Knowledge that Transforms

Manufacturing systems typically contain processing and assembly stages whose output quality is significantly affected by the output quality of preceding stages in the system. This study offers and empirically validates a procedure for (1) measuring the effect of each stage's performance on the output quality of subsequent stages including the quality of the signal product, and (2) identifying stages in a manufacturing system where management should concentrate investments in process quality improvement. Our proposed procedure builds on the precedence ordering of the stages in the system and uses the information provided by correlations between the product quality measurements across stages. The starting point of our procedure is a computer executable network representation of the statistical relationships between the product quality measurements; execution automatically converts the network to a simultaneous-equations model and estimates the model parameters by the method of least squares. The parameter estimates are used to measure and rank the impact of each stage's performance on variability in intermediate stage and final product quality. We extend our work by presenting an economic model, which uses these results, to guide management in deciding on the amount of investment in process quality improvement for each stage. We report some of the findings from an extensive empirical validation of our procedure using circuit board production line data from a major electronics manufacturer. The empirical evidence presented here highlights the importance of accounting for quality linkages across stages in (a) identifying the sources of variation in product quality and (b) allocating investments in process quality improvement.

This paper presents a context-dependent theory of decision under risk. The relevant contextual factor is the presence of a riskless lottery in a preference comparison. The theory only deviates from expected utility if the set of options contains both riskless and risky lotteries. The main motivation for the theory is to explain the gambling effect. Contrary to previous theories of the gambling effect, the present theory is consistent with stochastic dominance. It can, however, violate transitivity. The theory allows for a decomposition of the interaction between risk aversion and gambling aversion and thereby extends the classical Arrow-Pratt measure of risk aversion.

Rising levels of advertising competition have made it increasingly difficult to attract and hold consumers' attention and to establish strong memory traces for the advertised brand. A common communication strategy to break through this competitive clutter is to increase ad originality. However, ad originality may have detrimental effects when consumers pay more attention to the ad at the expense of the advertised brand. Moreover, the positive effects of originality may quickly wane when the ad becomes familiar. Surprisingly, no research to date has examined such brand attention and memory effects of ad originality and familiarity. The current study aims to fill this void. We use a stochastic model of the influence that ad originality and familiarity have on consumers' eye fixations to the key elements of advertisements—brand, text, and pictorial—and how the information extracted during eye fixations promotes memory for the advertised brand. The model explicitly accounts for heterogeneity due to consumers and advertisements. Infrared eye tracking was applied to collect eye fixation data from 119 consumers who paged through two general-audience magazines containing 58 full-page advertisements. Memory for the advertised brands was assessed with an indirect memory task. The model was estimated using Markov Chain Monte Carlo (MCMC) methods. In support of our hypotheses, original advertisements drew more attention to the advertised brand. More importantly however, advertisements that were both original and familiar attracted the largest amount of attention to the advertised brand, which improved subsequent brand memory. In addition, original and familiar ads were found to promote brand memory directly. Implications of these findings for communication and media planning strategy are discussed.

In this paper we explore the degree to which patents are representative of the magnitude, direction, and impact of the knowledge spilling out of the university by focusing on the Massachusetts Institute of Technology (MIT), and in particular, on the Departments of Mechanical and Electrical Engineering. Drawing on both qualitative and quantitative data, we show that patenting is a minority activity: a majority of the faculty in our sample never patent, and publication rates far outstrip patenting rates. Most faculty members estimate that patents account for less than 10% of the knowledge that transfers from their labs. Our results also suggest that in two important ways patenting is not representative of the patterns of knowledge generation and transfer from MIT: patent volume does not predict publication volume, and those firms that cite MIT papers are in general not the same firms as those that cite MIT patents. However, patent volume is positively correlated with paper citations, suggesting that patent counts may be reasonable measures of research impact. We close by speculating on the implications of our results for the difficult but important question of whether, in this setting, patenting acts as a substitute or a complement to the process of fundamental research.

We take a structural approach to assessing innovation. We develop a comprehensive set of measures to assess an innovation's locus, type, and characteristics. We find that the concepts of competence destroying and competence enhancing are composed of two distinct constructs that, although correlated, separately characterize an innovation: new competence acquisition and competence enhancement/destruction. We develop scales to measure these constructs and show that new competence acquisition and competence enhancing/destroying are different from other innovation characteristics including core/peripheral and incremental/radical, as well as architectural and generational innovation types. We show that innovations can be evaluated distinctively on these various dimensions with generally small correlations between them. We estimate the impact these different innovation characteristics and types have on time to introduction and perceived commercial success. Our results indicate the importance of taking a structural approach to describing innovations and to the differential importance of innovation locus, type, and characteristics on innovation outcomes. Our results also raise intriguing questions regarding the locus of competence acquisition (internal vs. external) and both innovation outcomes.

Using field data from an American financial services organization, we examined the effects of three important variables in Cyert and March's (1963) initial conceptualization of the aspiration-level adaptation process: The previous aspiration level, performance feedback, and social comparison. Past findings obtained in controlled contexts (Glynn et al. 1991; Lant 1992) have provided empirical support for the attainment discrepancy model (Lewin et al. 1944), which includes variables of the previous aspiration level and attainment discrepancy (i.e., performance feedback). We replicated these findings in the field: The effects of the previous aspiration level and attainment discrepancy on the current aspiration levels were significant and positive. In addition, we investigated the effect of social comparison using a variable based on the difference between the performance of the focal unit and the performance of comparable others (Greve 1998). Based on the assumption that decision makers in organizations will expect to observe similar performance levels among those in the same comparison group (Wood 1989), we posited that the effect of social comparison would be negative, refiecting managerial efforts to reduce performance discrepancies among similar units. The empirical results supported the prediction from this reasoning. We conclude by discussing implications of our findings for theory and research in organizational learning and the behavioral theory of the firm.

This paper derives the optimal simultaneous capacity and production plan for a shortlife-cycle, produce-to-stock good under stochastic demand. Capacity can be reduced as well as added, at exogenously set unit prices. In both cases studied, with and without carryover of unsold units, a target interval policy is optimal: There is a (usually different) target interval for each period such that capacity should be changed as little as possible to bring the level available into that interval. Our contribution in the case of no carry-over, is a detailed characterization of the target intervals, assuming demands increase stochastically at the beginning of the life cycle and decrease thereafter. In the case of carry-over, we establish the general result and show that capacity and inventory are economic substitutes: The target intervals decrease in the initial stock level and the optimal unconstrained base stock level decreases in the capacity level. In both cases, optimal service rates are not necessarily constant over time. A numerical example illustrates the results.

Our goal is to assess the strategic and operational benefits of electronic integration for industrial procurement. We conduct a field study with an industrial supplier and examine the drivers of performance of the procurement process. Our research quantifies both the operational and strategic impacts of electronic integration in a B2B procurement environment for a supplier. Additionally, we show that the customer also obtains substantial benefits from efficient procurement transaction processing. We isolate the performance impact of technology choice and ordering processes on both the trading partners. A significant finding is that the supplier derives large strategic benefits when the customer initiates the system and the supplier enhances the system's capabilities. With respect to operational benefits, we find that when suppliers have advanced electronic linkages, the order-processing system significantly increases benefits to both parties.

This paper attempts to explain organization structure based on optimal coordination of interactions among activities. The main idea is that each manager is capable of detecting and coordinating interactions only within his limited area of expertise. Only the CEO can coordinate company wide interactions. The optimal design of the organization trades off the costs and benefits of various configurations of managers. Our results consist of classifying the characteristics of activities and managerial costs that lead to the matrix organization, the functional hierarchy, the divisional hierarchy, or a fiat hierarchy. We also investigate the effect of changing the costs of various managers on the nature of the optimal organization, including the extent of centralization.

Economic forces shape the behavior of individuals and institutions. Forces affecting individual behavior are attitudes about payoffs (gains and losses) and beliefs about outcomes (risk and ambiguity). Under risk, the likelihoods of alternative outcomes are fully known. Under ambiguity, these likelihoods are unknown. In our experiment, payoffs and outcomes were manipulated independently during a classical choice task as brain activity was measured with positron emission tomography (PET). Here, we show that attitudes about payoffs and beliefs about the likelihood of outcomes exhibit interaction effects both behaviorally and neurally. Participants are risk averse in gains and risk-seeking in losses; they are ambiguity-seeking in neither gains nor losses. Two neural substrates for choice surfaced in the interaction between attitudes and beliefs: a dorsomedial neocortical system and a ventromedial system. This finding reveals that the brain does not honor a prevalent assumption of economics—the independence of the evaluations of payoffs and outcomes. The demonstration of a relationship between brain activity and observed economic choice attests to the feasibility of a neuroeconomic decision science.