Monthly Archives: May 2024

Narcissistic CEOs often select fellow individuals with narcissistic tendencies to join the management board

Narcissism exhibits diverse manifestations within leadership contexts, ranging from self-assurance and charm to more detrimental traits like excessive self-absorption and a lack of empathy towards others. While scholars have extensively investigated this personality trait in individual CEOs, little attention has been directed towards understanding its broader implications on the overall composition of senior management teams.

This research endeavor commenced with Professor Graf-Vlachy’s team analysing LinkedIn profiles belonging to top-tier managers. Professor Graf-Vlachy elucidates, “Narcissists are inclined to showcase their superiority to a wider audience. Previous studies have indicated that this inclination transcends into various facets of corporate communication, including press releases and correspondence with shareholders.” Indicators of narcissistic tendencies encompass aspects such as the prominence of an executive’s photograph in annual reports or the frequency of a manager’s name appearing in company press releases.

Researchers utilised a similar methodology to scrutinise individuals’ digital footprints on social media platforms. “We have established the feasibility of gauging managers’ narcissism levels through an analysis of their LinkedIn profiles, focusing on metrics such as the quantity of photographs, the length of ‘About’ sections, and the array of skills, certifications, and career milestones listed,” states Professor Graf-Vlachy.

The study examined 11,705 LinkedIn profiles belonging to senior managers in US-based companies, revealing a remarkable trend: CEOs with pronounced narcissistic tendencies tend to appoint individuals to their management boards who mirror their own narcissistic characteristics. Put differently, they gravitate towards selecting executives who also exhibit a propensity for narcissism. A surge in a CEO’s narcissism level by one standard deviation corresponds to an 18 per cent increase in narcissism levels among newly appointed executives.

This phenomenon profoundly influences team dynamics and stability, as management boards comprising more narcissistic individuals experience elevated turnover rates, consequently incurring substantial costs for the organisation. “Narcissists are inclined towards dominance, which fosters conflicts within the boardroom, thereby precipitating greater volatility within the executive team,” summarises Professor Graf-Vlachy.

The study’s findings underscore the importance of CEOs and supervisory boards gaining a deeper understanding of the dynamics within their executive teams and reassessing their managerial selection processes accordingly. To achieve this objective, the researchers advocate for a more holistic evaluation of managers’ personality traits.

More information: Sebastian Junge et al, Narcissism at the CEO–TMT Interface: Measuring Executive Narcissism and Testing Its Effects on TMT Composition, Journal of Management. DOI: 10.1177/01492063241226904

Journal information: Journal of Management Provided by TU Dortmund University

Despite the inclination to mitigate the risk of replication, recent studies propose that startups should adopt a strategy of gradual and consistent scaling

Leave a Reply

A recent study, published in the Strategic Management Journal, has revealed that startups should be cautious about early scaling, as it has a direct correlation with a higher risk of firm failure, especially for platform companies. The study also found that while early scaling may seem attractive to deter competitor imitation, it can hinder learning through experimentation and commit a business to an idea that lacks product-market fit.

Contrary to the success stories of high-growth startups like Facebook and Uber, which achieved their fortunes through early scaling, also known as ‘blitzscaling,’ researchers Saerom (Ronnie) Lee and J. Daniel Kim, both esteemed members of the Wharton School at the University of Pennsylvania, have observed numerous instances of startups failing due to this approach. This prompted them to conduct an extensive data analysis to test these contrasting views empirically.

Building on existing research, the researchers defined scaling as the process where startups focus on acquiring and deploying new resources to execute their core business concepts and expand their customer base. To determine when startups begin scaling, Lee and Kim devised a unique method. Since companies typically do not publicly disclose this information, the researchers had to get creative. They turned to job postings, analysing when startups planned to recruit their first managerial or sales personnel. This innovative approach allowed them to build a robust dataset.

Their approach involved analysing when startups planned to recruit their first managerial or sales personnel, discernible from their job postings. This analysis yielded a dataset comprising 6.3 million job postings from over 38,000 startups founded in the U.S. post-2010, containing details on the date and occupational category of each posting.

Significantly, they discovered that startups scaling early were less inclined to engage in experimentation through A/B testing. Moreover, startups entering nascent markets (i.e., devoid of pre-existing competitors) tended to delay scaling compared to those in more established markets, contrary to the prevailing belief advocating early scaling to mitigate imitation risks. Crucially, early-scaling startups exhibited a greater propensity for failure compared to their later-scaling counterparts.

“What surprised us was the robustness of this trend, particularly evident among platform companies, which are central to the blitzscaling narrative,” remarked the authors.

Consequently, entrepreneurs should embrace a strategy of gradual and consistent scaling. While the argument for rapid scaling highlights a select few success stories, counterexamples such as WeWork, Theranos, and Baroo, known for aggressive expansion without a viable product or scalable business model, underscore the perils of premature scaling.

“Instead of pursuing blitzscaling, startups should allocate ample time to experiment with their business concept and assess its product-market fit,” advise the authors. “Upon confirming product-market fit, they can then commence hiring and expanding their customer base.”

More information: Saerom (Ronnie) Lee et al, When do startups scale? Large-scale evidence from job postings, Strategic Management Journal. DOI: 10.1002/smj.3596

Journal information: Strategic Management Journal Provided by Strategic Management Society

A fresh investigation frames the concept of ownership competence within the realm of private enterprises

Leave a Reply

Researchers have now identified two key competencies that owner-managers must possess to facilitate growth within their firms: matching competence and governance competence. In a recent study published in the Strategic Entrepreneurship Journal, the team has not only uncovered a notable challenge faced by owner-managers of family firms in effectively leveraging their governance competence to drive growth but also pinpointed strategies to overcome this obstacle, providing valuable insights for the field of strategic entrepreneurship and family business management.

The study, led by the esteemed Jannis von Nitzsch from the University of Munich, Miriam Bird from the Technical University of Munich, and Ed Saiedi from BI Norwegian Business School, aimed to delve into the components of sound judgment exhibited by owner-managers of private firms. These individuals hold full decision-making authority to allocate the firm’s resources in alignment with their distinctive beliefs to foster value creation, showcasing the depth of expertise and knowledge behind this research.

Von Nitzsch emphasises the significance of growth as the primary indicator of value creation within private firms. This drove the researchers to intertwine the construct of owner competence with Penrosean growth theory, which posits that growth breeds further growth. This integration sought to elucidate how owners adeptly allocate resources to propel growth, an aspect previously nebulous in Penrosean growth theory.

To scrutinise the role of entrepreneurial judgment in resource allocation decisions, the researchers adopted a secondary research design to conduct a comprehensive empirical examination and extension of the owner competence construct. They examined owner-managers competence in matching and governance, as reported on their LinkedIn profiles, and incorporated these metrics into a longitudinal sample alongside data on their firm’s growth and various firm characteristics. Matching competence pertains to conceptualising the potential value of specific resource combinations (“what to own”). In contrast, governance competence involves crafting effective governance structures to align incentives within a firm (“how to own”). Additionally, the researchers gathered survey data from German owner-managers to validate that their approach effectively captured matching and governance competence.

The findings underscored the pivotal role of owner-manager competencies, particularly in the nascent stages of their firms when standardised processes are yet to be established. Surprisingly, the team discovered that owner-manager matching competence was not bolstered in family firms, contrary to their initial hypothesis. For instance, familial ties among owners and managers within a firm may either facilitate or impede the exercise of owners’ judgment regarding strategic actions.

“This sheds light on intriguing family dynamics that may impede the exploration of innovative, risk-taking strategies — despite the family’s inherent trust and support of the owner — and hinder the professionalisation of firms when it entails relinquishing family control,” remarks von Nitzsch.

The study suggests that these dynamics obstructing growth could be alleviated by implementing governance mechanisms to deter nepotism. Furthermore, the insights for firm owners include introspection on their own competences, the unique environment of their firm (such as the influence of family members on decision-making), and the cumulative impact on firm growth. Von Nitzsch advocates for owners to contemplate enhancing their competencies to propel further growth within the firm, providing actionable recommendations for owner-managers in family firms.

More information: Jannis von Nitzsch et al, The strategic role of owners in firm growth: Contextualizing ownership competence in private firms, Strategic Entrepreneurship Journal. DOI: 10.1002/sej.1497

Journal information: Strategic Entrepreneurship Journal Provided by Strategic Management Society

Researchers find that nearly half of B2B startups choose not to market themselves

Leave a Reply

Marketing is a pivotal strategy for fostering growth within early-stage business-to-business (B2B) startup firms. However, despite its potential to drive success, many such enterprises opt to forego marketing endeavours, as highlighted by a study authored by a Smeal College of Business professor and featured in the Industrial Marketing Management journal.

Delving into the realm of systematic marketing, wherein firms continuously gather and utilise customer data to enhance their offerings, communications, and distribution strategies, the researchers scrutinised the landscape of startup firms. Their inquiry centred on identifying which startup ventures embrace systematic marketing, the factors motivating their decision, and the dividends reaped from such investments. These insights could serve as a compass for future startups, aiding in discerning the feasibility and timing of adopting systematic marketing practices.

Gary Lilien, the Smeal Distinguished Research Professor of Management Science and co-author of the study, likened their findings to a recipe guiding marketing into the startup formula. Collaborating with University of Technology Sydney Associate Professor Ofer Mintz, the researchers harnessed data from Equidam, an online valuation platform. Their analysis encompassed 693 startup firms launched between July 2016 and April 2018, spanning business-to-business (B2B) and business-to-consumer (B2C) domains. Two hundred firms furnished financial data for 2019 and 2020, offering a comprehensive view of their trajectories.

It’s worth noting that the startup firms engaging with Equidam represented a self-selected cohort, distinct from the broader startup populace. To mitigate potential bias and bolster the robustness of their findings, Lilien and Mintz embarked on a supplementary study. This involved surveying 377 startup entities drawn from a Survey Sampling International panel of entrepreneurs.

The research unearthed a dichotomy: while 55% of the sampled startup firms reported implementing systematic marketing practices, a significant 45% abstained from such endeavours. Notably, early-stage B2B startups emerged as the least likely candidates for embracing systematic marketing despite standing to gain the most from its adoption. Conversely, early-stage B2C startups exhibited a higher propensity for systematic marketing, albeit with lesser associated benefits. Furthermore, late-stage B2B startups derived diminished returns from systematic marketing compared to their developing counterparts.

Intriguingly, the decision to embark on systematic marketing greatly influenced firms’ valuations. Alarmingly, most surveyed startup firms—60% from the Equidam study and 61% from the validation survey—misjudged the necessity of systematic marketing, thereby incurring detrimental repercussions on their valuations.

The study presents a nuanced framework informed by insights from interviews with startup founders, investors, and consultants. This framework zeroes in on the repercussions of systematic marketing adoption by startup firms. Crucially, the efficacy of marketing endeavours and their potential to augment a firm’s valuation hinge upon several factors, including the firm’s customer base (direct consumers or businesses), developmental stage, prior entrepreneurial experience of the management team, and industry environment.

Ofer Mintz reflected on the study’s evolution, initially envisioning it as an exploration of the optimal marketing strategies for startups. However, early interviews revealed many startup managers’ pervasive disregard for marketing, often due to resource constraints. This epiphany underscored the broader significance of their research endeavour.

Notably, early-stage startup firms exhibited a greater propensity for systematic marketing when endowed with management team members boasting successful entrepreneurial track records and backed by investors with vested financial interests. The researchers observed that certain B2B startup ventures, particularly those from existing companies, boasted smaller yet more discerning customer bases, affording them a heightened ability to substantiate their credibility through marketing endeavours.

For these companies, marketing transcends mere promotion; it encompasses sales, technical support, and a profound comprehension of evolving customer needs, often culminating in co-development initiatives with clients. By engaging in systematic marketing, startup firms furnish discernible signals to potential investors, signalling their commitment to quality.

The implications of this study extend beyond the realm of startups, offering valuable insights for venture capitalists seeking to navigate the intricate landscape of investment opportunities. Nonetheless, the researchers underscored the need for further research to elucidate strategies for encouraging early-stage B2B startups to embrace systematic marketing practices.

In essence, this research serves as a beacon for both startup aspirants and investors alike, shedding light on the pivotal role of marketing in shaping the trajectory of emerging ventures. By leveraging these insights, stakeholders can chart a course towards sustainable growth and value creation in an ever-evolving entrepreneurial landscape.

More information: Ofer Mintz et al, Should B2B start-ups invest in marketing? Industrial Marketing Management. DOI: 10.1016/j.indmarman.2024.01.003

Journal information: Industrial Marketing Management Provided by Penn State

Craft-based firms can authentically convey their identity, but should avoid overt methods to do so

Leave a Reply

Consumers’ strong preference for authenticity, especially in the realm of craft-based firms, is a well-established phenomenon. However, a recent investigation, featured in the Strategic Entrepreneurship Journal, offers a fresh perspective by delving into the unique elements that contribute to the credibility of authenticity within such enterprises.

Authored by Stanislav D. Dobrev from the University of Wisconsin-Milwaukee and J. Cameron Verhaal from Tulane University, the study scrutinises the challenges managers face in identity-centric markets as their businesses expand. Within craft industries, the authors observe that overt assertions of authenticity by producers yield little effect. Dobrev and Verhaal’s examination of the craft beer sector reveals that managers can harness three strategic assets to convey their firm’s identity convincingly: organisational resources, capabilities, and position.

Dobrev highlights the evolution of authenticity assessment, transitioning from a focus on individuals or objects to the realm of organisations. “So we need a theory that explains whether organisations can legitimately claim to be authentic and be perceived as such,” he asserts.

While the study underscores the significance and advantages of authenticity for producers, it also acknowledges the ambiguity surrounding the projection of an authentic identity that resonates with the audience. Contemporary consumers are characterised by a sense of cynicism towards brands, particularly about authenticity claims, which inherently contradict self-promotion. Consequently, the central inquiry revolves around the strategies employed by organisations to establish themselves as authentic entities.

The microbrewery and brewpub industry is one sector where the intertwined concepts of craft and authenticity are particularly prominent. Here, the driving force is the pursuit of beer production for its intrinsic value rather than mere profit generation.

To gather robust insights, the research team employed a rigorous methodology. They utilised data from a reputable website hosting reviews from craft beer enthusiasts. These reviews were then categorised based on authenticity definitions, generating a score for each beer review and subsequently for each brewery over a span of years. This comprehensive approach facilitated an examination of authenticity perceptions over time and enabled statistical analyses to determine predictors of perceived authenticity among consumers.

The study identifies three primary factors contributing to credible claims of authenticity. Firstly, organisational resources encompass the independence of a company’s ownership structure. Many successful craft producers engage in production alliances with larger entities to augment volume, potentially signalling a shift towards profit maximisation. Secondly, capabilities involve the diversity of beer styles produced. A focus on a single capability may imply profit-driven motives, as diversification often aligns with increased profitability. Lastly, position refers to third-party endorsements, where external entities validate the authenticity of a company. For instance, winning awards from independent bodies is an authenticity endorsement, bolstering the company’s credibility.

Dobrev elucidates the theory’s emphasis on three pillars crucial for organisations to maintain authenticity amid growth and success. Firstly, conveying a message consistent with the audience’s perception of authenticity is imperative. Secondly, the facets contributing to a company’s authenticity must be visibly demonstrated, as mere assertions may backfire. Lastly, authenticity claims must be credible, necessitating substantial investments and commitments to bolster credibility.

The study’s findings hold significant implications for managers in craft-based industries, providing a roadmap for navigating the delicate balance between authenticity and expansion. By understanding the nuanced interplay of organisational resources, capabilities, and positioning, managers can effectively cultivate and preserve authenticity in an evolving market landscape.

More information: Stanislav D. Dobrev et al, Organizational authenticity: How craft-based ventures manage authentic identities and audience appeal, Strategic Entrepreneurship Journal. DOI: 10.1002/sej.1496

Journal information: Strategic Entrepreneurship Journal Provided by Strategic Management Society

Recent research indicates that female entrepreneurs achieve greater success with guidance from female mentors

Leave a Reply

Mentorship’s significance in professional and personal development has been widely recognised for some time. However, a pertinent question arises: is it essential for a mentor to physically resemble their mentee? A recent study has delved into this query, uncovering that the gender of a mentor can profoundly influence the success of female entrepreneurs.

Specifically, the research highlighted that female entrepreneurs benefit significantly when mentored by other women. In a detailed randomised controlled experiment, sales for female entrepreneurs increased by an average of 32% when they were under the guidance of female mentors.

The findings of this research have been documented in a paper titled “Breaking the Glass Ceiling: Empowering Female Entrepreneurs Through Female Mentors,” published in the INFORMS peer-reviewed journal Marketing Science. An esteemed group of academics conducted the study: Frank Germann from the University of Notre Dame, Stephen Anderson from Texas A&M University, Pradeep Chintagunta from the University of Chicago, and Naufel Vilcassim from the London School of Economics and Political Science.

The researchers conducted a controlled field experiment involving 930 entrepreneurs in Uganda who were part of a business support program and operated from physical locations. The study spanned from July to August 2015, during which the researchers conducted individual interviews, performed a business audit, and administered a baseline survey. The participating entrepreneurs, 40% female and 54% married, typically were around 31 years old, with two children and at least a high school education.

At the beginning of the study, these businesses had been operational for an average of four years and employed a small workforce. Participants were divided into a control group and a treatment group, with those in the treatment group paired with a mentor with a postgraduate degree and at least five years of work experience. These mentors were based in various global locations.

Further evaluations, including business audits and surveys conducted in May 2017, revealed that female entrepreneurs experienced more positive and supportive interactions when mentored by women. This contrasted with those mentored by men, who did not show significant performance improvement compared to the control group.

The study’s conclusions were clear: Matching female entrepreneurs with female mentors appears to be a very effective strategy for enhancing their success rates. Additionally, the researchers suggested that in situations where female mentors are not available, male mentors could increase their effectiveness by adopting a mentoring style that is characteristically supportive and positive, similar to that typically exhibited by female mentors.

More information: Frank Germann et al, Frontiers: Breaking the Glass Ceiling: Empowering Female Entrepreneurs Through Female Mentors, Marketing Science. DOI: 10.1287/mksc.2023.0108

Journal information: Marketing Science Provided by Institute for Operations Research and the Management Sciences

Startup financing gender gaps are larger in societies with higher levels of women’s empowerment

Leave a Reply

Commercial bankers play a crucial role in providing the capital necessary for business operations and growth. However, a pervasive gender bias results in women more frequently facing rejection than their male peers when they assess entrepreneurs seeking loans.

It is estimated that there is a $1.7 trillion global financing gap for small and medium-sized enterprises owned by women. Research indicates that even when women manage to secure business loans, they often do so for smaller amounts, have higher interest rates, and demand more collateral. This significantly curtails the economic potential of women-led businesses. The relationship between an entrepreneur’s gender and their access to bank financing is complex, showing inconsistent results across studies and underscoring the importance of the social context.

A surprising finding from new research conducted by the University of Notre Dame highlights that gender discrimination in startup financing intensifies in societies where women are more empowered. The study, “A Meta-Analysis of the Impact of Entrepreneurs’ Gender on their Access to Bank Finance,” soon to be published in the Journal of Business Ethics by Dean Shepherd of Notre Dame’s Mendoza College of Business, offers insights into narrowing this gender gap. Shepherd, alongside co-authors Malin Malmström from Lulea University of Technology, Barbara Burkhard and Charlotta Sirén from the University of St. Gallen, and Joakim Wincent from the Hanken School of Economics, drew from academic studies worldwide. Their research incorporated over one million unique data points and spanned over three decades, confirming a sustained global bias against women in entrepreneurial bank finance.

The study’s findings highlight the role of social gender norms in perpetuating gender bias in entrepreneurial bank finance. These norms often portray women as less suitable for entrepreneurial roles, associating masculine attributes with entrepreneurial success more than feminine ones. This leads evaluators to prefer male over female entrepreneurs. Shepherd, who specializes in entrepreneurship in adverse conditions, asserts that both women and men have equal potential for success in entrepreneurship. The challenges women face, therefore, stem from entrenched social norms and biases, not their own shortcomings.

The meta-analysis revealed that women’s business loan applications are more frequently rejected and their loan terms less favourable. It also highlighted significant variability in these outcomes, suggesting the influence of various moderating factors.

Two primary factors were identified as impacting women in entrepreneurial financing. In societies with conservative political ideologies, women entrepreneurs tend to receive worse credit terms compared to their male counterparts due to the upholding of structural gender differences. Furthermore, contrary to expectations, the researchers found that women’s empowerment in a society, which theoretically should dismantle gender norms, threatens male dominance in resource distribution, thereby intensifying protective responses to uphold existing gender norms.

The study’s findings underscore the need for continuous monitoring and intervention by policymakers to address gender bias in entrepreneurial bank finance. The researchers propose three strategic recommendations. Firstly, policymakers should monitor conditions continuously and develop intervention programs that cover various financial avenues such as bank finance, venture capital, governmental programs, and incubator access. Secondly, it is crucial for societies to normalize women’s empowerment, ensuring that women’s advancement is not hindered by prevailing patriarchal structures. This might involve redesigning organizational structures and refining recruitment processes to support women in achieving and sustaining leadership positions. Lastly, the implementation of regulations mandating gender audits in bank lending is crucial. These audits should assess gender equality in financial distributions, services, and project financings.

Dean Shepherd concludes by emphasizing the need for a collective admission of the resistance to women’s empowerment within political, cultural, and managerial spheres as a prerequisite to effectively tackling and dismantling gender inequality in entrepreneurial finance.

More information: Malin Malmström et al, A Meta-Analysis of the Impact of Entrepreneurs’ Gender on their Access to Bank Finance, Journal of Business Ethics. DOI: 10.1007/s10551-023-05542-6

Journal information: Journal of Business Ethics Provided by University of Notre Dame

The enduring wisdom of Sanpo-yoshi for modern businesses

Leave a Reply

There is an increasing focus on corporations’ need to assess their impact on the environment, society, and stakeholders. This broad concern falls under the umbrella of Environmental, Social, and Governance (ESG) criteria, encompassing practices like the use of sustainably sourced materials, reduction of carbon emissions, enhancement of labour practices, cultivation of positive community relationships, and promotion of ethical corporate conduct, including combating anti-competitive actions and corruption.

The concept of ESG first emerged in a 2004 UN report titled “Who Cares Wins.” However, conducting business ethically has deep roots, dating back centuries in Japan. During the 17th to 19th centuries, the Ohmi merchants from Japan’s Shiga Prefecture (formerly Ohmi Province) adhered to a business philosophy known as “Sanpo-yoshi,” translated as “three-way good.” This philosophy advocates for business practices that benefit buyers, sellers, and society. The legacy and business philosophies of the Ohmi merchants are still celebrated in Shiga Prefecture, where museums, breweries, and warehouses stand as testaments to the enduring principles of Sanpo-Yoshi. Despite the similarities between the concepts of Sanpo-yoshi and ESG, more research needs to be conducted to explore the impact of Sanpo-yoshi on a company’s ESG performance.

To fill this significant research gap, a team led by Associate Professor Pengda Fan from Ritsumeikan University in Japan embarked on a groundbreaking study. They explored whether the principles of Sanpo-yoshi influence the ESG performance of Japanese companies. Their findings, which were initially made available online on February 20, 2024, and later published in the Journal of Behavioral and Experimental Finance on March 01, 2024, are set to revolutionise our understanding of the intersection between business ethics and corporate governance.

Dr Fan explained, “Our research aims to highlight the impact of ‘Sanpo-yoshi’ on the ESG performance of Japanese firms and to promote the richness of Japanese culture globally, akin to the international recognition of Confucian culture.”

Corporate policies are typically shaped by top management, including CEOs and corporate executives, whose personal experiences, cultural values, and attitudes influence decisions. The researchers theorised that individuals in top management familiar with Sanpo-yoshi might be more likely to integrate these principles into their firm’s decision-making processes, especially those related to ESG.

The study examined the ESG performance of 467 publicly listed Japanese companies from 2001 to 2018, encompassing 6693 firm-year observations. The ESG performance was assessed using the combined ESG score (ESGC), including the environmental, social, and governance pillars and the ESG controversies scores. This data was then linked with information about the companies’ Boards of Directors and CEOs to investigate the relationship between the executives’ backgrounds and the companies’ ESG performances. The findings indicated that companies with more directors and CEOs connected to Shiga Prefecture showed superior ESG performances. These results were further confirmed through Propensity Score Matching (PSM) and Difference-in-Differences (DID) analyses, which supported the initial findings. The research also considered the influence of the local political environment, the prosocial attitudes of top management, key economic indicators, and female leadership on the relationship between Sanpo-yoshi and a company’s ESG performance, finding that these factors did not alter the primary conclusions and highlighted the positive influence of the Sanpo-yoshi philosophy on ESG scores.

Dr Fan commented, “We introduce a novel stakeholder-centric model that incorporates the ethical principles of Sanpo-yoshi into the essence of corporate governance. Our approach aims to enhance ESG metrics and promote inclusivity, transforming this ancient Japanese philosophy into a universal framework for sustainable and equitable business practices.”

In summary, promoting the values of Sanpo-yoshi can enhance the ESG performance of Japanese companies and help set a global standard for responsible business practices.

More information: Thi Khanh Giang Nguyen et al, Sanpo-yoshi, top management personal values, and ESG performance, Journal of Behavioral and Experimental Finance. DOI: 10.1016/j.jbef.2024.100903

Journal information: Journal of Behavioral and Experimental Finance Provided by Ritsumeikan University

A recent study reveals that domestic corporate misconduct negatively impacts international sales

Leave a Reply

The recent findings, a significant contribution to the Global Strategy Journal, shed light on a pressing issue for businesses-the impact of corporate misconduct on international sales. This research, which delves into the effects of corruption, discrimination, and exploitative practices within supply chains, reveals a tangible negative effect on sales. The global awareness of unethical business behaviours is leading consumers and investors to respond with disapproval in their local markets.

Nuruzzaman Nuruzzaman from the University of Manchester, a contributing author to the study, explains that socially irresponsible actions have far-reaching effects that extend beyond local boundaries, adversely impacting the performance of foreign subsidiaries.

Nuruzzaman conducted the research along with Erin E. Makarius and Debmalya Mukherjee of the University of Akron and Ajai Gaur of Rutgers University. They observed the sales growth of 335 subsidiaries across 109 countries over nine years, correlating these figures with the frequency of reported corporate social irresponsibility (CSI) incidents involving their parent companies. Their findings were clear: sales at subsidiaries suffered regardless of whether the incidents occurred locally or internationally.

Makarius emphasized the scope of their research, noting, “We focused on the global spread of negative news and the reaction of stakeholders to incidents outside their immediate geographic area. Our data suggests that the location of the misconduct is irrelevant; the negative impact remains substantial.”

The study also delved into whether diversionary tactics could alleviate the repercussions of a parent company’s misdemeanours. It compared the effectiveness of marketing campaigns and product innovations. The results showed that while promotions and contests had little effect in mitigating reputational damage, launching two or more innovations in products or services could positively influence sales growth despite ongoing CSI incidents.

Mukherjee commented on the findings, suggesting, “Consumers may see marketing campaigns as insincere, whereas innovation, being more resource-intensive, likely has a more substantial positive effect.”

Although the research confirms that subsidiaries can counteract the adverse effects of negative media coverage regarding their parent company’s actions, the authors stress a broader implication: the potential widespread consequences of CSI. They advise management at parent companies and their international subsidiaries to know that misconduct, even far from where they operate, can swiftly affect their international sales performance.

Gaur concludes with a strong call to action for global corporations, emphasizing the importance of maintaining high ethical and social responsibility standards across all operations. He also highlights the need for open communication with subsidiaries to swiftly address and mitigate the effects of socially irresponsible behaviours, further reinforcing the issue’s urgency.

More information: N. Nuruzzaman et al, MNCs’ corporate social irresponsibility and foreign subsidiary performance, Global Strategy Journal. DOI: 10.1002/gsj.1502

Journal information: Global Strategy Journal Provided by Strategic Management Society

Optimal practices in new product development: what distinguishes the best from the rest?

Leave a Reply

“I believe that fundamentally, we should perceive innovation as the capability to learn and observe ongoing developments. If we cease this, it’s akin to growing old. And we all know the consequences of aging, right?” remarks Max von Zedtwitz, a professor at the School of Economics and Business at Kaunas University of Technology, Lithuania, and a co-author of the study, while discussing the findings of the PDMA survey.

The 2021 Global Best Practices Research by the Product Development & Management Association (PDMA) is the fifth instalment of the PDMA Best Practice studies (BP5). Initiated in 1990, the survey’s latest edition, in 2012, boasts the most global representation, with 62% of the 651 respondents based in Europe and the UK and a mere 6% (39 individuals) from North America.

The criteria distinguishing the best companies from the rest were established in 1997. Although these criteria focus primarily on new product development and market success, the researchers contend that the definition of the best companies is expansive, covering all business types and measuring success in broader terms.

“The survey broadly addresses product development: it includes consulting firms, banks, travel agencies, tech companies, and more. We inquire if these companies meet their financial goals, revenue targets, and product development objectives. Are they performing better than others? Thus, if a company qualifies as the Best according to PDMA standards, it is not only financially profitable but also competitive. Essentially, these companies excel in their expectations regarding products and programs. Simply put, these are the best companies,” states Von Zedtwitz.

Benchmark studies such as PDMA’s serve to refine practices universally. Hence, one of the key takeaways for practitioners is that evolving new product development capabilities is essential for any company wishing to remain competitive as circumstances and environments shift.

Conducted during the pandemic, the fifth edition of the PDMA’s global survey incorporated queries about how companies tackled the challenges posed by COVID-19. Were their strategies unchanged, reduced, or differently approached? The survey disclosed that despite the crisis, Best continued to invest in new product development, increasing manpower, budgets, and overall investments, whereas the rest adopted a more defensive strategy.

“The Best were unanimous in intensifying their investment in product development rather than scaling back; they adopted a more assertive approach. On the other hand, the rest either maintained their status quo or planned to reduce investments to bolster financial reserves in case of market declines or significant revenue drops,” explains von Zedtwitz.

In BP5, 213 companies were classified as the Best (32.3%) and 416 as the rest (67.7%). However, similar to previous PDMA Best Practice studies, BP5 did not identify a unique practice that distinctly separated the two groups.

“To be honest, we were also somewhat disappointed that we did not identify a single factor. Perhaps the most notable difference between the Best and the rest was the speed at which the Best companies developed new products. They are significantly faster. However, this isn’t necessarily a skill per se, but rather a result of adeptly managing various elements simultaneously,” mentions von Zedtwitz, a KTU School of Economics and Business professor.

The survey’s paper highlights new product development capabilities and practices where the Best Companies excel. For instance, they emphasize radical over incremental innovation (the study shows that companies with radical innovations comprising 21%–50% of their total innovation projects are likely to be among the Best). Regarding portfolio execution, the Best focuses more on penetrating new markets, applying new technologies, taking more significant risks, and adopting a more long-term outlook.

“Compared to previous “studies, it became more apparent this time that Best companies manage their new product portfolios more effectively,” adds von Zedtwitz.

“Overall, Best adopts more innovation-oriented strategies, reflected in their higher proportion of radical innovation projects. However, Best concentrates more on radical innovation and invests more in innovation projects.

Innovation is synonymous with progress, competitive capability, and economic growth today. Yet, to better understand companies’ approaches to new products and services, it’s crucial to differentiate between radical and incremental innovation.

According to von Zedtwitz, also the Director of GLORAD Center for Global R&D and Innovation, the distinction between radical and incremental innovation resulting from product development is evident from the customer’s perspective. Innovation involves minimal changes from the customer’s viewpoint: customer or service remains essentially the same in appearance and function, with only slight improvements. An example might be transitioning from one smartphone model to the next, where the new model might be slightly larger, have more memory, and perform marginally better. Conversely, radical innovation often entails a significant transformation in the product-customer interaction.

“For instance, switching from an old-style cell phone to a smartphone represents a radical

Introducing a new medication or therapy that treats a previously incurable disease would be a radical innovation. Engaging in fundamentally different activities or using things in fundamentally different ways typically characterizes radical innovation,” elucidates von Zedtwitz.

He notes that companies are invariably driven to innovate in a free market—to do things differently to stay competitive. If the environment is constantly changing, companies must adapt and avoid becoming complacent.

“One of the gradual changes we all attempt to adapt to is climate change. Today, it’s difficult to enviit’s a company that ignores this issue. The COVID-19 pandemic demonstrated the capacity of companies to respond swiftly to more immediate changes. In the survey, we see how this ability is crucial in distinguishing the Best from the rest,” concludes von Zedtwitz.

More information: Mette Praest Knudsen et al, Best practices in new product development and innovation: Results from PDMA’s 2021 global survey, Journal of Product Innovation Management. DOI: 10.1111/jpim.12663

Journal information: Journal of Product Innovation Management Provided by Kaunas University of Technology

A recent study unveils the punitive repercussions faced by companies that neglect climate risks within their operational strategies

Leave a Reply

The University of Florida’s groundbreaking investigation, which meticulously quantified the exposure of corporations to climate change risks, is a significant contribution to the field. It encompasses threats such as hurricanes, wildfires, and climate-related regulations and delves into the profound impact of these risks on market valuations. The study’s key finding – companies that actively manage climate risks outperform those that disregard them-is a crucial insight for investors, corporate executives, financial analysts, and policymakers.

By analysing earnings call transcripts from nearly 5,000 publicly traded companies in the United States, researchers devised innovative metrics to gauge firms’ susceptibility to physical climate risks stemming from extreme weather events and the “transition risks” associated with the global transition towards a low-carbon economy. These transition risks encompass challenges such as adapting to renewable energy sources and reducing carbon emissions. The study uncovered that companies facing significant transition risks, such as regulatory changes impacting emissions, often face devaluation by investors.

Qing Li, Clinical Assistant Professor at the University of Florida Warrington College of Business, elaborated on the shifting landscape of investor attention towards climate change. Li stated, “In recent years, overall investor attention to climate change has increased,” noting that companies heavily exposed to transition risks tend to incur market penalties.

However, this valuation penalty does not extend to companies actively engaged in adapting their business models to mitigate climate impacts. Such proactive firms demonstrate a commitment to sustainability through increased investments in green technologies and sustainable practices. These proactive measures shield them from market devaluation even amidst intensifying transition risks.

Conversely, companies adopting a passive stance towards transition risks often resort to drastic measures such as slashing research and development (R&D) budgets and downsizing when confronted with heightened climate exposure. This reactive approach poses a potential threat to their long-term competitiveness.

Researcher Yuehua Tang, Emerson-Merrill Lynch Associate Professor, highlighted the stark disparity in outcomes between proactive and nonproactive firms. Tang observed, “The divide in strategies and outcomes between proactive and nonproactive firms is quite stark,” emphasising that companies that are transparent about their climate vulnerabilities and proactive in mitigating risks tend to garner favour with markets.

These findings emerge against a backdrop of mounting pressure from investors, regulators, and activists for companies to disclose climate risks publicly. The introduction of new regulations by the Securities and Exchange Commission (SEC) in 2024, mandating public corporations to report climate change impacts and, in some instances, their greenhouse gas emissions, underscores the increasing importance of climate risk management in the business landscape. This regulatory context is crucial for investors, corporate executives, financial analysts, and policymakers to be aware of and prepared for.

While adapting to physical and transitional climate risks incurs business costs, the study led by Li, Tang, Hongyu Shan from the China Europe International Business School, and Vincent Yao from Georgia State University indicates that proactive efforts could potentially enhance valuations and resilience. This finding offers a glimmer of hope, suggesting that companies cannot only survive but thrive in a rapidly evolving market environment by embracing proactive climate risk management. Investors are increasingly factoring climate threats into their investment decisions, amplifying the importance of these efforts.

More information: Qing Li et al, Corporate Climate Risk: Measurements and Responses, Review of Financial Studies. DOI: 10.1093/rfs/hhad094

Journal information: Review of Financial Studies Provided by University of Florida

Should we retire the best-before date?

Leave a Reply

A group of inventors has developed a series of tests that can be integrated into food packaging to indicate contamination, as discussed in their recent publication in Nature Reviews Bioengineering. These tests are designed to be cost-effective, adding only a few cents to each package, yet they face resistance from food producers wary of passing additional costs onto consumers. The tests form part of a proposed intelligent packaging system that, according to McMaster University researchers, could significantly mitigate the financial and reputational damages typically associated with foodborne illness outbreaks and drastically cut down on food waste.

The proposed technology holds immense potential to save the global economy hundreds of billions of dollars annually. By reducing the need for large-scale recalls, minimizing healthcare and associated costs from foodborne illnesses, and decreasing the amount of food unnecessarily discarded due to conservative expiration dates, it could revolutionize the food industry. Despite these compelling benefits, the implementation of such smart packaging would necessitate extensive changes to existing food regulations and packaging practices, changes that might encounter substantial resistance.

Tohid Didar, the paper’s lead author and a biomedical engineer and entrepreneur, emphasized the dilemma consumers face: the desire for safer food versus the reluctance to pay higher prices amidst already rising food costs. The paper argues for initiating dialogues among researchers, policymakers, corporations, and consumers to explore viable solutions to these challenges. While public agencies acknowledge the potential of this new technology and are keen to deploy it, the transition requires a comprehensive overhaul of current practices.

The researchers also critique the current practice of using ‘best before’ dates on perishable foods, which they claim is arbitrary and leads to significant food wastage. In Canada alone, approximately $40 billion worth of food is wasted each year, a figure that outstrips per capita food waste in the US and the UK. However, with the implementation of intelligent food packaging technology, this wastage could be significantly reduced, offering a glimmer of hope in the fight against food scarcity and the disposal of unused food and packaging.

Since 2018, the McMaster team has developed and validated various methods for detecting spoilage through packaging. These include Sentinel Wrap, a plastic wrap that changes colour when the food product inside spoils; a handheld device that provides real-time spoilage results; and Lab-on-a-package, a tiny, integrated test that signals when food has gone wrong. Additionally, they have created a sprayable, food-safe gel containing bacteriophages that target and eliminate bacteria responsible for food contamination.

Despite the proven efficacy of these innovations, transitioning from the lab to the market has presented challenges. However, the researchers are not alone in this journey. They are actively collaborating with industry partners and regulatory bodies, such as the Canadian Food Inspection Agency, to navigate these challenges and facilitate the adoption of these technologies. This collaborative approach ensures that the technology is developed and implemented in a way that benefits all stakeholders.

The shift from a calendar-based to a detection-based system for managing food freshness and safety represents a significant endeavour. Nonetheless, the paper’s authors are optimistic about the widespread benefits of such a shift, asserting that it is time to modernize our technology to reflect current capabilities in food safety management better.

More information: Shadman Khan et al, Smart food packaging commercialization, Nature Reviews Bioengineering. DOI: 10.1038/s44222-024-00190-5

Journal information: Nature Reviews Bioengineering Provided by McMaster University