Welcome to the inaugural issue of The Eller Times Research, sharing highlights of innovative research conducted by Eller faculty and students.
The new Outsourcing of Professional Activities course offers a special executive education track featuring small, private discussions with several special guests, including former U.S. labor secretary Robert Reich, U.S. representative Jim Kolbe (R - Arizona), and former MIT dean Lester Thurow.
Course begins March 7.
Lusch Takes Top Honors for Forward-Thinking Article
Think about the last time you went to Starbucks. You may think you went there to buy something to drink. Not so. What you bought was a service, an experience, even knowledge.
That’s the thinking behind the paper that recently made Robert Lusch, head of the Eller College Department of Marketing, a two-time winner of the American Marketing Association’s Harold H. Maynard Award, which recognizes “significant contribution to marketing theory and thought.” Lusch and co-author Stephen Vargo (University of Maryland) took the 2004 honor for their article, “Evolving to a New Dominant Logic for Marketing” (Journal of Marketing, January 2004).
What is that new logic? Essentially this: Modern consumers don’t buy goods; they buy services and embedded knowledge.
For example, when you order that piping hot mocha, you’re ordering refreshment service, or wake-up service, maybe even pampering service. It’s a subtle re-framing, but one with far-reaching implications.
Most importantly, in a service-centered framework, transactions aren’t about products and don’t end when products are bought. Consider the Starbuck’s mocha. Your experience begins when you start to anticipate stopping by Starbuck’s on your way to work, and it really accelerates just inside the door. There’s lighting, décor, music, a friendly barista. Your beverage is likely something you can’t make yourself—at least not as well or as fast—so you’ve purchased embedded knowledge. And somehow that steaming cup of goodness makes it easier to dive into e-mail that morning. You get the picture: Ultimately, you traded $4.50 for more than just coffee.
“In the past, marketers were largely focused on products—something tangible. Today we have to look at the experience that people have with a product, and that unfolds over time,” Lusch explains.
The trend towards a service-oriented economy is increasingly apparent in consumer products (who ever leased a car 15 years ago?) but it’s also sweeping the B2B arena. In the 1880s, the company that would become IBM started an empire on time-recording devices. Even the company’s acronym—short for International Business Machines—reflects a product-based business. Today, IBM has evolved into a company more and more focused on business services rather than business products: everything from training and IT maintenance to leased servers (digital storage service in the same why-buy? zeitgeist as vehicle leasing).
As we shift more and more to a service-centered economy, Lusch and Vargo predict a dramatic shift in the role of marketing from a functional area of operations to “the core of a firm’s strategic planning” touching all aspects of business, from consumer consulting to ensuring that production and supply chain management are all customer-centric.
Most importantly, this evolving service-centered logic makes knowledge the fundamental unit of economic exchange. Knowledge drives competitive advantage and the value of services a company provides, through tangible products or otherwise.
Lusch suggests that companies adopting this service-centered paradigm—thinking “service” not “product” and all the corollaries that go with that shift—will win out in the end. It’s an idea that may be a hard to swallow when it comes to your mocha, but consider the knowledge embedded in a 2005 Audi A8, delivering luxury transportation services starting at just $67,310.
Eller research wins accounting’s Wildman.
The 1990s saw a suspiciously growing difference between the financial statement net income and taxable income U.S. businesses were reporting.
Congress and the U.S. Treasury viewed the widening gap as evidence that corporate America was overly enjoying the broad shade of tax shelters, an exploitation made easier by a crude, outmoded IRS form that had scarcely been touched since the 1960s.
All of that changed in 2004 thanks to Accounting associate professor and Stevie Eller Fellow Lillian Mills and her research collaborator George Plesko (MIT). Their research led to some of the most extensive IRS form changes originating outside direct legislative action and in January won them the distinguished 2005 Deloitte Wildman Medal from the American Accounting Association (AAA).
“In 2002, the University of North Carolina Tax Center and the Brookings Institution asked me to author a paper on the usefulness and limitations of the existing IRS reconciliations,” Mills said.
The paper, "Bridging the reporting gap: A proposal for more informative reconciling of book and tax income," (National Tax Journal, 2003) ultimately led to the retirement of the IRS’s outdated Schedule M-1—which did little to help auditors zero in on potential tax evasion—and the creation of the rigorous new Schedule M-3. Starting in 2004, corporations with more than $10 million in assets now use the revised form to reconcile net income to taxable income.
The annual Wildman Medal goes to author(s) that make or are expected to make “the most significant contribution to the advancement of the practice of accounting.” For each year’s award, the selection committee considers not just works from the prior year, but from the preceding five years.
One of the AAA nominators noted that the Schedule M-3 emerged through a level of government/NGO collaboration unprecedented in recent years. And while the accolades here go to Mills and Plesko, their research—which may ultimately help slash corporate tax evasion—makes everyone a winner.
Under federal pressure, NASD—the private-sector giant of financial services regulation—created the Trade Reporting and Compliance Engine (TRACE) in 2002 and dramatically changed reporting requirements for corporate bonds.
NASD hails the change as “the most significant innovation benefiting retail bond investors in decades,” and according to research by Finance assistant professor William Maxwell, they’re right.
Along with researchers Hendrik Bessembinder (University of Utah) and Kumar Venkataraman (Southern Methodist University), Maxwell found 20 to 50 percent trading cost reductions associated with TRACE, totaling some $370 million savings per year for the corporate bond market.
The National Science Foundation’s Law and Social Science Program has recommended a 2-year, $180,000 grant for a research partnership between the Eller College and New York University.
Assistant professor Roger Hartley (Eller College's School of Public Administration and Policy) will work with Linda Mills (NYU) to study a revolutionary court reform program for dealing with domestic violence offenders in Nogales, Arizona—"Construyendo Circulos de Paz" or “peacemaking circles.”
The study will compare the outcomes of the peacemaking circles, involving offenders, their victims and supportive friends and family, as compared to traditional intervention programs.
Setting goals spurs achievement, but a recent study by Management and Policy associate professor Lisa Ordóñez examines the "dark side" of goal-setting.
Earlier research on goal setting has shown that people work harder and longer to meet specific, challenging goals. However, Lisa Ordóñez (working with Maurice Schweitzer from University of Pennsylvania and Bambi Douma from University of Montana) found that performance goals can also cause people to lie and cheat to meet these goals (“Goal Setting as a Motivator of Unethical Behavior,” Academy of Management Journal, June 2004).
The authors used a classic research methodology that has previously shown goal setting yields positive results: Subjects were asked to create words from groups of seven letters in one minute.
Ordóñez found that subjects challenged to meet a specific goal were more likely to overstate their performance than people who were just asked to do their best. They found this same result regardless of whether or not financial incentives were tied to meeting goals.
The study suggests that managers should approach goal-setting carefully. Given the prevalence of performance goals in organizations (sales quotas, bonuses tied to financial returns and others), managers have to wonder just what type of behavior they are motivating—a good work ethic or unethical work.
Literature around IPOs has long maintained that waves of heavy IPO action—hot markets—are driven by the emergence of new companies and new technologies. Not true, according to research by Finance associate professor Jean Helwege.
In her article, “Initial Public Offerings in Hot and Cold Markets” (Journal of Financial and Quantitative Analysis, September 2004), co-authored with Nellie Liang (Federal Reserve Board) Helwege shows that the same industries are represented in both hot and cold IPO cycles, and that companies in both markets had similar profits, age, and growth potential—in short, IPOs are generally young, fast-growing firms regardless of market climate when they go public.
The findings undermine earlier theories, begging the question, what does cause a wave of IPO activity? The fact is, we still don’t know, but Helwege's research suggests that it may simply come down to waves of investor optimism.
Every day, our national security gets a little smarter thanks to ongoing research by the Eller College Center for the Management of Information (CMI), a National Science Foundation industry/university cooperative research center (I/U CRC).
Partnering with the Center for Computational Biomedicine, Imaging and Modeling (CBIM, Rutgers University), CMI is developing technologies for detecting when people are lying or harboring hostility. The research serves a bevy of potential applications, ranging from screening airline passengers to facilitating police interrogations.
The devil is in the details, but the idea is simple: First, figure out what people do when they’re hiding something—unconscious movements like glancing sideways. Next, use digital video and computers for superhuman motion-tracking and data-crunching to surface likely offenders.
The partnership integrates CMI research in non-verbal communication with CBIM work on tracking movement. The collaboration can already automatically discern various physical/emotional states—including when people are being truthful or deceptive—with 90 percent accuracy.
With funding from the Department of Defense, Department of Homeland Security, the National Science Foundation, and other government agencies, CMI and CBIM are now working on several third-phase objectives. The team will study new motions (like head bobbing) and gather more motion data (like velocity and acceleration) to ultimately discover the most reliable indictors for systems that can automatically identify threats and deception in real time.
Associate professor Miguel Quiñones (Management and Policy) was recently awarded a U.S. Fulbright Scholar Grant.
Quiñones will travel to Chile to collaborate with faculty from the Pontifica Universidad Catolica (PUC) on research in human resource management and organizational behavior and to help launch a new master’s program.
PUC is considered one of the most prestigious universities in South America and has one of the top business schools in all of Latin America.
Watch Eller College communications for more information about Quiñones’ Fulbright work in the months ahead.