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How to prepare for the GMAT, GRE, and EA exams

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During the pandemic, business schools saw a surge in applications. Rice Business had a 63% increase! With more competition, it's time to figure out what test is the best fit for you: GMAT, GRE or EA?

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The way a workplace is structured can make or break business, Rice University research finds

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Rice Business Professor Siyu Yu shows that even how insiders perceive their organization can determine its success or failure.

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Mission statements do nothing for corporate financial performance, research shows

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New research co-authored by Rice Business professor Vikas Mittal shows that mission statements do not enhance financial performance, even though companies prominently feature them as an outcome of their strategy-planning process.

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New research shows that mission statements do not enhance financial performance, even though companies prominently feature them as an outcome of their strategy-planning process.

A systematic review of research in peer-reviewed journals shows the correlation between having a mission statement and financial performance was statistically zero, according to a chapter of “Focus: How to Plan Strategy and Improve Execution to Achieve Growth,” a new book co-authored by Vikas Mittal, professor of marketing at Rice’s Jones Graduate School of Business, and Shrihari Sridhar, professor of marketing at Texas A&M University’s Mays Business School.

One study in the authors’ systematic review examined 59 companies among the Financial Times 1000 and showed those with a mission statement were not more profitable than those without one. Another study of 136 large Canadian companies showed similar results: The presence or absence of a mission statement was statistically uncorrelated to return on assets. And a meta-analysis of a sampling of 1,945 companies and managers once again found the correlation between having a mission statement and financial performance is statistically zero.
 

“Mission statements are ineffective because they simply reinforce top executives’ salient beliefs, making them more inward-focused and detracting strategy from important customer needs,” Mittal said.

 

“For many companies, formulating a mission statement is a closed-door process facilitated by a consultant, but with no test of its internal or external validity among its customers, who are the primary source of cash flow.”

To validate this logic, the book analyzed how often eight different customer needs were mentioned in the mission statements of 50 U.S. energy-industry suppliers The results showed several glaring inconsistencies between customers’ most important needs and the values emphasized in mission statements.

Specifically, 33% of the mission statements emphasized product and service quality, but customers only put a 15% weight on it. While 13% of the mission statements emphasized pricing and billing, customers gave it a weight of only 6%. In contrast, customers put a 24% weight on service and support, which only 5% of the mission statements mentioned.

To improve strategy planning and make it financially accountable, companies need to eschew ineffective tools such as mission statements that only exaggerate and exacerbate executives’ reliance on salience, Mittal said.

“Senior executives should have the humility to acknowledge that what is salient to them need not be important for customers or drive a company’s financial performance,” he said.

“A strategy based on analytics using statistical analysis, machine-learning algorithms and randomized experiments to establish the true association between what executives emphasize and what customers need has a much higher chance of success,” Mittal said. “These techniques are used in basic corporate functions such as product development and testing, and strategy planning should have to stand the same test of rigor.”

 

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"Rice was the only school I seriously considered. As a Houstonian, I wanted to root myself locally while still learning from one of the best programs in the country. Rice’s reputation, combined with its values and community, made it the clear choice."

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On April 14, Rice made history by hosting its inaugural Rice Day at the Capitol. More than 50 students, faculty and staff traveled to Austin for a full day of advocacy, education and celebration. The event served as a showcase of the university’s statewide impact in areas ranging from innovation to the arts and sciences.

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White Picket Fences

How a rule to protect consumers reduced access to credit
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How a rule to protect consumers reduced access to credit

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White Picket Fences

Based on research by Stephanie Johnson

How a rule to protect consumers reduced access to credit

  • Post-2008 federal policy raised the cost of home loans.
  • The policy also led to a drop in the quantity and size of home loans.
  • The policy would have had little effect on default rates during the housing crisis.

In the Great Recession of 2007 to 2009, unemployment rates rose dramatically, from 5 to 10%. Men, Blacks, Latinx, young workers and the less educated were hit hardest. The economic freefall was precipitated by a deluge of lending with little consideration of borrowers’ ability to repay home loans. 

Outrage over the economic disaster led to major governmental reforms of the $600 billion U.S. consumer mortgage lending industry. In 2010, a bipartisan Congress passed the Dodd-Frank Wall Street Reform Act, designed to reduce systemic risk and prevent predatory lending. Four years later, the Consumer Financial Protection Bureau (CFPB) was charged with implementing the so-called Ability-to-Repay (ATR) Rule, which requires lenders to make a good faith effort to determine a borrower’s ability to repay. Under this rule, lenders that fail to comply and then try to foreclose on a borrower are subject to legal action. The borrower is also entitled to retaliate and sue by asserting a regulatory violation. 

As part of the consumer protection process, the CFPB also created a class of low-risk loans known as qualified mortgages. These automatically satisfy the ATR Rule because they require a debt-to-income ratio (DTI) of 43% or less. Such mortgages were designed to reduce defaults and limit the extent to which households must curb personal consumption when facing economic challenges. 

But how did these policies work in practice? In a recent study, Rice Business professor Stephanie Johnson and a team of coauthors took a close look at how these consumer protections affected the average borrower in real life. Their results were unsettling. The macro regulatory approaches meant to help avert a repeat of 2008, the researchers found, had some large unintended consequences. 

To reach their conclusions, Johnson’s team reviewed 1.2 million mortgages taken out between January 2010 and December 2015. For their data, they tapped the CoreLogic Loan-Level Market Analytics (LLMA) database. The average loan in the sample amounted to $265,000 with an interest rate of 4.3%. Borrowers had an average FICO score of 755, a loan-to-value (LTV) of 80%, and a debt-to-income (DTI) of 33%. 

The team found that the new regulations affected mortgage lending in several areas. First, because the new policies make the lender responsible for a borrower’s inability to keep up with payments, lenders typically pass the burden onto the borrower in the form of high interest rates. As a result, consumers today pay $1700 to $2600 more for access to credit over the life of the loan. The consumers most deeply affected by the regulations were those who took out so-called jumbo mortgages: loans valued at $548,000 or more.

Under the new regulations, the lending of these mortgages decreased by approximately 2%, or $600 million. This is especially striking, considering that this class of borrowers tends to have both higher FICO scores and larger down payments.

The regulations also had unintended consequences on the loan industry. Because of new legal liabilities, many lenders got out of the non-qualified mortgage business altogether. Others simply slashed the number of high-risk products they offered. If the policy had been applied to the entire market (not just jumbo loans) mortgage originations would have declined by approximately $12 billion. Fifteen percent of jumbo loans with DTIs above 43 percent disappeared entirely. In some cases, would-be borrowers simply decided against home buying. Others took out smaller loans, making buying decisions that may have then affected their quality of life.

The researchers also looked at loan performance, which is typically gauged by default rates. For this study, a default was defined as a payment that was late by 90 days or more, or if the property was repossessed within 5 years of the loan date. Of the loans the researchers analyzed, those above the 43 percent cutoff did not perform much worse than loans with moderate DTIs. In fact, the team concluded, if the regulations had been in effect pre-crash, they would have had little effect, only reducing the default rate by 0.2 percentage points. 

Designed to ward off a repeat of the 2008 economic crisis, the federal government’s new lending rule actually offered little new protection for consumers. At its core, Johnson and her colleagues found, the rule was based on a faulty premise of a strong link between DTI and default. As a result, the rule designed to protect homeowners simply reduced their access to credit – without reining in default rates.
 


Stephanie Johnson is an assistant professor of finance at the Jesse H. Jones Graduate School of Business at Rice University. Her research focuses on household finance and empirical macroeconomics.

Anthony A. Defusco is an Associate Professor of Finance at the Kellogg School of Management at Northwestern University.

John Mondragon is a senior economist at the Federal Reserve Bank of San Francisco. 

To learn more please see: Defusco, A. A., Johnson, S., & Mondragon, J. (2019). Regulating Household Leverage. The Review of Economic Studies. https://doi.org/10.1093/restud/rdz040 

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Classical Instruments

Revisiting the merits of nondigital data collecting
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Revisiting the merits of nondigital data collecting

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Based on research by Michelle "Mikki" Hebl

Revisiting the merits of nondigital data collecting

  • Academics have learned quickly that investigations based on data from online research agencies can have problems. Among them: researchers can’t see who is taking a survey and even if they are who they claim to be.
  • Four tried and true methodologies offer solutions. Field experiments, good old-fashioned observation, archival research and big data represent viable alternatives to excessive reliance on Mechanical Turk and other online research agencies.
  • While each of these methods may have drawbacks, taken together they offer a remarkable range of techniques for advancing social science. Together, they force academics to get out and explore the real world.

Academics are learning quickly that investigations based on data from online research agencies have their drawbacks. Thousands of such studies are released every year – and if the data is compromised, so too are the studies themselves.

So it’s natural for researchers, and the managers who rely on their findings, to be concerned about potential problems with the samples they’re studying. Among them: participants who aren’t in the lab and researchers who can’t see who is taking their survey, what they are doing while answering questions or even if they are who they claim to be online. In the wake of a 2018 media piece about Amazon’s Mechanical Turks Service, “Bots on Amazon’s MTurk Are Ruining Psychology Studies,” one psychology professor even mused, “I wonder if this is the end of MTurk research?” (It wasn’t).

To tackle this problem, Rice Business professor Mikki Hebl joined colleagues Carlos Moreno and Christy Nittrouer of Rice University along with several other colleagues to highlight the value of other research methods. Four alternatives – field experiments, archival data, observations and big data – represent smart alternatives to overreliance on online surveys. These methods also have the advantage of challenging academics to venture outside of their laboratories and examine real people and real data in the real world.

Field experiments have been around for decades. But their value is hard to overestimate. Unlike online studies, field experiments enhance the role of context, especially in settings that are largely uncontrolled. It’s hard to fake a field experiment in order to create positive results since each one costs a considerable time and money. 

And field experiments can yield real-life results with remarkable implications for society at large. Consider one experiment among 56 middle schools in New Jersey, which found that spreading anti-conflict norms was hugely successful in reducing the need for disciplinary action. Such studies have an impact well beyond what could be achieved with a simple online survey. 

The best way to get started with a good field experiment, Hebl and her colleagues wrote, is for researchers to think about natural field settings to which they have access, either personally or by leveraging their networks. Then, researchers should think about starting with the variables critical for any given setting and which they would most like to manipulate to observe the outcome. When choosing variables, it’s helpful to start by thinking about what variable might have conditions leading to the greatest degree of behavior change if introduced into the setting.

Archival data is another excellent way to work around the limitations of online surveys, the researchers argue. These data get around some of the critical drawbacks of field research, including problems around how findings apply in a more general way. Archival data, especially in the form of state or national level data sets, provide information and insight into a large, diverse set of samples that are more representative of the general population than online studies.

Archival data can also help answer questions that are either longitudinal or multilevel in nature, which can be particularly tricky or even impossible to capture with data collected by any single research team. As people spend increasing amounts of time on social media, the internet also serves as a source of newer forms of archival data that can lend unique insights into individuals’ thoughts, attitudes, and behaviors over time.

With every passing year, technology becomes increasingly robust and adept at collecting massive amounts of data on an endless variety of human behavior. For the scientists who research social and personality psychology, the term “big data” refers not only to very large sets of data but also to the tools and techniques that are used to analyze it. The three defining properties of Big Data in this context include the speed of data processing and collection, the vast amount of data being analyzed and the sheer variety of data available.

By using big data, social scientists can generate research based on various conditions, as well as collect data in natural settings. Big data also offers the opportunity to consolidate information from huge and highly diverse stores of data.  This technology has many applications, including psychological assessments and improving security in airports and other transportation hubs. In future research, Hebl and her team noted, researchers will likely leverage big data and its applications to detect our unconscious emotions.

Big data, archival information and field studies can all be used in conjunction with each other to maximize the fidelity of research. But researchers shouldn’t forget even more old-fashioned techniques, including the oldest: keen observation. With observation, there are often very few, if any, manipulations and the goal is simply to systematically record the way people behave.

Researchers – and the managers who make decisions based on their findings – should consider the advantages of old-style, often underused methodologies, Hebl and her colleagues argue. Moving beyond the college laboratory and digital data survey-collection platforms and into the real world offers some unparalleled advantages to science. For the managers whose stock prices may hinge on this science, it’s worth knowing – and understanding –  how your all-important data was gathered.


Mikki Hebl is the Martha and Henry Malcolm Lovett Professor of psychology at Rice University.

Carlos Moreno is a graduate student at Rice University.

Christy Nittrouer is a graduate student at Rice University.

Ho Kwan Cheung is a graduate student at George Mason University.

Eden B. King is an associate professor at George Mason University.

Hannah Markellis a graduate student at George Mason University.

To learn more please see: Cheung, H. K., Hebl, M., King, E. B., Markell, H., Moreno, C., & Nittrouer, C. (2017). Back to the Future. Social Psychological and Personality Science, 8(5), 564–572. https://doi.org/10.1177/1948550617709113

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Austin-area employers added 8,000 workers to payrolls in June as recovery continues

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Dean Peter Rodriguez said the economy in the Austin area appears to be recovering about as fast as can be expected, given constraints such as rising costs in the region for office space and land as well as an increasingly tight labor market.

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MBAs To Watch: Class of 2021

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They're creatives, humanitarians, and risk-takers -- and these doers are heading back to the workforce. A look at this year's MBAs To Watch. Rice MBAs Kelly DeMoya and Matthew Manriquez make the 2021 list.

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Best Car Insurance in Texas

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The best car insurance in Texas isn’t always the cheapest. Good car insurance is about more than just affordable coverage. Rice Business professor Ajay Kalra shares his thoughts on the matter.

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Pyramid Scheme

How Your Mind’s Eye Affects Performance
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How Your Mind’s Eye Affects Performance

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Based on research by Siyu Yu

How Your Mind’s Eye Affects Performance

  • Most workers surveyed visualize their organization as either a ladder structure or a pyramid.
  • The quality of relationships in pyramid-structured workplaces is higher than in ladder-structured workplaces.
  • Ladder-structured hierarchies have lower group performance than pyramid-structured hierarchies.

It’s a paradox of power: research shows that hierarchies often undermine the very structures they are designed to uphold. Within organizations, conflicts between members can erode entire systems. In a groundbreaking paper, Rice Business Professor Siyu Yu shows that even visual perceptions of the hierarchy can influence its success. 

In the first study of its kind, Yu joined a team of colleagues to explore how humans visualize the hierarchies to which they belong – and how that thought process influences group processes and outcomes.

The researchers found that most of the people they studied thought of hierarchies in terms of pyramids or ladders (a tiny minority visualized them as circles or squares). In a ladder hierarchy or stratified structure, each member occupies a particular rung. A pyramid hierarchy is more centralized, with one person at the top and multiple people on the lower levels. Think of corporate giant CISCO, a typical pyramid, versus a mid-size dry cleaning business, with the owner at the top and one person on each rung below, down to the entry-level cashier. 

These are far more than fanciful images, the researchers argued. Psychological research has long shown that individuals think, feel and act in response to mental representations of their environment. Intuitively, the link between perception and behavior has been articulated as far back as biblical times: “As a man thinketh, so is he” – or, for that matter, she or they.

To better understand the practical effects of these visualizations, Yu’s team conducted five studies with 2,951 people and 221 workplace groups. They chose from nationwide pools monitored by West and East Coast American universities. The studies took place in the United States and the Netherlands and included multiple ethnicities, men and women, and income groups ranging from college students to seasoned professionals earning upwards of $90,000 annually.  

In the first study, the team asked participants to indicate the shape that best reflected how they thought about hierarchies: pyramid, ladder, circle or square. In the second study, the researchers measured social relationship quality within different groups: participants were asked to rate their answers to questions such as, “Are your needs met at work? Do you feel socially supported?” In the third study, the researchers focused on professional workgroups, measuring relationship quality, group performance and the likelihood that individuals compare themselves to others in the group. 

Subjects who perceived their working group as a ladder, the researchers found, were more likely to compare their rank and station with others. Their relationships were also weaker: when asked whether they trusted their team members, most subjects disagreed or strongly disagreed. When asked whether they thought about if they were better or worse than their colleagues, they agreed and strongly agreed. These comparisons and lack of trust indirectly correlated with lower performance levels, the research showed.

Perceiving one’s organization as a ladder structure, Yu’s team argued, undermines group members’ relationships with each other and hinders collective performance. In contrast, participants who visualized the same company as pyramids rated radically higher on all three quality measures.

Interestingly, the impact of these visualizations is similar, whether the visualizations reflect an actual company structure or simply an individual’s perception of that structure. “It can be created by both perception and actual rank, for example, job titles,” Yu said in an interview. “So, as a practical implication, companies should think about ways to reduce the ladder system, such as with a promotion system that seems more like a pyramid, or by creating the mutual belief that upward mobility within the company is not a ladder or zero-sum.”

Managers, in other words, need to pay close attention to how subordinates see their workplace. Even if your firm is structured as a pyramid, your team members could perceive it to be a ladder – with a cut-throat climb to the top. For the sake of both work performance and quality of life, Yu said, managers, human resources directors and C-suite members should do their best to discern how their workers visualize the company – and, if the paradigm is a ladder, work hard to reduce the workplace vertigo that goes with it. 


Siyu Yu is an Assistant Professor of Management – Organizational Behavior at the Jones Graduate School of Business Rice University.

Lindred L. Greer is an Associate Professor for Management and Organizations and Michael R. and Mary Kay Hallman Fellow at New York University’s Stern School of Business.

Nir Halevy is an Associate Professor of Organizational Behavior at the Graduate School of Stanford Business.

Lisanne van Bunderen is a lecturer at the University of Amsterdam in The Netherlands.

To learn more please see: Yu, S., Greer, L. L., Halevy, N., & van Bunderen, L. (2019). On Ladders and Pyramids: Hierarchy’s Shape Determines Relationships and Performance in Groups. Personality and Social Psychology Bulletin, 45(12), 1717–1733. https://doi.org/10.1177/0146167219842867

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Putting Out Fires

Why Do So Many Companies Come Up Short In Their Strategy Planning? 
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Why Do So Many Companies Come Up Short In Their Strategy Planning? 

Putting Out Fires
Putting Out Fires

Based on research by Vikas Mittal

This article originally appeared on Chief Executive

Why Do So Many Companies Come Up Short In Their Strategy Planning? 

According to a 2020 survey, executives spent 44% of their time on non-strategic activities, including day-to-day tactical efforts, unproductive tasks and meetings, politics and firefighting, and convincing others to listen to their point of view.

Why do so many companies come up short in their strategy planning and implementation? Because their CEOs end up playing the role of firefighter, implementer or counselor. Four years of intensive data analysis conducted by the authors has shown the three roles repeatedly emerge, deflecting from strategy and keeping CEOs from elevating their companies.

To truly improve company performance, CEOs must escape the firefighter, implementer and counselor roles and function as strategy leaders.

The Firefighter

The firefighter is a turnaround artist. A company might be struggling due to sudden adverse events or internal foibles. The firefighter swoops in to stabilize the situation.

After Uber Technologies parted ways with its CEO in 2017, the company installed a firefighter CEO while it looked for a new chief executive. In more ways than one, the firefighter takes on the role of an operating officer intent on stabilizing company functioning. But the firefighter does not take on a mandate to shape, lead or implement long-term strategy.

The Implementer

The implementer installs policies and processes to ensure employees perform key tasks with competence. The implementer functions as a caretaking manager who narrows the scope of their remit, delivers on time and stays within budget. The implementer works with middle management and frontline employees to clarify existing goals, policies and initiatives. Implementers are inward-looking and emphasize processes and ongoing initiatives, rather than pinpointing key initiatives or imagining new ways to do things.

For example, a private equity fund retained the chief technology officer of a large company as the CEO of a portfolio company to overhaul its IT infrastructure and implement e-commerce within nine months.

The Counselor

The counselor delegates strategy to others while focusing on relationships, personalities and conflict management. The CEOs then focus on smoothing interpersonal relationships among executives, building teams through hiring and mentoring, empowering their executive teams to act and championing employee engagement and motivation.

For example, the CEO of a healthcare-software startup viewed her role as developing and mentoring young and inexperienced team members. The counselor role can be invaluable for inventors and entrepreneurs launching companies, as the innovators can benefit from mature executive mentorship.

The Strategy Leader

The strategy leader adds value to a company, but not by firefighting, implementing or counseling. The strategy leader helps senior executives focus on customers and rank company-wide priorities. The priorities align the firm’s customers’ most important needs with its senior executives’ time and effort. Guiding sound implementation, the strategy leader helps senior executives develop the correct customer, operational and financial metrics to track employee performance and meet financial targets.

Even strategy leaders must occasionally firefight, counsel and implement. But strategy leaders do not make the functions their priority. They direct their human resources group to counsel, COO to implement and other senior executives to firefight when needed.

The strategy leading CEO focuses the collective energy of senior executives on implementing a clear, simple strategy to satisfy customers’ most important needs. Reassuringly, the process connects the CEO, senior executives and employees directly to their firm’s highest priority customer value drivers.

Case Study: How One CEO Became A Strategy Leader

In this example, an individual became CEO of a construction site management company with $2 billion in sales and more than 5,000 active sites worldwide. A strategy audit showed the company had more than 40 open initiatives that had remained unfinished for many years. Several senior executives disagreed about the company’s direction. The CEO also found a contract for a client with more than 200 sites was underperforming because the site management firm’s service costs were higher than the negotiated price.

The CEO worked with the company’s chief strategy officer to set long-term direction. Using several structured client-assessments they found the company’s two most important customer value drivers and used the results to prioritize their more than 40 open initiatives from most to least impactful. They focused on the six initiatives directly tied to client-value drivers, while pausing or deferring the remaining initiatives. Working with the company’s chief finance and commercial officers, the CEO renegotiated the large customer’s underperforming contract to bring it in line with the most critical value drivers. Determining the company’s customer value drivers also helped resolve differences among regional presidents.

Following the strategy realignment, the site management company’s sales and margins outperformed its peer groups over a one-year period. An executive assessment revealed all senior executives were 100% aligned on strategy by the year’s end, a vast improvement over their initial 21% alignment.

The CEO became a strategy leader by not getting mired into the firefighting, counseling and implementing that consumes many CEOs and, instead, aligning initiatives to customer value drivers.


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Vikas Mittal

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

Shrihari Sridhar is the Joe Foster ’56 Chair in Business Leadership and professor of marketing at Texas A&M University's Mays Business School.

To learn more, please see: Mittal, V., Sridhar, S. (2021). Focus: How to Plan Strategy and Improve Execution to Achieve Growth. (1st ed. 2021.) (Edition). Palgrave Macmillan..

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Institutional Crisis | Peer-Reviewed Research
In the wake of scandal, organizations face a critical question: who will stay committed and who will leave? The answer depends largely on what type of institutional events people attend — and how far the scandal spreads.

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