Based on research by Shiva Sivaramakrishnan (Rice Business), Praveen Kumar (Houston), Nisan Langberg (Houston), and Jacob Oded (Tel Aviv University)

Key takeaways:

• When their share prices are undervalued, firms have a choice of buying back stocks or disclosing critical information.
• These choices represent a tradeoff between the interests of short-term investors and long-term investors.
• Given that marketplace information is largely incomplete, most firms have an incentive not to provide positive information about themselves, especially when they want to reward long-term shareholders.

When you have good news, it can be hard not to shout it from the mountaintop. But it’s often wiser to hold your tongue for a while – and use the element of surprise to your advantage. 

Let’s say you’re an executive who knows your company’s stock prices are undervalued. You have two choices: You can publicly disclose information that reveals why investors should buy shares, or you can keep quiet, take advantage of the bargain pricing and buy back the undervalued stock yourself. 

In the wake of recent tax cuts, companies such as Apple, Cisco, Boeing and Merck are opting for the second choice – they’re reinvesting in themselves through share repurchases. Using this method, companies can buy back their stock either directly from the marketplace or by offering shareholders the option of selling shares at a fixed price. Of course, announcing a share repurchase essentially signals to investors that you’re confident the company will increase in value.

Given how often firms either pursue share repurchases or release disclosures about their true value, there is surprisingly little research on which strategy is the more effective. Rice Business Professor Shiva Sivaramakrishnan and colleagues Praveen Kumar and Nisan Langberg of the University of Houston and Jacob Oded of Tel Aviv University set out to find an answer by modeling both options.

At its core, the debate boils down to whether companies want to reward short-term or long-term shareholders. On the one hand, stock repurchases benefit long-term shareholders at the expense of the short-term shareholders who sell their shares at a discount. On the other hand, direct disclosure disadvantages long-term investors by revealing the stock’s true value to the general public, taking away their opportunity to buy back cheap stocks.   

Of course, there are limits in place that prevent major windfalls – or major losses – for both short- and long-term investors. In the U.S., certain stock repurchases are not permitted until after a firm provides some form of disclosure – for example, its earnings reports. 

So which strategy should managers pursue: disclose, buy back or both? It depends on two key variables, the researchers say: what the firm is really worth and the degree to which short-term versus long-term interests are at stake.  

If a firm’s value is relatively low compared to its share prices – and especially compared to the value of competing companies – it’s better off doing nothing, neither disclosing nor buying back. After all, the researchers point out, investors aren’t going to purchase stock if they know a competitor can offer a better deal. 

If a firm is neither highly undervalued nor highly overvalued, managers may disclose information but not pursue a stock repurchase. Since in that case the disclosure information is unlikely to affect stock prices one way or another, there is no disincentive to do so. The researchers emphasize that even disclosing good news doesn’t necessarily lead to more investment, since investors rely more heavily on information that comes from outside analysts rather than from the company itself. 

If a firm’s stock is extremely undervalued, however, Sivaramakrishnan and his colleagues say, the best bet is to err on the side of the long-term investors, which means withholding that information from the public. Long-term investors will reap the greatest reward if managers induce as much undervaluation as possible by not releasing positive news. Once the market is convinced that the shares are worth less and less, then the firm can swoop in and buy them back at a discount. 

In other words: Don’t shout your good news from the mountaintop until you’ve reached the top of the mountain – and brought your investors along with you. 

Sivaramakrishnan, et al (2017). “Voluntary Disclosure and Strategic Stock Repurchases,” Journal of Accounting and Economics.

By Jennifer Latson

The following is an excerpt from “A Cure For Disconnection,” first published in Psychology Today.  

It's no accident that loneliness hurts. Like the pain receptors that evolved so we would keep our distance from a fire, the pain of loneliness grabs our attention and urges us to seek a remedy. Feeling disconnected from the people we rely on for help and support puts us on high alert, triggering the body's stress response. Studies show that lonely people, like most people under stress, have less restful sleep, higher blood pressure, and increased levels of the hormones cortisol and epinephrine; these, in turn, contribute to inflammation and weakened immunity.

While the pain of loneliness was an adaptive advantage in humanity's early days, when separating from the tribe could mean becoming lion food, it doesn't serve the same purpose now that we can technically survive entirely on our own, given a microwave and an endless supply of Hot Pockets. The force of the feeling may seem like overkill now that it has evolved from a life-or-death alarm bell into a more abstract warning that our need for connection is not being met. But that's only until you consider that the need, left unmet, still has the power to kill us — just by a slower, more invisible mechanism than starvation or predation.

Counterintuitively, the pain of isolation can make us more likely to lash out at the people we feel alienated from. Loneliness “promotes an emphasis on short-term self-preservation, including an increase in implicit vigilance for social threats” explains John Cacioppo, the director of the University of Chicago's Center for Cognitive and Social Neuroscience.

The emerging theory of loneliness, in other words, is that it doesn't just make people yearn to engage with the world around them. It makes them hypervigilant to the possibility that others mean to do them harm — which makes it even less likely that they'll be able to connect meaningfully.

This negative feedback loop is what makes chronic loneliness (as opposed to situational loneliness, which comes and goes in everyone's life) so frustratingly intractable. In people who've been lonely for a long time, the fight-or-flight response has kicked into perpetual overdrive, making them defensive and wary in social settings. Chronically lonely people tend to approach a social interaction with the expectation that it will be unfulfilling and to look for evidence that they're right. As Cacioppo notes, lonely people pay more attention to negative signals from others, interpreting judgment and rejection where it is not intended. Without being aware of it, they sabotage their own efforts to connect with others.

To read the full story, go to "A Cure For Disconnection"

Jennifer Latson is an editor at Rice Business Wisdom and the author of The Boy Who Loved Too Much, a nonfiction book about a rare disorder called Williams syndrome.

Based on research by Erik Dane

• Mind wandering — the state of mental disconnection from your task — can take up as much as half the typical workday.
• While mind wandering can be dangerous for certain tasks, it can be helpful overall in certain types of jobs.
• Though mind wandering can be good for work, anxiety can derail productivity.

The mind is prone to wander. Commonly known as daydreaming — the state of mental disconnection from the task at hand — it can take up as much as half of the typical workday. 

Some research suggests this may be a good thing. Wandering minds help us adapt to problems, the reasoning goes, because by briefly changing our focus, we can solve problems more creatively. 

That’s not to say daydreaming is always benign. We prefer that the E.R. surgeon focus on the operation. The boxer is best off concentrating on slipping a punch. In general, when it comes to one-time tasks, daydreaming is suboptimal.

Former Rice Business Professor Erik Dane has tried to bridge these two different views of mind wandering at work. In a recent paper, Dane suggests that while daydreaming can undermine productivity, it is also a critical problem-solving tool. 

In an extensive literature review, Dane explored a series of questions about how mind wandering works. Based on current research, he concluded that a wandering mind can be positive if where it wanders is work related. Such a wandering mind helps employees conceive of possibilities not previously considered. 

There’s a vast difference between daydreaming and plain distraction, Dane notes. Turning your attention from composing a strategy memo to answering an annoying text from the cable company is not mind wandering — it’s digression (or multitasking). And when you look up from cooking dinner to see your neighbor hacking down your bamboo, that’s not mind wandering — it’s annoyance.

Mind wandering implies instead that your thoughts have drifted from the present altogether. From a neuroscience perspective, it is a journey into the brain’s “default network” — a mode of functioning that occurs when the mind is not consumed with demands in one’s surroundings. When you’re driving home and forget to stop at the grocery store because you’re envisioning your imminent vacation to Barcelona, that’s mind wandering. 

According to Dane, mind wandering can be good for businesses — if it revolves around work issues. Wandering on your downtime may steal a few moments from your personal life, but it’s a powerful way to take advantage of relaxation to solve professional problems. 

There are other ways mind wandering can be positive. Think for a moment about James Thurber’s classic character Walter Mitty, whose mind is constantly taking flights of fancy. He’s not as hapless as he might seem. Outside the work context, Dane writes, mind wandering allows us to conceive of possibilities, scenarios and images disconnected from time and, in some cases, basic feasibility. But it’s the quintessential first step of innovation. 

Another type of mind wandering involves movement through time. Past, present and future mingle. As a manager mulls strategies for handling a problem employee, her thoughts may slide to a time when she too was considered a problem at work. The memories, context and details swirling through her mind may redirect her toward a less-obvious solution to the conundrum. 

But mind wandering is not all positive. It can easily devolve into thoughts and feelings that inhibit performance. The stress from negative daydreams may even discourage a worker from focusing on a task — or doing it at all.  

To facilitate job performance, Dane writes, it’s important to keep in mind your work goals. It’s also essential to stay positive — even as you let your thoughts drift. In other words, focus on goals, their associated tasks and sub-goals, and steer clear of distracting worries, which can keep you from finding solutions. 

The more you succumb to anxiety, Dane warns, the more the associated cognitive effects will undermine your performance. It’s a skill, in other words: relax enough to be creative, yet keep the negative thoughts in check. Like getting comfortable with new software or maximizing production on an assembly line, productive mind wandering is learnable, Dane promises. And unlike a computer or a car factory, the tools within our brains only grow more productive with use. 

Erik Dane is a former Jones School professor and was the Distinguished Associate Professor of Management at the Jones Graduate School of Business at Rice University.

To learn more, please see: Dane, E. (2018). Where is my mind? Theorizing mind wandering and its performance-related consequences in organizations. Academy of Management Review, 43(2), 179-197.

By Tarra Gaines

Rice University’s Moody Center for the Arts recently installed a universe. Looking like a constellation of giant dandelions made of chrome and glass, Island Universe, by artist Josiah McElheny, is a visual interpretation of the Big Bang theory. In the months following its February opening, the Center has hosted a conversation between poet Joseph Campana and astronomer Dr. Christopher Johns-Krull and an ensemble of string musicians in celebration of the sculpture. Each event made for a typical — in other words, extraordinary — night at the Moody. 

“It’s very unusual on a campus to build a building that doesn’t solve a real estate problem,” explains Alison Weaver, the Center’s founding executive director. “This really was built to try to do something new.” 

A little over a year ago, when Rice University officially opened the glass doors of the 50,000-square-foot, $30 million facility, it became quickly apparent that “something new” meant a chance for students, faculty, visiting artists and the entire city of Houston to explore and create outside of their familiar zones. 

While interdisciplinary projects might be all the rage in arts, sciences and business, the Moody Center, which contains classrooms, workshops, galleries, a black box theater and even a cafe, takes that trend and makes it the guiding mission. 

“A lot of learning can go on by involving people from different spheres and bring them together,” Weaver explained. “Whether conversations of art and technology, art and business, art and politics, human rights or community, all the programs we do try to foster that discourse.” 

While Weaver describes the Moody as a “hinge that swings both across campus and the community,” it’s also possible to see it as a bridge: between Rice and Houston, the state of Texas and beyond, and between the different departments and disciplines of the University. Moody houses no one department, and Rice students from any discipline can take classes there. At the same time most of its programming, the art exhibitions, performing arts events, talks and concerts are open to the public and much of it is free. 

“We’re accessing the intellectual capital of the university, making it more available to the public, but we’re also bringing the public and their creative expertise to Rice,” Weaver says. Everyone in the center’s orbit, she adds, can benefit from such exchanges. 

“I’d say the Moody’s whole premise is that: Interesting ideas happen when you get out of your zone,” Weaver says.

Many of the art exhibitions and performances the Center presents, in fact, begin as art inspired by other subject matter. From that work Weaver and Moody programmers cross the disciplinary streams to create even more dialogue. Island Universe, swaying from the ceiling of the Brown Foundation Gallery through June 2, is a good example. Besides the talk with Johns-Krull and poetry reading by Campana (April 9) and the KINETIC concert (May 3), McElheny delivered the Rice's School of Humanities Campbell Lecture Series in March. 

Not to be outdone, the other main art exhibition at the Moody this spring, Leo Villareal’s Particle Chamber (on view now until the December 31, 2018) an immersive installation inside the Media Arts Gallery that plays with light, space, technology, and sensory perception, will bring the artist back to Rice for a conversation with Dr. Marcia O’Malley, Rice professor of Mechanical Engineering and Computer Science, an expert on robotic development (April 6). 

Weaver deploys the same kind of create-and-respond programming philosophy when bringing in performing arts projects and hosting events. DADA GERT (May 11-19), an immersive work of dance theater from choreographer Annie Arnoult and Open Dance Project, doesn’t have a science component as inspiration; instead, Arnoult will create a dance referencing history, especially that of Berlin during the Weimar Republic. 

“To me that’s a very interdisciplinary process,” Weavers says. “We’re going to have a consortium of scholars who study the Weimar era, scholars who span philosophy, visual art, history and literature, all of whom care about the Dada period between the wars. “

But bringing together artists and historians, scientists, engineers and business people isn’t the end of the programming. Encouraging Rice students and curious, thoughtful Houstonians to come and listen and sometimes participate lies at the core of the Moody’s mission. 

A year into the center’s existence, Weaver might only have anecdotal evidence, but she believes she sees sparks igniting. She remembers in particular audience reaction to a conversation between artist Diana Thater, whose video installation Starry Messenger hung in the reception gallery in 2017, and Rice professor Dr. David Alexander, an expert in solar astrophysics. 

“At that talk was such a diverse audience,” she says. “A consultant in town in oil and gas came up to me afterwards and said it was the most stimulating and memorable talk.”

It helps that Weaver herself in some ways represents such cross-disciplinary dialogue. With a background in art history and an MBA, she sees the Moody from different perspectives, especially now as they move into their second year and continue to integrate into the Rice and Houston communities. 

“I think we’re doing something that no one has done before not just in Houston but in the nation,” she says. “I’ve looked at other universities and no one is doing quite what we’re doing in terms of bringing together art, performances, art-making and classes and public programs in one effort. I view it as exciting in the potential to break new ground.” 

Tarra Gaines is a Rice Business Wisdom guest contributor.

This article first appeared in the Arts & Culture magazine as "Conversations in Art, Science & Technology: Moody Center for the Arts"

Based on research by Jing Zhou, Dong Liu, Kaifeng Jiang, Christina E. Shalley and Sejin Keem. 

Key findings:

• Workplace creativity requires employee imagination, a receptive environment and a level of selflessness.
• Some creative traits, such as curiosity and an openness to possibility, are largely intrinsic and can’t really be imposed by outsiders.
• Innate creativity alone won’t foster innovation. Workers need a welcoming environment where they’re encouraged to create for the common good.

Walk into Facebook's New York City offices and you’ll see what a 21st century creative culture looks like. There’s the complimentary coffee and snack bar. There’s free sushi and room to sleep. There are nooks where workers tap on their keyboards in solitude, and couches where others chatter animatedly in groups. The whole complex is designed to offer the warmth of a home away from home, if your house happens to be tidy, stocked with brain food and full of pleasant spaces to optimize productivity.

Facebook, Google and similar companies all know that creativity is critical to beating the competition. But what exactly makes imaginations at work come alive? Is it enough to hire the most brilliant workers? Does it matter if the workers toil in a cubicle or a café? What about attitude?

Rice Business professor Jing Zhou recently joined up with colleagues Dong Liu, Christina E. Shalley and Sejin Keem of Georgia Tech and Kaifeng Jiang of Notre Dame to study the true source of workplace creativity.

To reach their conclusions, they combed through the psychological literature on creativity, looking at 191 independent samples covering some 52,000 people in primary studies.

One of the most important mechanisms of creativity, the scholars knew from past research, is motivation. The more motivated workers are, the more likely they will be creative. Intrinsically motivated workers delve into their work more deeply, work harder to find facts, grasp the elements of a problem more firmly and hatch inventive solutions.

One of the best ways to encourage this drive, Zhou and her colleagues found, is to give workers more autonomy. A cascade of studies now shows that employees who feel less constrained by rules and restrictions have more self-motivation.

Yet motivation alone isn’t enough. This is because the creative process is not, contrary to romantic notion, a burst of inspiration ignited like ether. It’s instead a dense sequence of trial and error, fueled by incessant learning. By their nature, Zhou and her colleagues write, creative people challenge established norms. In workplaces that frown on such challenge, creative employees sense their gifts are a risk, not an asset. Environments like the ones so carefully curated at Facebook signal that rethinking norms is welcome.

Along with talent and a welcoming environment, Jing and her team found, workplace creativity demands selflessness. To use their creativity well, employees need to be pro-social. That is, they need to value a goal beyond self-interest. Appreciation of the common good is the fuel that turns one person’s creativity into a force that’s transformative.

Powering creativity, in other words, is not just a matter of finding the sparkiest resume. Neither is it exclusively about offering conversation nooks, caffeine and artisanal snacks (though those can’t hurt). Instead, Zhou and her colleagues argue, it’s about assembling force multipliers that find each person’s spark, protect it, and encourage it to light up the communal culture. Fanning individual imaginations, Facebook and other innovators know, is more than a romantic whim for firms that can afford to offer free sushi. It’s an ongoing strategy to keep the company’s lights on.

Jing Zhou is the Mary Gibbs Jones Professor of Management and Psychology in Organizational Behavior at the Jones Graduate School of Business of Rice University. 

To learn more, please see: Liu, D., Jiang, K., Shalley, C. E., Keem, S., & Zhou, J. (2016). "Motivational mechanisms of employee creativity: A meta-analytic examination and theoretical extension of the creativity literature." Organizational Behavior and Human Decision Processes 137: 236-263.

By Jennifer Liebrum

How do you know when enough is too much? And what happens when you factor in the collateral damage of lost time, bitterness, dashed expectations, and jealousy?

It’s something I’ve been pondering ever since trying to corral Hamilton tickets for myself, my husband and our two daughters. 

“Hamilton” is coming to Salt Lake City, a five-hour drive each way from our home in rural Idaho. The long journey would likely also mean a hotel stay. That’s a lot for a night of theater, but it seemed worth considering, especially given that my husband, a genuine Idaho cowboy, still belts out songs from “Wicked” six years after driving 2 ½ hours to see his first Broadway show in Boise. And after all, shows like “Hamilton” don’t come close very often.

Still, after hearing that tickets started at nearly $1,000 each, I consciously uncoupled from the idea of buying any. Then it got ugly. A friend, a high school teacher of U.S. history, told me there was a way to get cheaper seats and enjoined me in the pursuit so that our four collective children wouldn’t be left out.

Two little words: Left. Out. Now not only did I want the tickets, I needed them, to prove myself a worthy parent.

Getting tickes on the (relative) cheap required joining in an online lottery of sorts. Now, I am not someone who likes to wait for things (growing up in Houston, I witnessed fans sleeping on sidewalks surrounding The Summit to see concerts, but given the discomfort investment required I was willing to let an opportunity pass), nor am I someone who enjoys crowds or the challenge of getting tickets to anything shorter than a two-week vacation. I am also not a gambler. I once put 25 cents in a slot machine at The Rio as I was leaving a weekend of Las Vegas theater, won $25 and kept walking. 

But this online approach was a new enticement. So I set my alarm to count down the three hours between rising and setting up my laptop to sign on to a website that would, at precisely 9 a.m., assign me a secret number and shuffle a virtual me into a packed electronic waiting room, where I would spend the next six hours trying to cadge tickets to “Hamilton.” 

At the appointed time, an avatar of a bouncer politely welcomed me. A small number of seats were being offered for $75 to $250. The rest would go for more standard prices. Hopeful buyers were firmly advised to set a budget. They were also told the tickets might be split up. They could even be on different days. I figured that this news would surely cause some to give pause, and that simply by standing my ground I would take their place in line.

The experience of coveting, queing up with an unseen mob and elbowing my way to what most certainly could have ended up breaking my bank, brought out the worst in me. The most self-indulgent, reckless, shame-vulnerable side. In the first hour, I had come up with every justification in the world for the expense, no matter the total. 

My friend got kicked off the line first. I should have been empathic, but instead I was triumphant. While I did a little happy dance, she was explaining to her students her experience and loss. But my hubris didn’t last; in the end, we both ended up ticketless.

Later, as I groped to explain my behavior, I had a post-disappointment reality check with Utpal Dholakia, a pricing expert at Rice Business. He deftly explained my fervor — and offered a roadmap for making a sound investment. First, he explained the four properties of outrageous spending. 

• Overspending occurs when the individual's spending is disproportionately high relative to his or her income.
• On the upside, when a particular expenditure is budgeted for in advance, it can be high relative to the individual's income — and still be part of a disciplined approach to personal finance.
• Consumers have a range of reasonable prices for what a product is supposed to cost. When a product is priced below this range, it will be judged as cheap. If it’s above this range, it will be deemed expensive. But if a product is far above the range of reasonable prices, it is seen as extravagant. Even high-income levels are not immune: When Kanye West and Kim Kardashian were reported to spend $500 to rent and watch newly-released movies in their home theater, generated widespread mockery. 
• Performed once in a blue moon, any one of these behaviors doesn’t necessarily indicate out-of-control spending. But when all three behaviors are repeated — either individually or together — there’s a discipline problem. And it usually leads to adverse consequences.

Bargaining myself into and then out of getting the “Hamilton” tickets was actually an important exercise, Dholakia told me. 

“Determine what is important to you,” he said, “what contributes to quality, and buy the item with the best value, not simply the most expensive one.”

During the hours I was in the virtual line waiting for tickets I walked the dogs twice, ran three miles and made fresh guacamole. But I also passed homeless people encamped in a park, which made me sick with guilt that while they dug in the trash for a wrapper to sleep on I was considering dropping thousands for a night of theater.

As Freddie Harris, artistic director of The Company at New Jersey’s Bloomfield College, said about “Hamilton”: “You are telling the story about this penniless immigrant making great and using this very diverse cast in a timely conversation with this very important message about diversity and inclusion that has been turned upside down with the cost of the tickets. The message has been tainted somehow because it’s something that is only observable by the elite.”

So, maybe it’s okay that the elites beat me and mine to “Hamilton.” And all is not lost. For a lot less, I took the family to see “Kinky Boots” in Boise and my husband to a professional drag show, “Viva la Diva,” in Salt Lake City. And if I can really be disciplined, I might even be able to have my social righteousness and my “Hamilton” too, with a vacation thrown in. In 2019, Miranda will reprise his signature role in his home of Puerto Rico, still struggling to overcome the damage of Hurricane Maria.

“The goal is basically to have one third of the tickets be $10 and affordable to Puerto Rico on the island and really wildly overprice the other tickets for tourists so that that money can restore arts funding in Puerto Rico,” Miranda told “Playbill.”

Til then, I always have YouTube and Miranda, naked, in “Crosswalk, the Musical: Hair.”

Utpal Dholakia is the George R. Brown Chair of Marketing and professor of management at Jones Graduate School of Business at Rice University.

Jennifer Liebrum is a Rice Business Wisdom contributor.

This article first appeared in the Houston Chronicle as "Is The Cost Of 'Hamilton' Worth It?"

By Clifford Pugh

The Alley Theatre's world premiere of Cleo features a great story—the sizzling affair between Elizabeth Taylor and Richard Burton on the set of the 1963 movie Cleopatra in Rome—along with sumptuous staging and stellar acting.

But is it worth a standing ovation?

The audience on opening night certainly thought so. No sooner had the last word of the play been spoken when several patrons jumped to their feet. They were soon joined by more and more theatergoers, until the only ones who remained sitting were my husband and me. We applauded enthusiastically but didn’t feel the play merited such over-the-top praise.

Call me old-fashioned, but I believe a standing ovation should be a precious thing saved only for that rare occasion where something is so extraordinary and superlative that you can’t help but want to salute it in a special way.

I’m obviously in the minority.

A few nights later, we were at Stages Repertory Theatre, where Sally Edmundson sparkled in a one-woman show about former Texas Gov. Ann Richards. She did a great job and, again, the audience erupted in a standing ovation at the end. This time we stood up, too, not because we thought Edmundson’s work merited that extra praise but because I was sitting next to her husband and was too embarrassed to remain seated in his presence.

While Houston audiences are standing-ovation crazy, it’s not just a Texas phenomenon. On the daily television gabfest The View, the audience always jumps to its feet as soon as Whoopi Goldberg, Joy Behar, and the other panelists walk onstage. When former FBI director James Comey recently was a guest to tout his new book, the audience leapt to its feet again.

Comedian Bill Maher also regularly draws a standing O on his HBO talk show, but even he was surprised on a recent show when the audience stood for Stormy Daniel’s attorney, Michael Avenatti.

“I want this recorded: A lawyer got a standing ovation,” Maher cracked.

What’s the reason for ovation inflation?

Rice Business assistant clinical professor of marketing Constance Elise Porter surmises that it represents our desire to express an opinion on everything we experience.

“We are a cheerleading type of society, so when we are excited and happy about things, we want to like it, whether it’s online or with a standing ovation. We believe in expressing opinions—good and bad,” she says. 

There’s also the peer pressure to be part of the crowd, she suggests. “You don’t want to deviate from the norm. Whether you strongly approve of it or or not, you’re going to stand up more than likely when everyone else does, unless you disapprove of it completely.

“There’s a herding theory, and this is a part of it,” Porter adds. “This can be positive, or it can be negative. Often, when juveniles commit offenses in groups, it’s because they wanted to be a part of the crowd, in the moment, rather than because they held a strong belief that the action was appropriate.”

I’m not about to suggest that giving a standing ovation is akin to criminal behavior, but it could be a desire to confirm our good judgment. With ticket prices continually escalating, we want to believe we got our money’s worth. You can bet that audiences at Hamilton, now at the Hobby Center for the Performing Arts, will rise for an ovation, given the money they spent to attend.

A few years back, New York Times theater critic Ben Brantley made the case for “the return of the sitting ovation." Because we have really reached the point at which a "standing ovation doesn’t mean a thing,” he wrote.

Alas, his suggestion didn’t take hold.

He also pointed out that, according to legend, when Arthur Miller’s Death of a Salesman opened on Broadway in 1949, the audience was so moved that it sat in shocked silence at the end of the play before the applause began.

Brantley doesn’t say, but I’m guessing a standing ovation occurred that night. And it was well-deserved.

I might have even joined in.

This article first appeared in Houstonia as "Please Stop Giving Absolutely Everything a Standing Ovation."

Based on research by Wagner Kamakura 

• In two-phase elections, voter-choice models can help politicians strategize for an election’s final round.
• Political consultants and candidates in these systems should scrutinize data on the voting behavior observed in the first round of elections.
• First-round voter data can help candidates better deploy their campaign resources for the runoff. 

Not all democracies are created equal. In most democratic countries, dozens of political candidates tussle for government posts at election time. But when it’s time to choose a head of state, the majority of elections are a two-round process: a main election with many contenders, followed by a runoff between the first-round winner and runner-up. Of the 109 countries that hold elections for head of state, 71 have a two-round election system.
 
Yet scholars have spent little time studying these elections, Rice Business professor Wagner A. Kamakura discovered. Unlike in U.S.-style elections, where polls taken moments before or after an individual vote can only reflect intentions, which don’t always correspond with what someone really does, two-round elections offer a chance to analyze actual voting data. The value of these numbers is more than academic: Using data gleaned from the first round of voting, Kamakura shows how a candidate can shape strategy in a runoff.

To learn more about the two-round election process, Kamakura studied voter-choice models based on the past four presidential elections in Brazil, the most populous country to have a two-tier system. He focused on four major lines of inquiry that could offer practical insight:

• Studying elections in which second-round candidates held respectively strong and weak positions.
• Determining the impact of swing voters, those who supported eliminated candidates, during a runoff. 
• Identifying the best investments for the runoff campaign in order to sway swing voters. 
• Combining first round results with other polling data to create simulations predicting the final outcome, conditional on the last polling results. 

Opinion polls, Kamakura found, are potentially misleading, because voters don’t always say what they’ll do or do what they say. Because of their limited sampling numbers, pollsters can’t gather detailed information at the regional or district levels, even though, as is often said, “all politics is local.”

Data pulled from Brazil’s electoral first-rounds were more thorough. During the 2014 presidential election, Kamakura writes, Brazilians chose from 11 candidates during the first round of voting. Some variables remained unpredictable in the final contest, such as the effect of attacks by an eliminated candidate against a surviving candidate, or whether eliminated candidates would form alliances with one of the runoff’s still-viable contenders.

Nevertheless, Kamakura found, in two-election systems, the final campaigns could rely more on gathered in each electoral district than they could on the mere intentions reflected in opinion polls. Knowing what voters actually did in a first round — that is, their real behavior — rather than just what they told a pollster they were going to do, was crucial. In Brazil, these true voter data were available for each of the country’s 6,266 districts, providing a mother lode of intelligence that helped campaigns deploy their resources with regionally-focused precision. 

However, this wealth of data comes with a strong caveat — actual voting data is not available for individual voters, but only at the district level to protect voters’ privacy. Estimating individual political preferences using the district-level data requires a sophisticated voter-choice model, which is Kamakura’s main contribution. This attempt to draw individual-level inferences from aggregate data is a relatively new field known as symbolic data analysis.

Beyond providing a baseline of reliable data, Kamakura writes, studying voter choice can produce micro (that is, district)-level policy simulations for an election’s second round. While voter-intention polls and opinion surveys may offer useful insights at the national level, Kamakura argues, candidates in countries with a two-round election system need to study the local findings to better target their campaigns. Politicians and campaign managers can spend a fortune on opinion polls, which, as Kamakura points out, are well known to be biased. The risk is that they may get distracted by voters’ stated intentions and overlook their actual, true voting behavior at the micro-level.

Using information from the initial election, he writes, candidates and their advisors need to study how voters who supported an eliminated candidate now perceive the surviving candidates. Those swing voters, Kamakura notes, will determine the final outcome — it’s unlikely that a first-round supporter of one of the surviving candidates will switch to the other on the final vote, although some might do so for strategic reasons.

No one can really get into a voter’s mind. What Kamakura’s research does, however, is show that in two-stage elections, actual voting data from the first stage can yield important district-level details, something that is not technically and economically feasible with voting-intention polls. Candidates lucky enough to land in a runoff can — and should — use this data to quickly reshape their second-round campaigns for a better shot at the top.

Wagner A. Kamakura is the Jesse H. Jones Professor of Marketing at Jones Graduate School of Business at Rice University.

To learn more, please see: Kamakura, W. A. (2016). Using voter-choice modeling to plan the final campaign in runoff elections. Revista de Administração Conteporânea, 20(6), 753-776.

Based on research by Sharad Borle and Ravi Sen

Key findings: 

• Investment in certain types of security measures actually corresponds with a higher risk of data theft, both within government and within industry.
• Data disclosure laws can have an unintended consequence: putting firm information at higher risk.
• In some industries, stricter laws requiring transparency in data breach cases are linked to less data theft.

When hackers forged an assault on Dallas-based department store Neiman Marcus in 2013, they put at risk 1.1 million credit and debit cards. The clandestinely inserted malware was the same deployed earlier by cyber thieves who accessed sensitive information in Target stores, exposing the data of about 110 million customers. Neiman Marcus, though, did not recognize the breach for several months. When the damage was finally revealed, the department store offered some 2,400 shoppers affected by the fraud a free year of credit monitoring.

While only about a quarter of credit card transactions occur in the United States, almost half —  47 percent —  of global card fraud takes place in this country. And these breaches are on the rise. Why is data at such high risk? Rice Business Professor Sharad Borle examined the factors influencing data breaches in both government and industry. His findings provide useful practical guidance for firms fighting to ward off cyber thieves. Borle’s insights research are of special use to IT risk assessment experts.

Rather surprisingly, Borle found that investing in information technology security corresponds to higher risk of data theft in both government and industry. This directly contradicts a common criminology theory, the opportunity theory, which posits that criminals are drawn to easy targets.

One explanation for the counterintuitive findings may be that firms are investing in IT security controls inefficiently, installing firewalls and anti-virus software at the expense of administrative and even physical controls. According to one survey, 45 percent of IT security budgets go to software and hardware. The problem is that these aren’t necessarily more secure than the underlying systems they are meant to protect. In fact, several security software systems may have vulnerabilities that could increase the opportunity for data thieves.

The costs for everyone affected are vast. In recent years, major data breaches have compromised sensitive, protected or confidential data including health or personal information, trade secrets, intellectual property or financial data. Every time one of these breaches occurs, studies show, the affected company’s stock prices drop about five percent.

To understand why data breaches are so common in this country, Borle turned to the poetically named “institutional anomie” theory. Focusing on the social causes of crime, this theory argues that advanced societies assign higher-level priority to economic institutions such as markets than they do to legal and family structures. The result is a higher likelihood of crime. The market economy’s promotion of a calculating, materialistic attitude towards social relationships, the theory contends, directly leads to more criminal activity.

Analyzing different types of data breach incidents, Borle used intervals between past breaches along with various explanatory factors to mathematically predict the firm’s next breach, thus assessing the risk of a future breach for a firm. He also investigated the role of disclosure laws, which force organizations to act transparently and improve their data security controls in preventing these crimes.

Borle found that in certain industries, strict disclosure laws indeed correlate with less data crime. These industries included financial, educational and medical fields. But the laws didn’t not necessarily benefit consumers, he found. This is because companies may outsource protection services, which can actually put data at even greater risk. Amazingly, some security software systems have vulnerabilities that actually increase the opportunity for data thieves. The lessons?

Transparency requirements —  though costly for the firm that must admit a breach — significantly reduce risk certain industries overall. But outsourcing security can make a company’s data more vulnerable, rather than less. On the internet, there are no secrets — except for those firms that sit on information about colossal security lapses long enough to endanger other companies and consumers. Telling the truth, and investing in proper security measures may both be costly — but they’re a bargain compared to the long-term effects of cyber thieves rampaging unchecked.

Sen, R. & Borle, S. (2015). Estimating the Contextual Risk of Data Breach, an Empirical Approach. Journal of Management Information Systems, 30.2: 314-341.

By Vikas Mittal

Recently, one of my academic colleagues said: “Customer satisfaction is so yesterday. There are so many new metrics like customer engagement. It’s high time we abandon customer satisfaction.” That same afternoon, I was in a meeting with the vice president of strategy for an engineering company with approximately $10 billion in revenue, who said, “Our board wants to increase sales, margins and stock price, so they need to see improvements in promoter scores. That’s what they want, and that’s what we will deliver.”

Both conversations got me thinking about the value of different customer metrics. Executives are confronted with a variety of metrics, such as customer satisfaction, complaints, recommendations, repurchase and net promoter scores. Which metric should they adopt? The market for ideas is efficient and evolving. On the one hand, we should embrace the notion that new customer metrics keep surfacing. On the other hand, executives need an evidence-based approach to separate the wheat from the chaff.

To select the right customer metric, executives need to consider two factors. First, they should focus on a customer metric that is an enduring practice, not a fad. Rather than over-simplifying, a customer metric should mirror the complexity of a customer-centric firm, the needs of its customer base and the ability to implement specific customer-based initiatives. An enduring customer metric will not be a magic bullet. Second, an enduring metric should show evidence for improving sales, margins, cash flow and market share. By adopting and improving scores on the customer metric, executives should show demonstrable improvement in sales, margins, market share and other financial metrics.

Customer Metrics that Matter for Financial Outcomes

At the crux of measuring customer metrics—whether net promoter scores, engagement or satisfaction—is the belief that improving these scores will improve financial outcomes for a firm. How true is this belief, and is it supported by evidence? If the evidence does not support a link between a customer metric and financial outcomes, what good is the metric as a strategic planning tool?

A 2006 study of 80 different companies over six years (1994-2000) sought to answer this question. The authors of the resultant paper, “The Value of Different Customer Satisfaction and Loyalty Metrics in Predicting Business Performance,” statistically compared the ability of several survey-based customer metrics to predict key financial outcomes. They compared five customer metrics: average customer satisfaction, customer complaints, repurchase intentions, net promoter score and word-of-mouth recommendations. They wanted to answer one question: Do any of these customer metrics statistically predict sales growth, gross margin, net operating cash flow, market share and shareholder return?

Before you read any further, do a thought experiment to test if you have a bias. Which one did you pick as being best able to predict these financial outcomes? The table below shows the results.

Only three metrics—customer satisfaction, repurchase intention and complaints—predict sales growth and gross margins. When it comes to operating cash flow and shareholder return, only customer satisfaction has any predictive ability.

The only customer metric that predicts and improves all five financial outcomes is customer satisfaction. The next-best metric is repurchase intention, predicting three of the five outcomes. Whether a board wants to grow sales, improve gross margins, increase cash flow, expand margins or create shareholder value, the one customer metric to grow is customer satisfaction.

Net promoter scores were related to zero out of five financial outcomes. Another study in the Journal of Marketing, “A Longitudinal Examination of Net Promoter and Firm Revenue Growth,” examined results from 21 companies and more than 15,000 interviews to find the same conclusion. “Managers have adopted the net promoter metric for tracking growth on the basis of the belief that solid science underpins the findings and that it is superior to other metrics. However, our research suggests that such presumptions are erroneous,” the authors of that study write.

Fad and Enduring Practices

Management fads are simple, prescriptive, falsely encouraging and lack scientific evidence for their efficacy, yet most followers believe they work. Net promoter scores are not backed by any credible evidence of financial predictive ability but have caught on because they seem simple (one item measures it all), prescriptive (you can compute the promoter score for every customer segment) and falsely encouraging (increasing promoter score is believed to increase sales, revenue, share and profits).

In contrast, customer satisfaction is backed by credible evidence and provides a well-established framework for customer-based execution and strategy. To pull it off, an executive must work with trained statisticians to identify key drivers of satisfaction, understand their relative weights, derive the link between customer satisfaction and financial outcomes, and then make investments to improve key attributes. None of this is simple, nor does it provide false encouragement that satisfaction is the cure-all remedy. Research on customer satisfaction shows that very high satisfaction can be costly for companies, and satisfaction has differential effectiveness for different outcomes.

Satisfaction Mismatch

A 2017 study published in the Journal of the Academy of Marketing Science, “Do Managers Know What Their Customers Think and Why?,” examined 70,000 customers and 1,068 managers from 97 different companies to determine if manager perceptions of customer satisfaction are aligned with customer perceptions. The study showed three results: First, managers overestimate the extent to which customers are satisfied and loyal. Second, managers underestimate the extent to which customer satisfaction drives complaints and loyalty by almost 40%. Third, when manager perceptions are misaligned with customer perceptions, customer satisfaction suffers.

For customer-based strategy, these findings mean that not only are most customers less satisfied than managers believe, but most managers underestimate the loyalty benefits of satisfying customers. This leads to further declines in customer satisfaction. Disheartened, managers chase fads like net promoter scores, which lead to further declines in customer satisfaction. Caught in a vicious trap of chasing fads, executives let customer satisfaction, a proven metric, suffer and negatively impact customers and investors.

Now What: Back to Basics

Rather than chasing fads, executives will benefit from going back to basics that help them measure customer needs. To fully incorporate customer needs in the planning process, executives should use a holistic approach that provides concrete guidance for customer-based execution and strategy. Such an approach—measuring customer satisfaction and its components—paints a realistic portrait of customer needs. For senior executives, it provides a roadmap for financial management by predicting sales, margins, cash flow, market share and stock market value. Thus, customer satisfaction can serve as the one metric that advances the cause of customers and shareholders in unison.

When executives chase fads instead of staying focused on customer satisfaction, customers lose with lower satisfaction, investors lose with lower financial performance, and the firm loses to competitors. To avoid this trap, executives need to remind themselves that their main objective is to satisfy customers and create value for investors, not chase fads.

Vikas Mittal is the J. Hugh Liedtke Professor of Marketing and Management at the Jones Graduate School of Business at Rice Univeristy. 

This article first appeared American Marketing Association's Marketing News as​ Which Customer Metric Best Predicts Financial Performance?