Tag: research

Small private firms that provide health insurance for their employees have better worker productivity and retention—as well as overall profitability—when compared with small firms that don’t offer health insurance, according to research by Ulya Tsolmon, assistant professor of strategy for Olin Business School.

The results suggest that investments in employee health and well-being provide a competitive edge to firms, especially when labor market competition for workers is high.

Firms have been shifting the costs of health care to employees, but they “might be wise to view employee health benefits as an investment that can yield significant returns,” Tsolmon and coauthor Dan Ariely, of Duke University, write in “Health Insurance Benefits as a Labor Market Friction: Evidence from a Quasi-Experiment,” in Strategic Management Journal.

“The results tell me that firms are gaining financial advantage even with their expenses toward health insurance benefits,” Tsolmon said. “The productivity results suggest that workers are ‘giving back’ to the firms by being more productive, which translates into higher profits.”

“Healthy and happy employees are innovative and productive employees.”

Ulya Tsolmon, assistant professor of strategy

The research also explored the link between high unemployment insurance benefits at the state level and more small firms providing health insurance in that state. High unemployment benefits ease employee mobility between companies, and firms respond by increasing “internal market frictions,” like offering health insurance, to keep their employees, the researchers found. That correlation didn’t apply to bonuses, pensions or training—making health insurance a unique lever among employee benefits.

The paper is the first to explain health insurance provision in small firms from the perspective of human capital management and to use empirical evidence to test its impact on firm performance, the authors say.

Data from 15,000 small firms

“Health insurance is a significant investment for small firms, so the interesting question to me was not why firms don’t offer health insurance, but rather looking at firms that do offer health insurance, asking why they do that and whether it’s a smart strategy and under what conditions,” Tsolmon said.

The research used data from the financial records of 15,000 small firms (with no more than 500 employees) in the US. The data set included accounting details on all expenses and revenues, as well as employee records, for five years. The authors looked at twelve different variables, including training costs for an employee.

Tsolmon supplemented the financial records with 761 Glassdoor reviews and 11 open-ended interviews with randomly selected small business owners, representing different industries and firm sizes. Just like with the numbers’ data, employee satisfaction was reported to be higher in firms that offered health insurance, and business owners spoke about more easily attracting and retaining employees after they began offering health insurance.

Implications for large firms

“By investing in worker well-being,” Tsolmon said, “firms can tap into their latent productivity and innovation that’s difficult to incentivize with monetary rewards alone. Healthy and happy employees are innovative and productive employees.”

The research also has implications for large firms, most of which provide health insurance but whose benefits differ in generosity.

“Given our finding that policies intended to increase employee wellness can affect turnover, productivity, and firm performance, large firms should consider increasing the employee uptake rate of health benefits by bearing a greater share of the insurance costs themselves,” the authors write.

Jill Young Miller contributed to this report.

For nearly 20 years, Andrew Knight has been interested in unobtrusive research methods. A professor of organizational behavior, he’s passionate about learning how people can best work with one another, and his current focus is on improving people’s virtual collaborations.

Knight used the onset of the COVID-19 pandemic in 2020 as a spark for packaging something he’d been experimenting with to analyze photos and video recordings.

The result: a new, free software named zoomGroupStats.

“With teaching shifting to a virtual realm and a pressing need to understand virtual collaboration, I was motivated to accelerate the development of this software,” he said.

The package is to enable researchers to use the virtual meetings platform Zoom to collect data that illuminates how people interact with one another, Knight said. With it, users can quickly turn files downloaded from Zoom into datasets, analyze the dynamics of spoken and text conversations in virtual meetings, and extract information from the video feeds of virtual meetings.

Who do you imagine using this software? And for what?

The first category is researchers. The software is currently designed especially for researchers who study teamwork, negotiations, interpersonal relationships and group dynamics. However, the basic functionality of the library would be useful to anyone who wants to extract insights into conversation dynamics and emotion during virtual meetings.

The second category is teachers running virtual classes. The software can provide insights into who is engaged in the conversation during a class (i.e., class participation) and the ways in which people are making contributions (e.g., vocal contributions, text-based chat contributions).

The third category is leaders and managers who conduct virtual meetings. When paired with a web application that I created (http://meetingmeasures.com), the software can give leaders feedback on how effectively they facilitate virtual meetings. 

How easy are the tools to use?

When paired with the step-by-step tutorial that I created (http://zoomgroupstats.org/), I hope the library is accessible for anyone with a basic level of proficiency with the open source statistics software R. Some elements of the functionality—such as the capacity to read the emotional expressions of people’s faces through their cameras—requires an additional level of proficiency in setting up and configuring Amazon Web Services. 

What are the privacy concerns with this software?

Like any use of recorded human behavior, users must take into account privacy considerations. In a way, the privacy concerns for research are equivalent to more traditional methods (e.g., having human research assistants rate and classify people’s behavior from a video recording). However, people have variant perspectives on software-based “automatic” coding compared to human-based coding of their behavior. As a general rule, anytime a meeting is being recorded, a meeting leader should explicitly request permission to record from all meeting participants.

How have you used your software?

I’ve used this for research and teaching purposes so far. On the research side, I have primarily been working to validate a set of metrics that can be automatically derived from a virtual meeting vis-à-vis traditional, survey-based metrics. This is important to situate the automatic metrics within the current landscape of research on interpersonal relations and group dynamics.

On the teaching side, I have used this software in combination with my Meeting Measures web application to give students feedback on their virtual meetings. This is helpful for showing students when, for example, they dominate the conversation or make inadequate contributions to their team meetings. 

So the software is free?

Yes. The R package is free and open source. It is available through the web-based repository (Comprehensive R Archive Network, or CRAN) that is used to distribute packages for R. 

Top photo: Professor Andrew Knight teaches a hybrid course in September 2020 in Emerson Auditorium. In front of him, socially distanced students site in the auditorium, while behind, students participating remotely appear on screen.

The economy and coronavirus pandemic were two of the top issues for voters in the 2020 election, according to exit poll surveys. Notably, 52% of voters said controlling the pandemic was more important, even if it hurts the economy. But what if we didn’t have to choose?

In communities where masks were mandated, consumer spending increased by 5% on average, showing that a safety rule can stimulate economic growth as well, according to a new study from the Olin Business School.

Researchers found the effect was greatest among non-essential businesses, including those in the retail and entertainment industries—such as restaurants and bars—that were hit hard by the pandemic.

“The findings exceeded our expectations and show that we can have a strong economy with strong, commonsense public-health measures. Mask mandates are a win-win,” said Raphael Thomadsen, professor of marketing and study co-author.

Thomadsen, along with Olin’s Song Yao, Nan Zhao and Chong Bo Wang, analyzed the impact of social distancing and mask mandates on both the spread of COVID-19 and consumer spending. They used cellphone location data to track the degree of social distancing in nearly every county in the U.S. and compared that with community voting patterns, coronavirus infection rates and consumer spending rates.

The researchers found social distancing has a large impact on reducing COVID-19 spread, while the evidence on mask mandates is mixed. But while social distancing reduces consumer spending, mask mandates has the opposite effect. They also found that social distancing decreased in communities with mask mandates, magnifying the positive effect on spending.

Feeling safer to spend

“Preventive measures such as social distancing and facial masks should be considered as pro-business,” said Yao, associate professor of marketing. “When people feel safer to spend, or more importantly, when the pandemic is kept at bay, the economy is more likely to have a quick recovery. Not to mention the lives that will be saved.”

Perhaps not surprising given the political lines drawn over masks, they also observed that political affiliation had a significant impact on social distancing. Even after controlling for local characteristics such as the population density, income and other demographics, counties that voted for President Donald Trump in 2016 engaged in significantly less social distancing than counties that voted for Hillary Clinton.

“If the entire country had followed low levels of social distancing seen in Trump-supporting areas, we estimate there would have been 83,000 more American deaths from COVID to date, which represents a 36% increase over the current death count of 225,000 Americans,” Thomadsen said.

They estimate the tradeoff would have been a relatively small boost in the economy. Consumer spending dropped $605.5 billion from April to the end of July, compared with the same time last year. The country would have recovered $55.4 billion, or approximately 9%, had all counties remained as open as the most pro-Trump areas.To put it in more dramatic terms, Thomadsen said this means that opening up is only a reasonable policy if one values lost lives at roughly $670,000 each or less. This value was determined by dividing the hypothetical $55.4 billion boost to the economy by the 83,000 lives lost in this scenario.

“The calls to open up the economy come with huge costs of COVID spread and only modest benefits of increased economic activity,” Thomadsen said. “Opening the economy before getting the virus under control only makes sense if you put a very low value on life.”

A central puzzle of corporate strategy is whether headquarters can add value to their business units beyond the burden of their own overhead. The record is bleak: On average, corporations trade at a 20% discount relative to their breakup value.

“This is the problem that we want to try fix,” said Anne Marie Knott, Olin’s Robert and Barbara Frick Professor of Business.

She proposed and tested a theory of how corporations could overcome that record. On November 10, she presented the findings as part of the Olin Business Research Series. More than 60 people tuned in for the virtual event.

The 20% discount could mean that multibusiness firms fundamentally destroy value or that they are poorly managed. Regardless, a whopping $5 trillion economic gain could be had from a better understanding of how headquarters add value in multibusiness firms, Knott says.

Bank One and its return on assets

Bank One, a bank holding company, motivated the theory. Knott and co-author Scott Turner, of the University of South Carolina, explain how in “An Innovation Theory of Headquarters Value in Multibusiness Firms” in Organization Science.

Bank One increased the return on assets of its target banks by 40-70%.

“This would be really easy if they were purchasing underperforming banks,” Knott said. But they weren’t. They were buying well-managed banks.

The theory relies upon dynamics between business units where laggard units improve their performance by imitating leaders. In turn, this “competition from below” stimulates leaders to innovate more.

Beyond demonstrating that headquarters can add value through innovation and growth, the theory offers prescriptions on how to do that. For instance, they can establish systems that create norms for sharing, which eases innovation. They also can offer high-powered incentives to fuel innovation.

In general, Knott’s research examines the optimal environment and policies for innovation, which she summarizes in her book, “How Innovation Really Works” (March 2017). This interest stems from issues arising during an earlier career in defense electronics at Hughes Aircraft Company.

KEY TAKEAWAYS:

• A $5 trillion economic gain could be had from a better understanding of how headquarters add value in multibusiness firms.
• Bank One increased the return on assets of its target banks by 40-70%.
• The theory relies upon dynamics between business units where laggard units improve their performance by imitating leaders.
• In turn, this “competition from below” stimulates leaders to innovate more.

People who vote are more likely to practice social distancing during the COVID-19 pandemic than people with a lower sense of civic duty—regardless of political affiliation, according to a new study from a WashU Olin researcher.

Even as US states began reopening, voluntary social distancing remained prevalent in high civic-capital counties, said Olin’s John Barrios, assistant professor of accounting. He describes “civic capital” as having to do with trust in institutions.

“That’s not like trust in a politician,” Barrios said. “It’s actually more about institutional trust in the system rather than partisanship.”

In communities where civic capital runs high, people do things that don’t immediately benefit them personally, such as voting, volunteering or donating blood. Moreover, they generally trust their fellow citizens.

“Social distancing behavior depends on the willingness of individuals to consider the welfare of the collective when taking their own actions—a concept that has been linked to civic capital,” Barrios and co-authors note in “Civic Capital and Social Distancing During the COVID-19 Pandemic,” forthcoming in the Journal of Public Economics.

“If people actually go out and vote at a higher rate, that indicates there is some trust in the system,” Barrios said.

The research indicates that in US locations where civic capital is higher—as measured by voter participation—people’s response to the loosening of COVID-19 lockdowns was muted, suggesting that some measures of compliance didn’t require the full force of law. Where civic capital is lower, however, the data show that people began ignoring social-distancing mandates even before they were lifted.

The evidence points to the importance of civic capital in designing policy responses to pandemics.

“We don’t have a vaccine yet. So a lot of this opening up of the economy is going to be based on this voluntary compliance with social distancing: wearing a mask, staying six feet apart,” Barrios said.

‘Trench warfare’

Governments everywhere face challenges in the fight against COVID-19. For instance, on one front, a key concern has been how many tests a day can be administered.

And then there are the social issues.

“As the fight moves to trench warfare, ensuring adequate compliance with public health recommendations becomes extremely important for the success of strategies to contain the virus,” Barrios said.

Using mobile phone and survey data, he and the University of Chicago’s Luigi Zingales, Northwestern University’s Efraim Benmelech and Paola Sapienza, and Rice University’s Yael V. Hochberg researched variations in voluntary compliance with government recommendations.

Recent literature on compliance with social distancing instructions has focused on political leaning and trust in government. (In the US, Trump-leaning counties comply less. In Europe, people in regions where trust is high in government comply more than in other regions.)

This new research moves beyond political affiliation and shows civic capital has an important role in explaining behavior.

“There is work that shows that this civic capital is associated with more efficient business, more compliance,” Barrios said. “And now we can say, ‘Well, we can have compliance in public health.’ Suppose you are in a high civic-capital area. In that case, you pay more attention to these voluntary measures, you practice more social distancing, even controlling for the political partisanship in the area.”

Social distancing behavior

To measure social distancing behavior, the authors relied on anonymous mobile phone data from Unacast and Google Community Mobility Reports. The data providers supply anonymous data on changes in the number of visitors to—and time spent in—certain places, compared with a baseline for the same day of the week from January 3 through February 6.

Civic capital was harder to measure. The authors used electoral participation as the first indicator of civic capital, “since voting is the ultimate example of civic duty, with no personal payoff.” They computed average voter participation during the presidential elections from 2004 to 2016, obtained from the MIT Election Data Science and Lab, and mapped the data geospatially.

They then created scatter plots relating social distancing behavior to civic capital. Each of the plots controls for the number of confirmed COVID-19 cases, population density, income per capita, population, day of the week and the number of days since the first case in the county.

Increases in civic capital are associated with decreases in mobility data near restaurants, cafes, shopping centers, theme parks, museums, libraries and movie theaters.

“If people are less likely to go out in counties with high civic capital, they will spend more time in the proximity of their residences,” the authors write. “The results confirm this trend.”

Telephone survey

It is possible, however, that counties with higher civic capital have more restrictive stay-at-home orders. To address this, the authors conducted a telephone survey of 980 US adults on April 6-April 12 to measure social interaction and social distancing.

They asked, among other questions, “How many people were you in close physical contact with socially in the past seven days, not including people that live with you?”

The survey further showed that individuals with higher trust also practiced more social distancing.

What about elsewhere?

The authors wondered if the effect of civic capital was just a US phenomenon, or did it apply to other countries as well? So, they then turned to European data. Even after controlling for the severity of the virus in regions, the age and education of the population, and population density, they found that more civic areas experienced a steeper decline in mobility around retailing and a steeper rise in the time spent by their residence.

“Overall, our findings show that civic capital is correlated with social distancing behavior consistently across individuals, European regions, and US counties.”

Understanding voluntary compliance with government guidelines is an essential step toward designing any government policy, but especially so during a pandemic, Barrios said.

Suppose citizens can’t be trusted to comply voluntarily with reasonable social distancing rules. In that case, governments have to either mandate rigid regulations and enforce them or use other ways to contain the disease.

As countries and states reopen their economies, epidemiologists can only predict how individuals will respond to new rules—and how the disease will spread—by looking at the mobility of individuals after restrictions have been lifted, the authors write. “Any variable able to predict compliance can significantly improve their predictions and thus provide better policy guidance.”

The research results have implications beyond COVID-19. “They confirm the idea that a local region’s civic capital is a source of collective capital, enabling societies to function better in general,” according to the paper.

The president of an energy company was not a believer in a business entity being able to have a higher organizational purpose … until he saw it work for others. So he went back to his company and launched the initiative. It all started with a video that described the higher purpose of the company.

The company’s new video showed its people — from truck drivers to corporate officers — and described how their daily work affected the everyday life and well-being of their community, at every level.

The first workers to watch the video stood and applauded. The video captured the company’s new statement of purpose: “We serve with our energy, the lifeblood of communities and the engine of progress.”

Businesses can have a higher purpose. More than that, they should, finds research by WashU Olin’s Anjan Thakor and the University of Michigan’s Robert E. Quinn.

An organization of higher purpose is a social system in which the greater good has been envisioned, articulated and authenticated, they write in their just-released book “The Economics of Higher Purpose: Eight Counterintuitive Steps for Creating a Purpose-Driven Organization.”

Published August 20, the book expands on the authors’ 2018 Harvard Business Review article.  For that piece, they interviewed more than 35 CEOs and other leaders over two years. And they talked with many more for the book.

“The Economics of Higher Purpose,” from Berrett-Koehler Publishers, is organized into two parts. The first examines theories that govern organizational behavior. The second shifts from theory to practice: It offers eight steps drawn from the authors’ research and interviews with leaders of higher-purpose organizations.

Practical implications

“The steps are to help leaders discover their organizations’ purpose and imbue the organization with it”, said Thakor, the John E. Simon Professor of Finance, director of the PhD Program, and director of the WFA Center for Finance and Accounting Research at Olin.

Purpose has practical implications for a company’s financial health and competitiveness, Thakor and Quinn report. People who find meaning in their work give it their energy and dedication. They grow rather than stagnate. They do more, and they do it better.

“We like to emphasize that a higher purpose is something that transcends your usual business goals, but it also intersects with those goals,” Thakor said.

“The higher purpose becomes the arbiter of all business decisions,” he said. “It has to become the lens through which every decision is viewed.”

Like all organizations, an organization of higher purpose is a cauldron of conflict. Yet people find meaning in their work and in their relationships despite the conflicts, Thakor said. They share a vision and are fully engaged.

In an organization of higher purpose, people interact with one another with respect and engage in constructive confrontation. Trust is continually repaired, and conversations are authentic. The people have a win-win mentality, and positive peer pressure emerges to support high levels of collaboration, the authors discovered. Leadership not only flows from the top down, but it also emerges from the bottom up. Employees believe they work in an organization of excellence.

The paradox

As a consequence of adopting a higher purpose, the organization often makes short-term economic sacrifices but benefits from long-term economic gains.

“The paradox of organizational higher purpose is that it actually does improve financial and economic performance but only if you don’t do it primarily for that reason,” Thakor said. If purpose is undertaken solely for economic gain, it loses authenticity and credibility, and fails to produce positive economic outcomes.

Perhaps the most important finding of the authors’ research is the importance of the authenticity. If the purpose is just a PR gimmick, like a slogan printed on posters and plastered on walls, employees will see right through it, Thakor said. “Everybody will look at it and say, ‘OK. Fine.’

“That’s very different from what we’re talking about,” he said. “This is about values you truly believe in and practice.”

Thakor and Quinn have been scholars of higher-purpose firms for a long time, and they set out to write the definitive book on it. They examined the theories that govern organizational behavior, some of which also are formally articulated in economics.

“We believe these conventional assumptions of economics are valid but incomplete,” Thakor said. “We offer a new logic that transcends the conventional assumptions and includes them.”

They show that higher purpose helps to resolve the classic principal-agent problem at the heart of microeconomics. They also explain why numerous books and articles on higher purpose have failed to gain traction in the workplace.

From theory to practice

How to bring this theory to practice? Here are eight counterintuitive guidelines, which are drawn from their research and interviews with leaders of higher-purpose organization:

• Envision a purpose-driven organization
• Discover the purpose
• Meet the need for authenticity
• Turn the higher purpose into a constant arbiter of all business decisions
• Stimulate learning
• Turn mid-level managers into purpose-driven leaders
• Connect the people to the purpose
• Unleash the positive energizers

“Although a higher purpose does not guarantee economic benefits, we have seen impressive results in many organizations,” Thakor said. “Our study and other research suggest positive results, both in operating financial performance and performance measurement.”

So purpose is not just a lofty ideal. It has practical implications for a company’s financial health and competitiveness, according to the book. Allowing people to find meaning in their work means they can grow, do more, do better. Tap into that employee empowerment, and you can transform an entire organization.

This article is partially excerpted from the book “The Economics of Higher Purpose.”