Resist or Comply: The Power Dynamics of Organizational Routines during Mergers

The role of power and agency in the development of organizational routines is under‐theorized. In this paper, we draw on an in‐depth qualitative case study of a merger between two academic institutions, a college of art and a university, and examine the diverging responses of two organizational routines (admissions and budgeting) during the course of the merger to understand how power dynamics contribute to resistance/compliance of routines. Our findings suggest that the differences in routines’ responses to a merger initiative can be explained by applying Bourdieu's theory of practice and by employing the concepts of field and symbolic capital to unpack power relations in the context of organizational routines, and to disclose why some routine participants can exercise their agency while others cannot. We find that (a) the field within which a routine operates and (b) the actors’ symbolic capital and position‐taking during change implementation shape routines’ responses to organizational change initiatives.     

Coordination in a Single‐Supplier,Multi‐Retailer Distribution System: Supplier‐Facilitated Transshipments

We consider supplier‐facilitated transshipments for achieving supply chain coordination in a single supplier, multi‐retailer distribution system with non‐cooperative retailers. The previous transshipment literature has focused on coordination through retailer‐negotiated transshipments and thus does not consider the supplier's decision‐making. In contrast, in this study, we assume the supplier is an active participant in the system and we seek to understand how the supplier can facilitate the implementation of coordinating transshipments. We study a two‐period model with wholesale orders at the start of the first period and preventive transshipments performed at the start of the second period. Inspired by a supplier‐facilitated transshipment scheme observed in practice, we assume the supplier implements transshipments through a bi‐directional adjustment contract. Under this contract, each retailer can either buy additional inventory from, or sell back excess inventory to, the supplier. We show that coordination can be achieved through carefully designed contracts with state‐dependent adjustment prices and a wholesale price menu. We demonstrate that the supplier's role in facilitating coordinating transshipments is critical. In addition, we use our understanding of the coordinating contract form to derive some simpler and easier‐to‐implement heuristic contracts. We use a numerical study to demonstrate the value, to the supplier, of using the coordinating adjustment and wholesale prices, and to evaluate the heuristics’ performance.     

Team‐Level Antecedents of Individuals' Knowledge Networks*

Individuals' knowledge networks are widely considered to contribute substantially to the effectiveness and efficiency of organizations. While the positive effects of knowledge networks as a primary driver of social capital have recently received considerable research attention, potential determinants of individuals' network building have not yet been adequately addressed. In this study, we investigate how certain team‐level properties affect team members' development of knowledge networks through the course of a team project. Using data from 430 team leaders and team members pertaining to 145 software development projects, we test cross‐level hypotheses using hierarchical linear modeling (HLM). The results indicate that the team's perception of the organizational knowledge‐sharing climate, the team's networking preference, and the team's perceived importance of networking for project success positively affect individuals' network building. Furthermore, a team's perception of the adequacy of its technical competency and a team's perception of the adequacy of its material resources inhibit team members' individual network development. Theoretical and managerial implications are discussed.     

Conflict of Interest Mitigation Procedures May Have Little Influence on the Perceived Procedural Fairness of Risk‐Related Research

Two between‐subject experiments explored perceived conflict of interest (COI)—operationalized as perceived procedural unfairness—in a hypothetical public–private research partnership to study the health risks of trans fats. Perceived fairness was measured as subjects’ perceptions that health researchers would be willing to listen to a range of voices and minimize bias (i.e., COI) in the context of a research project. Experiment 1 (n = 1,263) randomly assigned research subjects to a partnership that included (1) a combination of an industry partner, a university partner, and a nongovernmental organization (NGO) partner; and (2) one of three processes aimed at mitigating the potential for COI to harm the quality of the research. The procedures included an arm's‐length process meant to keep the university‐based research team from being influenced by the other partners, an independent advisory board to oversee the project, and a commitment to making all data and analyses openly available. The results suggest that having an industry partner has substantial negative effects on perceived fairness and that the benefit of employing a single COI‐mitigation process may be relatively small. Experiment 2 (n = 1,076) assessed a partnership of (1) a university and either an NGO or industry partner and (b) zero, one, two, or three of the three COI‐mitigation procedures. Results suggest there is little value in combining COI‐mitigation procedures. The study has implications for those who aim to foster confidence in scientific findings for which the underlying research may benefit from industry funding.     

EFFICIENT TUITION FEES AND EXAMINATIONS

We assume that students observe only a private, noisy signal of their ability and that universities can condition admission decisions on the results of noisy tests. If the university observes a private signal of each student's ability, which is soft information, then asymmetries of information are two‐sided, and the optimal admission policy involves a mix of pricing and pre‐entry selection, based on the university's private information. In contrast, if all test results are public knowledge, then there is no sorting on the basis of test scores: Tuition alone does the job of implementing an optimal degree of student self‐selection. These results do not depend on the existence of peer effects. The optimal tuition follows a classic marginal social‐cost pricing rule. (JEL: D82, H42, I22, J24)     

‘Environment’ Submissions in the UK's Research Excellence Framework 2014

There has been much debate about university research assessment exercises. In the UK, a major element of the 2014 Research Excellence Framework (REF2014) has been the research environment. Here we analyse 98 REF2014 ‘environment’ submissions in Business and Management Studies. We explore whether there are distinctive language‐related differences between submissions of high and low ranked universities and conclude that submission writers have a strong incentive to exaggerate strengths and conceal problems. In addition, innate biases such as the ‘halo’ and ‘velcro’ effects may distract the attention of assessors from a submission's strengths and weaknesses, since they are likely to influence their pre‐existing impressions. We propose several changes to improve how environment is evaluated. We also argue that the research environment would be more likely to be enhanced if the number of outputs submitted in future was an average of two and a maximum of four per academic, rather than the maximum of five currently being considered.     

Examining the Antecedents and Consequences of CIO Strategic Decision‐Making Authority: An Empirical Study*

Despite the strategic importance of information technology (IT) to contemporary firms, chief information officers (CIO) often still have varying degrees of strategic decision‐making authority. In this study, we apply the theory of managerial discretion to define CIO strategic decision‐making authority and argue that the CIO's level of strategic decision‐making authority directly influences IT's contribution to organization performance. We also draw on the power and politics perspective in the strategic decision‐making literature to identify the direct antecedents to the CIO's strategic decision‐making authority. A theoretical model is presented and empirically tested using survey data collected from a cross‐industry sample of 174 matched pairs of CIOs and top business executives through structural equation modeling. The results suggest that organizational climate, organizational support for IT, the CIO's structural power, the CIO's level of strategic effectiveness, and a strong partnership between the CIO and top management team directly influence the CIO's level of strategic decision‐making authority within the organization. The results also suggest that the CIO's strategic decision‐making authority in the organization directly influences the contribution of IT to firm performance and that effective CIOs have a greater influence on IT's contribution when provided with strategic decision‐making authority.     

The Newsvendor Model with Consumer Search Costs

We study the newsvendor problem when consumers are heterogeneous either in their valuations of the newsvendor's product, in their valuations of an outside option available to them, or in both valuations. In this context, we observe that the outside option, which represents the value that a given consumer associates with choosing not to purchase the newsvendor's product, may be interpreted as a search cost. Taking into consideration whether consumers' valuations differ on either one dimension of heterogeneity or on both dimensions, we develop a framework for classifying newsvendor models that incorporate demand‐management effects. In particular, we show that this framework includes both the newsvendor model with price‐dependent demand and the newsvendor model with endogenous demand as special cases. In addition to making a conceptual contribution by developing and drawing insights from this framework, we make technical contributions by providing more general sufficient conditions under which the underlying optimization problems are well behaved.     

Technology Choice and Capacity Portfolios under Emissions Regulation

We study the impact of emissions tax and emissions cap‐and‐trade regulation on a firm's technology choice and capacity decisions. We show that emissions price uncertainty under cap‐and‐trade results in greater expected profit than a constant emissions price under an emissions tax, which contradicts popular arguments that the greater uncertainty under cap‐and‐trade will erode value. We further show that two operational drivers underlie this result: (i) the firm's option not to operate, which effectively right‐censors the uncertain emissions price; and (ii) dispatch flexibility, which is the firm's ability to first deploy its most profitable capacity given the realized emissions price. In addition to these managerial insights, we also explore policy implications: the effect of emissions price level, and the effect of investment and production subsidies. Through an illustrative example, we show that production subsidies of higher investment and production cost technologies (such as carbon capture and storage technologies) have no effect on the firm's optimal total capacity when firms own a portfolio of both clean and dirty technologies, but that investment subsidies of these technologies increase the firm's total capacity, conditionally increasing expected emissions. A subsidy of a lower production cost technology, on the other hand, has no effect on the firm's optimal total capacity in multi‐technology portfolios, regardless of whether the subsidy is a production or investment subsidy.     

Entry Deterrence of Capacitated Competition Using Price and Non‐Price Strategies

We analyze the role of pricing and branding in an incumbent firm's decision when facing competition from an entrant firm with limited capacity. We do so by studying two price competition models (Stackelberg and Nash), where we consider the incumbent's entry‐deterrence pricing strategy based on a potential entrant's capacity size. In an extension, we also study a branding model, where the incumbent firm, in addition to pricing, can also invest in influencing market preference for its product. With these models, we study conditions under which the incumbent firm may block the entrant (i.e., prevent entry without any market actions), deter the entrant (i.e., stop entry with suitable market actions) or accommodate the entrant (i.e., allow entry and compete), and how the entrant will allocate its limited capacity across its own and the new market, if entry occurs. We also study the timing difference between the two different dynamics of the price competition models and find that the incumbent's first‐mover advantage benefits both the incumbent and the entrant. Interestingly, the entrant firm's profits are not monotonically increasing in its capacity even when it is costless to build capacity. In the branding model, we show that in some cases, the incumbent may even increase its price and successfully deter entry by investing in consumer's preference for its product. Finally, we incorporate demand uncertainty into our model and show that the incumbent benefits from demand uncertainty while the entrant may be worse off depending on the magnitude of demand uncertainty and its capacity.     

On the Unimodality of the Profit Function of the Pricing Newsvendor

In this note, we study the price‐setting newsvendor problem. We use three conditions, the log‐convexity of the coefficient of variation, the log‐concavity of the deterministic profit function, and the log‐convexity of the random noise's expectation conditional on having leftover inventory to establish the log‐concavity of the retailer's expected profit function. This new result is complementary to existing results and removes some assumptions in the pricing and inventory coordination literature. It also addresses the conjecture made by Petruzzi and Dada (1999), and can be applied in the pricing game.     

Coordinating Sales and Raw Material Discounts in a Global Supply Chain

In this paper, the supplier of a key component to a global manufacturer offers a one‐time price discount; we study the firm's optimal response to the discount under two different strategies. In the first strategy, the firm does not pass along the discount to its customers (sales subsidiaries); the firm simply coordinates purchasing and production among the different factories to take advantage of this one‐time price discount. In the second strategy, the firm offers price discounts for its most profitable products in different sales subsidiaries to increase their demand. We carried out experiments for the two strategies based on a mathematical programming model, built around Toshiba's global notebook supply chain. Model constraints include, among others, material constraints, bill‐of‐materials, capacity and transportation constraints, minimum lot size constraints, and a constraint on minimum fill rate (service level constraint). Unlike most models of this type in the literature, which define variables in terms of single arc flows, we employ path variables, which allow for direct identification and manipulation of profitable and non‐profitable products.     

Wage Bargaining with On‐the‐Job Search: Theory and Evidence

Most applications of Nash bargaining over wages ignore between‐employer competition for labor services and attribute all of the workers' rent to their bargaining power. In this paper, we write and estimate an equilibrium model with strategic wage bargaining and on‐the‐job search and use it to take another look at the determinants of wages in France. There are three essential determinants of wages in our model: productivity, competition between employers resulting from on‐the‐job search, and the workers' bargaining power. We find that between‐firm competition matters a lot in the determination of wages, because it is quantitatively more important than wage bargaining à la Nash in raising wages above the workers' “reservation wages,” defined as out‐of‐work income. In particular, we detect no significant bargaining power for intermediate‐ and low‐skilled workers, and a modestly positive bargaining power for high‐skilled workers.     

Optimizing Customer Forecasts for Forecast‐Commitment Contracts

We study a “Forecast‐Commitment” contract motivated by a manufacturer's desire to provide good service in the form of delivery commitments in exchange for reasonable forecasts and a purchase commitment from the customer. The customer provides a forecast for a future order and a guarantee to purchase a portion of it. In return, the supplier commits to satisfy some or all of the forecast. The supplier pays penalties for shortfalls of the commitment quantity from the forecast, and for shortfalls of the delivered quantity from the customer's final order (not exceeding the commitment quantity). These penalties allow differential service among customers. In Durango‐Cohen and Yano (2006), we analyzed the supplier's problem for a given customer forecast. In this paper, we analyze the customer's problem under symmetric information, both when the customer is honest and when he strategically orders more than his demand when doing so is advantageous. We show that the customer gains little from lying, so the supplier can use his control over the contract parameters to encourage honesty. When the customer is honest, the contract achieves (near‐)coordination of the supply chain in a great majority of instances, and thus provides both excellent performance and flexibility in structuring contracts.     

Acquisition and Disclosure of Operational Information*

We study a firm's strategy for acquisition and disclosure of operational information by establishing linkages among information quality, managerial self‐interest, and production planning. We develop a multistage model in which a manager of a publicly traded firm first receives private information about the product demand and then uses it to make production and disclosure decisions. We consider two prevalent disclosure models employed in the accounting literature: all‐or‐nothing and cheap‐talk models. In the all‐or‐nothing model, it is assumed that any disclosure must be truthful, but the manager can strategically withhold information. We show that the manager commits to acquire the value‐added operational information if (i) the managerial self‐interest in the interim share price is low or (ii) the managerial self‐interest in the interim share price is high, but the fixed disclosure cost is either sufficiently low or sufficiently high. We demonstrate that the firm is better off if the production level is observable to the financial market because multidimensional signaling reduces costs. In the cheap‐talk model, we assume that the manager's disclosure may not be truthful. We show that the manager's incentive to acquire value‐added operational information increases along with the penalty cost for misleading investors. Therefore, a high penalty cost for misleading investors can encourage the manager to obtain more precise information, which in turn improves the firm's cash flow.     

AMBIVALENT INVESTMENT AND THE HOLD‐UP PROBLEM

In this paper we add to the foundations of incomplete contracting literature. We study the hold‐up problem with ambivalent investment, where investment benefits the investing party if ex post the right decision is undertaken but harms the investing party if the wrong decision is made. In this context, we show that the power of contracts to provide investment incentives depends on three factors: the commitment value of contracts, the amount of quasirents that the investing party can expect in the case of out‐of‐contract renegotiation, and the degree of ambivalence of investment. First, contracts provide first‐best investment incentives when parties can commit to a contract regardless of the type of investment. Second, with sufficiently ambivalent investment, if parties cannot commit not to renegotiate a contract and if the investing party's bargaining power is intermediate, contracts cannot improve investment incentives above those provided by no contract. In contrast, a simple buyer or seller option contract is optimal when the investing party's bargaining power is extreme. (JEL: D23, K12, L22)     

Forming Effective Employee Information and Consultation: A Five‐Stage Trust and Justice Process

In this paper we show how trust and justice influence the efficacy of employee information and consultation (I&C) bodies. Evidence is drawn from a 2‐year qualitative study of I&C participants in two organizations in the UK. The research builds on Dietz and Fortin's conceptual five‐stage model of the I&C process to provide a more nuanced understanding of I&C trust and justice outcomes. In particular, we point to crucial stages in the process, and how these influence the effectiveness of I&C mechanisms. Implications for theory and practice are discussed.     

Valuate Outsourcing Contracts from Vendors' Perspective: A Real Options Approach

To date, most applications of real options theory (ROT) in outsourcing literature are modeled from the clients' side. Little attention has been paid to vendors' options in outsourcing. In this article, we study outsourcing from the vendors' perspective by analyzing vendors' value of waiting. The contribution of our research to the literature lies in our analysis of a model that compensates for vendors' loss of option to wait since they have to exercise outsourcing contracts at clients' given timing. Such a compensation‐oriented model yields new insights about the vendors' valuation of outsourcing opportunities, and offers important practical guidance to vendors' decision making.