Based on research by Haiyang Li (Rice Business) and Jade Yu-Chieh Lo (Drexel)

Key takeaways:

• Functional diversity on innovative projects has a more complex effect than once thought.
• Diversity, in this context, refers to differences in the primary function or specialization of participating firms that are collaborating on projects.
• Technical reviewers react neutrally to industry diversity. Business reviewers react to it less well.

When fund reviewers consider an innovative proposal, the mix of collaborators can shape how that proposal is received. But whether diversity helps or hurts depends on who is doing the evaluating.

Haiyang Li of Rice Business and Jade Yu-Chieh Lo of Drexel University examined this question using data from collaborative projects funded by the Advanced Technology Program at the U.S. National Institute of Standards and Technology. To qualify for funding, projects had to be both innovative and collaborative, with clear potential for broad economic impact.

Each proposal went through two distinct reviews: business reviewers — consultants with backgrounds in venture capital, business development and economics — who assessed market potential; and technical reviewers — drawn from NIST, federal labs and the scientific community — who evaluated technological feasibility and innovation.

Prior research has explored how diversity among collaborators affects project performance. Li and Lo instead asked how diversity shapes how projects are judged.

How do different reviewers respond to participant diversity?

The researchers analyzed 138 collaborative projects across 29 technology categories funded between 1993 and 2001. For each project, they measured:

• Participant diversity: differences in firms’ primary industry classifications.
• Novelty: whether the project represented a new R&D direction for participating firms.
• Category clarity: how clearly defined or “fuzzy” the project’s technology category was.

They then compared ratings from business and technical reviewers.

What they found is that the two groups responded differently to participant diversity.

Technical reviewers reacted neutrally. From an R&D perspective, cross-disciplinary collaboration can signal creativity and intellectual cross-fertilization. Diversity did not significantly affect their evaluations.

Business reviewers, however, were less receptive. Projects spanning multiple industries can appear harder to position in a market, more costly to coordinate or less focused strategically. On average, diverse collaborations received lower ratings from business evaluators.

When does functional diversity help — and when does it hurt?

That negative effect, however, was not uniform.

When diverse teams proposed highly novel projects, the penalty disappeared. Strong novelty mitigated business reviewers’ concerns. Category clarity also mattered. If a project fit within a clearly identifiable technology category, diversity was no longer viewed negatively — and in some cases was viewed slightly positively. By contrast, when projects fell into ambiguous or “fuzzy” categories, diversity amplified skepticism.

The findings suggest that diversity in collaborative innovation has a more complex influence than previously assumed. It does not simply affect how teams function internally. It also shapes how outsiders interpret a proposal’s coherence and market promise.

For innovators, the implications are practical. Diverse teams may generate valuable ideas, but they must also present those ideas in ways that signal clarity and commercial direction. For researchers, the study opens a broader question: how do different evaluative lenses shape which innovations move forward — and which stall at the funding stage?

Li and Lo (2018). “In the Eyes of the Beholder: The Effect of Participant Diversity on Perceived Merits of Collaborative Innovations.” Research Policy.

Based on research by Wagner Kamakura and Sangkil Moon

• Studying the language and the personal nuances in product reviews can give powerful insights into not just the products, but the consumers who post the reviews as well.
• These insights can be translated into product positioning maps — charts that help create marketing strategies.
• Product managers can deploy these maps to better reach and serve potential customers.

Product reviews are everywhere. From appliances on Amazon to hotels on booking sites, we all scan reviews before clicking “add to cart.” There's a reason the reviews are there: Virtually all websites selling products or services invite consumers to leave product feedback, in the hope the comments will help induce other shoppers to buy.

But while plenty of academics study product reviews, they mostly ignore the reviewers themselves. Wagner A. Kamakura, a professor at Rice Business, is not among them. He, along with his colleague Sangkil Moon of the University of North Carolina at Charlotte, wondered whether reviews say as much about consumers as about the products they review. To find out, Kamakura and Moon crafted a research tool to isolate a writer’s style from the product features mentioned in a review.

Traditional market surveys ask customers to rate items using defined terms and predetermined attributes for specific products. But because this method forces consumers to view products through the lenses defined by the marketing researcher, it’s potentially biased.

Kamakura took a different approach. He focused on the spontaneous language of individual reviewers, and the kinds of sites where their reviews appear. Each review, he contended, reveals critical insights about both product and reviewer. When looking at reviews on hotel websites, for instance, Kamakura was able to categorize reviewers based on their linguistic tendencies and perceptions, dividing them into categories such as business, couple or family travelers. This approach helps expand the product-positioning map beyond a one-size-fits-all survey, since different reviewers express different needs, education and experience.

Kamakura also found a key distinction between aggregate sites, which pull together different products from different companies and where multiple reviewers can voice very different priorities, and sites that offer only one type of product. On sites offering multiple airline or hotel bookings with thousands of reviews, for example, researchers need to consider what type of consumer is leaving a review. Is it a tourist booking a vacation to Cancun, or a CEO heading to Silicon Valley?

To gather precise data about these consumers, Kamakura says, researchers need to sort their reviews into reviewer categories before plugging them into tools for product positioning.

For their research, Kamakura and Moon looked at multiple hotel-booking and wine-rating sites. Both types of site, they reasoned, attract varied reviewers: most of the wine reviewers were trained experts who used distinct dialects of “Winese” — connoisseurs’ jargon — in their wine reviews. Meanwhile, the consumers who studied hotel sites logged on with a range of travel goals. Grasping these distinctions helps businesses fine tune their products and marketing communications.

Kamakura and Moon’s framework relies heavily on ontology learning in which terms, words and expressions are extracted and categorized through a human/machine interaction. The coding gleaned from this process was then submitted to the new framework, to produce a final product-positioning map.

It’s a method that requires considerable time in data collection and taxonomy building, but can process a huge amount of information efficiently. Processing multiple reviews makes a difference. For example, the typical consumer can’t quite verbalize why they like or dislike a wine, so they rely on reviews posted by experts.

For both the wine and the travel sites, the product-positioning maps spotted a number of consumer groups that could help managers develop informed marketing strategies. On the travel sites, for examples, families seek out activities that are entertaining; business travelers just want to get their jobs done. The maps also show managers areas with potentially weak competition. Managers could use these maps, Kamakura writes, to build niche-marketing strategies.

Studying reviewers along with their reviews also sheds light on how different groups of consumers focus on different aspects of a product. In a world where computer algorithms and Internet cookies track, store and share consumer information, consumers’ own thoughts about the products they use are powerful new tools for understanding their habits and their mindsets — which, needless to say, is fine for business.

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

To learn more, please see: Moon, S., & Kamakura, W. A. (2016), A picture is worth a thousand words: Translating product reviews into a product positioning map. International Journal of Research in Marketing, 34(1), 265-285.

Physician trainees learn business essentials at Rice Business

A group of 32 physician trainees from the Texas Medical Center’s leading hospitals gathered at Rice’s Jones Graduate School of Business in April for an intensive 14-day new certificate program designed to impart essential management skills critical to a successful career in medicine and health care.

Led by distinguished Jones School faculty, the Rice Education in Management for Physician Trainees program (REMP) grew out of a recommendation from faculty and practitioners at academic medical centers, including Baylor College of Medicine, The University of Texas MD Anderson Cancer Center, Houston Methodist Hospital and The University of Texas McGovern Medical School. Those sources said that apart from clinical training, physicians need to learn interpersonal, communication and leadership skills, effective teamwork, professionalism and systems-based management practice so they are better prepared to address the business challenges of the health care profession today. This is a view echoed by the Association of American Medical Colleges, the Liaison Committee on Medical Education and the Accreditation Council for Graduate Medical Education, according to program organizers.

The program comes at a time when health care, the largest industry in the U.S., faces many challenges, including skyrocketing costs, increasing demand, inadequate access to care, inefficiency, inconsistent quality of services and nonuniform processes, program organizers said. With growing recognition that many of these challenges are truly business problems, the industry is slowly realizing the need to change the way physicians get trained, which the organizers said has not changed substantially since 1910, and how they work.

The idea for the program originated in spring 2015, said Dr. Binata Mukherjee, director of the Jones School’s Health Care Initiative, which coordinates the program. “We were exploring how else we can service the physician community and the health care professionals across the medical center,” she said.

“We realized that the medical and health care landscape has been changing,” Mukherjee said. “The industry is in flux. Physicians need management education, but it is nowhere in their curriculum, (either) in medical school or residency or afterward. They do not have a formal management education, but they are expected to take leadership positions. Even at the point of care delivery, the physician is a leader, whether performing a tracheostomy or putting a tube in the esophagus. What we are doing is trying to get all the management skills taught in a comprehensive and structured manner for a large group of people.”

Modules included Working in Teams: Leading and Collaborating While Delivering Care, taught by Brent Smith, associate professor of management, associate professor of psychology and senior associate dean of executive education; Negotiation and Influence Strategies, taught by Jing Zhou, the Houston Endowment Professor of Organizational Behavior; and Analyzing Cost in Hospitals, taught by Shiva Sivaramakrishnan, the Henry Gardiner Symonds Professor in Accounting.

‘We are talking about people’s health’

“The cost aspect of health care… is a big thing these days,” Sivaramakrishnan said. “My area is management accounting. There are some new paradigms coming out in this area. Things like ‘How do you measure cost at the patient level? How do you deliver value to the patient? How do you make sure that you do not compromise health outcomes because of cost consideration?’ So it’s a very complicated thing that physicians and health care providers face. Rice is so uniquely positioned next to (these) establishments… and I’m so happy to contribute.”

Sivaramakrishnan said teaching “very intelligent” physician trainees allows him to tailor the course content so it is thoroughly relevant. “Going through medical education is very demanding,” he said. “Although I cannot assume a content knowledge… I want to teach the course in a way that will make them understand how their actions are going to influence costs. Health care is so complex. When you talk about value and what you deliver to your patients, you cannot sacrifice anything. We are talking about people’s health. At the same time, if we can sensitize them to the cost aspect … can they navigate the system in a way that they don’t sacrifice the outcome?”

For some of the participants, who applied and were selected at the institution level, the program was eye-opening.

“In medical school and residency, we get very little exposure to the business side of things, and with the field of medicine rapidly changing, I think it’s important now more than ever to really understand the business side of medicine,” said Dalia Moghazy, a third-year OB/Gyn resident at Houston Methodist Hospital. “I think it’s important to be able to apply business management principles to clinical management. I like that it’s (the program) very interactive and there’s a wide diversity of topics we learn about.”

Siddarth Thakur, a fellow in pain management at MD Anderson, said he appreciated the program’s collegial culture. “The thing I liked best about the course was meeting all my other colleagues who are in similar situations. They’re all fellows at various different institutions in the medical center. To be able to have discourse with them and discussions about what we learned in class was probably the most valuable. For other participants that are considering the course, I would emphasize that they really should do it, because we don’t have this sort of opportunity anywhere else.”

Physician leaders need ‘to be in the middle of the mix’

For the program’s sponsors in the medical center, the need for REMP is imperative.

“REMP is a unique program that I’m not sure exists anywhere else in the country,” said Dr. Jennifer Christner, dean of Baylor College of Medicine’s School of Medicine. “There is a strong need for this program, and we are fortunate that our residents are able to take part in this opportunity. I don’t know of another institution that has addressed this need so comprehensively.”

Dr. Robert Phillips, executive vice president and chief medical officer at Houston Methodist and a professor of cardiology at the Houston Methodist Institute for Academic Medicine, echoed Christner’s comments.

“A fundamental change in health care is underway that is driven by the understanding that best outcomes will be achieved through application of evidence-based medicine that is delivered in a coordinated, team-based and patient-centric fashion,” Phillips said. “Emerging clinical leaders will be most valuable when they are equipped with the tools that enable them to understand how their behaviors and performance link to the success of the larger health care system. We need physician leaders to be in the middle of the mix so that the ever-evolving changes in health care are informed by clinical expertise. To effect this change and goals, physicians need to be educated in the fundamentals of leadership; strategic thinking; organization behavior and design; finance; operations; and change management. The REMP program has been designed to enable emerging physician leaders to obtain these skills.”

Applications are being accepted for the upcoming REMP program.

The Health Care Initiative at the Jones School aims to provide relevant business education to young physicians who can jump-start their careers with skill sets that will not only set them apart but also respond to the critical need for “bending the cost curve” while improving health care outcomes.

Based on research by Balaji  Koka and Anandasivam Gopal

• You can’t plan for everything. All legal contracts are, in the end, incomplete.
• The quality of the relationship governs inevitable contract gaps.
• The factor of relationship governance has measurable value, but only to the more risk-exposed party.

The best laid plans of mice and men often go awry. Poet Robert Burns articulated the idea concisely in 1785. John Steinbeck invoked it in the title of his melancholy 1937 novella. We still repeat the adage today.

Contract lawyers, however, would beg for a revision. The best laid plans always go awry. Hence the art form known as the contract, designed to anticipate every which way an accord might possibly go. In the end, though, legal agreements are always incomplete. No one can foresee all possible outcomes. No number of billable hours can predict the future.

So as vendor and client proceed with their contract and nuanced situations arise, what happens? What shapes the exchange when written words are not enough?

The relationship itself.

Yes, even in contracts — perhaps especially in contracts — subjective factors such as trust, reciprocity and flexibility shape the final interaction. Handshake deals may linger mainly among Texas wildcatters, but the power of interpersonal relationships, known as “relational governance,” is still integral to the study of contracts. And the research presumes that this power has real, monetary value.

Until now, most scholars have pronounced the value of those relationships as roughly equal for both clients and vendors. But a study by Balaji R. Koka, a professor at Rice Business, and coauthor Anandasivam Gopal of the Robert H. Smith School of Business, University of Maryland, shows that in contracts, as in most relationships, someone still has the upper hand.

To look at the value of relational governance from the vendor’s perspective, the researchers studied data on 105 projects completed by a leading Indian software services firm. First they designated each project as either “fixed price” or “time and materials.” In a fixed price contract, the vendor’s revenues were fixed. Any unforeseen issues on the project were likely to endanger the vendor’s bottom line. By comparison, time and materials contracts were more flexible, with the vendor bearing less risk.

The findings showed just how important the power relationships in contracts are. Using project profitability as the measure of value, the scholars showed that relational governance indeed has measurable benefit to vendors. But the profit increase to the vendor was only significant in higher risk situations–in other words, the fixed price projects. In the less risky time and materials projects, the software firm did not materially benefit from relational governance.

The formal, written powers of traditional governance, in other words, boosts value for both parties when contracts are complex. But this value is only significant for the more vulnerable partner.

So for a vulnerable mouse scurrying in an open field, it’s worth it to smile at others higher up on the food chain. It could pay off in a conflict. The bigger mammals like humans have less reason to bother with pleasantries. All they need is a good lawyer.

Balaji R. Koka is an associate professor of strategic management at Jones Graduate School of Business at Rice University.

To learn more, please see: Gopal, A., & Koka, B. R. (2012). The asymmetric benefits of relational flexibility: evidence from software development outsourcing. MIS Quarterly, 36(2), 553-576.

Based on research by Jing Zhou, Giles Girst, Daan van Knippenberg, Eric Quintane and Cherrie Zhu

• Social networks are powerful engines of worker creativity.
• The importance of these networks lies beyond just the immediate interactions between members, it’s also in the indirect links they provide.
• Employee networks that are two steps removed and non-redundant are best for inspiring a diverse universe of ideas.

Innovation is a team sport. We know that creative workplaces represent a series of social networks, each brimming with useful ideas and expertise. And there is clearly a link between innovation within a firm and the colleagues and friends with whom employees hobnob off duty.

But how exactly does that alchemy happen? What’s the relationship between creativity and the hive of direct and indirect contacts in an employee’s cellphone?

A recent study by Jing Zhou of the business school, Giles Hirst of Australian National University, Daan van Knippenberg of Erasmus University, Eric Quintane of the University of Los Andes and Cherrie Zhu of Monash University sheds new light on this. Mapping the social networks that underlie a creative workplace, the researchers showed that employee creativity rises when social networks are more diverse.

The researchers started with the premise that direct links in a network are offshoots of larger networks. The more diverse these indirect networks are, the researchers found, the more likely that innovative concepts will appear in a company’s intellectual landscape.

The most efficient resources for gathering novel perspectives are networks made up of two-step “non-redundant ties” — that is, people you may not interact with directly, but with whom your direct ties do interact. These contacts are effectively the raw material employees use to come up with new ideas and ways of working. But why are these indirect networks so important? They diversify the thinking of the group, Zhou and her colleagues argue. Because these networks include individuals who are not necessarily linked, they lower the chances of groupthink or stale ideas.

To test their hypothesis, the researchers looked at the social networks of a large, state-owned pharmacy corporation in the People’s Republic of China. Examining 11 divisions, each with roughly 25 sales representatives, the team studied creativity among the sales representatives. Evenly divided between men and women, the representatives were, on average, 35 years of age with approximately 10 years’ of experience. Some had developed networks so large that they reached beyond the corporation’s geographic territory.

The representatives’ creativity manifested itself in a range of forms: new ways to promote products, strategies to cross-sell products, ideas for connecting with hard-to-access sales targets and plans for boosting client sales. The ideas included making products more visible in retail outlets and personalizing product launches to push customers to specific distributors. Because this kind of inventiveness is critical to gaining an edge, it’s one of the most important tools in pharmaceutical marketing.

The researchers devised a matrix that matched sales metrics and managers’ creativity rankings to the types of social networks the representatives had. The map showed clearly that a two-step, indirect network with few redundancies correlated to individual creativity. When networks were further removed than this, employee creativity was unchanged.

The implication: Firms should attend closely to the kind of social networks their workers cultivate. Not only that, it’s possible to teach employees how to design networks for maximum efficiency. Persuading employees to make that effort might be another matter. Luckily, possible incentives abound, from bonuses to the satisfactions of a varied network to the simple pleasure of a more ample expense account. Executives just need to get creative in making their case.

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: Hirst, G., van Knippenberg, D., Zhou, J., Quintane, E., & Zhu, C. (2015). Heard it through the grapevine: Indirect networks and employee creativity. Journal of Applied Psychology, 100(2), 567-574.

Based on research by Alan Crane and Kevin Crotty  

• Index funds are considered passive because they try to match a predetermined set of stocks rather than beat the market.
• The popularity of index funds has exploded over the past 20 years, creating a rich subject for scholars and commentators.
• Risk-averse investors should lean toward index funds. In fact, a randomly chosen index fund performs better than a randomly chosen active fund after accounting for risk.

It’s easy to assume that investing, like cooking, requires skill to get the right mix of ingredients. But that’s not the case with index funds. Effort goes into building them, but these ready-made investments need minimal intervention. Yet the outcomes are appetizing indeed.

In the past few decades, use of index funds has exploded. So have media coverage and advertisements questioning if they can truly compete with active funds. A recent study by Alan Crane and Kevin Crotty, professors at Rice Business, provides a resounding “yes.” These humble investment recipes, it turns out, are richer than they might seem.

Index funds track benchmark stock indexes, from the familiar Dow Jones Industrial Average to the widely followed Standard & Poor’s 500. Like viewers following a cooking show, index fund managers buy stocks in the same companies and same proportions as those listed in a stock index. The best-known indices are traditionally based on the size of the companies.

The idea is that the index fund’s returns will match those of its model. An S&P 500 index fund, for example, includes stocks in the same 500 major companies included in the Standard & Poor index, ranging from Apple to Whole Foods.

Index funds are part of the broad range of investment products called mutual funds. Like cooks making a stew, mutual fund managers add shares of various stocks into one single concoction, inviting investors to buy portions of the whole mixture.

While some mutual funds are active, meaning professional managers regularly buy and sell their assets, index funds are passive. Their managers theoretically just need to keep an eye on any changes in the index they're copying. Not surprisingly, active index funds tend to charge more than passive ones.

Curiously, not all index funds perform at the same level. So what should that mean for investors? To study these variations and their implications, Crane and Crotty expanded on past research about skill and index fund management, analyzing the full cross section of funds.

This wasn’t possible to do until fairly recently: there simply weren't enough index funds to study. The first index fund, which tracked the S&P 500, was developed by Vanguard in the 1970s. To do their research, the Rice Business scholars looked at performance information for both index and active funds, starting their sample in 1995 with 29 index funds. The sample expanded to include a total of 240 index funds, all at least two years old with at least $5 million in assets, mostly invested in common stocks. They also analyzed 1,913 actively managed funds.

Using several statistical models, Crane and Cotty found that outperformance in index-fund returns was greater than it would be by chance. The discovery suggests that passive funds, although they require little skill to run, have almost as much upside as active funds.

In fact, the professors found, the best index funds perform surprisingly closely to the best active funds, but at a lower cost to the investor. The worst active funds perform far worse than the worst index funds — even before management fees.

The findings topple the conventional wisdom that only actively managed funds stand a chance of beating the market. While active-fund managers often measure their success against that of passive funds, the data show investors who are risk averse would do better to choose passive funds over more expensive active ones.

More adventurous investors, of course, will always be tempted by what's cooking in actively managed funds. But overall, investing in plain index funds is as good a meal at a lower price.

Alan D. Crane is an associate professor of finance at the Jones Graduate School of Business at Rice University. 

Kevin Crotty is an associate professor of finance at the Jones Graduate School of Business at Rice University.

To learn more, please see: Crane, A. D., & Crotty, K. (2016). Passive versus active fund performance: Do index funds have skill? Journal of Financial and Quantitative Analysis​, 53(1), 33-64. 

Video of Anastasiya Zavyalova

Rice Business professor Anastasiya Zavyalova shares three tips for CEOs facing a PR crisis:

Anastasiya Zavyalova is an associate professor of strategic management at Jones Graduate School of Business at Rice University.

Based on research by Vikas Mittal, Markus Blut, Carly M. Frennea and David L. Mothersbaugh

• Costs, administrative headaches and loss of established relationships play a part in customer decisions to change a service or product provider.
• Strategic companies need to take these switching costs into account, along with customer satisfaction, as they devise strategies for keeping customers.
• The psychological price of suspending relationships with a company’s employees or brands is more significant to customers than other switching costs.

“You gotta know the territory,” sings a salesman in Meredith Willson’s classic Broadway show The Music Man. You gotta know your customers, too, according to a recent study, because customer loyalty often depends less on what a customer thinks of a product — and more on what she thinks of the people behind it.

Any business knows it needs to get customers and to keep them. What makes some customers want an encore transaction and others leave after the first act, though, is less than obvious. Understanding those choices, however, is critical if companies hope to strategically manage their customers–a firm’s most valuable asset.

Vikas Mittal, a professor at Rice Business, teamed with Markus Blut, now of Aston Business School in Birmingham, England, David Mothersbaugh of the Culverhouse College of Commerce at the University of Alabama, and Carly M. Frennea, a doctoral student at Rice Business, to look at customers’ decisions to come back or move on.

The researchers focused on switching costs — the one-time costs associated with changing a service or product provider — and how these costs compare with customer satisfaction as influences on decisions to repeat business.

The study looked at three kinds of switching costs: procedural, financial and relational. Procedural costs are the time and effort required to identify and contract with a new provider. Financial costs are actual monetary expenses, such as fees for breaking contracts or giving up loyalty rewards like frequent-flier miles. And, finally, relational costs are the emotional or psychological tolls of cutting relationships with familiar suppliers or brands.

Vikas and his coauthors conducted a meta-analysis, that is, a statistical analysis of data from a range of published studies. They looked at results of 178 existing studies of decisions made by 133,000 customers.

Because methodology, quality and error vary among studies, meta-analysis is complex work. Putting results together accurately can be like plucking a common melody from hundreds of bands of varying talent playing different songs at the same time. Searching scientific databases and journals for studies, the team applied rigorous statistical analysis to put the material in harmony.

In one 2003 study, long distance telephone and credit card customers clearly weighed switching costs when contemplating repeat purchases. But the report was foggy about the link between switching costs and customer satisfaction. Left unknown: Could high switching costs discourage an unhappy customer from making a change?

A 2015 study offered more insight. Consumer satisfaction, the research showed, diminished in importance in the presence of high relational costs for a supplier. Customers who liked a company and its employees were more forgiving about perceived glitches in satisfaction. Interestingly, the link between procedural and financial costs and customer satisfaction was weaker.

For managers deciding their marketing priorities, the guidance is clear. Client switching costs, especially those involving relationships, may be as important to repeat business as the quality of the product itself. So here’s the coda: Truly knowing your customer is key to business, whether you’re selling one widget or 76 trombones.

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

To learn more, please see: Blut, M., Frennea, C., Mittal, V., & Mothersbaugh, D. (2015). How procedural, financial and relational switching costs affect customer satisfaction, repurchase intentions and repurchase behavior: A meta-analysis. International Journal of Research in Marketing, 32(2), 226-229.

Based on research by Antonio Merlo (former professor at Rice University) and Arianna Degan

• Increasing the information people have about candidates’ positions raises the likelihood that registered voters will vote.
• Strategies that link candidates with information about what they stand for, accurate or not, sway elections.
• Fake news, while it doesn’t improve real understanding of candidates, nevertheless spurs voter participation. So accurate information for voters is a crucial matter of public policy.

The president. Congressional representatives. Judges, mayors, school district officials. High and low, elected officials make the policies that make our society. And because those policies directly shape profitability, it’s in the best interest of business to understand exactly how leaders get into office.

In 2011, Antonio Merlo, former Dean of the School of Social Sciences, teamed with co-author Arianna Degan of the Université du Québec à Montréal to analyze the 2000 U.S. presidential and congressional elections. The presidential election, of course, was the historically close race that George W. Bush won after a Supreme Court-ordered recount in Florida. In addition to the presidential race, Merlo and Degan looked at dozens of lesser-known races to learn about the issues that sent voters to the polls–or kept them home.

Picture a family Thanksgiving with five individuals who differ in age, race, gender, education, religion and income, as well as party identification. With analysis, this potentially contentious meal reveals a banquet of observable characteristics that social scientists can link with measurable information about knowledge of candidates, a sense of civic duty, ideological preferences and even personal sense of regret, if making a mistake when voting.

To draw general conclusions from this type of individual profile, Merlo and his co-author first collected voter data from two large sources: the American National Election Studies and the Poole & Rosenthal NOMINATE Scores. They ran these numbers through a specially created model that quantified relationships between observed factors such as individual characteristics and voting patterns, which were found in the data, and unobserved factors such as information, civic duty and ideological leaning.

The model did more than correctly predict electoral turnout in both large races and small — it accurately predicted if voters participated in multiple elections or just one. Increasing the information citizens have about candidates’ positions, the scholars concluded, raises the likelihood that registered voters will, in fact, vote, even when they’re facing a long list of elections and candidates.

Knowing a candidate’s position, the scholars added, infuses voters with confidence. A fully informed voter seems to worry less about accidentally pulling the lever (or spinning the dial) for someone with whom he or she disagrees.

Once they found the prediction model worked, Merlo and Degan went a step further, experimenting with policies that might increase electoral participation. They discovered that policies that effectively inform voters of candidates’ stances correlated with the voters showing up on election day, voting a split ticket rather than only for one party and simply skipping ballot items when unsure about whom to vote for.

The more a voter knew, in other words, the less anxious she was about using that knowledge and expressing her opinion through the ballot box.

Policies meant to boost a sense of civic duty also raised voter participation. In congressional elections, the scholars found, a voter’s familiarity with a candidate’s positions, at least in certain cases, gave the candidate a measurable advantage.

There’s good reason candidates pour all that money into TV ads, Merlo and his co-author confirmed. Indisputably, strategies that link candidates with information about what they stand for (accurate or not) sway elections. The growing blizzard of fake news, while it doesn’t improve real understanding of candidates, nevertheless spurs voter participation. Accurate voter information, in other words, is not only a campaign issue, or a business issue. It’s a matter of public policy.

Six years after the scholars published their findings, in a new landscape of bots, cyber-meddling and homegrown fake news, understanding voter behavior is more urgent than ever. Elected officials make policy that affects the conduct of business. But voter confidence, knowledge and, at times, misinformation are what shape the elections that shape U.S. society.

Antonio Merlo is the former Dean of the School of Social Sciences at Rice University.

To learn more, please see: Merlo, A. & Degan, A. (2011). A structural model of turnout and voting in multiple elections. Journal of European Economic Association, 9(2), 209 – 245.

Based on research by Patricia Naranjo, Francois Brochet and Gwen Yu

• First-rate command of English language is essential for overseas firms that deal with capital markets in conference calls.
• Analysts rely on clear English skills to assess risks and opportunities.
• Conference calls from countries where the language is linguistically furthest from English are more opaque, which in turn mutes the trading response.

Nineteenth century philologist L.L. Zamenhof dreamed of ending global misunderstanding. His solution: a brand new language, Esperanto. Zamenhof’s plan never took off, of course. But global business could probably use it.

In a groundbreaking new study, Patricia Naranjo, a professor at Rice Business, joined François Brochet of Boston University and Gwen Yu of Harvard University to look at the way language problems in conference calls can affect the stock price of a given firm.

Language barriers, the team demonstrated, are linked to lower information content for potential investors, which leads to a subdued market reaction during the time the conference call is taking place.

The implications for profit making are clear. But the research also has an ethical component. In 1998, the Securities and Exchange Commission established guidelines for English usage called the Plain English Initiative. All investment products come with risks, the SEC reasoned, and investors can’t be fully informed unless the data are stated plainly.

Scholars, too, have for years called for better analysis of international corporate disclosures. But most studies on the topic examine earnings releases. Those that specifically look at conference calls consider calls within the United States. Naranjo and her colleagues instead tackled the complex give-and-take of calls that included international players.

To measure the quality of English in conference calls, and its effects on the markets, Naranjo’s team analyzed a sample of 11,305 conference call transcripts from non-U.S. firms between 2001 and 2010. Sifting through the transcripts, they kept only those from the hours when the markets were open. Then they tracked the speakers’ grammatical errors and the market activity while the call took place. The goal was to sound out market reaction to the conference calls’ language.

The reaction was loud and clear. The more an executive’s national language differed from English — say, if she was Italian or Japanese — the less linguistic clarity there was during a conference call.

Unsurprisingly, managers from countries such as Japan and Italy were more prone to use expressions that didn’t quite make sense in English. They also made more errors in grammar. Managers from the United Kingdom, Australia or India, meanwhile, used clearer English.

But why do bad similes and clumsy verb tenses affect trading? It’s because a lot more happens in a conference call than the dry reading of figures. These conversations are a manager’s chance to explain the meaning of the financials she is presenting. Analysts, especially those who live outside of a firm’s home country, rely heavily on these calls for clear information. When the language in these talks gets muddy, confidence in the information presented plunges. Trading drops as a result.

The opposite happens when an executive sounds like she attended Cambridge or Rice. She’s far less likely to make language mistakes, of course. The market also reacts more strongly to the information presented. To put it quantitatively: During a conference call question and answer period, a one-standard-deviation rise in language clarity led to a 3.76 percent rise in abnormal trading.

Naranjo’s research speaks volumes to overseas firms that rely on capital markets. As long as English rules as the linguistic coin of the realm, it pays to train executives to speak fluent English, or to factor existing English language ability as a coveted job skill. L.L. Zamenhof was a student of language, not finance. But his 19th century analysis of individual behavior accurately described the human hive-mind that is the market. When language fails, Zamenhof knew, misunderstanding and error soon follow. And in the end, numbers will tell the tale.

Patricia Naranjo is a former assistant professor of accounting at Jones Graduate School of Business at Rice University.

To learn more, please see: Brochet, F., Naranjo, P., & Yu, G. (2016). The capital market consequences of language barriers in the conference calls of non-U.S. firms. The Accounting Review, 91(4), 1023–1049.