Management Insights
Authors: Gorman Michael F. 
Published: April 2012

Brian Rubineau, Yoon Kang Are differences in patient care driven by discrimination? Many studies have found that healthcare recommendations are affected directly by the race of the patient. The authors evaluate whether “statistical discrimination,” persistent existence of discriminatory behavior, can persist even in an environment where theoretically such disparities should be competed away. Could statistical discrimination be a primary explanation for racial disparities in physicians' treatment of patients? In a longitudinal study of medical students, the authors study within-cohort changes in disparities from medical student behaviors as they interact with white and black patient actors. They find significant increases in medical students' disparate behaviors by patient race between their first and second years of medical school. The insight for management: Statistical discrimination may not be primarily responsible for racial disparities in patient care.

Prasanna Tambe, Lorin M. Hitt Has information technology (IT) offshoring affected the skill mix among U.S. technology workers? Theoretically, occupations involving tasks that are “tradable,” such as tasks that require little personal communication or hands-on interaction with U.S.-based objects, are vulnerable to being moved offshore. Based on new IT offshoring data and IT workforce microdata the authors find that firms with offshore IT captive centers have 8% less of their onshore IT workforce involved in tradable occupations; those without offshore captive centers have increased the proportion of onshore employment in these same occupations by 3%. The authors also find that hourly IT workers (e.g., IT contractors) are disproportionately employed in tradable jobs and that their onshore employment is 2%–3% lower in firms with offshore captive centers. These findings are robust even when using different measures of employment composition, including controls for human capital, firm performance, domestic outsourcing, and whether firms choose to build or buy software. The insight for management: Offshoring of IT is directly affecting the skill composition mix among U.S. technology workers.

Monic Sun Most people like a bestseller; a high average rating indicates high product quality. But do books sales suffer if some readers hate a book while others love it? The author examines the informational role of product ratings and finds that a high variance of product ratings is associated with a niche product, one that appeals a great deal to a small set of customers. So, interestingly, a higher variance would correspond to a higher subsequent demand if and only if the average rating is low. The author finds support for the niche hypothesis using book data from Amazon.com and BN.com. A higher standard deviation of ratings on Amazon improves a book's relative sales rank when the average rating is lower than 4.1 stars, which is true for 35% of all the books in the sample. The insight for management: A low product rating isn't bad if ratings are highly varied; niche products with low ratings have higher subsequent demand if there is disagreement among book readers.

Jonathan R. Clark, Robert S. Huckman Should a firm specialize to create more efficient operations or diversify to reduce product risk? The long-standing argument that focused operations outperform others stands in contrast to claims about the benefits of broader operational scope. The performance benefits of focus are typically attributed to reduced complexity, lower uncertainty, and the development of specialized expertise. On the other hand, the benefits of greater product breadth are linked to the economies of scope achieved by sharing common resources, such as advertising or production capacity, across activities. This disagreement leads to a tension between focus and breadth in corporate products. The conflict can be reconciled by the concept of “related diversification” (i.e., a firm with multiple operating units, each specializing in distinct but related activities). The authors test these approaches by studying cardiovascular care within hospitals. They examine the relationship between a hospital's level of specialization in cardiovascular care and the quality of its clinical performance on cardiovascular patients and find that focus has a positive effect on quality performance. But they then look at the hospital's specialization in areas related to cardiovascular care to see whether “positive spillovers” help performance with cardiovascular patients through “cospecialization” in related areas (complementarities). The insight for management: Specialization may contribute to product quality, but too much specialization might limit opportunities to learn best practices and synergies with related products.

Sanjiv Erat, Uri Gneezy “It's just a little white lie; it's for the best.” This sounds innocent enough, but who is helped by a white lie, and who is hurt? The authors analyze two types of white lies: those that help others at the expense of the person telling the lie, which the authors term “altruistic white lies,” and those that help both others and the liar, which they term “Pareto white lies.” Of course, from a total cost perspective, Pareto white lies are more efficient because they help both parties. However, the authors find that a large fraction of participants are reluctant to tell a Pareto white lie, demonstrating a pure lie aversion independent of any social preferences for outcomes. Paradoxically, a nonnegligible fraction of participants are willing to tell an altruistic white lie even though it hurts them a bit but significantly helps others. In line with previous findings, women are less likely to lie when it is costly to the other side, but, interestingly, the authors find that women are more likely to tell an altruistic lie. The insight for management: While many people avoid lies even if they can help all parties, some people are more likely to lie at their own expense to help the other party.

Juan Alcácer, Minyuan Zhao How should geographically dispersed research centers in a firm share information? In a study of the global semiconductor industry, the authors find that, in addition to serving as a mechanism for sourcing knowledge, strong internal linkages help firms increase internalization and create higher levels of technological interdependence across firm locations. The authors suggest that firms with strong networks of internal linkages are able to maintain tighter control over local innovation and reduce the risk that knowledge outflows will benefit competitors in clusters. The authors also show that internal linkages are associated with more knowledge flow within firms and less knowledge expropriation by collocated competitors. The insight for management: Firms in innovative industries should consider the critical role of multilocation firms, their internal organization locations, and their responses to technological and market competition in clusters.

Jeonghye Choi, David R. Bell, Leonard M. Lodish Online, brick and mortar … or both? How can retailers make mixed marketing in these two segments work most effectively? The authors examine data from a leading Internet retailer to explain geographic variation in the success of word of mouth, magazine advertising, and online marketing, and they examine the impact of zip-code customer density on these methods. First they show that target customer density explains geographic variation over and above the impact due to the number of potential customers. Moreover, the effect of density is greatest for offline and online word-of-mouth acquisitions; this finding suggests that density contributes to the “bandwagon” effect. They find also that word of mouth is most effective when senders and recipients share consumption benefits. Finally, they show that acquisition channels contribute differently to the total customer pool—offline word-of-mouth acquisitions are clustered, whereas magazine acquisitions are dispersed. The insight for management: Using a new approach to target specific online markets could deliver a twofold improvement in actual click-to-order rates.

Long Gao, Susan H. Xu, Michael O. Ball How should firms reserve capacity to achieve service goals for future orders when those orders are highly uncertain? A “pseudo order” refers to a tentative customer order whose attributes, such as the likelihood of an actual order, order quantity, and confirmation timing, can change dynamically over time. Accepting a pseudo order involves trade-offs between committing resources (production capacity and component inventory) to nonbinding orders and reserving resources for high-profit orders. The authors show that the optimal order-acceptance policy requires prioritization of orders, rationing based on resource imbalances, and matching available capacity and inventory to demand. The insight for management: The net difference between the production capacity and component inventory levels relative to the short-term forecast is critical to making optimal order acceptance decisions.

David Gaddis Ross “It's a seller's market” is the claim of investors who can't buy strategic factors economically. But if evaluation costs are high, the author suggests that relative scarcity may not always benefit sellers. If competition grows past a certain point, miscoordination among buyers increases to the point that sellers' expected profits decline. The author suggests two ways in which investors might organize to overcome managerial errors in resource evaluation. The first is incentivization, wherein a lower-level manager is motivated by an incentive contract to evaluate resources for an investor. The second is supervision, wherein evaluation either is handled directly or is closely monitored by headquarters. The insight for management: Competition among investors when valuable resources are rare creates an organization with centralized supervision, which leads to lower offers.

P. J. Lamberson, Scott E. Page What are the optimal composition and group size of a group for making a combined forecast? The authors suggest that it depends on a factor called “coherence” of the group, which is a function of the accuracy and covariance of forecasters in the group. The insight for management: Group size plays a critical role in determining the optimal group; in small groups the most accurate type should be in the majority, whereas in large groups the type with the least within-type covariance should dominate.

Gediminas Adomavicius, Shawn P. Curley, Alok Gupta, Pallab Sanyal Recent theoretical advances have shown that combinatorial auctions—in which bidders can bid on combinations of goods—can increase the economic efficiency of a trade when goods have complementarities. But if the products being offered are complex, does that hamper the ability of bidders to evaluate the bundles and thus reduce their willingness to bid? The authors evaluate online continuous auctions and combinatorial clock auctions with different feedback mechanisms. For example, participants might be given no feedback, feedback on the winning bid, or feedback on winning prices. In each case, participant behaviors change based on the information made available to them. The insight for management: Information feedback to bidders may help sellers design better combinatorial auction environments.

Manel Baucells, Franz H. Heukamp Should a decision maker make a decision now or wait for better information to reduce uncertainty? Probability and time are integral dimensions of virtually any decision. The authors consider the prospect of receiving a certain outcome with some uncertainty at some time. The authors examine trade-offs over risk and time and describe how these might be perceived psychologically by the decision maker. The insight for management: Time, uncertainty, and psychology all enter into the decision maker's calculus of a decision.