which productivity is a function of both hard work and the development of more efficient processes. While employees often have discretion to design their own production processes, prior experimental research has invariably examined environments in which participants had no such discretion. We argue that there could actually be a U-shaped relation between performance target difficulty and productivity. Low performance targets provide the flexibility to spend time thinking out-of-the-box about how to increase productivity whereas challenging, but attainable budgets could induce individuals to play it safe using status quo production techniques to ensure attainment. Finally, developing more efficient production techniques would be the only means for individuals to reach extremely difficult stretch targets.
A second project explores the extent to which non-specific performance goals can substitute for performance-based financial incentives in motivating employee productivity. While management accounting research suggests that incentives motivate higher employee productivity than fixed salaries, this research is typically conducted in laboratory environments without explicit goals. However, firms typically provide employees with performance goals that can serve as meaningful motivation, even absent pecuniary incentives. By examining whether the benefits of performance-contingent incentives are mitigated in the presence of performance goals, we hope to provide a better understanding of why performance-contingent incentives seldom account for a large part of employee pay.
The Unifinality Principle in Consumer Choice
Ying Zhang, Department of Marketing
A consumer is deciding on where to shop for a bottle of fine wine: a store that carries 200 different imported wines, or another with the same selection but selling chocolates as well. Where would he make the purchase? One big challenge businesses face is to predict consumers’ choices, particularly in situations where these choices are heavily influenced by situational factors and become inconsistent. The proposed research attempts to understand this issue using the goal-systems theory, viewing tasks that consumers wish to complete as goals and the available options that can help them to achieve these as means. We propose that consumer goals are cognitively associated with their attainment means and the strength of these associations becomes weaker as the number of goals connected with any given means increases. Thus, when certain means can help attain multiple goals, the association between the means and each individual goal becomes weaker.
One important implication of this dilution effect is how consumers may show different preferences for attainment means depending on how they make their choices. When they try to search for an effective means based on association (e.g., search from memory), they are likely to follow the associations out of this goal and arrive at the means that is most strongly associated with this―the means that serves only this goal (the unifinal means). However, when people make a choice based on elaboration of what each means can help attain, they should prefer the means that serves multiple goals (the multifinal means), because it is easy to see that these options not only serve the goal in question, but are also capable of serving other (background) goals when needed. Therefore, if our shopper is trying to recall the best place for buying wine, he would probably visit the store selling only wine, but if already standing outside these establishments would choose the store that sells chocolates as well as wine.
Were Credit Rating Agencies Act in Good Faith?
John M. Griffin, University of Texas at Austin
Dragon Yongjun Tang, PHD from McCombs and now at the University of Hong Kong
Banks suddenly went from being solvent and able to lend to insolvent, largely because they carried many off-balance sheet instruments that were certified as safe but suddenly became risky. At the center of discussion is what was a previously little publicized financial instrument, the collateralized debt obligation (CDO). How could the best CDO tranches (issued and sold by leading investment banks) be initially rated AAA and subsequently lose 50 percent or more of their value in a relatively short period of time?
Rating agencies have been scrutinized and criticized by reporters, regulators, congress members, and investors for their role in the ongoing subprime crisis. While there is no shortage of opinions and commentary, there has been little systematic, empirical examination on just what drove credit agency ratings on CDOs and why. The purpose of this project is to investigate explanations for the quality of the original ratings—the integrity of the financial rating process. Namely, if credit ratings were assigned by using the standard conventions available and conventional standards at the time of issue, or if the credit ratings were unrealistically inflated.
The Repetition-Break plot structure and its impact on selection in the marketplace of ideas
Jeffrey Loewenstein, Department of Management
Raj Raghunathan, Department of Marketing
Effective advertisements should catch one’s interest, be liked, be memorable and be talked about. It has been suggested that to be effective, advertisements should convey stories. It has also been suggested that advertisements should be surprising. On the basis of prior research, we examine whether a “recipe” or plot structure capable of generating surprising stories would result in effective advertisements. Specifically, stories are sequences of events, and if the initial events are similar, individuals should compare them and expect that the initial events’ commonalities apply to a subsequent event. If the story instead presents a different final event, people should find that surprising. We call this the Repetition-Break plot structure, and it appears in a broad array of cultural forms¬ from folktales (e.g., the three little pigs) to jokes (three guys walk into a bar…) to television spots (e.g., the MasterCard “priceless” campaign). We are examining whether there is more than anecdotal support for the claim that the Repetition-Break plot structure could generate effective advertisements. We are conducting archival analyses to examine the prevalence and effectiveness of advertisements using the Repetition-Break plot structure. We are also conducting behavioral experiments testing variations of specific advertisements to test whether they are more effective if they have the Repetition-Break plot structure than if they have it removed. This work provides new avenues for exploring both issue-selling and firms’ abilities to wield expertise in influencing culture.
The Two Faces of Deviance: A Study of Innovation and Deviance at Enron
Violina Rindova and Bruce Rudy, Department of Management
A firm’s innovative capabilities are widely believed to directly affect its ability to create value. However, engaging in innovation poses challenges for firms. Innovation often requires pervasive risk taking by the firm’s employees, which may result in the breaking of organizational rules. Because rule-breaking can result in either innovative or deviant behavior, firms may often find themselves walking a fine line between the two, and may not recognize how and when this line gets crossed.
In order to better understand the interplay between innovation and deviance, we plan to conduct an in-depth inductive analysis of Enron’s efforts to generate strategic innovation between 1990 and 2001. The goal of the study is to develop new theory about organizational processes and conditions which generated behaviors that are at first innovative, but over time may transition into deviant. By engaging in inductive theory-building through case analysis, we intend to connect research on organizational innovation to sociological research on deviance and to generate novel theoretical insights about the relationship between innovation and deviance.
Our research question is important not only theoretically, but also has broad pragmatic importance. The recent financial crisis represents yet another context in which innovation and deviance appear closely intertwined. For example, credit default swaps, widely blamed for the mortgage crisis, were originally designed as innovative derivative-based insurance instruments. However, over time, credit default swaps were deployed for speculative purposes shifting toward the negative spectrum of deviance. Thus, developing a better understanding of the relationship between innovation and deviance and the organizational contexts that affect this relationship can have far-reaching implications.
Role of Marketing Assets in Value Creation by Private Equity Investors
Raji Srinivasan, Department of Marketing
Robert Parrino, Department of Finance
Leveraged buyouts (or LBOs), which occur when an equity investor acquires a controlling interest in a company using significant leverage, have become an important means through which underutilized assets are transferred from lower-valued users to higher-valued users. The most common equity investors in LBO transactions are private equity funds, which are financial intermediaries that are formed exclusively for the purpose of such equity investments. Returns to private equity investors are derived from three principal sources: 1) improvements in the operating efficiency of the business, 2) increases in the multiple of operating cash flows that investors are willing to pay for the business, and 3) the creative use of leverage. This study will focus on the impact that marketing assets have on the first two of these sources of value.
Marketing assets, such as advertising investments (including brand equity), channels (including franchised units), and customer relationships are central to value creation in non-commodity businesses. The development of a strong brand can, for example, increase expected growth in cash flows which, in turn, can increase the multiple that investors are willing to pay for a firm’s equity. To the best of our knowledge, the role of marketing assets in value creation by private equity firms has not been investigated. In this research, we address the following questions: What is the role of marketing assets in private equity investment decisions? How is initial transaction value related to marketing assets? How important a contribution do marketing assets make to total returns to private equity investments?
We will develop testable theories which are consistent with the extant private equity and marketing literature on the value of marketing assets. We will test the theories related to the first two questions using a data set of private equity buyout deals involving public firms. This data set will include control variables commonly used in finance research and key measures of marketing assets (e.g., R&D investments, advertising investments, brands). We will test the theories related to the last research question for a subset of buyouts in which the private equity investor has exited the transaction and for which information on the returns to the private equity investors is available. This study will generate insights on the relation between marketing assets and the value created by private equity investors.