Do you believe the company you work for cares about you? Do you feel you have a purpose at work?
“Sixty percent of employees express a need for purpose at work,” Anjan Thakor, Olin’s John E. Simon Professor of Finance, said during a recent Business Research Series event. “But they don’t get it at work.”
In addition, “88% of employees in US companies feel that the company they work for does not care for them,” Thakor said in his March 3 virtual presentation titled “How Can You Create a Purpose-Driven Organization?”
“Everybody hungers for purpose.”
The answer lies in organizations’ embracing an authentic higher purpose, he said, with the higher purpose as the “arbiter of all decisions.”
Two events in recent weeks perfectly manifest the investment we’ve made to advance a key strategic priority for WashU Olin Business School—strengthening and broadening our reputation for impactful research.
One of those events puts a human face on our work; the other is more data driven.
That announcement came in January, shortly after Professor Gârleanu joined Olin’s faculty as a full professor following 13 years with the University of California, Berkeley, Haas School of Business. While we must acknowledge that Nicolae’s award-winning research was done even before his time at Haas, his presence at Olin illustrates the success of an important tactic we’ve employed: Recruiting strong, mid-career scholars to our faculty.
When I first arrived at Olin, I was impressed by the high quality of the faculty. I wanted to build on that high level of talent, as I’ve discussed in past blog posts. While nurturing our existing talent, we are systematically recruiting seasoned and senior faculty with records of producing top research who want to join our outstanding research faculty. Nicolae’s recent award brings to light an example of how it’s working.
It’s important to note, by the way, that such a strategy only works if faculty see value in joining Olin. They must see that their research is supported as a priority.
“I have not needed extensive financial support; time is a more important consideration for me,” Professor Gârleanu said recently. “Olin offers excellent opportunities to organize one’s teaching and administrative duties in a highly efficient manner. In that regard, it is far ahead of many other universities.”
What the data says
The second significant event illustrating the success of our research strategy came with the release in early February of the 2021 Financial Timesfull-time MBA ranking. WashU Olin’s top-25 global showing—the highest in our history—was significant in-and-of itself. But hidden among the ranking criteria was this little gem: Olin placed first in the world for research.
That ranking is based on the number of publications per capita in the top 50 business research journals. And although the FT’s tally carried on without five of the world’s highly ranked schools—Harvard, Stanford, Wharton, MIT Sloan and Columbia Business School—the trajectory of our research ranking remains remarkable, rising from 12th in 2019, to ninth, then first in subsequent years.
Such a trajectory also gets noticed when we recruit faculty. As Todd Milbourn, vice dean of faculty and research notes, prospective faculty members look at us “to see how productive the faculty are. Are our faculty publishing in the field’s top journals? Are our faculty presenting at the big conferences? We are in the top set of schools in this regard.”
A few more data points
While those examples are recent and significant in our drive toward building Olin’s research reputation, they’re not the only points worth mentioning. Consider:
Emphasizing research has meant raising research allowances, increasing the number of funded PhD placements, raising PhD stipends and rewarding research performance through promotion, early promotion and merit awards.
Our faculty hiring strategy also included creating the “professor of practice” position, providing the space and time for path-breaking research while maintaining and building on our teaching strength.
Our research productivity remains high in other measures, as well. For example, the University of Texas at Dallas’ business research database for 2020, tracking publications in 24 leading journals, ranked Olin 20th in North America, with 160 articles published between 2015 and 2019, up from 151 in the previous four-year period.
A broad selection of Olin faculty members have secured editor posts on noted journals—too many to enumerate here. And in related news, our supply chain faculty assembled such a strong lineup of academic papers for the fifth Supply Chain Finance and Risk Management Workshop in May 2019, an important journal in the discipline devoted its entire October issue to the research.
These examples do not represent the end of the work. They’re guideposts, signaling progress in the right direction. And it is worth pausing for a moment to take note of these guideposts—but only a moment.
Research and development is the key expertise of Anne Marie Knott, who developed the metric known as the Research Quotient (RQ), the only innovation metric that reliably predicts firm value.
With the new presidential administration announcing its economic-policy intention to invest $300 billion in research and development, there is a key voice offering the caution: Aim for the development end.
That is the counsel of Knott, the Robert and Barbara Frick Professor in the Olin Business School.
“President Biden has his work cut out for him in ensuring ‘a future made in all of America … where the United States wins … the jobs and industries of tomorrow.’
The most important thing he can do in the short-run is dedicate the $300 billion additional R&D to development (D) rather than research (R), she said.
“This level of investment could indeed bear fruit, but not if targeted at research,” Knott said.
(Research is diligent inquiry or examination to seek or revise facts, principles, theories, applications, etc. Development is about growth and directed change. Essentially, one is the creation of new ideas and the other is the application of them.)
“There has indeed been a dramatic decline in federal R&D support, but the decline is not in research. It is entirely in development.
“In fact, the decline in American R&D productivity tracks the decline in federal development almost perfectly. The decline in federal development is therefore the most likely culprit for the decline in R&D productivity. Thus, investing in research is solving the wrong innovation problem.”
Businesses beware: A price increase for carryout or delivery food means an increase in negative reviews—and a downturn in restaurant reputation, if not demand.
And it’s notable that in these COVID-19 pandemic times, an exponential amount of business is being conducted via carryout or delivery.
A pair of business researchers, from Washington University in St. Louis and Harvard University, studied the relationship between price and reputation by looking at online orders through Yelp’s Transaction Platform from its 2013 inception until January 2019, and then the resulting reviews. What they found: Ratings are price-adjusted rather than objective reviews of quality.
Their study showed an effect that is both statistically and economically significant: A price increase of just 1% leads to a decrease of 3%-5% in the average rating — a negative relationship between pricing decisions and reputation. “This effect becomes increasingly important when considering the average price change is about 3-9%,” they write. Their research is forthcoming in Management Science.
“Traditional intuition suggests a positive relation between prices and reputation, usually in the form of a price premium for reputable businesses,” said Oren Reshef, assistant professor of strategy at Olin. “Less attention, however, has been given to the direct impact of price increases on reputation for a focal firm. We find a negative relation when examining different price levels for the same business.”
The researchers used item-level data on all food orders placed via the Yelp Transactions Platform. There, they could detect changes in ratings in response to price changes. They keenly focused on narrow time bands around price changes—just days before and after restaurants updated their menu prices.
To provide further robustness to their findings, they analyzed instances where certain platforms are quicker than others to update the price. Thus, they focus on short time spans in which the same item is sold at different prices, one at the old price and one at the new price.
A new business creed
If nothing else, the study signals a new business creed: Be careful about raising prices, because, in addition to the direct negative effect on sales, down the line it will decrease reputation and, as a result, future business.
“Our results amplify the negative effect of price on sales: higher prices reduce demand today and demand in the long-run due to adverse effect on reputation,” Reshef said. “This is especially prominent in online markets, where consumers rarely know the prevailing prices and the time the review was given. This creates an additional incentive to maintain low prices and perhaps even set lower initial prices in order to establish good reputation.”
Their results hold more generally in the Yelp Star Rating, suggesting that ratings are a function of both quality and price — the cheapest restaurants achieve an average rating of 3.4 while the most expensive on average rate 3.6, less than a quarter standard deviation, despite the fact the latter group is four times as pricey. The researchers interpret this to mean that ratings are price adjusted — or at least adjusted for the expected quality at whatever price.
“The results inform us about the value of rating mechanism and how to interpret them,” Reshef said. “Online rating may not be capturing ‘objective’ quality, but rather the net value or surplus that the service or product generates. We believe that, in order to offer better platforms, managers should take this into account when designing reputation mechanism and recommendation systems on their platforms.”
The authors further attempt to disentangle other mechanisms that might impact consumers’ rating behavior. They discovered the effect is greater for first-time restaurant consumers — suggesting that diners initially respond to prices, which set their expectations for the quality of food they’ve never tasted or ordered before. This also shows that the results are not driven by repeat customers using lower ratings as a punishment for raised prices.
This price-reputation relationship translates to so many other consumer areas, what with the proliferation of Amazon, Airbnb, Taobao in Asia, grocery- and food-delivery services that grew during the pandemic, and more.
And, sorry, they cannot speak to price reductions—mainly because they were so seldom seen in the businesses they studied.
President Joe Biden has expressed support for raising the federal minimum wage for federal contractors and employees to $15 per hour. On Jan. 26, House and Senate Democrats took it a step further— introducing legislation to increase the federal minimum wage to $15 per hour by 2025, more than doubling the current minimum wage of $7.25 per hour set in 2009.
Gopalan, who has used big data on multiple impact studies on minimum wage increases, recommends delaying any increase until 2022 to allow the economy and unemployment rates to rebound.
He also recommends increasing it in increments of $1 to $1.50 and, going forward, having a clause to automatically index the minimum wage rate.
In a forthcoming paper in the Journal of Labor Economics, Gopalan and Barton Hamilton, the Robert Brookings Smith Distinguished Professor of Economics, Management and Entrepreneurship, found positive and negative effects for U.S. workers over a two-year period in six states that enacted minimum wage increases between 75 cents and $1.25 per hour in the 2010-15 period.
On the positive side, their study shows that minimum wage hikes not only increase the wages of those workers, but also create a positive “spillover” effect on the wages of other workers earning up to $2.50 above the minimum wage. Additionally, these workers continue to retain their jobs as they are no more likely to be fired.
‘Make the increase more gradual’
However, raising the minimum wage hurt new entrants into the labor market. Researchers found that businesses, especially those making tradeable goods — such as the manufacturing sector — reduce the rate of hiring new workers at low wages following an increase to minimum wage rates. Read more about this research here.
Given the fact that unemployment remains at 6.7%, according to the U.S. Bureau of Labor Statistics, Gopalan warned that increasing the minimum wage would likely make a bad situation worse.
“There are two broad effects of a minimum wage increase. One, it reduces firm’s incentives to hire more minimum wage workers. This effect would be all the more enhanced when firms are hurting from the pandemic,” Gopalan said.
“On the flipside, minimum wage increases put money in the hands of people who are most likely to spend it. Thus, a wage increase is likely to give a boost to consumer demand.
“Having said that, the multiple stimulus packages have put a lot of money in people’s hands, so one is talking about demand in the economy possibly outstripping supply once the pandemic is brought under control. Some are already cautioning about the economy overheating.”
Going slow on the minimum wage increase is the best option, Gopalan said. “Not only is it better to wait for the pandemic to be brought under control, but it is also good to make the increase more gradual and not drastic from $7.25 to $15 in one fell swoop.
“Currently, small businesses are especially hurting from the pandemic. The restaurant sector, which employs a significant number of minimum wage workers, and the retail sector are struggling. Raising the minimum wage now would spell a death knell for many small restaurants.”
The WashU community is extremely fortunate to have in our midst a leading thinker, teacher, practitioner and scholar focused on issues of diversity, equity and inclusion. Now, that leader, Adrienne Davis, has joined the WashU Olin faculty as a professor of organizational behavior and leadership.
Adrienne’s joint appointment at Olin—in addition to her existing post as the William M. Van Cleve Professor of Law—became effective on January 1. She will split her time between Olin and the law school, and she continues as co-director of the Center for the Study of Race, Ethnicity & Equity, which she founded last year. More on that in a moment.
“I’m excited to take my institutional work over the last decade and pursue research into how diversity can be best implemented across different sectors,” said Adrienne, whose appointment is one-third with Olin and two-thirds with the law school. “I’m especially interested in diagnosing the distinct challenges of diversity in higher education.”
While I also know Adrienne is eager to get back into the classroom, that will wait while she completes a one-year leave—and a book she’s been working on. She’ll begin to teach Olin classes in the 2022-23 academic year, but I expect we will see her around campus—virtually, these days—while she continues her research.
I’m gratified by the reception she’s already received from the faculty.
“Adrienne brings a depth of experience in the leadership arena as well as diversity, equity, and inclusion,” said Hillary Anger Elfenbein, chair of the organizational behavior area among the faculty. “She complements the research areas within the organizational behavior group. We are delighted to welcome her.”
I feel a sense of anticipation for what fertile new areas of inquiry await Adrienne and our existing faculty.
“I’m so impressed with Olin and with the OB team,” she said. “This will be a really wonderful place to learn a new mode of sharing my research—and sharing it with a different domain and audience.”
This is an exciting next step for both Olin and Adrienne, as she transitions from the administrative role she’s held for a decade as vice provost for the university. Among her many accomplishments in that role, Adrienne helped increase the number of Black tenured and tenure-track faculty on the Danforth Campus, and the percentage of underrepresented faculty of color among tenured and tenure-track faculty. She also designed a series of faculty development and leadership programs that have been producing outstanding new leaders, not only here at Washington University, but nationally.
Returning to her first love
At former Chancellor Mark Wrighton’s behest, former Provost Ed Macias appointed her for a two-year term in that role—and she stayed eight years beyond the appointment. “I’m a legal scholar and lawyer at heart,” she said. “It was exciting to test my research in critical race theory and feminism in the real world to see if they could drive meaningful institutional change. Now I’m excited to get back to my research and teaching full-time.”
And speaking of research, as I mentioned earlier, Adrienne continues in her role as co-director of the Center for the Study of Race, Ethnicity & Equity, which she founded and launched last year. The center is a forum for research collaborations across campus to study how race and ethnicity are integral to the most complex and challenging issues of our time.
“The nation is at a turning point in rethinking racial justice,” she said. “Many firms and other organizations are on the front lines of this. I’m delighted that I’ll have a role at Olin to lead these new conversations—and I know the business school can be a leading laboratory and incubator for this work.”
On a personal level, I’m also grateful for Adrienne’s willingness to be my special advisor on these issues as Olin builds and implements a strategic plan that allows our community to fully live into its stated values.