Based on research by Utpal Dholakia, Rui (Juliet) Zhu, Xinlei (Jack) Chen and Rene Algesheimer

• Participation in an online community fosters risky financial behavior. In fact, the greater an individual’s participation, the greater their preference for risk.
• Participation increases risk-taking when people perceive strong social ties with fellow members who will cushion the blow if something goes wrong.
• Managers of firms that sponsor online communities should develop strategies that safeguard potentially vulnerable consumers and, in doing so, sustain their communities and brands.

The number of consumers who engage in transactions with one another in online communities continues to grow. Widespread participation in auctions, as well as a rise in crowdsourced lending, offers unprecedented opportunities for consumers to improve their financial position by participating in online communities. Yet, attempts to take advantage of such opportunities might come at a higher cost than consumers bargain for. Is it possible, for instance, that increased participation in online communities creates conditions that encourage individuals to take on more financial risk than is prudent?

Yes, according to findings from a recent article co-authored by Rice Business faculty member Utpal Dholakia, professor of management. In fact, the more someone participates in an online community, the more risky is her financial decision-making. Why? Because participants of online communities think that fellow community members will offer a helping hand if they find themselves in a bind.

It might seem foolish for anyone to have such strong faith in online community members. After all, an online community is not the same thing as a social networking site – think Facebook – where people tend to replicate an existing network of friendships online. In many online communities, relationships are initiated among individuals who are relative strangers, until the time that they meet up in the community. So, what would make someone think that an online community member, with whom she has no other connection, would have her back if she got into a financial jam?

The so-called “cushion hypothesis” suggests that online community members develop emotional connections and a sense of moral obligation toward one another. In fact, research shows that people who don’t know each other in real-space often meet up in virtual-space and then form a sort of kindred spirit. So, it’s not hard to see why some people might feel such strong social ties with community members that they expect those members to provide the same type of support that any other close friend might provide in a time of need.

Dholakia and his co-authors demonstrate the effect of online community participation on risky financial decisions through a series of field studies and lab experiments involving Prosper.com, the largest U.S. peer-to-peer online lending community, and an online community located on eBay’s German site (eBay.de). In the first study, they randomly chose 600 of Prosper.com’s lenders and tracked their behavior for 18 months. They found that the riskiest loan portfolios were held by those who participated in the community and that the greater a lender’s participation — measured by the number of their postings — the greater the risk of the lender’s portfolio.

In a second study, the research team conducted a controlled experiment during which they observed the behavior of almost 14,000 eBay customers for an initial 16 month period. During this time, each customer had completed at least one eBay transaction successfully but had never joined and participated in an eBay community. After the 16 months, roughly half of the customers were randomly invited to participate in one of the eBay communities and the remaining customers were not invited. Both sets of customers were observed for another six months, and the findings were consistent with those from the Prosper.com study: The riskiest bidding behaviors (e.g. participating in bidding frenzies, winning bidding wars by spending the most) were enacted by those who participated in the community after accepting the invitation. Further, those who participated more, by posting a greater number of threads in the community, exhibited a greater level of risky behavior. In both the first and second study, the researchers were able to rule out the possibility that the results occurred simply because those who join online communities are more risk-seeking in general.

Finally, Dholakia and his co-authors conducted a laboratory experiment with 120 individuals to go the extra mile to explain why there is a link between online community participation and risky behavior. By manipulating individuals’ perceptions of the strength of social ties with community members, as well as by combing through individuals’ codified thoughts about their rationale for engaging in risky behaviors in the community, they found evidence to support the cushion hypothesis: When individuals felt that social ties were strong, they thought that fellow community members would have their back if something went wrong.

Consumers should be wary of their belief about the safe haven provided by relationships with online community members. Their belief might not reflect reality, and they could suffer real harm as a result. Findings from the Prosper.com study, for example, showed that increased risk-taking was not very rewarding. The return on investment for lenders was negatively correlated with the riskiness of their loan portfolios.

It seems clear that consumer participation in online communities is here to stay, so managers who sponsor such communities should develop strategies that minimize the potential harm for consumers. Why not alert consumers about their susceptibility to riskier decisions within the online community? In the long run, doing so would not only help consumers, but also help firms safeguard and sustain both their communities and their brands.

Utpal Dholakia is a marketing professor at Jones Graduate School of Business at Rice University.

To learn more, please see: Zhu, R. J., Dholakia, U. M., Chen, X. J., & Algesheimer, R. (2012). Does online community participation foster risky financial behavior? Journal of Marketing Research, 49(3), 394-407.

By Weezie Mackey

This article originally appeared in the Jones Journal, Spring 2016.

A senior executive at a high-end grocery store eased her way back into work after maternity leave. In one fell swoop, she had delivered twins and become one of her most targeted demographics: a working mother. When it came to groceries, however, there were certain necessities she couldn’t fit into her real live shopping cart. So she opted for a virtual one.

“Diapers,” she finally confessed to her CEO. “I’m buying diapers from Amazon because I need them to be at my front door.”

Rice MBAs Melissa Mohr ’10 and Abhishek Jha ’14 come to the Amazon grocery business from different divisions but with the same goals — to make the customer’s life easier and to make Amazon the choice for online groceries, both in the pantry and the fridge.

Door to door

This insistence on convenience and selection keeps consumers coming back to the world’s largest retailer again and again. But the profitable food and beverage category, with $620 billion a year in sales in the U.S., has been the least disrupted by e-commerce. According to Booz & Company, only about four percent of those sales currently happen online.

Clearly the opportunity for growth with online grocery is vast. So how do retailers convince the public to buy groceries online? Would shelf-stable items like coffee and granola bars be an entry point? In other words, hook them on filling their cupboards and pantries first and then target the fridge and the fruit bowl.

Enter Melissa Mohr, a manager on the Amazon.com Grocery Team. “Our goal is to help change how people grocery shop.” It’s part of her job to understand the lives and habits of her customers. “People are super busy, with more dual income homes and more active lifestyles,” she said. “We’re trying to make it easier that they are looking for and to make it easy for them to order from our site.”

It sounds simple. Almost as simple as changing how people shopped for books some 20 years ago. Does it mean the end of the brick-and-mortar grocery store? Not likely. Does it mean turning the grocery store model — which Mohr pointed out hasn’t changed much in over 50 years — on its head? Probably.

“Our focus is on how we can help make our customers’ lives easier. We think the ability to shop for groceries online is a big part of that.”

According to Mohr, Amazon differentiates itself with customer value programs. Subscribe and Save is a program that invites customers to pick “their favorite, for them to buy their groceries and provide it in a convenient and stress-free way. We know we have all types of customers and our goal is to have the selection most-used items and have them shipped on a regular schedule, and they receive five percent off the price. If they have five or more subscriptions, they get 15 percent off,” Mohr said. With no contract, buyers customize or change the items in their box whenever they want with no penalty.

“We also offer Prime Pantry. A great way for our customers to fill their typical ‘stock up’ trip and purchase items like bottled water, toilet paper, diapers. They ship directly to your door, and you don’t have to worry about carrying heavy and bulky items.” Which solves that problem a mother of twins might face.

And then there’s Amazon Dash— an actual button customers attach to an appliance or pantry in their home (for specific products only, such as Gatorade) tied wirelessly to Amazon online.

“Any time you’re running low, you push the Dash Button and two days later your product shows up at your house. These programs really drive our business and help change the way customers shop.”

Much like buying books and electronics, these incentives all make  sense, but how will they influence loyal shoppers to start buying their groceries from Amazon?

From coffee to cucumbers

Before taking the leap of grocery faith — from ordering something shelf-stable to going all in and ordering perishables — people need to have a level of comfort with the buying process. Having the name, infrastructure and track record of Amazon helps. It helps a lot. Especially since most who try the new service will already have an experience buying something from Amazon.

Still, the consumer’s resistance to buying perishables online has to be addressed. Prices, logistics, delivery windows, and annual membership fees all play into the decision to do their weekly grocery shopping online. Finally, does Amazon even deliver to your neck of the woods? Enter Abhishek Jha, senior program manager for the Launch and Expansion Team for AmazonFresh and Prime Pantry.

“We look at a variety of factors when evaluating where to offer AmazonFresh including our network of fulfillment centers, which allows us to get closer to our customers and offer them new services,” Jha said.

The AmazonFresh site delivery drop down menu, for now, couples New York and New England and includes Southern California, Northern California, Pacific Northwest and Mid-Atlantic as other choices. Whether these are areas where people were more likely to be early adopters or not, the effort of expansion proves Amazon’s intentions. From its launch in Seattle in 2007, LA and San Francisco in 2013, and San Diego, New York City and Philadelphia in 2014, the company is full steam ahead with online groceries.

Details of roll out and expansion are confidential, according to Jha. What’s not is the open season on convincing the consumer mindset that buying groceries online will make life better. Jha and Mohr agree that it’s Amazon’s philosophy. Andthis philosophy, despite reports to the contrary, extends to its employees as well.

Working it

“Literally everyone at Amazon owns his career,” Jha said. “The company offers a gamut of roles especially to MBAs who can excel and chart out a career in any business team, role or function. This is one of the main reasons I joined Amazon after graduation.”

Mohr was recruited by Amazon from Dr Pepper, where she was a brand manager. “When I got the offer I knew that it was a great opportunity for me to expand my experience, and I wanted to learn ecommerce. Also in my interview, I found out that you can bring your dog to work. This is a pretty awesome benefit, and my border collie Bode thinks Amazon is the greatest place ever.”

Her first role at Amazon was as the senior vendor manager for toys on Amazon.ca. “When I started we actually didn’t have a toy business so I was able to launch it for Amazon Canada. It was fun and challenging to launch a new business, engage with manufacturers to launch with Amazon and think about the selection and site experience for our customers. I loved that I was able to utilize my marketing background to help companies launch their toy brands, but I also got the experience of driving an ecommerce business.”

Jha began at the company as a senior financial analyst, benchmarking and analyzing Amazon Fashion, such as shoes, watches, apparel, luggage and jewelry. “I was also involved in other Fashion business initiatives which involved operational costs impact. Besides delivering financial analysis on these projects, I also networked internally with other operation and business teams.”

It’s the networking that Jha calls crucial. “Fit is very important with a specific team since Amazon essentially is a global firm housing several startups and teams with their own cultures. I finally decided to join Amazon-Fresh, which presents strong growth opportunities. With this role change, I am still part of North America supply chain and operations and am also responsible for leading launches for the AmazonFresh business.”

Though Jha and Mohr make up only two of the 230,000 employees worldwide that Amazon claimed in its most recent earnings report, their roles in the grocery divisions may play a major part in the disruption of an industry.

Weezie Mackey is the Associate Director of Marketing and Communications at the Jones Graduate School of Business at Rice University. 

By Allyn West

The following story originally appeared in Cite: The Architecture and Design Review of Houston, 98: The Finance Issue, Spring 2016, under the title “An Industry in Crisis" by Allyn West. 

Hermen Valdez realized that he wasn’t going to be able to afford to get back to Texas. His oldest son, a Houston native, was set to graduate from Baylor, and Valdez needed a plane ticket.

But he also needed to make payroll that month.

Valdez, who had moved away in the late 1980s from the recession in Houston to New England in search of more steady construction work, was an independent contractor, responsible for the salaries and insurance payments and taxes on a crew of about 20 general and skilled laborers.

He started working in the construction industry in high school. Before that, since he was 10, he had been helping his parents as a manual laborer. He grew up a few hundred miles southeast of Seattle, where his parents settled after emigrating from Mexico. When he graduated from high school in the late 1970s, he heard there were opportunities in Houston, then in one of its booms. Developers like Hines were financing big commercial projects Downtown, and the Medical Center was expanding. You could move to Houston, build buildings, start a family — and that’s what Valdez did.

The recession forced him north to hustle for work in a new part of the country. There, the competition of the free market wasn’t always friendly. Running his business out of the passenger seat of his truck, Valdez often bid lower on jobs than most union shops, and he allows that some stooped to intimidation to drive him out. “The unions made me miserable,” he says. The tires of his truck were regularly slashed. Once, says Valdez, a story was fed to a small Massachusetts newspaper that alleged he was forcing his workers to share a cramped apartment, implying that he was engaged in human trafficking. It wasn’t true, but there wasn’t much Valdez could do. Hiring a lawyer to file a libel suit and collect damages wasn’t in his budget.

Telling these stories now, Valdez shrugs. What choice did he have? He put up with the forced itinerancy. The intimidation.

The 70-hour weeks. After 16 years of having to live and work away from his family, his marriage ended. He began to realize that he wasn’t saving nearly enough for retirement. Eventually, he arrived at the dilemma that would drive him back to Houston: He could pay his workers, or he could see his son get his college degree.

He had to let his son down.

“That was the last straw,” he says.

Such difficulties and indignities are not uncommon among career construction workers. Even as building booms again in Texas, where one in 13 workers is employed in the industry, where Austin, Houston, San Antonio, and Dallas are considered among the fastest-growing cities in the country, the industry still promises but a low quality of life for many of its workers and struggles, at the same time, to recruit young people who no longer see the building trades as a means to the middle class.

A survey of almost 1,200 construction workers in Texas, compiled in 2013 by professors at the University of Texas, University of Illinois at Chicago and researchers with the Workers Defense Project (WDP) in Austin, show an industry today that is compromised by low wages, lack of benefits, job insecurity, unsafe working conditions and little to no continuing education or vocational training. Only 18 percent of the workers surveyed reported that they had received training on a job; 22 percent reported some form of wage theft; 52 percent reported earnings below the federal poverty line; and 78 percent reported that they are not covered by employer-based medical insurance.

One of the industry’s most insidious problems is payroll fraud, with employees being misclassified as independent contractors. Doing so allows employers to avoid paying Social Security and payroll taxes and providing overtime pay, benefits, insurance and unemployment for their workers — which, in turn, allows these employers to make lower and lower bids on jobs “in a race to the bottom.” (Meanwhile, law-abiding employers complain they can’t compete in such a race.)

The pretense is that an “independent contractor,” as the self-employed owner of a small business — his own body, that is — should be responsible for setting aside, out of hourly wages that rarely surpass $15, his own taxes, insurance premiums and payments into a retirement plan. (Not to mention provide access to his own safety equipment, tools, etc.)

The WDP estimates that, in Texas, as much as 40 percent of the construction workforce — or upward of 400,000 people — is thus misclassified. Worse, many others are paid in cash “under the table.” This leads to an estimated $1.6 billion every year in unpaid federal income taxes.

Texas is also the most dangerous state to work in, with the highest fatality rate in the country. The WDP found that as many as 20 percent of workers surveyed reported at least one workplace injury that required medical attention; 60 percent reported never having received basic safety training. Meanwhile, employers in Texas are not required to provide workers’ compensation. For that matter, they are not required, in this hot and humid state, even to provide water breaks.

These problems have led to an industry in something of a crisis. Leaders describe a shortage of skilled workers, which drives costs higher, as jobs take longer to complete. When they are completed, they are not always jobs done well.

Owners spend as much as 90 percent more than the initial cost on repairs and maintenance over the life of the building.

“This is the most complex business problem I’ve ever seen in my life,” says Chuck Gremillion. “It’s not just a workforce problem. It’s a human problem.” A native Houstonian, Gremillion has experienced the city’s busts and booms. He witnessed the collapse of the economy in the 1980s that drove Valdez and others like him away in search of work. He witnessed how the industry was soon forced to cut costs and became, as he says, “bottom-line driven.”

First, says Gremillion, members of unions — one of the last places where workers can receive “formalized training” — were deemed too expensive. Then, even hourly workers were deemed too expensive; they started to be misclassified as “independent contractors” — given 1099s instead of W2s — and paid by the piece. Often, they were fired if they complained, fired if they were hurt. For decades, now, the industry has confused its people with its tools, treating them with indifference and neglecting their upkeep, then casting them aside when they break down. “Some owners look the other way, shooting themselves in the foot in the long run.”

In 2009, this crisis led five industry leaders — the top executives from Vaughn Construction, Marek Companies, W.S. Bellows Construction, Associated General Contractors–Houston and Chamberlin Roofing & Waterproofing — to establish a nonprofit initiative that they called the Construction Career Collaborative (C3). Gremillion now serves as C3’s Executive Director. C3, explains Gremillion, intends to revive the industry’s reputation and restore the building trades as middle-class occupations. That’s done primarily, he says, through the participation of owners — including M.D. Anderson Cancer Center, Memorial Hermann Health System, Texas Children’s Hospital and The Museum of Fine Arts, Houston.

“It’s the right thing to do for a lot of reasons,” says Peter Dawson, AIA, Senior Vice President of Facilities Services at Texas Children’s. Building with C3 accreditation was, for Texas Children’s, a way to support a “social value.” But it was also a business decision with at least a few important considerations. Primarily, Dawson explains, it was a way of leading the industry forward: the growth of Texas Children’s depends directly on the growth of a skilled workforce. “It costs a lot to build a hospital,” he says. “It has a lot of systems — mechanical, electrical — that are sophisticated. In order to get a building like that built, you have to be able to call on different trades and different levels of skilled labor [that] can do highly specialized work effectively and correctly. [Working with C3] is encouraging a marketplace of these skills.”

If LEED measures the energy and resource efficiency of a building, C3 accreditation might measure the quality of workplace for the people who built it. “Ultimately,” predicts Dawson, “C3 will become the standard for construction.” A building built with C3 accreditation means that the contractors of record have submitted signed agreements with 14 “assurances” about payroll compliance, workers’ compensation, safety training and more. Contractors must provide assurances that their employees are paid by the hour, given overtime according to federal law and are designated as W2-receiving employees, not 1099-receiving “independent contractors.” They are also required to provide OSHA 10-hour safety training for workers and 30-hour training for supervisors. Additionally, C3 conducts spot audits to reinforce these assurances — which are further reinforced by annual accreditation fees. Contractors can pay $1,500 for an entire job or pay a range, from $100 to $2,000, for specialty work.

Though these provisions ensure better conditions for the workers employed by C3-accredited companies, many of which are the largest and longest-running general and specialty contractors in Houston, the overall sustainability of the industry remains uncertain — suffering, as Gremillion describes it, from a “perception problem.”

“Young people don’t see it as a path to the middle class. More people are recognizing that the problem exists,” says Gremillion. “But we are just scratching the surface.” As Gremillion explains, those workers trained by unions — the last generation of skilled laborers — have now reached retirement age. Where will the next generation come from? Policies resulting from the No Child Left Behind Act in 2001 have added more urgency to that question. Funding, scarce in education to begin with, went to support preparation for standardized testing — that is, preparation for college. Cuts to arts and music programs are the ones that receive the most outrage, but cuts to vocational and technical programs limit career opportunities as well.

Additionally, 40 to 50 percent of the construction industry is made up of undocumented workers. C3, as Gremillion explains, doesn’t take a stance on immigration policies. “We train the workers we have,” he says. But it’s clear that a worker’s lack of documentation would be incompatible with the payroll practices — which demand transparency, aside from local, state and federal compliance — that C3 advocates.

Still, it’s clear that C3 is working for a skilled laborer like Valdez. Since moving back to Houston in the late 2000s, Valdez landed with Marek Companies, a C3-accredited employer. “I started all the way back at the bottom,” he explains. But he has since moved up to become a general foreman, and he spends his days planning meetings and coordinating among the laborers, engineers, architects and owners on a job site. Marek pays him an hourly wage and guarantees a 40-hour week. Marek pays into a retirement account and provides vacation time, healthcare and insurance in case he’s injured.

Marek also provides classes after hours, in English and in Spanish, for skilled workers and site supervisors like him — and such continuing education provides these employees a way to advance and increase their earning potential.

Valdez is working, now, on a new patient tower for Methodist Hospital in Sugar Land, where Vaughn Construction is the general contractor. Every morning, Valdez drives in and forms a huddle at the job site. The employees — who will spend their day framing walls, hanging drywall, sealing the seams, painting, wiring and installing the floors — hear from him about safety procedures. About production issues. About quality. Those who will bend and hoist 100-pound panels of drywall into place review proper lifting techniques and are even led through a stretching routine. In other industries, that wouldn’t be news. It wouldn’t be worth noting. But on the construction sites where Valdez has spent his entire career, and his entire adult life, it is.

By Utpal Dholakia

Rice Business marketing professor Utpal Dholakia warns that companies too in love with algorithm-based marketing may end up drowning in a sea of numbers. This story appeared in the June 17, 2015, online edition of Harvard Business Review under the title “The Perils of Algorithm-Based Marketing.”

For marketers, it’s easy to lean heavily on algorithms to reach out and engage with customers. Marketers can take customer-specific information, such as demographics or previous behavior, and deliver special offers, track customers, cross-sell and promote. The list goes on and on. Who wouldn’t love algorithms?

One answer: consumers.

Algorithms can perform astonishing tasks. But take care. In an article published in Harvard Business Review, Dholakia warns about the dangers of relying too much on numbers alone:

"Algorithms aren’t sensitive enough to context. Algorithms can use only a handful of variables, which means a lot of weight is inevitably placed on those variables, and often the contextual information that really matters...isn’t considered.

They arouse suspicion and can easily backfire. If customers feel the marketer knows too much about them, algorithm-based personalization can seem creepy or backfire badly.

They encourage complacency. Having tools that capture exhaustive data about customers, quantify minute aspects of their behavior, and measure their responses can create a false sense that one knows customers really well and understands their motivations and triggers.

They stifle customers’ emotional responses to marketing offers. By shifting the customer into a more calculated and methodical mind-set, algorithm-based marketing minimizes opportunities for forming emotional bonds and limits the range of customer actions — to the marketer’s detriment."

Dholakia also offers some ideas for businesses to add a little humanity when reaching out to customers. It may make all the difference.

Read the entire article.

Utpal M. Dholakia is a professor of marketing at the Jones Graduate School of Business at Rice University. 

Based on research by Scott Sonenshein

• Research on fostering creativity looks at the role of organizational processes, as well as the interplay between managers and employees and their actions on resources.
• During lean times, encouraging employees to transform objects into resources cultivates needed creativity. During times of plenty, managers continue to nurture creativity by regulating the flow of objects to employees and by empowering a sense of ownership.
• Firms institute organizational processes that facilitate creativity by understanding how and why employees transform objects into resources and how managers enable these actions.

Is necessity truly the mother of invention, or does an abundance of resources lead to creativity? Scholars and practitioners have wrestled with this question for decades. And the results of study have been mixed.

Consider the histories of Apple and Google, two organizations thought to be among America's most creative and innovative. In 1997, when Apple was shrinking rapidly, its loss of talent and funds was thought to spell doom for the company, as it was assumed that Apple could not innovate in such a resource-scarce environment. Yet a few years later, it developed the revolutionary music, phone and mini-computing devices it has become known for. So, did a lack of resources contribute to its astounding creative output? Conversely, a few years ago, researchers and practitioners expressed fears that Google’s growing size might stifle creativity among its ranks, yet so far, the company’s creative output seems to continue unabated.

While researchers have been exploring the connection between abundant and scarce resources and creativity with conflicting results, Scott Sonenshein, a professor of management at Rice Business, shifts the conversation toward how actions shape and generate the resources that constitute and aid creative activities. His findings are important for leaders who want to continue to foster creativity within their companies as they grow over time.

Sonenshein initially set out to understand how organizational cultures transform due to dramatic change, and his research subject was a small, family-owned women’s boutique that was on the cusp of experiencing rapid growth. Because the company culture emphasized creativity, he was interested in how the culture might change over time. He watched the company grow from a single, family-owned operation to one that opened multiple new locations under investor ownership. He witnessed how creativity persisted from a time of limited resources to a resource rich one, and observed the processes that aided continued creativity.

At first the boutiques operated on a proverbial “shoestring.” Managers gave their employees autonomy, empowering them to “take ownership” of their stores and to respond to their environments creatively by manipulating and recombining objects in novel and useful ways to aid sales. For example, when one store manager noticed that a group of summer dresses with defective straps weren’t moving, he removed the straps and repositioned the dresses as swimsuit covers to successfully sell them. This kind of employee ownership and creative resourcing allowed employees to devise their own solutions to problems.

But what happened when the investor influx of money created a resource-rich environment, one that didn’t require the pluckiness of devising creative solutions out of necessity?

Most retail stores use planograms, which are like “maps” that tell managers and employees where to display particular items within a store. These plans (fixed objects) serve the valuable purpose of creating a consistent environment and experience from one store to the next. But in this case, the central leadership decided to withhold the store planograms and replace them with narratives (malleable objects), which allowed each store manager and team to devise their own creative ideas about how to tell that narrative within their store. Withholding the fixed object and replacing it with a malleable one that employees could act on fostered creativity and innovation, allowing each store to adapt and customize its environment and experience for its particular clientele, while keeping the cohesiveness of the brand experience among stores.

The takeaway? Creativity can be fostered in a variety of resource environments. It’s the specific actions of managers and employees that foster creativity.

Scott Sonenshein is a management professor at the Jones Graduate School of Business at Rice University.

To learn more, please see: Sonenshein, S. (2014). How organizations foster the creative use of resources. Academy of Management Journal, 57(3), 814-848.

Based on research by Dean Peter Rodriguez, Jonathan P. Doh, Klaus Uhlenbruck, Jamie Collins, Lorraine Eden and Stanislav Shekshnia

• Firms often underestimate corruption’s ill effects on both business and government.
• Corruption can be pervasive, arbitrary – or both.
• Businesses need an arsenal of strategies to fight corruption.

“Why hire a lawyer,” a longstanding Kenyan jokes goes, “when you can buy a judge?”

The same question can be asked in countries from Africa to Asia and from Europe to the Americas, where government corruption so taints life that citizens can feel there’s little to do but turn to grim humor. But government corruption also brews trouble for foreign firms that operate in these countries. Curiously, these firms often underestimate its effects or just ignore them. Scholars typically do too.

Rice Business dean Peter Rodriguez and a team of coauthors decided to take a closer look at this dynamic, assessing what the direct and indirect costs of corruption really are for multinational firms, and proposing strategies they might use to deal with it.

The findings are timely. Foreign direct investment has leaped in recent years, most dramatically in big emerging markets such as China, Brazil, Mexico, Indonesia and Poland. Yet corporate officers, management researchers and even government officials tend to be lock-jawed on the subject. By its very nature, after all, corruption creates a code of “don’t ask; don’t tell.”

The definition the scholars used in their research was simple: the abuse or misuse of governmental power for private or personal gain. Yet the flavor of corruption actually varies from country to country. In some places it is predictable, in some it is arbitrary, and in some a mixture of both.

Predictable corruption pervades the very tissue of well-structured, stable governments, and in a way is easier for foreign firms to manage. At least they can expect the services paid for. Under arbitrary systems, by contrast, such as post-Communist Russia, there’s no way to weigh costs and expectations. Officials may demand bribes, but promised services still will not be delivered. In either case, costs rise further because firms can’t rely on institutions such as courts to enforce contracts.

The direct cost of both types of corruption is clear: money handed out for bribes and kickbacks. But firms that work with corrupt regimes also quietly squander vast resources wrangling red tape and two-stepping with organized crime to buy protection.

Then there are the indirect costs, such as unproductive behavior and lost talent. Firms often hemorrhage huge sums investing in lobbying, influence and currying favor. In some Chinese provinces, for example, foreign companies are openly required to offer “profit-sharing” with local government. In Russia, the Canadian International Development Agency spent $130 million to nurture Canadian businesses there – all for naught after Canadian companies reported their projects repeatedly were “stolen out from under them because of government corruption,” Rodriguez writes. Not only did the Canadians lose: so did the Russian communities that could have benefited from new business and institutions.

What’s a foreign firm to do? One possibility: avoid the mess altogether. That’s what Procter & Gamble did in Nigeria, where it shuttered a Pampers plant rather than bribe customs.

Firms also can alter the way they enter a corrupt country’s market. In Eastern European and former Soviet economies, for instance, the higher the corruption level, the more likely it is a global international firm will invest through a joint venture, with local partners, rather than a wholly owned subsidiary.

Another approach: rigorous internal codes. Honeywell, for example, unequivocally forbids bribes and supplies employees with small cards bearing ethically driven questions they have to ask themselves in ambiguous situations. Employees thought to be high risk for graft get tapped for more training, and all workers can call a toll-free ethics advice line run by a third-party security firm.

In one case, at least, this virtue was its own reward. Honeywell sat out of the bidding on a hefty airport contract in Asia rather than pay a bribe as the price of entry. When a federal investigation revealed that 11 companies had paid it, Honeywell got the contract in the end.

Firms can also reach out to communities where they hope to do business. Hope Group donated textbooks to 17 million students in China with the aim of brightening their reputation. The results of this strategy tend to be mixed, though, since gifts to communities or institutions don’t much impress rapacious officials out for themselves.

International agreements and norms are additional weapons. The Organization of American States, the authors note, has coaxed more than 25 countries to sign the first multilateral treaty to criminalize bribing foreign officials. And, in Kenya, one of the more promising examples of the global approach, it is now slightly harder to buy a judge than it was a decade ago. In 2007, after a wave of political bloodshed, a coalition government launched a huge judicial reform funded by Kenyans, donations from Germany and the United Nations, plus $120 million from the World Bank.

Success has ebbed and flowed, but data-based decision making, better wages for judges and a struggle against corruption culture are among the current gains.

In truth, Rodriguez and his coauthors acknowledge, no one anti-corruption strategy is a panacea. But just as international firms use multiple business strategies, the authors argue, firms should try a mix of antidotes to corruption. Considering the damage it does to foreign firms and host societies both, corruption is too toxic a brew for a healthy business to swallow.

Peter Rodriguez is a Professor of Strategic Management and the Dean of the Jones Graduate School of Business at Rice University.

To learn more, please see: Doh, J. P., Rodriguez, P., Uhlenbruck, K., Collins, J., and Eden, L (2003). Coping with corruption in foreign markets. Academy of Management Executives, 17(3), 114-127.

Based on research Hajo Adam (former Rice Business professor) and Aiwa Shirako

• A negotiator’s cultural background affects the impact of certain emotional displays. 
• Perceived stereotypes inform how negotiators respond to shows of emotion. 
• When a participant shows emotion during negotiation, consider his or her cultural background — and also consider your own.

Want an edge in negotiating? Depending on your background, it can help to get angry.
Even on a good day, cross-cultural communication is tricky. The vagaries of negotiating make it more so. Like most behaviors, negotiators’ actions are heavily influenced by their cultural background. But their counterparts’ reactions to that behavior, research shows, varies strikingly. Depending on which stereotypes are in play, emotions that suggest weakness in one negotiator can work in favor of a negotiator from a different cultural group.

According to Hajo Adam, a former assistant professor at Rice Business, anger is one such emotion. For certain cultures, Adam found, losing one’s cool can score a strategic advantage. In a research collaboration with Aiwa Shirako, a People Analyst at Google, Adam found that when negotiators from East Asia show anger during business talks, Westerners perceive it as toughness. Outbursts that might inspire contempt or distrust from other groups seem to spark respect and a wish to cooperate when they come from East Asians.

The researchers advanced two related hypotheses. First, when East Asian negotiators expressed anger in cross-cultural negotiations, it could prompt cooperation and the sense that they were tougher negotiators than their counterparts from a different background. Second, for this effect to occur, the negotiating counterpart needed to believe a stereotype that East Asians were in general less expressive.

To test these theories, the researchers focused on two cultural groups: East Asians and European Americans. Using subjects from Amazon’s Mechanical Turk website and college campuses, the team set up a series of scenarios that included computer-mediated and face-to-face negotiations.

The first experiment tested if East Asian culture was stereotyped to be less expressive, and European American culture, by comparison, was stereotyped to be more so. Recruiting 70 people raised in the United States, the researchers asked them to answer a questionnaire gauging if people from certain cultural groups were likely to be emotionally expressive and likely to express anger and frustration. The participants, 82 percent of whom had European roots, were asked about East Asians, European Americans, and Hispanics. The results bore out the stereotype that East Asians were less expressive.

In their next four experiments, the researchers used new participant samples to measure how such stereotypes played out in negotiations. In the first experiment, they gathered participants who were from the United States, 79.6 percent of whom had European American roots, to give information about themselves such as name, age, gender, hair color and ethnicity. Each participant then received similar information about a supposed negotiating partner. Instructed to take on the role of a project manager looking to hire an IT company, each participant was randomly matched with a partner for a supposed online negotiation. In reality, however, they were negotiating with a “simulated counterpart.” The participants were asked to make an offer and wait for a reaction. After some time, their counterpart would then send an angry note back.

The results: The negotiators faced with angry East Asian counterparts were more likely to cooperate than negotiators faced with angry European American negotiators.

For the second experiment, 120 new participants were recruited in a longer version of the first scenario. Instead of being told they were negotiating with another person, they were told to read the scenario and imagine how they would react. As in the first study, participants received background information about their counterpart. They were then connected by phone with an angry-sounding counterpart.

Once again, the angry East Asian negotiators prompted greater cooperation than the European Americans. Calm East Asian negotiators, meanwhile, got no better cooperation than calm European Americans.

In a third, double-blind experiment, the researchers organized 288 university students into same-sex dyads, assigning each person one of two roles as negotiators on a class project. Based on a payoff table, the students were told to win as many points as possible, with incentive pay for getting a good deal.

An East Asian negotiator who expressed anger elicited significantly more cooperation compared to an angry European American, the study showed. The angry East Asians were also perceived as tougher and more threatening when angry.

Finally, in their final experiment, the researchers asked 110 new participants to complete two separate studies, a stereotype assessment and a negotiation task. This time, the researchers varied the cultural background of the negotiator supposedly expressing anger. Once again, East Asian negotiators who showed ire outperformed angry European American negotiators — but only when the counterpart held the stereotype of East Asians being emotionally unexpressive and European Americans being emotionally expressive.

The practical takeaway? Certain groups indeed can use emotional displays such as anger to advantage. At the same time, earlier research by Adam shows that responses to emotional displays can vary drastically depending on the counterparts’ cultural backgrounds.

To navigate these straits, Adam’s team suggests that negotiators consider not only their own backgrounds — but also those of their counterparts. Without understanding the power of stereotype on both sides, negotiators can end up hoist on their own petard.

Hajo Adam is a former assistant professor of management in the Jones Graduate School of Business at Rice University. 

To learn more, please see: Adam, H. & Shirako, A. (2013). Not all anger is created equal: The impact of the expresser's culture on the social effects of anger in negotiations. Journal of Applied Psychology, 98(5), 785-98.

Based on research by Leaetta M. Hough, Frederick L. Oswald and Jisoo Ock

• For 20 years, organizational and HR researchers have studied how the “Big Five” personality traits shape and predict employee behavior.
• With new advances in big data, analysis and computing, it’s now possible to track more complex patterns in large organizational data sets.
• Researchers need this big data technology to keep up with the changing workplace.

The basic tools of major league baseball have changed little over the years: You still need speed, strength, a bat and a ball. Yet something enormous changed for the Boston Red Sox between 1918 and 2004, when they won their first and their second World Series. A 21st century innovation — logging data on things such as slugging and on-based percentages — allowed managers to hire and deploy players for a winning team. The data launched a new field, sabermetrics, now nicknamed Moneyball.

This data-driven approach, it turns out, can be as successful running a major city as it was a baseball team. Former mayor Michael Bloomberg pioneered the use of huge data sets to meet the logistical challenges of running New York City.

Big Data can up the games of other businesses too, argue Rice University professor Frederick Oswald and his former graduate student Jisoo Ock in their recent research. Thanks to computing advances, HR analytics are changing from gut instinct into reliable predictions based in data. But these tools aren’t advancing fast enough in the area of hiring and managing workers. The Rice scholars argue that it’s time for old assumptions to change with the times, too.

For generations, HR analysts have used what’s known as the “Big Five” model to predict how personalities affect work outcomes such as technical performance and turnover. The model is premised on the idea that personality drives five types of behaviors — conscientious work, agreeableness with others, emotional calmness, sociability and openness to ideas and experiences.

Although the model still works, it’s evolving along with the science of studying personality, the scholars say. Organizations are changing too. Take the example of WeWork, a company that facilitates shared workspaces. To function, WeWork and similar spaces rely on “community,” which depends in turn on compatible personalities. Suddenly, managers want to know even more about including traits such as honesty, values, even humor.

At the same time, it’s unrealistic for firms to measure every employee quirk. So what’s the alternative?

The scholars call for newer models that consider refined personality traits and types of work at the same time. Honesty, for example, consists of traits including fairness, humility and sincerity.

Similarly, jobs can be divided into types, such as technical, manufacturing and service-based. Considering both personality and workplaces with this kind of detail can make research more accurate — and more useful.

Whether it’s computing, building work teams, or understanding how people perform, Big Data has already changed the game. To stay competitive, researchers, analysts and anyone who manages employees need to keep an eye on the ball — constantly tracking the latest insights on people, the workplace and the whole field of employment.

Frederick Oswald is a professor of psychology and management at Rice University. 

To learn more, please see: Hough, L. M., Oswald, F. L., & Ock, J. (2015). Beyond the Big Five: New directions for personality research and practice in organizations. Annual Review of Organizational Psychology and Organizational Behavior, 2, 183-209.

Based on research David Eagleman (former professor at Rice University)

• Scientists often avoid describing their work directly to the public.
• Researchers have a responsibility to get their message to the community in clear, accessible language.
• Healthy societies and good science have a symbiotic relationship.

Scientists, as a tribe, avoid describing their work to the public. Blurting impressions on Snapchat or summing up an experiment in 140 characters doesn’t gain the respect of their peers. On the other hand, spending an hour explaining a concept to a reporter often means hearing one’s words the next day on TV — dumbed down, reduced to a phrase or plain wrong.

Meanwhile, science itself is incredibly competitive. Why should scientists scribble op-eds when they have grant proposals to write?

Because it’s their duty, argues David Eagleman, a neuroscientist and writer at Stanford University and a former member of the cognitive sciences faculty at Rice University. Whether they are physicists, biologists or economists, Eagleman says, scientists need to share their knowledge in a way the public can understand. In a 2013 journal article, he presented a list of reasons, each in some way reinforcing one principle: Good science and healthy societies both need each other.

Most obviously, disseminating scientific ideas is good business. “Thank your funders,” Eagleman tells scientists. While past research shows that governments earn healthy returns when they invest in science, taxpayers need to know what their dollars are doing. It’s not enough for PubMed to offer federally-funded research papers online; scientific research is a product, and it needs to be presented in a way that reaches voters in their everyday lives. “Would you invest billions,” Eagleman asks, “in an industry that doesn’t share its accomplishments, questions and goals?”

When scientists do share their findings, citizens can be their advocates. Think of the citizens who defended vaccines during decades of allegations that vaccines were linked to autism. Parents who knew medical history and carefully followed current research continued to vaccinate their children until the anti-vaccine article that launched the scare was unveiled as a fraud.

Mainstreaming science also keeps the public realistic. It’s no crime to settle in with a glass of Malbec and watch a CSI where impossible biological analyses solve the case in 50 minutes. It’s only a problem when viewers don’t realize that in real life, that couldn’t happen. But such knowledge is only possible if good science is as accessible as good TV. So a researcher who takes the trouble to talk to a journalist, and complains if the end product is wrong, is helping to build a well-informed public.

Beyond supplying data, researchers also prompt critical thinking — too often treated as an odd habit unneeded outside the academy. Without decision-making skills grounded in science, however, police hire handwriting experts to try to spot sex offenders and the FBI hires mentalists to remotely see the contents of enemy bunkers. Beyond wasting taxpayer money, the absence of critical thinking in these decisions gives charlatans unearned power over the public’s lives.

In fact, the standards for making public policy are less rigorous than those for mixing the average petri dish. If more scientists had spoken up, for instance, perhaps the county commission in Pinellas, Florida wouldn't have banned fluoride from the water supply. Instead, the commission based its vote on decidedly unscientific beliefs, such as the notion that fluoridation was an eugenics scheme or a plan to dope the community into submission.

Eagleman argues that social policy overall should be based on the scientific method. “Instead of letting legislation ride on the winds of intuition,” he writes, “let’s make our legislation evidence-based.” This doesn’t mean it will always be perfect: scientific findings themselves often are flawed. What the scientific method would do is refine what we feel intuitively — and offer a framework for adapting quickly to facts as they arise.

In the meantime, Eagleman argues, it’s the responsibility of scientists to share what they know. The urgency has become greater in the past decade, as traditional news outlets lose funding for their own watchdog work. Online fact-checking groups such as Snopes.com pick up some of the slack, correcting false assertions by media and political candidates. But they can’t take the place of scientists. In addition to giving voters nuanced information about how the world works, scientists model how to be humble, critical and open in the face of new knowledge.

That’s easier said than done, as presidential candidate Adlai Stevenson observed back in 1956. “Senator, you have the vote of every thinking person!” a supporter shouted to him at a rally. “That’s not enough, Madam,” Stevenson called back. “We need a majority.”

David Eagleman is a neuroscientist at Stanford University and a former member of the cognitive sciences faculty at Rice University.

To learn more, please see: Eagleman, D.M., (2013). Why Public Dissemination of Science Matters: A Manifesto. The Journal of Neuroscience, 33(30),  12147-12149.