How to Win “Spend” and Influence Partners: Lessons in Behavioral Operations from the Outsourcing Game

The Outsourcing Game is a role‐play simulation that has been deployed in industry and academic training courses worldwide. It incorporates the concepts of hidden actions, hidden information, and misaligned incentives, and conveys messages about power, trust, and reputation. The game depicts the adventures of Acme, the brand owner of a product manufactured by an outsourced supply chain. Through a series of negotiations, Acme attempts to influence its partners (two suppliers and two service providers) by distributing its procurement “spend.” These partners, in turn, sway each other via side payments. To simulate the non‐linear shifts in power that occur as outsourcing increases, we represent decision‐making by a voting scheme with uneven vote allocations. This paper analyzes a database of game results to reveal behavioral factors that can undermine conspicuous win–win process improvements. For instance, preferences can be sensitive to the sequence in which the alternatives are encountered; decision‐makers might value not only their own rewards, but also fairness in the allocation of total gains; and effectiveness of negotiation tactics will vary with community norms of acceptable behavior. Along the way we extend the political economics literature about power in block‐based voting by proposing a heuristic approach for incorporating voter preferences.     

On “Black Swans” and “Perfect Storms”: Risk Analysis and Management When Statistics Are Not Enough

Two images, “black swans” and “perfect storms,” have struck the public's imagination and are used—at times indiscriminately—to describe the unthinkable or the extremely unlikely. These metaphors have been used as excuses to wait for an accident to happen before taking risk management measures, both in industry and government. These two images represent two distinct types of uncertainties (epistemic and aleatory). Existing statistics are often insufficient to support risk management because the sample may be too small and the system may have changed. Rationality as defined by the von Neumann axioms leads to a combination of both types of uncertainties into a single probability measure—Bayesian probability—and accounts only for risk aversion. Yet, the decisionmaker may also want to be ambiguity averse. This article presents an engineering risk analysis perspective on the problem, using all available information in support of proactive risk management decisions and considering both types of uncertainty. These measures involve monitoring of signals, precursors, and near‐misses, as well as reinforcement of the system and a thoughtful response strategy. It also involves careful examination of organizational factors such as the incentive system, which shape human performance and affect the risk of errors. In all cases, including rare events, risk quantification does not allow “prediction” of accidents and catastrophes. Instead, it is meant to support effective risk management rather than simply reacting to the latest events and headlines.     

Risk Analysis: Understanding “How Safe is Safe Enough?“

The basic characteristics of determining acceptable risk are discussed. Technical, political, and social aspects of the problem add much complexity. The appropriate manner to reach responsible decisions regarding acceptable risk is suggested. This explicitly addresses the alternatives, the objectives, the uncertainty, and the values which constitute the information necessary to arrive at any solution. The inappropriateness of many "solutions" currently in use or "suggested" is exposed.     

A Note on “Sourcing Decisions with Stochastic Supplier Reliability and Stochastic Demand”

This note complements the study of Burke, Carillo, and Vakharia ( 2009 hereafter “BCV”) which analyzes a class of single‐product multisourcing problems under stochastic demand and random yields. The purpose is twofold. First, we prove that the objective function used by these authors is only a lower bound for the expected profit for which we provide the correct expression. Second, we show on some of the numerical instances provided in BCV's study that the structure and the performance of the BCV ordering policy may be substantially different from the optimal ordering policy. We conclude by giving general qualitative insights characterizing suboptimality of the BCV solution.     

Response to “Revisiting ISO 14000 Diffusion: A New ”Look“ at the Drivers of Certification”

In Corbett and Kirsch (2001), we used a simple regression in an exploratory investigation of drivers of global diffusion of ISO 14000 certification. We found that ISO 9000 certification levels, environmental treaties ratified, and exports as a proportion of GDP were the main significant variables, where the environmental measure may be moderated by GDP per capita. In his replication study, Vastag (2004, in this issue) analyzes the same data using more visual techniques, specifically regression trees, and finds support for the significance of ISO 9000 certification levels and environmental treaties ratified, but not for export‐propensity. Vastag raises a number of relevant methodological issues, to which we add some perspectives here.     

A Reply to Williamson's “Outsourcing …”

A recent article by Oliver Williamson essentially comprises a critique of supply chain management (SCM) from the perspective of his own field, transaction‐cost economics. Here is one reader's response. SCM can indeed be faulted for inflated rhetoric, among other sins. I believe, however, that the two fields have much to learn from each other.     

Remitting Behaviour of “Temporary” and “Permanent” Migrants: The Case of Greeks in Germany and Australia

This paper makes the point that migrants have different motives for sending remittances and remittance receivers have different claims on migrants' income, depending on whether people move to accumulate capital to improve their living at home after they return — temporary migration — or to start a new life in a foreign country — permanent migration. This hypothesis is empirically tested with data from Greek–German and Greek–Australian migration. The findings attest to the fact that German remittances constitute obligatory income streams to close family at home, while Australian remittances are gifts. Some quantitative estimates of the relative impact of individual factors on remittances are also obtained. Some hints are also given for a changing remitting behaviour of Greek migrants in Germany, along with the changing character of migration in that country.     

THE TIMING OF LABOR TRANSFERS IN DUAL RESOURCE-CONSTRAINED SYSTEMS: “PUSH” VS. “PULL” RULES*

Altough the dual resource-constrained (DRC) system has been studied, the decision rule used to determine when workers are eligible for transfer largely has been ignored. Some earlier studies examined the impact of this rule [5] [12] [15] but did not include labor-transfer times in their models. Gunther [6] incorporated labour-transfer times into his model, but the model involved only one worker and two machines. No previous study has examined decision rules that initiate labor transfers based on labor needs (“pull” rules). Labor transfers always have been initiated based on lack of need (“push” rules). This study examines three “pull” variations of the “When” labor-assignment decision rule. It compares their performances to the performances of two “push” rules and a comparable machine-limited system. A nonparametric statistical test, Jonckheere's S statistic, is used to test for significance of the rankings of the rules: a robust parametric multiple-comparison statistical test, Tukey's B statistic, is used to test the differences. One “pull” and one “push” decision rule provide similar performances and top the rankings consistently. Decision rules for determining when labor should be transferred from one work area to another are valuable aids for managers. This especially is true for the ever-increasing number of managers operating in organizations that recognize the benefits of a cross-trained work force. Recently there has been much interest in cross-training workers, perhaps because one of the mechanisms used in just-in-time systems to handle unbalanced work loads is to have cross-trained workers who can be shifted as demand dictates [8]. If management is to take full advantage of a cross-trained work force, it need to know when to transfer workers.     

Cognitive Limitations and Investment “Myopia”*

Optimization of investment decisions in an uncertain and dynamically evolving environment is difficult due to the limitations of the decision-maker's cognitive capacity. Thus, actual investment decisions may deviate from the dynamically optimal decision rule. This paper investigates how a potential investment rule bias affects the expected payoff from a project that has an uncertain development time and an uncertain completion cost. The result shows that the presence of a potential bias in the adopted decision rule dissipates project value and that the dissipating effect is greater for a longer term project if the completion cost is an increasing function of the time to completion.