Saturday, May 20, 2017

Economists link sound management to firm success

Economists have done very little research linking how different management practices correlate with indicators of firm performance such as productivity and growth.  The reason is quite simple: economic research relies all too often on data collected by the government and the government does not collect data on management.

Two professors at MIT Sloan and a colleague at Stanford decided to collect data on management practices and, with the help of the Census Bureau, linked it to data on individual manufacturing plants.  The focus was on 16 measures of monitoring, targets and incentives which were combined into a management index.

The results, summarized in this HBR piece, were quite striking: every 10% increase in the management index was associated with a 14% increase in productivity.  Well-managed firms also were most likely to grow and less likely to close.  Management practices have a bigger effect on  productivity than IT investments, R&D intensity, and worker skills.

Interesting question raised by the study: we know that investments in IT, R&D and worker skills are quite expensive compared to the cost of changing management practices.  So why don't the poorly managed firms make adjustments?  Maybe it has something to do with who the managers of those firms are!

Saturday, May 6, 2017

All you need to know about trade ... in 70 words

Courtesy of former Secretary of State George Schultz and Harvard professor Marty Feldstein in today's WP:
If a country consumes more than it produces, it must import more than it exports. That’s not a rip-off; that’s arithmetic. 
If we manage to negotiate a reduction in the Chinese trade surplus with the United States, we will have an increased trade deficit with some other country. 
Federal deficit spending, a massive and continuing act of dissaving, is the culprit. Control that spending and you will control trade deficits.

Sunday, April 30, 2017

NC State MBAs shine in Lulu eGames

Kudos to NC State MBAs London White and Ben Bradley for their success in NC State's premiere entrepreneurship competition.  White was part of the VieMetrics team that won first place in the New Ventures division, taking home $10k.  VieMetrics has developed a device that can help asthma and COPA patients predict when an attack might be coming.  The idea for the device was developed in the product innovation class MBA 555.

Bradley received 2nd place in the Arts Ventures division and was awarded $3k for his Thrive Collective concept, which can enhance efficiency in the nonprofit sector through enhanced collaboration.  Learn more about his concept in this YouTube video.

You can learn more about the eGames and the other winners here and for more details about Poole College of Management winners go here.

Saturday, April 29, 2017

How useful are job interviews?

Not very, according to this NYT piece by Yale School of Management professor Jason Dana.  Dana's research used student experiments to test whether face-to-face interviews aided in decision making.  In one exercise, students were asked to predict GPA of other students based on what courses they were taking, past GPA and an interview.  In a control group another set of students were asked to make GPA predictions based on course schedule and past GPA alone.  Guess which set of predictions was more accurate?  The group that did not conduct interviews and relied solely on numbers and lists.

All too often job interviews are unstructured, free flowing discussions that might be good predictors of interpersonal compatibility between interviewer and interviewee but are poor predictors of job performance.  What should companies do?  Dana suggests the following:
What can be done? One option is to structure interviews so that all candidates receive the same questions, a procedure that has been shown to make interviews more reliable and modestly more predictive of job success. Alternatively, you can use interviews to test job-related skills, rather than idly chatting or asking personal questions.

Friday, April 21, 2017

United Airlines incident: price controls strike again

Airlines make a choice regarding how many tickets they sell on a flight.   Because airline seats are perishable commodities and the cost of servicing an extra passenger is zero, airlines want each plane to fly with a full passenger load.  Theaters face the same challenge.  Yet when you buy theatre tickets, how often do you find someone else in your seat?  

One reason airlines rely on overbooking is that US Department of Transportation regulations encourage it, as pointed out in this HBR online piece.  The regs allow bumped passengers to be paid 200-400% of the price of their ticket (one-way, I might add) with an overall cap of $1350.  So a passenger who bought a heavily discounted ticket might only receive $400-500 in compensation for being bumped, well below what a true volunteer might demand.  

Airlines could manage passenger loads in different ways, such as penalizing no-shows who do not contact the airline in advance and are not on a connecting flight.  If airlines insist on overbooking, then the most efficient (in the economics sense of the word) compensation mechanism would be an auction where passengers bid for the right to be bumped.  In the case of the infamous Chicago to Louisville flight two weeks ago, the bid price for being bumped would rise until there were four true volunteers.  That would no doubt be quite a bit more than United actually spent, but I bet they sure wished in retrospect that they had paid those four passengers enough to get them to exit the plane without assistance.  

Thursday, March 30, 2017

Do you really need a college degree to be a hotel manager?

Over the last five years, more and more companies have been insisting on college degrees for entry level jobs.  At the aggregate level this might make sense if jobs are demanding more scientific knowledge or more analytical or critical thinking skills.  However, a recent study by the Rockefeller Foundation and Edelman Intelligence (WSJ story here) finds educational demands by employers are rising across the spectrum.  For instance in 2011, 29% of the job listings for hotel managers called for a college degree; this figure rose to 47% five years later.

Apparently the weak job market has created a surplus of college grads for positions that actually require advanced education, forcing many grads to lower their ambitions.  Employers react to the new applicant pool by raising their educational standards.  The Rockefeller-Edelman study raises questions as to whether this decision is really meeting employer needs.  A college degree could serve as a signal for otherwise hard-to-measure communications skills.  Yet companies are now complaining that they are unable to retain these overqualified workers.

Today's college graduates face a much stronger market than their counterparts five to ten years ago.  If this continues, I would expect companies to start using games or psychometric evaluations to evaluate communications skills directly and stop using degree possession as a screen.

Saturday, March 25, 2017

Mortality rates are not supposed to increase

The middle class has been getting squeezed for years, according to economic data on employment and income.  Now we have a study from Princeton economists Angus Deaton (a Nobel laureate) and Anne Case that finds that mortality rates have increased for white Americans with no more than a high school education.

Mortality has increased in part because of more deaths from alcohol and drug abuse and suicide.  These "diseases of despair" reflect diminished hope.  There also has been an increase in mortality from other causes, including heart disease.

Mortality for whites aged 45-54 with a high school education or less started increasing in 2000.  This trend is limited to the US; mortality in European countries has continued to shrink over the same time span.  Also mortality for nonwhites in the US has continued to shrink, as has the mortality rate for those with college education.

Centuries of economic history have shown economic progress has gone along with longer life spans.  Now, despite an increase in health insurance coverage in the US, the pattern has been reversed for a significant segment of our society.

Monday, March 20, 2017

NC State ranked #18 online MBA in the world by Financial Times

NC State's online MBA program is now ranked among the top 20 in the world according to the Financial Times.  This year is the first in which our program was eligible for the FT ranking.

The ranking is mostly based (60%) on a survey of alumni who graduated there years go.  They have done well professionally and were pleased with their online learning experience.   Faculty credentials and research productivity accounted for another 20 percent of the ranking, with student and faculty diversity and international exposure accounting for the remainder.

Where we did well compared to other schools in the top 20:
— value for money (#12)
— career progress (#9)
— aims achieved (#11)
— career services (#8)
— program delivery (#13)
— online interaction (#10)
— percentage female (#7)
— doctoral program graduates (#9, thank you econ!)
— research in top 50 journals (#11)

NC State has been featuring a story about the ranking on its home page.
https://mba.ncsu.edu/news/financial-times-ranks-nc-state-top-20-online-mba/

With the new curriculum rolling out and the enhanced flexibility students have to mix and match online and face-to-face classes, I truly believe we are positioned for even greater impact and recognition in the years ahead.  Kudos to the faculty and staff who, along with the alumni, made this happen.

Friday, March 17, 2017

How to pay for lower tax rates

The new President campaigned on a platform of lower tax rates and a simpler tax code.  Simple arithmetic dictates that the tax base must be broadened in order to lower tax rates and maintain the same tax revenue.  The political trick is to find something new to tax.

Even though the same party controls the Presidency and both houses of Congress, there is no agreement on how to broaden the sources of tax revenue.  The focus right now is on the corporate income tax.  The US has one of the highest statutory rates in the world, but it also has a bewildering array of deductions and exclusions.  Paul Ryan has proposed lowering the top rate from 35% to 20% by taxing imports.  This is great news for companies that do not use many raw materials or have supply chains internal to the US.  Not so great news for any company with a global supply chain and terrible news for retailers.

According to Grep Ip in WSJ, another approach would be to raise tax rates on shareholders by taxing dividends and capital gains at the same rate as labor income.  One would think this would play well with the President's supporters.  But would Republicans ever raise taxes on those in the top brackets to pay for a corporate tax cut that would make the US a more attractive business location and create more jobs?

Friday, March 3, 2017

Should an H-1B be free?

H-1B visas allow employers to hire skilled foreign workers in a limited set of specialized occupations that require a college degree.  The visa is good for three years and can be renewed for another three.  During this period visa holders have the option of applying for a Green Card for permanent residence.

In 2015 the eight largest H-1B employers were (in descending order) Cognizant, Infosys, Tata Consultancy Services, Accenture, Wipro, HCL, Tech Mahindra Americas, and IBM India.  All of these firms do IT outsourcing and rely on workers from India.

There are only 65,000 H-1B visas given each year, well below the number of requests.  The visas are allocated by a lottery system.

But maybe not for much longer.  WSJ reports that someone in the Trump administration has remembered some basic economics: price ceilings create shortages.  Why should the H-1Bs be free?  

One adjustment under consideration would be to allocate the visas to the firms that pay the highest salaries.   This means more foreigners in high wage occupations (e.g., surgeons) get admitted than those in relatively low wage gigs (e.g., most of today's IT consultants).  

Another approach would be to auction off the visas.  This would force firms to put their money where their mouth is regarding labor shortages.

Finally one could argue for more visas, but I do not think that argument is going to go very far for at least the next four years.