Tag: Faculty

Pharmaceutical and biotechnology companies topped the 2021 RQ Top 50 list of the most innovative U.S. companies. The annual ranking identifies the smartest R&D spenders – those companies that both spend big (at least $100 million in R&D) and provide the greatest returns to shareholders from that investment.

Notably absent from the list were the three most attention-grabbing pharmaceutical and biotechnology companies of the year – Pfizer, Moderna and Johnson & Johnson.

Anne Marie Knott

That’s because the RQ50 is not like other innovation rankings. Developed by Anne Marie Knott, the Robert and Barbara Frick Professor in Business at Washington University’s Olin Business School, RQ (research quotient) measures R&D productivity in theoretical models linking R&D investment to revenue growth and market value – precisely the outcomes executives and investors care about, Knott said.

“RQ essentially measures how smart companies are. Just as high IQ individuals solve more problems per minute, high RQ companies solve more technical problems per dollar,” Knott said.

“While most of the market still thinks R&D spending is the best gauge of companies’ innovativeness, it’s not. It’s quality not quantity of R&D spending that matters.”

The proof is in the numbers: The RQ50 portfolio historically outperforms the S&P 500, despite the fact that the two portfolios bear the same level of risk (beta), Knott said.

What does it take to make the RQ50?

The 2021 RQ50 represents a broad swath of the economy. The biggest representation comes from pharmaceutical and biotechnological companies, which comprise nine of the top 50, or 18%. Makers of semiconductors make up 14% of the list followed by computer programming at 10%. By contrast, 28% of the RQ50 are the only firms in their industry to make the cut.  

“So it’s not the case these firms are all riding the same wave of opportunity,” Knott said. “The RQ50 firms are standouts in their respective industries.”

Now in its eighth year, the RQ50 ranking is fairly stable: 66% of firms from the 2020 ranking appear again in 2021. According to Knott, that’s because firm capability changes slowly.

Of the 50 companies who made this year’s ranking, six have made the RQ Top 50 all eight years since CNBC published the initial RQ50 in 2014. These standouts include Hasbro, Lam Research, Netflix, NewMarket, Synaptics and Xilinx. 

New to the list

Seventeen companies are new to the RQ50 list. How did they make it?

  • Alarm.com, FMC, Guidewire Software, Match Group, NortonLifeLock and Qualcomm were close last year, but ascended this year.
  • Abiomed, Church & Dwight Co. and MaxLinear crossed the $100 million R&D threshold in FY2020.
  • Cara Therapeutics – No. 2 on the list – was excluded last year because its R&D exceeded revenues.
  • Prior to FY2020, Acacia Communications, Blueprint Medicines, Corcept Therapeutics, Hewlett Packard Enterprise, Lumentum Holdings, Square and Xperi Holdings hadn’t been publicly traded and conducting R&D for enough years to form their RQ.

Who dropped out?

In order for 17 firms to ascend, another 17 had to drop out. What happened to them?

  • AMAG Pharmaceuticals and The Meet Group were acquired.
  • Retrophin rebranded itself and now trades under a different name.
  • Halozyme Therapeutics and Ironwood Pharmaceuticals dropped out because their R&D spending fell below the $100M threshold for inclusion.
  • Arena Pharmaceuticals, Enanta Pharmaceuticals, Lexicon Pharmaceuticals and PTC Therapeutics no longer have revenues that exceed their R&D, a criterion for inclusion. 
  • Allison Transmission, Dow, Intuitive Surgical, FireEye, Sirius XM, Take-Two Interactive, United Therapeutics and Veeva Systems failed to maintain RQs sufficient to keep them in the top 50.

COVID-19’s effect on innovation

While the COVID-19 pandemic shut down manufacturing lines and disrupted global supply chains, research and development – at least so far – appears to have continued its upward trend. During FY2020, which for some ended in June 2020 and for others not until May 2021, R&D spending in absolute dollars increased by 6%. During this same time period, revenues fell on average 10%, making the R&D investment even more significant.

“In most cases, firms committed to their FY2020 R&D spending before the pandemic. So it’s still too early to measure the pandemic’s full impact on firm R&D investment,” Knott said.

“However, I’m cautiously optimistic that firms will continue to prioritize R&D because if there’s anything the pandemic has taught us, it’s the importance of innovation.”

There’s growing evidence that the COVID-19 pandemic spurred a small business boom. In May, the National Bureau of Economic Research found that small business rose 21% in 2020, compared to the prior year.

Even in the best of times, though, launching a successful small business is challenging. About 20% of U.S. small businesses fail within the first year, according to data from the U.S. Bureau of Labor Statistics. So, starting a small business during a global pandemic may seem especially risky.


However, recent developments—such as changes in the labor force—may play to small businesses’ advantage, says Glenn MacDonald, the John M. Olin Distinguished Professor of Economics and Strategy at Olin Business School.

MacDonald has extensive experience advising businesses large and small. Last summer, in conjunction with the STL Small Business Task Force, MacDonald and more than 50 of his former students provided volunteer consulting for struggling local small businesses.

MacDonald offered the following perspective on current challenges and opportunities for small businesses:   

Small businesses come in two flavors — those that are currently small but will either grow or die, and those that are inherently small. The former tend to be startups and small consulting companies; the latter are small restaurants, hair salons, yoga studios, coffee shops, etc.

The inherently small businesses always face two big challenges.

One is that they have relatively little capital and limited access to credit. A business slowdown, or worse, a lockdown, often wipes them out as they miss rent payments, payments to suppliers, etc. From this perspective, emergence from COVID times is very good news for those that have held on or recently started. But the return to mask mandates and uncertainly about the future will challenge these businesses considerably.

The second challenge is people. The inherently small business owner often has less education and experience, and is less capable of making the adjustments needed to survive a slow time. In addition, these businesses tend to pay less and attract a workforce that is less skilled and less able to continue with a job where business and pay are slowing. Thus, the small restaurant loses most of its cooks and servers if business slows and faces the difficult task of rebuilding when it picks up. From this perspective, the last year or so has been exceptionally challenging for small business, and it will stay that way for a while.

The startups and smaller or growing businesses have generally been better-positioned to ride out the recent year, and are now showing clear signs of improvement. They generally have access to somewhat better capital, education and experience, and more educated employees with fewer retention issues. The current uncertainty will slow them somewhat, but they should return to their pre-COVID path in the near future. 

Some of the recent developments play to small businesses’ advantage. For example, many in the labor force have found great value in work from home and greater flexibility, and are even willing to work for less to get it. Some medium and large companies can provide this structure, but they always find difficulty in light of the need to determine who is allowed to work in this way, developing consistent HR policies, etc. But small businesses can be more nimble and are finding increased ability to attract more educated and experienced employees without great increases in compensation.

It’s difficult to say if now is a good time to open a small business. A lot of the competition has been wiped out, so perhaps so. But starting up, dealing with the cash flow and credit issues as well as the people challenges, will all make business difficult for an undetermined period of time. So, it’s important to have a well thought out plan for riding that out, at a minimum.   

Too much milk gets pitched, something that was an issue long before these pandemic times of global food insecurity. One of every three gallons of milk was estimated to go to waste in America, according to U.S. Department of Agriculture data from the previous decade. A group of scientists, including one now at Washington University in St. Louis, used mathematical models to integrate knowledge from multiple disciplines — milk production and processing, microbiology and supply chain — thereby striving to attack a centuries-old problem: spoiled milk.

Their research, in particular, found two main strategies that could be used at the beginning of the milk supply chain – on the farm and in the processing plant — to prevent psychrotolerant (cold-growing,) spore-forming bacteria from contaminating and prematurely spoiling milk:

  1. Premium payments such as bonuses (or penalties) based on lower (or higher) spoiling bacteria counts in raw milk;
  2. Investing in spore-reduction technologies at the processing level.

Their study, concluding that enacting both strategies could improve some milk shelf life anywhere between a half-day to 13 days, was published July 8 in one of the Frontiers journals, Frontiers in Sustainable Food Systems.

“In general, I would say that this is not a one-prescription-for-all problem,” said Forough Enayaty Ahangar, a newly arrived lecturer in supply chain optimization at the Olin Business School. “The results of our optimization models demonstrate that optimal combination of interventions is highly dependent on characteristics of each individual dairy processor. These characteristics include the volume of processed milk and the quality of supplied raw milk. Therefore, our optimization models provide novel decision tools from which individual processors can benefit and determine the best strategy for their facility.”

Enayaty Ahangar

At the intersection of food science, population and veterinary medicine, and supply chain sit bottles of milk, creating a worldwide problem the longer they sit. So Enayaty Ahangar teamed with researchers at her previous institution — Sarah Murphy, Nicole Martin, Martin Wiedmann and senior author Renata Ivanek at Cornell University — to test the strategies via modeling.  

This study targeted the problem of premature spoilage of milk caused by bacteria — Bacillus sp. and Paenibacillus sp. ­— which enter raw milk on farms and whose hardy spores can survive pasteurization. (There is an alternative pasteurization, but it costs more and consumers complain about the milk taste after undergoing the higher temperatures utilized.)

Comparing their findings with Agriculture Department data from 24 states and based on a cow producing 64 pounds or 15 half-gallons of milk per day, the team ran 24 case studies — or generated instances, as they called them — looking at processor size, the number of milk producers in the supply chain and the planning horizon, meaning five and 10 years down the road.

Premium payments, or production-level interventions

Farmers should be encouraged to implement fixes and improve processes from the get-go — starting with milk from the cow’s udders — if they are rewarded for consistent high-quality milk in terms of spore-forming spoilage bacteria contamination and penalized for low-quality milk.

Contracts similar to this bonus/penalty guideline already exist in U.S. livestock commodities such as eggs and chicken, the authors noted. In this paper, the researchers propose a new, flexible bonus/penalty system based solely on raw milk’s initial spore counts at production.

Spore-reduction investment, or processing-level interventions

 Milk-processing companies know that technologies such as microfiltration and bactofugation are costly to acquire, install and operate. But this research illustrated how using both of those approaches, including a third, double-bactofugation method, were the most effective ways long-term to eliminate spore-forming bacteria from milk.

Their models predicted, by using such processing-level interventions and investments, shelf lives for milk would increase across the board. That improved shelf life — defined as the first day when 5% of milk packages carry a specific bacterial count — ranged from 20-26 days (for small processing plants) to 28-31 days (medium) to an average of 34 days (large).

“There is increasing attention in the dairy industry to the importance of using low spore count raw milk to produce high-quality dairy products, yet there is no blueprint for industry decision-makers on how to achieve this,” Murphy said. “Importantly, our study contributes to the conversation regarding how the industry can invest in dairy farmers and technologies and provides tools that may have the potential to support industry decision-makers.

“Our focus was mostly on how the process can better allocate their budget to achieve longer shelf life for their processed milk,” Enayaty Ahangar said.

In short, the research showed that medium and large processors could enact interventions and improve their milk’s shelf life up to 13 and 12 days, respectively.

“Working with Cornell’s Veterinary School, one of the best in the U.S., was an amazing experience for me,” said Enayaty Ahangar, trained as an industrial engineer and a specialist in optimization. “I got to work with epidemiologists, microbiologists, food scientists, people from business schools…. And because our novel optimization models integrate methods and knowledge from multiple disciplines, I believe our paper has the potential to be a good starting point for many other research projects in the food industries.”

“The ultimate goal of our research is to support the development of sustainable milk production supply chain, where milk waste is reduced in a way that is cost-effective for all players in the continuum of food production and consumption, and is socially acceptable and environmentally sound,” Ivanek said. “The decision support tools like the mathematical models of milk spoilage developed through the multidisciplinary research effort in this study are an integral part of that journey.”

Added Wiedmann: “This project continues the development of digital tools for both dairy and other food supply chains, which will play an important role as decision support tools for industries as they continue to improve productivity and sustainability of nutritious foods.”


This work was supported by the Foundation for Food and Agriculture Research, grant number CA18-SS-0000000206.

On June 16, the Federal Reserve announced it may raise interest rates twice in 2023 in response to higher-than-expected increases in inflation. In his announcement, Fed Chairman Jerome Powell said the higher inflation recorded this year should be temporary, but the risks that it would be “higher and more persistent than we expect” could not be ignored.

John Horn, professor of practice in economics at Olin, agrees with Powell’s overall inflation forecast of 3.4% for 2021. Inflation in some high-demand categories — such as travel, construction material and automobiles — may be even higher, he said.


However, some prices, such as lumber, are already coming back down, providing hope that current inflation is a short-term corrective measure and not a sign of long-term systemic problems.

“The uncertainty for me is how this gets played politically and what messaging gets through,” Horn said.

Inflation, Horn explained, can be a self-fulfilling prophecy. Worry about rising inflation can lead employees to demand higher wages. In order to pay those higher wages, employers raise prices for their products and services, creating actual inflation. The wage-price spiral is a vicious cycle. Likewise, inflation expectations will cause banks to increase interest rates, making it more expensive for businesses and individuals to borrow money.

“It’s important for the Fed to make sure that this is seen as a temporary blip and not systemic. Because if it’s seen as a systemic problem, and inflation expectations take charge, it’s really hard to make it stop,” Horn said. “Once that happens, the only way to stop inflation is to raise the interest rates really high and cause a recession. Maybe not in 2022, but it will be on the Fed’s radar. They will want to stop [rising inflation] sooner than later.”

“However, if prices come down and people see this as a temporary blip related to COVID-19 and the supply chain problems — if that story takes hold — then I’m not worried about inflation,” he added.

What’s driving inflation?

In the simplest terms, inflation occurs when consumer demand increases or supply contracts causing prices to rise. The current economic situation is a little more complicated, in part because both effects are occurring.

“There’s not a clear understanding of what is currently driving inflation, but most people are pointing to a couple of things,” Horn said. “First, as the economy is recovering from COVID and the shutdown, there has been an increase in demand for things people weren’t buying over the last year due to uncertainty about job future or lack of opportunity — like travel and dining out. As demand increases, so do prices. That’s one driver.”

Adding to the problem, many of the fastest growing sectors — including travel and hospitality, entertainment and restaurants — are struggling to find people to fill open jobs. These jobs typically don’t pay the best wages, and some would-be-workers are looking for better opportunities in other industries. Lack of child care and fears over COVID-19 exposure also are keeping former employees from returning, Horn said.

Another contributing factor: When the pandemic hit, companies scaled back production or, in some cases, shut down factories altogether. Now that demand is increasing, it will take time for the supply chain and production to catch up, Horn said. A highly publicized example of this is the global shortage of semiconductor chips.

“They are used in more things than might expect — not just electronic devices, but also automobiles and appliances. Even if production capacity is available, the raw material inputs are not always available. When we think of the supply shock, the supply is constrained because all up and down the supply chain, companies slowed down or shut down at the beginning of pandemic. And the startup is not instantaneous,” Horn said. 

Ongoing effects of trade wars started under the Trump administration also have driven inflation.

“International trade normally lowers price because you have more opportunities for competition and lower prices,” Horn said. “The trade conflicts, coupled with COVID, have reduced that as an option for price competition.”

While a boost in international trade would have a positive effect on inflation, many of the countries that have historically provided lower-cost labor will continue to struggle with COVID-19, Horn added.

A measured response

The trillion-dollar question of the day is whether the current inflation is just a corrective shock coming out of the COVID-19 pandemic or rather a longer-term systemic shift. The answer will be primarily determined by monetary policy, Horn said.

Since the Great Recession of 2008-09, central banks around the globe have been pumping money into their national economies in an effort to stimulate the economy. Before the Great Recession, the Fed had just $800 billion in the economy. Today, that figure has grown six-fold to $6 trillion.

“When that extra money is out in the economy and there’s not more products to buy, prices will go up because consumers will be willing to pay more to get the products they want,” Horn said.

“That’s the longer-term systemic problem with having an increase of money in the system. And most central banks around the world have been doing this for more than a decade.”

Decreasing the money supply without triggering a recession is a challenge, though. Before the pandemic, the Fed had successfully decreased the money supply to the $3-tillion range. But, over the past 15 months, the money supply has doubled and surpassed its post-Great Recession peak, Horn said.  

“This really is a balancing act: How fast can they pull back on money supply to prevent inflation from taking off without putting the brakes on the economy just as we’re recovering from COVID?” Horn said.

“If the Fed takes the money out too slow, it causes systemic inflation, as opposed to temporary corrective inflation, which may be what’s happening right now. On the other hand, if they start to incrementally increase interest rates ahead of that happening, they’ll also cause a recession. It’s not like the global economy is so stable and strong that the Fed has a lot of wiggle room to play with.”

While it has been more than 40 years since the U.S. experienced serious inflation, the country has already experienced two significant recessions in a little more than a decade. A third recession could be disastrous, especially for younger generations. Getting this response right is of the upmost importance, Horn warned.

“My grandparents’ generation lived all their lives as if they were still in the Depression,” he said. “There already is some evidence that younger generations — Gen Z and millennials — are starting to behave this way. If that cohort goes through three major recessions in less than two decades, it will affect consumption — probably for the rest of their lives.

“That’s not good for the long-term economic growth of the U.S.”   

Anjan Thakor, Olin’s John E. Simon Professor of Finance, has received a Lifetime Achievement Award from the Financial Intermediation Research Society (FIRS) for his contributions to financial intermediation research.

FIRS is a global society of research scholars dedicated to stimulating, promoting and disseminating research on topics relating to financial intermediation. The main goal of the society is to provide a worldwide forum for those interested in financial intermediation and related topics.

FIRS seeks to bridge the gaps that exist in the flow of ideas across the different continents. It encourages bringing scholars in emerging markets into the mainstream of financial research.

Thakor delivered the keynote address at the 15th annual FIRS Conference this month.

On May 13, the director of the U.S. Centers for Disease Control and Prevention announced that people fully vaccinated against COVID-19 do not need to wear masks or practice social distancing indoors or outdoors, except under certain circumstances.

The announcement came as a surprise to many, including business owners who suddenly had to reevaluate their mask requirements and how these changes might impact their employees and businesses.

In a November 2020 studyRaphael Thomadsen, professor of marketing, and Song Yao, associate professor of marketing, both at Olin Business School at Washington University in St. Louis, found mask mandates boosted consumer sales by 5% on average. But that was before COVID-19 vaccines were readily available.

Below, Thomadsen and Yao share their perspectives on how the new CDC guidelines might impact businesses.

How might the new CDC guidelines impact retail, restaurant, travel and leisure business? 

“I think it is too early to tell what the impact of this will be,” Thomadsen said. “My sense is the business effect does not come directly from the rules, but on whether people feel safer with these recommendations.


“Travel and restaurants were already beginning to pick up beforehand. That said, I suspect that there is a segment of the population that will be assured by the CDC recommendations and will start going out. In that sense, I think that the recommendations will probably help the restaurant and bar category in particular, where wearing a mask might not be feasible.

“For everything else, it is harder to know at this time since there is evidence that masks helped people be confident that they are safe while shopping. On the other hand, those studies are from before the time of vaccines, so there is good reason to think that the masks may not make as many people feel safe as before.”

“I also think it may take a while to tell the impact of the new guidelines. But my reasoning is that many local governments and business are hesitant to relax the mask requirement yet,” Yao said. “Talking with some colleagues and friends, I also notice that many people say they will still wear masks, and some even said they would reduce their visits to groceries if those stores start to relax right away.

“In a couple of weeks, if the case number remains low, local governments, business and, more importantly, customers may become more confident going out shopping.

“In short, the guidelines probably do little to boost the business. Rebuilding confidence is more crucial, which requires more vaccinations and reduction in case numbers.”

Are businesses caught between a rock and a hard place if they do or don’t continue to require masks?

“I think this depends a lot on where the business is located,” Thomadsen said. “In St. Louis, I have observed most people still wearing masks at supermarkets or other stores, and even some stores still requiring masks. I suspect that these businesses are OK requiring the masks — the number of people who are truly anti-mask, to the point of not accommodating polite requests, in the country is relatively small. If there is another surge, I think that those businesses can go back to requiring masks.

“That said, I do think there are some areas in our country where there is stronger pushback. This probably affects the Walmarts and more corporate businesses more than the small local businesses, who probably already ignored the mask mandates if their customer base strongly opposed them.”

What do businesses need most right now? 


“Beyond the multiple rounds of stimulus checks, I feel the government still needs to figure out some innovative approaches to boost vaccination rates,” Yao said. “While the vaccination passport idea may be infeasible, some financial incentives for vaccination may not be a bad idea. Ultimately, this would be good for public health and businesses alike.”

 “From my perspective, the largest issue currently impacting businesses is that many supply chains are not running at full capacity,” Thomadsen said. “It is hard to get supply chains to get synchronized, so I think that is to be expected as the economy gets back to full strength.”

Added Yao: “As Raphael pointed out, it may worthwhile to figure out the weak links in the supply chain and spend some money to fix those first.”

Less than half of the population is fully vaccinated, and children 11 and under are not yet eligible to receive a vaccine. Was this move too soon?

“This is a hard question. I would have preferred that we use vaccine passports rather than this type of guidance,” Thomadsen said. “However, such a system is costly and perhaps politically fraught. I also do not think that this policy incentivizes people to get vaccinated, so from that point of view, the decision was not a great one.”

“On the other hand, you cannot keep things closed forever, and cases have already fallen a lot. Most people who want to be vaccinated have gotten vaccinated, except for children, so it is not clear how beneficial waiting would be. 

“Most importantly, though, the declines we see likely reflect not just the vaccinations, but the fact that people who had COVID previously are less likely to get COVID again. The best estimates are that half of the people in the US had COVID, where only about 20% of these cases were diagnosed. If we take early estimates the we need 70% community immunity to contain the spread of COVID, we are there when we add the vaccinations and the cases together (even accounting for overlap). I am not saying that people who had COVID shouldn’t be vaccinated – there are many cases of people getting COVID twice. However, as long as people who had COVID are less likely to get it again, what we are seeing now is that, as a community, this reduced susceptibility is likely enough.

“I expect we will know whether this decision was a good one in about two weeks. If cases continue to plummet even after two weeks then it was the right call. If cases plateau again – or – even rise, then it was too early.”